6-K 1 t302020.txt REPORT OF FOREIGN ISSUER FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of August 2005 ----------- Commission file number: 1-13750 ------- Jilin Chemical Industrial Company Limited ----------------------------------------- (Translation of registrant's name into English) No.9, Longtan Street Longtan District Jilin City, Jilin Province The People's Republic of China ------------------------------ (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F |X| Form 40-F |_| Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): |_| Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): |_| Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes |_| No |X| If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- Not Applicable ------------------ Page 1 of 90 JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED Form 6-K TABLE OF CONTENTS Page ---- Signature 3 2005 interim report 4 Page 2 of 90 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED Date: August 23, 2005 By: /s/ Yu Li ------------------------------------- Name: Yu Li Title: Chairman Page 3 of 90 CONTENTS IMPORTANT NOTICE The board of directors (the "Board") of Jilin Chemical Industrial Company Limited (the "Company") collectively and individually accept full responsibility for the authenticity, accuracy and completeness of the information contained in this interim report and believe that there are no misrepresentations or misleading statements in or material omissions from this interim report. The Company's financial statements for the first six months of 2005 prepared under the People's Republic of China (the "PRC") Generally Accepted Accounting Principles ("GAAP") and International Financial Reporting Standards ("IFRS") are unaudited. Mr. Ni Muhua, Mr. Jiang Jixiang, Mr. Li Chongjie and Ms. Fanny Li, the directors of the Company, did not attend the board meeting. Mr. Ni Muhua, Mr. Jiang Jixiang and Mr. Li Chongjie appointed Mr. Yu Li, the chairman of the Board and Ms. Fanny Li, an independent non-executive director, appointed Mr. Lu Yanfeng, an independent non-executive director, to attend and vote on their behalves in respect of the resolutions considered at the meeting. Mr. Yu Li, the chairman, Ms. Zhang Liyan, the chief financial officer and Ms. Wang Chunxia, the head of the finance department, accept full responsibility for the truthfulness and completeness of the financial statements contained in this interim report. PAGES COMPANY PROFILE 2 CHANGES IN SHARE CAPITAL STRUCTURE AND MAJOR SHAREHOLDERS 5 DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT 7 MANAGEMENT DISCUSSION AND ANALYSIS 8 REVIEW OF SIGNIFICANT EVENTS 14 FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (UNAUDITED) - Consolidated Interim Condensed Profit and Loss Account 17 - Consolidated Interim Condensed Balance Sheet 18 - Consolidated Interim Condensed Cash Flow Statement 19 - Consolidated Interim Condensed Statement of Changes in Shareholders' Equity 20 - Notes to the Consolidated Interim Condensed Financial Statements 21 PREPARED UNDER PRC GAAP (UNAUDITED) - Consolidated and Company Balance Sheets 38 - Consolidated and Company Profit and Loss Accounts 40 - Consolidated and Company Profit Appropriation Statements 41 - Consolidated and Company Cash Flow Statements 42 - Notes to the Financial Statements 45 SUPPLEMENTARY INFORMATION - Significant Differences between PRC GAAP and IFRS 80 - Significant Differences between IFRS and US GAAP 82 - Asset Impairment Provision 85 DOCUMENTS AVAILABLE FOR INSPECTION AND ADDRESS FOR INSPECTION OF DOCUMENTS 86 Page 4 of 90 COMPANY PROFILE CHINESE NAME : [CHINESE CHARACTERS] ENGLISH NAME : JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED ABBREVIATION : [CHINESE CHARACTERS] INITIALS : JCIC REGISTERED ADDRESS : No. 9, Longtan Street, Longtan District, Jilin City, Jilin Province, PRC POSTAL CODE : 132021 WEBSITE : http://www.jcic.com.cn E-MAIL OF THE COMPANY : jcic@jcic.com.cn LEGAL REPRESENTATIVE : Yu Li COMPANY SECRETARY : Zhang Liyan CONTACT ADDRESS : No. 9, Longtan Street, Longtan District, Jilin City, Jilin Province, PRC TELEPHONE NUMBER : (86432) 3903651/3903652 FACSIMILE NUMBER : (86432) 3028126 E-MAIL : zly@jcic.com.cn NEWSPAPERS DESIGNATED : China Securities, Securities Times; BY THE COMPANY FOR Wen Wei Po, The Standard INFORMATION DISCLOSURE INTERNET WEBSITE DESIGNATED : http://www.cninfo.com.cn BY THE CHINA SECURITIES REGULATORY COMMISSION ("CSRC") FOR THE COMPANY TO DISCLOSE ITS INTERIM REPORT INTERNET WEBSITE DESIGNATED : http://www.hkex.com.hk BY THE HONG KONG STOCK EXCHANGE ADDRESS FOR INSPECTION OF : Jilin Chemical Industrial Company Limited THE COMPANY'S INTERIM REPORT The Secretary's Office to the Board of Directors Hong Kong : Fortune China Public Relations Ltd. Suite 2003-5 Vicwood Plaza 199 Des Voeux Road Central, Hong Kong STOCK EXCHANGES LISTINGS : A shares : Shenzhen Stock Exchange Abbreviation : Jilin Chemical Stock Code : 000618 H shares : Hong Kong Stock Exchange Abbreviation : Jilin Chemical Stock Code : 0368 ADR : New York Stock Exchange Stock Code : JCC Ratio : 1ADR=100H shares Page 5 of 90 OTHER INFORMATION BUSINESS REGISTRATION NUMBER : 2200001000906 TAXATION REGISTRATION NUMBER : Ji Shi Guo Shui: 220203123975078 Ji Di Shui: 220203123975078 DOMESTIC AUDITOR : PricewaterhouseCoopers Zhong Tian CPAs Company Limited Registered Accountants in the PRC 11th Floor, PricewaterhouseCoopers Center, 202 Hu Bin Road, Shanghai, PRC INTERNATIONAL AUDITOR : PricewaterhouseCoopers Certified Public Accountants in Hong Kong 22nd Floor, Prince's Building, Central, Hong Kong FINANCIAL SUMMARY PREPARED IN ACCORDANCE WITH PRC GAAP

NOTE: Non-operating loss was RMB1,928,084, of which net profit from disposal of fix assets was RMB4,638,282, reversal of assets impairment provision was RMB900,104, subsidy income was RMB2,683,084, other profits were RMB1,170,067, loss on non-seasonal shutdown was RMB12,269,275 and net income tax credit was RMB949,654. Page 6 of 90 PREPARED IN ACCORDANCE WITH IFRS

SIGNIFICANT DIFFERENCES OF NET PROFIT AND PROFIT BETWEEN PRC GAAP AND IFRS During the reporting period, net profit and profit under PRC GAAP and IFRS were RMB123,957 thousand and RMB135,030 thousand, respectively. The significant differences between PRC GAAP and IFRS are set out in the 'Supplementary Information' section in this interim report. Return on net assets and profit per share were prepared in accordance with No. 9 Regulations regarding the Preparation of Information Announcement for Public Listed Companies Issued by CSRC:

CHANGES IN SHARE CAPITAL STRUCTURE AND MAJOR SHAREHOLDERS CHANGES IN SHARE CAPITAL STRUCTURE During the reporting period, there was no change in the Company's share capital structure. TOTAL NUMBER OF SHAREHOLDERS As at 30th June, 2005, the Company had a total of 66,753 shareholders. Page 7 of 90 MAJOR SHAREHOLDERS 1. As at 30th June, 2005, the ten largest shareholders of the Company were as follows:

NOTES: 1. As far as the Company is aware, none of the ten largest shareholders of the Company is connected to or act in concert with each other. 2. PetroChina Company Limited ("PetroChina") held 2,396,300,000 state-owned legal person shares issued by the Company, representing approximately 67.29 per cent of the Company's total share capital. Shares held by PetroChina in the Company were not pledged, locked up or held in trust during the six months ended 30th June, 2005. 3. There was no shareholder for whom HKSCC Nominees Limited acted as nominees and whose shareholding accounted for 5 per cent or more of the total number of shares issued by the Company. 2. As at 30th June, 2005, the ten largest shareholders of listed shares of the Company were set out as follows: Page 8 of 90

NOTE: None of the ten largest shareholders of listed shares of the Company was found to be connected to or act in concert with each other as defined under the "Administration Rules for Disclosure of Changes in the Shareholdings of the Shareholders of Listed Companies" found. The Company is not aware that the ten largest shareholders of listed shares of the Company and the ten largest shareholders are connected to or act in concert with each other . 3. INTERESTS AND SHORT POSITIONS OF MAJOR SHAREHOLDERS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY Save as set out below, as at 30 June 2005, there was no other person (other than the directors, chief executive or supervisors of the Company) who was recorded in the register required to be kept under Section 336 of the SFO as having an interest or short position in the shares or underlying shares of the Company: INTEREST IN ORDINARY SHARES OF THE COMPANY

Page 9 of 90 DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT SHARES HELD BY THE DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT 1. As at 30th June, 2005, each of Mr. Shi Jianxun and Mr. Ni Muhua, the directors, and Mr. Zou Haifeng, the supervisor, held 3,550 shares in the Company, respectively; Mr. Li Shumin, the supervisor, held 7,000 shares in the Company; and none of the other directors, supervisors and senior management held any shares in the Company. 2. INTERESTS AND SHORT POSITIONS OF DIRECTORS AND SUPERVISORS IN SHARES, UNDERLYING SHARES AND DEBENTURES Save as set out above, as at 30th June, 2005, none of the directors or supervisors had any interests or short positions in any shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance of Hong Kong (the "SFO") as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") set out in Appendix 10 of the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules"). None of the directors, supervisors and senior management (including their spouse and children under 18 years of age) has been granted or has exercised any rights to subscribe for shares or any underlying shares (or warrants or debentures, if applicable) of the Company. 3. AUDIT COMMITTEE The audit committee and the management of the Company have reviewed the accounting principles, accounting standards and discussed matters relating to auditing, internal supervising and financial reporting, including the unaudited interim report for the six-month period ended 30th June, 2005. APPOINTMENT AND REMOVAL OF DIRECTORS AND SENIOR MANAGEMENT Mr. Zhang Xingfu, a director of the Company, was appointed as the general manager of the Company by the Board on 27th June, 2005. The extraordinary general meeting of the Company was held on 12th August, 2005, at which Ms. Yang Dongyan, Mr. Xiang Ze and Mr. Li Chongjie were elected and appointed as directors of the Company, and Mr. Wang Jianrong and Mr. Xue Feng were elected and appointed as supervisors of the Company (shareholders' representative). Mr. Bai Xuefeng was elected by the Company's employees as a supervisor of the Company (employees' representative). Ms. Yang Dongyan was elected as the deputy chairman of the Board and Mr. Zhang Xinfu was appointed as an authorized representative of the Company on 12th August, 2005. MANAGEMENT DISCUSSION AND ANALYSIS PRODUCTION AND OPERATION DURING THE REPORTING PERIOD 1. OVERALL OPERATION The Group is principally engaged in the production and sale of petroleum products, petrochemical, organic chemical and synthetic rubber products. During the first half of 2005, the Company implemented a strategy of vertical integration in refinery to improve and adjust its overall product mix; closely monitored the development of product market and took full advantage of any price movement of products so as to adjust its product sales strategy in a timely manner; continued to improve efficiency, save energy and reduce wastage for the purpose of imposing stringent control on costs and expenses; continued to improve internal control to enhance capital management and increase efficiency in the use of capital. Page 10 of 90 For the first half of 2005, the sales revenue and sales of the Company and its subsidiaries (together "the Group") amounted to RMB16,122.195 million and RMB17,992.634 million, respectively, under PRC GAAP and IFRS, representing the increase of 28% and 31% from the same period in 2004. The continuing substantial increase in the price of crude oil drove the price of refined oil to move upward, which unfortunately failed to offset any impacts caused by price rise in crude oil. Actual realized net profits and profits of the Company were RMB123.957 million and RMB135.030 million, respectively, down by 80% and 77% as compared to the corresponding period in 2004. 2. OPERATING REVENUES AND PROFITS FROM PRINCIPAL BUSINESS ACTIVITIES For the first half of 2005, in accordance with PRC GAAP, actual realized revenue from the sale of the Group's petroleum products was RMB7,589.622 million, which accounted for 47% of the revenue from principal business activities and the requisite cost of sales was RMB8,519.813 million, with a gross profit margin of -12%; actual realized revenue from the sale of petrochemical and organic chemical products was RMB7,315.044 million, which accounted for 45% of the revenue from principal business activities and the requisite cost of sales was RMB5,544.427 million , with a gross profit margin of 24%; actual realized revenue from the sale of synthetic rubber products was RMB878.241 million, which accounted for 5% of the revenue from principal business activities and the requisite cost of sales was RMB706.814 million, with a gross profit margin of 20%. 3. The Company conducts its principal business in the PRC and does not engage in any other industry other than the petrochemical industry. During the reporting period, there was no change in the Company's principal business, nor was the Company engaged in any other business which had material impact on its net profits during such reporting period. 4. During the reporting period, no jointly-invested company had an impact of more than 10% on the net profits of the Company. 5. PROBLEMS AND DIFFICULTIES IN THE OPERATION OF THE COMPANY For the first half of 2005, the continuing substantial increase in the price of crude oil drove the price of refined oil to move upward, which unfortunately failed to offset any impacts caused by price rise in crude oil. As a result, the Group recorded a loss from the sale of its petroleum products, thereby adversely affecting the overall performance of the Company. For the first half of 2005, net profits of the Company decreased by 80% as compared to the same period in 2004. OPERATING RESULTS AND FINANCIAL RESULTS ANALYSIS I. UNDER PRC GAAP 1. For the six months ended 30th June 2005, revenue realized from the principal business of the Group was RMB16,122.195 million, an increase of 28% from the same period in 2004. This increase was principally attributable to an increase in the total number of products of the Group, such as petroleum products, petrochemical, organic chemical and synthetic rubber products, and the increase in their price. (1) PETROLEUM PRODUCTS In the first half of 2005, revenue from the sale of petroleum products was RMB7,589.622 million, an increase of RMB1,157.868 million from the same period in 2004. The increase was primarily attributable to an increase in the volume of the Group's crude oil processing by 16% from last year to 3.5 million tons in the first half of 2005. In addition, the weighted average price of petroleum products grew by 16% from RMB2,416/ton in the first half of 2004 to RMB2,798/ton in the first half of 2005. (2) PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS In the first half of 2005, revenue realized from the sale of petrochemical and organic chemical products was RMB7,315.044 million, representing an increase of RMB2,252.693 million from the same period in 2004. This increase was principally attributable to an increase in the demand of petrochemicals from enterprises engaged in the downstream segment of the petrochemical industry, which has resulted in the sales volume and weighted average price of such products increasing by 16% and 25%, respectively, from the same period in 2004 to 1.07 million tons and RMB6,841/ton. Page 11 of 90 (3) SYNTHETIC RUBBER PRODUCTS In the first half of 2005, revenue realized from the sale of synthetic rubber products was RMB878.241 million, an increase of RMB154.964 million from the same period in 2004. The increase was principally attributable to an increase in the weighted average price of such products by 24% from the same period in 2004. 2. The cost of principal business increased by 38% to RMB15,123.413 million in the first half of 2005 from RMB10,955.477 million in the first half of 2004. This increase was principally attributable to a growth in the sales volume of the Company's products and the volume of crude oil processing, as well as an increase in the price of other raw materials. In the first half of 2005, the weighted average price of the Group's crude oil cost was RMB3,016/ton, which represented an increase of 47% as compared to the same period in 2004. The cost of sales grew due to the continuing substantial increase in the price of crude oil. Therefore, profits of the Group from its principal business dropped by 52% as compared to the same period in 2004. 3. Financial cost, administrative and operating costs decreased by 35% from RMB548.128 million in the first half of 2004 to RMB357.736 million in the first half of 2005, of which, the financial cost decreased by RMB67.410 million from the same period in 2004. This decrease was primarily due to a reduction in the Group's interest bearing borrowings and the replacement of the Company's high-interest bearing loans with low-interest bearing loans. As a result, interest expenses decreased by RMB58.083 million. The Group realized a net exchange gain of RMB12.197 million due to its foreign currency borrowing being affected by the interest rate fluctuation. Administrative expenses decreased from RMB382.719 million in the first half of 2004 to RMB267.197 million in the first half of 2005. This decrease was principally due to the provision of RMB76.870 million made for the decrease in inventory price and the provision of RMB22.533 million made for bad debts in the same period in 2004 which were not made during the current reporting period. In the first half of 2005, the Group recorded a loss from other business activities and its profits from operation fell by RMB57,733 million. Due to the above factors, the Group's profits from its operation decreased from RMB647.149 million in the first half of 2004 to RMB174.272 million in the first half of 2005. 4. Compared to the first half of 2004, the Group's return from investment decreased by RMB2.166 million in the first half of 2005 due to a reduction of the Group's share of profits of its jointly controlled entity. The decrease of RMB56.186 million in non-operating expenses of the Group was principally attributable to no substantial loss incurred in the disposal of fixed assets during the reporting period. In addition, revenue from subsidies and non-operating revenue increased by RMB8.199 million. Based on the aforesaid, the Group's total profits decreased from RMB592.302 million in the first half of 2004 to RMB181.643 million in the first half of 2005. In the first half of 2005, the income tax of the Group amounted to RMB51.192 million, which consists of the deferred tax liabilities arising from the acceleration of depreciation and amortization, and the deferred tax assets resulting from taxation loss in the first half of 2005. In the same period in 2004, the Company did not make up in full its accumulated loss for 2002 and the previous years in accordance with applicable taxation laws and no deferred tax assets in respect of such taxation loss had been confirmed. Therefore, there was no income tax in the same period in 2004. In addition, the minority interest of the Group was RMB6.494 million during the reporting period. After deducting the above, the Group recorded a net profit of RMB123.957 million in the first half of 2005. Page 12 of 90 5. Net increase in cash and cash equivalents amounted to RMB25.671 million in the first half of 2005, and net decrease in cash and cash equivalents amounted to RMB19.221 million in the same period of 2004. This change was primarily attributable to the improvement of capital management and an increase in the turnover of capital of the Company. 6. As at 30th June, 2005, the total assets of the Group was RMB12,717.874 million, representing a decrease of 12% as compared to the percentage as at 31st December, 2004. This decrease was principally attributable to a decrease in inventories and an increase in accumulated depreciation. 7. As at 30th June, 2005, the shareholder's equity of the Group was RMB5,977.581 million, representing an increase of 2% from 31st December, 2004. This increase was primarily attributable to an increase in net profits during the reporting period. II. UNDER IFRS 1. In the first half of 2005, total turnover of the Group was RMB17,992.634 million, up 31% from the same period in 2004. This increase was primarily attributable to an increase in market demand, thus resulting in the simultaneous increase in the Group's sales volume and the weighted average price of its products. (1) PETROLEUM PRODUCTS Revenue of petroleum products increased by 17% from RMB6,212.553 million in the first half of 2004 to RMB7,263.050 million in the first half of 2005, which accounted for 40% of its total turnover attributable to petroleum products. The increase in revenue was principally attributable to an increase of weighted average price and sales volume of petroleum products by 16% and 2%, respectively, from the same period in 2004. (2) PETROCHEMICAL AND ORGANIC CHEMICAL PRODUCTS Revenues of petrochemical and organic chemical products increased by 45% from RMB5,493.959 million in the first half of 2004 to RMB7,943.724 million in the first half of 2005, which accounted for 44 % of the total turnover attributable to such products. This increase was principally attributable to an increase in market demand which has caused an increase of weighted average price and sales volume of petrochemical and organic chemical products by 25% and 16%, respectively, from the same period in 2004. (3) SYNTHETIC RUBBER PRODUCTS Revenue of synthetic rubber products increased by 27% from RMB800.349 million in the first half of 2004 to RMB1,017.254 million in the first half of 2005. This increase was mainly attributable to an increase in the price of such products by 24% from the same period in 2004. Page 13 of 90 2. Cost and expenditure The cost of sales increased by 39% from RMB12,615.949 million in the first half of 2004 to RMB17,508.817 million in the first half of 2005. This increase was primarily attributable to an increase in the sales volume of the Company's products, volume of crude oil processing and the price of other raw materials. In the first half of 2005, the weighted average price of the Group's crude oil cost was RMB3,016/ton, which represented an increase of 47% from the same period in 2004, and the volume of crude oil processing was 3.5 million tons, which represented an increase of 16% from the same period in 2004. The Group's gross profit margin decreased by 5% in the first half of 2005 as compared to the same period in 2004 due to an increase in cost of sales in connection with the continuous surge in crude oil price. Distribution costs, administrative expenses and other operating expenses dropped by 40% from RMB384.770 million in the first half of 2004 to RMB230.143 million in the first half of 2005. This decrease was primarily attributable to the provisions made for diminution in value of trade and other receivables, construction in progress and intangible assets made in the first half of 2004 which were not made during the reporting period, a net loss of RMB34.158 million incurred from the retirement of fixed assets in the first half of 2004 and a net profit of RMB4.638 million so incurred during the reporting period. Due to the aforesaid factors, the Group's operating profit decreased from RMB729.256 million in the first half of 2004 to RMB253.674 million in the first half of 2005. Interest expenses decreased by 38% from RMB152.934 million in the first half of 2004 to RMB94.851 million in the first half of 2005. The decrease was principally attributable to a reduction in the Group's interest bearing borrowings and the replacement of high-interest bearing loans with low-interest bearing loans during the reporting period. In the first half of 2005, the Group recorded a net foreign exchange gain of RMB12.197 million, which increased by RMB9.1 million from the same period in 2004. This increase was mainly attributable to the foreign exchange rate fluctuation in favour of the Company's foreign currency borrowing during the reporting period. In the first half of 2005, the Group's shares of profit before taxation of its jointly controlled entity and associate stood at RMB11.396 million, as compared to RMB13.564 million in the first half of 2004. This change was primarily caused by a decrease of profit of its jointly controlled entity and associate during the reporting period. In the first half of 2005, the income tax of the Group amounted to RMB48.209 million, which consists of the deferred tax liabilities arising from the acceleration of depreciation and amortization, and the deferred tax assets resulting from taxation loss in the first half of 2005. In the same period in 2004, the Company did not make up in full its accumulated loss for 2002 and the previous years in accordance with applicable taxation laws and no deferred tax assets in respect of such taxation loss had been confirmed. Therefore, there was no income tax in the same period in 2004. Page 14 of 90 3. Liquidity and Capital Resources The Company depends upon cash flow from operations and loans to satisfy its ongoing liquidity and capital needs. Net cash flows from the Group's operating activities in the first half of 2005 was RMB2,059.624 million, as compared to RMB1,295.921 million in the first half of 2004. The increase of net cash inflows was primarily due to a decrease in inventories during the reporting period. Net cash used in investing activities in the first half of 2005 was RMB40.426 million, as compared to RMB195.203 million in the first half of 2004. This decrease was due to a decrease in capital expenditure during the reporting period. Net cash used in financing activities in the first half of 2005 was RMB1,993.527 million, as compared to RMB1,119.939 million in the first half of 2004. The change was due to a decrease in proceeds obtained from borrowings during the reporting period. As at 30th June, 2005, the Group's current assets amounted to RMB2,198.547 million and the current liabilities amounted to RMB5,999.173 million, which caused a negative working capital of RMB3,800.626 million. The Group regularly reviews its working capital and liquidity position and ensures the short term obligations of the Group are satisfied through the refinancing of indebtedness and other measures. China Petroleum Finance Company Limited, a subsidiary of our ultimate beneficial shareholder, has agreed to extend the term of a RMB8 billion loan facility provided to the Group up to 31st December, 2008. The Company believes that it has sufficient capital resources to meet its foreseeable working capital needs. As at 30th June, 2005, the Group's capital liabilities ratio was 12% as compared to 15% as at 31st December, 2004 (the capital liabilities ratio is calculated by dividing the long-term liabilities by the aggregate of shareholders' equity and long-term liabilities). As at 30th June, 2005, the Group's liquidity ratio was 37% and its quick ratio was 12%; inventory ratio was 7.66 times, an increase of 0.45 times as compared to the same period in 2004. As at 30th June, 2005, the Group's aggregate borrowings were RMB1,988.563 million, a decrease of RMB1,993.527 million as compared to the figure as at 31st December, 2004, of which short-term borrowings was RMB1,268.212 million, representing a decrease of RMB1,817.863 million as compared to the level of short-term borrowings as at 31st December, 2004. Long-term borrowings were RMB720.351 million, representing a decrease of RMB175.664 million as compared to the same type of borrowings as at 31st December, 2004. These changes reflected an increase in the repayment amounts of the Group during the first half of 2005 which in turn led to a decrease in liabilities ratio. The Group does not have seasonal demands for capital. 4. Exchange Risk On 30th June, 2005, the Group's short-term borrowings were denominated in Renminbi and the portion of long-term borrowings denominated in foreign currency that was translated into RMB968.803 million was mainly a foreign currency-denominated loan for the 300,000-ton ethylene facility project. Foreign currency-denominated loans are mainly taken out in United States Dollar, Japanese Yen and Euro Dollar. The Group also experiences foreign exchange risk in making payments related to the import of raw materials and machinery, which needs to be converted into the applicable foreign currency from Renminbi. In addition, dividends for H shares are also payable in foreign currency. Hence, any fluctuation in foreign exchange rates will have a significant impact on the Group. In the first half of 2005, the Group had a net foreign exchange gain of RMB12.197 million. Page 15 of 90 5. Employees As at 30th June, 2005, the Company had a total of 20,187 employees. The aggregate remuneration paid to them was RMB378.110 million. 6. Charges of Assets The Group has not created any charges on any of its principal assets as at 30th June, 2005. 7. Contingent Liabilities The Group did not have any significant contingent liabilities as at 30th June, 2005. INVESTMENT (CAPITAL NOT OBTAINED FROM FUND-RAISING ACTIVITIES) During the first half of 2005, the Company did not carry out any large-scale technological renovation projects. The total investment attributable to such projects was RMB57.174 million as at 30th June, 2005. PROSPECTS OF THE SECOND HALF OF 2005 For the second half of 2005, the Company will further strengthen the following: (i) the management of safety production by arranging for installation and overhaul of equipment so as to ensure its production facilities run at full capacity; (ii) the control on capital budget in order to use capital in a safely, reasonable and efficient manner, thereby speeding up the turnover of its capital; (iii) the control on cost budget by continuing to implement a low-cost strategy to reduce the production and operation costs; (iv) the marketing management in order to respond to the changes in petrochemical and chemical products. The Company expects the processing capacity for crude oil to reach 3.5 million tons in the second half of 2005. In view of the continuing increase in the price of crude oil to a high level which may not be offset by the increase in the price of refined oil, the actual realized profits for the period from January to September 2005 is expected to decrease by over 50% as compared to the same period in 2004. REVIEW OF SIGNIFICANT EVENTS 1. CORPORATE GOVERNANCE STRUCTURE The Company's corporate governance structure was in compliance with the requirements of the Listed Company Governance Guidelines. 2. PROPOSED INTERIM DISTRIBUTION AND TRANSFER FROM COMMON RESERVE TO SHARE CAPITAL The directors resolved not to declare any interim dividend and did not make any transfer from the common reserves to the Company's share capital during the first six months ended 30th June, 2005. Page 16 of 90 3. PREVIOUS YEAR'S PROFIT DISTRIBUTION According to the Company's 2004 annual general meeting of the Company, no final dividend was declared and no transfer was made from the common reserve to the Company's share capital for 2004. 4. The Company was not involved in any material litigation or arbitration during the reporting period. 5. During the reporting period, there were no mergers, acquisitions or restructuring involving the Company or any member of the Group. 6. SIGNIFICANT CONNECTED TRANSACTION The prices paid by the Company for utilities and supporting services supplied by Jilin Chemical Group Corporation ("JCGC") were based on the State prices, market prices or actual cost as provided for in the service agreement entered into between the Company and JCGC. The other connected transactions between the Company and JCGC were based on normal commercial terms or on terms that were fair and reasonable so far as the shareholders of the Company are concerned. The connected transactions between the Company and PetroChina were based on the terms approved by shareholders at the extraordinary shareholders' meeting held on 20th January, 2005. The connected transactions of the Group were settled by debit of bank accounts. Such connected transactions were carried out in the normal course of the Group's production and operations, which also increased the Group's profit. Details of these connected transactions are set out in note 16 and VII to the financial statements prepared in accordance with IFRS and PRC GAAP, respectively. (1) PURCHASE AND SALE OF GOODS, PROVISION OF SERVICES AND FINANCIAL ASSISTANCE

Page 17 of 90 (2) Information relating to the rights, debts and guarantees of related parties are set out in note VII to the financial statements prepared under PRC GAAP. 7. MATERIAL CONTRACTS AND PERFORMANCE (1) During the reporting period, the Company did not enter into any trust, sub-contracting or lease arrangements in respect of the assets of any third party nor has any third party entered into any trust, sub-contracting or lease arrangements in respect of the assets of the Company. (2) The Company had not entered into any significant guarantees during the reporting period and no significant guarantees entered into prior to the reporting period had been extended to the reporting period. (3) During the reporting period, the Company did not entrust any party with cash assets administration. 8. Neither the Company nor any shareholder holding an interest of 5 per cent or more in the issued share capital of the Company had provided any undertakings that may have a significant impact on the Company's operating results and financial conditions. 9. Neither the Company, the Board nor any directors of the Company had experienced any reprimand, penalties or complaints from or faced investigation by CSRC, or any public reprimand from any stock exchanges or any regulatory authority during the reporting period. 10. PURCHASE, SALE AND REDEMPTION OF SHARES During the reporting period, neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the Company's shares. 11. CODE ON CORPORATE GOVERNANCE PRACTICES None of the directors of the Company is aware of any information that would reasonably indicate that the Company did not comply with the Code on Corporate Governance Practices set out in Appendix 14 of the Listing Rules during the period. 12. MODEL CODE The Company has adopted a code of conduct regarding directors' securities transactions in terms no less exacting than the required standard set out in the Model Code set out in Appendix 10 to the Listing Rules. Having made specific enquiries and confirmed by all the directors of the Company, each of the directors had complied with the required standard set out in the Model Code and the Company's code of conduct regarding directors' securities transactions throughout the reporting period. 13. TRUST DEPOSITS AND TRUST LOANS As at 30th June, 2005, the Company did not have any trust deposits and trust loans with any financial institutions and did not encounter any difficulty in making withdrawals. 14. HOUSING REFORMS Since 1998, the Company had incurred a loss of RMB84.09 million due to the discount offered to its employees to purchase staff accommodation. Page 18 of 90 In accordance with IFRS, the above loss was capitalized. The staff cost associated with the Company's employee housing reform programs was amortized on a straight-line basis over the remaining expected average employment period of the relevant employees. From 1st January, 1998 to 30th June, 2005, the total amount amortized was RMB54.55 million. The amount amortized in the first six months of 2005 was RMB4.66 million. As at 30th June, 2005, the above remaining deferred staff cost was approximately RMB29.54 million. In the opinion of the Board, if the aforesaid deferred staff cost was completely written off in the first half of 2005, the net assets of the Company as at 30th June, 2005 would be reduced by approximately RMB29.54 million. Other than the employees' housing reform programs mentioned above, the Company had not implemented any employees' housing plan. 15. INFORMATION RELATING TO FUND OCCUPATION BY THE CONTROLLING SHAREHOLDER AND SUBSIDIARIES OF THE COMPANY AND INDEPENDENT NON-EXECUTIVE DIRECTORS' OPINION Excluding the normal course of production and operating activities, there were no instances where the controlling shareholder and its subsidiaries occupied the funds of the Company during the reporting period. During the reporting period, the independent non-executive directors were not aware of any conversion of the other's funds to own use between the Company and the controlling shareholder and related parties, which were out of the ordinary course of production and operating activities of the Company. The independent non-executive directors were not aware of any conversion of the Company's funds used by the controlling shareholder or other related parties, nor any provision of guarantee to any third party where the controlling shareholder and other related parties misused funds belonging to the Company or any instances of third party guarantees. 16. There were no other significant events during the reporting period. FINANCIAL STATEMENTS FINANCIAL STATEMENTS (UNAUDITED) The Board hereby announces the unaudited interim results of the Group for the six months ended 30th June, 2005 prepared under the PRC GAAP and the IFRS. The Company's Audit Committee and management have reviewed the accounting principles, accounting standards and measures adopted by the Group, and have reviewed internal supervision and financial reports, including the unaudited financial statement prepared under the PRC GAAP and IFRS and the additional information in respect thereof for the six months ended 30th June, 2005. Page 19 of 90 UNAUDITED CONSOLIDATED INTERIM CONDENSED PROFIT AND LOSS ACCOUNT (PREPARED UNDER IFRS) FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

The accompanying notes are an integral part of these financial statements. Page 20 of 90 UNAUDITED CONSOLIDATED INTERIM CONDENSED BALANCE SHEET (PREPARED UNDER IFRS) AS OF 30TH JUNE, 2005 (AMOUNTS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements. Page 21 of 90 UNAUDITED CONSOLIDATED INTERIM CONDENSED CASH FLOW STATEMENT (PREPARED UNDER IFRS) FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)

The accompanying notes are an integral part of these financial statements. Page 22 of 90 UNAUDITED CONSOLIDATED INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY (PREPARED UNDER IFRS) FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (AMOUNTS IN THOUSANDS)

The accompanying notes are an integral part of these financial statements. Page 23 of 90 NOTES TO THE UNAUDITED CONSOLIDATED INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) 1. BASIS OF PREPARATION AND ACCOUNTING POLICIES The unaudited consolidated interim condensed financial statements are prepared in accordance with International Accounting Standards 34 "Interim Financial Reporting". The accounting policies and methods of computation used in the preparation of the consolidated interim condensed financial statements are consistent with those used in the preparation of the annual financial statements for the year ended 31st December, 2004 except for the ones modified by the Company as a result of the adoption of the new revised International Financial Reporting Standards ("IFRS"). In 2005, the Group adopted the new revised IFRS below, which are relevant to its operations. The 2004 comparative numbers have been amended as required, in accordance with the relevant requirements. The adoption of the IFRS did not result in substantial changes to the Group's accounting policies. In summary: -- IAS 1 and 27 (both revised in 2003) have affected the presentation of minority interest; IAS 1 (revised in 2003) requires the disclosure of critical accounting estimates. -- IAS 2, 8, 10, 16, 17, 21, 28, 31, 32, 33 (all revised in 2003) and 39 (revised in 2004) had no material effect on the Group's policies. -- IAS 24 (revised in 2003) has affected the identification of related parties and some other related-party disclosures (see the revised accounting policy below). -- IFRS 5 has resulted in a change in the accounting policy relating to the recognition of assets held for sale or discontinued operation, which did not have any material impact on the results and financial positions of the Group as the Group did not hold material assets in this category during the periods presented. RELATED PARTIES Related parties include China National Petroleum Corporation ("CNPC") and its subsidiaries, other state-controlled enterprises and their subsidiaries directly or indirectly controlled by PRC government, corporations in which the Company is able to control, jointly control or exercise significant influence, key management personnel of the Company, PetroChina Company Limited ("PetroChina") and CNPC and their close family members. Page 24 of 90 Costs that incur unevenly during the financial year are anticipated or deferred in the interim report only if it would also be appropriate to anticipate or defer such costs at the end of the financial year. These unaudited consolidated interim condensed financial statements should be read in conjunction with the 2004 annual financial statements where the accounting policies are described in more detail. The results of operations for the six months ended 30th June, 2005 are not necessarily indicative of the results to be expected for the full year ending 31st December, 2005. NEW ACCOUNTING DEVELOPMENTS In December 2004, the International Financial Reporting Interpretation Committee ("IFRIC") released IFRIC 4 "Determining whether an arrangement contains a lease", effective for annual periods on or after 1st January, 2006. The Group is evaluating the matter and effect of adoption of IFRIC 4. 2. CRITICAL ACCOUNTING ESTIMATES Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within 2005 are discussed below. (A) IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT The Group assesses its property, plant and equipment for possible impairment whenever events or change in circumstance indicate that the carrying value of the assets may not be recoverable. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters, such as future prices of crude oil, refined products and chemical products, production profile, etc. However, the impairment reviews and calculations are based on assumptions that are consistent with the Group's business plan. Favourable changes to some assumptions might have avoided the need to impair any assets in these periods, whereas unfavourable changes might have caused an additional unknown number of other assets to become impaired. (B) DEFERRED TAX ASSET The Group recognises deferred tax assets for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, unused tax losses or unused tax credits can be utilised. Determination as to the probability and to what extent the deferred tax asset should be recognised involves management estimates on the future profitability of the Company. The estimate of the Company's future profitability is in consistent with the Group's business plan and is critical to the recognition of the deferred tax assets. In the case that the future profitability is over-estimated, the deferred tax asset might have not been recognised or only been partially recognised. Page 25 of 90 Significant assumptions involved in the impairment assessment and deferred tax asset recognition discussed above included the ones for the future prices of crude oil and refined products. The Company made an assumption that the government is to adjust the refined product prices in the next five years to eventually enable the refining business in China to gain a proper margin in line with the international benchmark. 3. SEGMENT INFORMATION SIX MONTHS ENDED 30TH JUNE, 2005

SIX MONTHS ENDED 30TH JUNE, 2004

Page 26 of 90 All assets and operations of the Group are located in the PRC, which is considered as one geographic location in an economic environment with similar risks and returns. Accordingly, no geographic segment information is presented. 4. OPERATING PROFIT The following items have been charged/(credited) to operating profit during the period:

5. TAXATION

Page 27 of 90 Income tax expense is recognised based on the best estimate of the weighted average annual income tax rate expected for the full financial year. During the six months ended 30th June, 2005 and 2004 there was no current tax expense because of the utilisation of tax loss carryforwards. Tax expense during the six months ended 30th June, 2005 results from changes in the deferred tax assets and liabilities at the expected annual rate of 33%. The tax on the Group's profit before taxation differs from the theoretical amount that would arise using the basic tax rate in the PRC applicable to the Group as follows:

6. BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share for the six months ended 30th June, 2005 have been computed by dividing the profit attributable to equity holders of the Company of RMB128,536 (2004: RMB606,354) by the number of 3,561,078,000 shares issued and outstanding for the period. 7. DIVIDEND The directors do not recommend the payment of an interim dividend for the six months ended 30th June, 2005 (2004: nil). Page 28 of 90 8. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

9. INVENTORIES

Page 29 of 90 10. ACCOUNTS RECEIVABLE

Amounts due from related parties are interest free and unsecured. Related parties are offered credit terms of no more than 30 days. Provision for impairment of amounts due from related parties charged to profit and loss account was RMB5,936 for the six months ended 30th June, 2005 (Six months ended 30th June, 2004: RMB2,507). The ageing analysis of accounts receivable at 30th June, 2005 is as follows:

In 2002, the Group implemented a cash sales policy for the majority of its customers. Certain selected customers are offered credit terms of no more than 30 days. There is no change in this policy during 2004 and the six months ended 30th June, 2005. Page 30 of 90 11. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Amounts due from related parties are interest free, unsecured and repayable in accordance with normal commercial terms. Reversal of provision for impairment amounts due from related parties credited to profit and loss account was RMB18 for the six months ended 30th June, 2005 (Six months ended 30th June, 2004: Nil). 12. CASH AND CASH EQUIVALENTS

(i) China Petroleum Finance Company Limited ("CP Finance") is a subsidiary of CNPC and a non-bank financial institution approved by the People's Bank of China. The deposits yield interest at prevailing saving deposit rates. (ii) The weighted average effective interest rate on bank deposits was 0.72% (2004: 0.72%) for the six months ended 30th June, 2005. Page 31 of 90 13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Amounts due to related parties are interest free, unsecured and with no fixed term of repayment. The ageing analysis of trade payables at 30th June, 2005 is as follows:

14. BORROWINGS

Page 32 of 90 All borrowings are due to related parties, as shown in Note 16 - "Related party transactions". The movement in borrowings is analysed as follows:

(i) At 30th June, 2005, bank loans bear interest at the rate ranging from 5.84% to 7.25% (31st December, 2004: from 5.84% to 7.25%) per annum and are guaranteed by Jilin Merchandise Group, a third-party of the Group. (ii) The outstanding loans are the drawn down part of the borrowing facilities provided by CP Finance totaling RMB8 billion. The loans are unsecured and bear interest at the rate ranging from 4.776% to 5.019% (31st December, 2004: from 4.776% to 5.019%) per annum. On 19th July, 2005, CP Finance agreed to extend the borrowing facilities period to 31st December, 2008. (iii) The carrying amounts of short-term borrowings approximate their fair value. Page 33 of 90 14. BORROWINGS (Continued)

Details of long-term borrowings are as follows:

Page 34 of 90 15. DEFERRED INCOME TAX Deferred income tax is calculated in full on temporary differences under the liability method using a principal tax rate of 33% (2004: 33%). Deferred tax balances are attributable to the following items:

Page 35 of 90 15. DEFERRED INCOME TAX (Continued)

Deferred income tax assets for tax losses carried forward and deductible temporary differences (mainly impairment provisions for receivables, inventories and write-down of carrying value of property, plant and equipment) are recognised to the extent that realisation of the related tax benefit through future taxable income is probable. On 20th September, 2004, the Chinese Ministry of Finance and State Administration of Taxation jointly issued an income tax regulation which allows companies in northeast China to shorten the depreciation and amortisation periods of property, plant and equipment and intangible assets on tax basis effective 1st July, 2004. Therefore, at 30th June, 2005, deferred tax liabilities of RMB231,054 (2004: RMB119,622) is recognised cumulatively on the temporary difference arising from accelerated depreciation and amortisation. 16. RELATED PARTY TRANSACTIONS PetroChina, the immediate parent of the Company, is a subsidiary of CNPC. CNPC is a state-controlled enterprise and is directly controlled by PRC government. PRC government is regarded as the ultimate controlling party of the Company. PetroChina produces financial statements available for public use. The Group has extensive transactions and relationships with members of the CNPC group, including PetroChina, JCGC (a fellow subsidiary) Group companies and other CNPC Group companies. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions with other state-controlled enterprises or wholly unrelated parties. Page 36 of 90 16. RELATED PARTY TRANSACTIONS (Continued) In addition to the related party information shown elsewhere in these interim condensed financial statements (amounts due from and due to related parties are disclosed in Note 10 - "Accounts receivable", Note 11 - "Prepaid expenses and other current assets", Note 12 - "Cash and cash equivalents" and Note 13 - "Accounts payable and accrued liabilities"), the following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and its related parties during the periods indicated below:

(a) Represents purchase of crude oil, naphtha, benzene, etc. (b) Represents sale of diesel oil, gasoline and petrochemical goods, such as ethylene, propylene, etc and provide railway transport and water treatment services. (c) Represents rentals for operating lease on property, plant and equipment. (d) The Group participates in the property safe and insurance fund plan established and organised by PetroChina under which it is required to make annual contribution to the plan at 0.4% of the average cost of fixed assets and inventory. The fund is mainly used to compensate for the accidental property loss. (e) Represents interest income for deposits from CP Finance. (f) Represents purchase of materials and spare parts. (g) Represents sale of refinery products, chemical products, etc. (h) Represents processing fee for semi-finished products. (i) Represents construction fee of property, plant and equipment. (j) Represents purchase of spare parts, low value consumables etc. Page 37 of 90 16. RELATED PARTY TRANSACTIONS (Continued) (k) Represents fees for welfare and support services. (l) Represents rentals for operating lease on land and buildings. (m) Represents sale of chemical products, etc. (n) Represents purchase of materials and spare parts. (o) Represents interest income for deposits from other state-controlled banks. (p) Represents sale of refinery products, chemical products, etc. (q) Represents purchase of crude oil, materials and spare parts, etc.

Page 38 of 90 16. RELATED PARTY TRANSACTIONS (Continued)

FINANCIAL STATEMENTS UNAUDITED BALANCE SHEETS (PREPARED UNDER PRC GAAP) AS AT 30TH JUNE, 2005 (ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)

Page 39 of 90 TOTAL CURRENT ASSETS 2,198,546,381 3,327,819,333 2,191,326,498 3,325,806,692 LONG-TERM INVESTMENTS Long-term equity investments (NOTE V-8) 86,536,435 99,139,594 165,156,303 169,469,728 Long-term bond investments -- -- -- -- TOTAL LONG-TERM INVESTMENTS 86,536,435 99,139,594 165,156,303 169,469,728 Including: Consolidation difference -- -- -- -- FIXED ASSETS Fixed assets - cost 16,228,024,899 16,196,975,563 15,847,825,984 15,822,513,692 Less: Accumulated depreciation (7,189,153,350) (6,719,916,853) (7,003,001,894) (6,545,147,557) Fixed assets - net book value 9,038,871,549 9,477,058,710 8,844,824,090 9,277,366,135 Less: Impairment of fixed assets (282,023,248) (282,023,248) (269,931,112) (269,931,112) Fixed assets - net book amount (NOTE V-9) 8,756,848,301 9,195,035,462 8,574,892,978 9,007,435,023 Construction materials 2,833,640 2,837,473 2,833,640 2,837,473 Construction in progress (NOTE V-10) 64,217,179 42,555,665 64,217,179 42,555,665 Fixed assets pending disposal -- -- -- -- TOTAL FIXED ASSETS 8,823,899,120 9,240,428,600 8,641,943,797 9,052,828,161 INTANGIBLE AND OTHER ASSETS Intangible assets (NOTE V-11) 1,290,637,730 1,345,139,741 1,289,126,149 1,343,581,225 Long-term deferred expenses (NOTE V-12) 53,866,319 64,648,462 53,866,319 64,648,462 Other long-term assets -- -- -- -- TOTAL INTANGIBLE AND OTHER ASSETS 1,344,504,049 1,409,788,203 1,342,992,468 1,408,229,687 DEFERRED TAXES Deferred tax assets (NOTE V-13) 264,388,153 315,580,641 264,388,153 315,580,641 TOTAL ASSETS 12,717,874,138 14,392,756,371 12,605,807,219 14,271,914,909

The accompanying notes form an integral part of these financial statements. Page 40 of 90 UNAUDITED BALANCE SHEETS (PREPARED UNDER PRC GAAP) (Continued) AS AT 30TH JUNE, 2005 (All amounts are stated in RMB Yuan unless otherwise stated)

SUPPLEMENTARY INFORMATION

Page 44 of 90 UNAUDITED CASH FLOW STATEMENTS (PREPARED UNDER PRC GAAP) (Continued) FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)

The accompanying notes form an integral part of these financial statements. Legal Person in charge of Person in charge of representative: General manager: accounting function: accounting department: YU LI ZHANG XING FU ZHANG LI YAN WANG CHUN XIA Page 46 of 90 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30TH JUNE, 2005 (ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED) I. CORPORATE INFORMATION Jilin Chemical Industrial Company Limited (the "Company") was established in the People's Republic of China (the "PRC") on 13th December, 1994 as a joint stock limited company upon the restructuring of Jilin Chemical Industrial Corporation. The principal activities of the Company are the production and sale of petroleum products, petrochemical and organic chemical products, synthetic rubber products, chemical fertilizers and inorganic chemical products, and other related products, and the provision of related services. In accordance with the restructuring agreement, the Company issued 2,396,300,000 state-owned shares with a par value of RMB1.00 each to Jilin Chemical Industrial Corporation to take over the assets and liabilities of the principal production units, certain ancillary functions and a subsidiary of Jilin Chemical Industrial Corporation. Jilin Chemical Industrial Corporation then changed its name to Jilin Chemical Group Corporation ("JCGC") and became the Company's immediate holding company. As a state-owned enterprise, JCGC was originally controlled and administered by Jilin provincial government, as well as supervised by the National Administration of Petroleum and Chemical Industries. According to the restructuring regulations promulgated by the State Council of the PRC, JCGC, together with certain oil fields and oil distribution companies, became wholly-owned subsidiaries of China National Petroleum Corporation ("CNPC") since 1st July, 1998. Therefore, CNPC becomes the ultimate holding company of the Company through its control over JCGC. Since then, the Company has been receiving continuing support from CNPC for its working capital requirements. At the date of this report, China Petroleum Finance Company Limited ("CP Finance"), subsidiary of CNPC, has agreed to provide credit facilities of RMB8 billion to the Company (see Note V 14). In 1999, CNPC and its subsidiaries underwent a corporate restructuring (the "Corporate Restructuring"). According to the Corporate Restructuring, CNPC transferred the 2,396,300,000 state-owned shares of the Company owned by JCGC, together with certain assets and business undertakings of JCGC, to PetroChina Company Limited ("PetroChina"), a wholly-owned subsidiary of CNPC established on 5th November, 1999. Accordingly, PetroChina becomes the Company's immediate holding company. II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared in accordance with the Accounting Standards for Business Enterprises and the "Accounting System for Business Enterprises" as promulgated by the People's Republic of China. 2. ACCOUNTING PERIOD The Group's accounting period starts on 1st January and ends on 31st December. 3. REPORTING CURRENCY The Group uses the Renminbi ("RMB") as its reporting currency. Page 47 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. BASIS OF ACCOUNTING The Company uses the accrual basis of accounting. Assets are initially recorded at actual cost and subsequently adjusted for impairment, if any. 5. FOREIGN CURRENCY TRANSACTIONS Transactions denominated in foreign currencies are translated into RMB at the exchange rates stipulated by the People's Bank of China prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into RMB at the exchange rates stipulated by the People's Bank of China at the balance sheet date. Exchange differences arising from these translations are expensed, except for those relating to funds borrowed to finance the acquisition of fixed assets during the construction period which have been capitalized. 6. CASH AND CASH EQUIVALENTS For the purposes of the cash flow statements, cash refers to all cash on hand and call deposits. Cash equivalents refer to short-term and highly-liquid investments (with original maturities of 3 months or less) that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. For the purpose of the cash flow statements, restricted bank balances, including time deposits with maturities in excess of three months, or deposits that have been placed as collateral with banks, are not included as cash and cash equivalents in the cash flow statements. 7. RECEIVABLES AND PROVISION FOR BAD DEBTS Receivables refer to accounts receivable and other receivables. Provision for bad debts is made for possible bad debt losses using the "allowance method". Accounts receivable are presented at actual amounts net of provision for bad debts. (A) ACCOUNTS RECEIVABLES Accounts receivable comprises related-party receivables and receivables from non-related parties. Specific provisions for bad debts are made based on a detailed review of the collectability of the receivable balances. (B) OTHER RECEIVABLES Specific provisions for other receivables are made based on a detailed review of the collectability of the other receivables. (C) RECOGNITION OF BAD DEBTS Where evidence (including liquidation, bankruptcy, negative equity, and significant cash flow problems of debtors, etc.) exists that balances cannot be recovered, bad debts are recognized and the balances are written off against the provision for bad debts. (D) TRANSFER AND FACTOR Where accounts receivable and notes receivable have been transferred or factored and the cash have been substantially received from customers, the difference between proceeds derived from the transaction, net of relevant taxes, and the carrying amount of the accounts receivable and notes receivable is expensed in the period. Page 48 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. INVENTORIES Inventories, which comprise raw materials, work in progress, finished goods, low value consumables and packing materials, are presented at the lower of cost and net realizable value. Inventories are stated at cost. The cost of raw materials used and the sale of finished goods are accounted for using the weighted average method. The cost of low value consumables and packing materials are charged to production overhead expenditures upon usage. Finished goods and work in progress comprise raw materials, direct labor and an appropriate allocation of all indirect production overhead expenditures based on normal operating capacity. Provisions for declines in the value of inventories are determined on an item-by-item basis when the carrying value of the inventories is higher than their net realizable value. Provisions for declines in the value of inventories are determined on a category basis when inventories are numerous and with low unit price. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and the estimated costs necessary to conclude the sale. The Group adopts perpetual inventory method for physical inventories. 9. LONG-TERM INVESTMENTS Long-term equity investments comprise equity investments in subsidiaries, joint ventures and associates and other investments in companies that the Company intends to hold for more than one year. Subsidiaries are investees in which the Company has, directly or indirectly, an interest of more than 50% of the voting rights, or otherwise has power to govern the investees' financial and operating policies. Joint ventures are investees that are under the joint control of the Company and other venturers. Associates generally represent investees in which the Company has an interest of between 20% to 50% of the voting rights or otherwise has significant influence over the financial and operating policies. Long-term equity investments are recorded at the actual cost of acquisition. The Company accounts for long-term equity investments in subsidiaries, joint ventures and associates using the equity method of accounting. Other equity investments, which the Company intends to hold for more than one year, are accounted for using the cost method of accounting. When long-term equity investments acquired prior to 17th March, 2003 are accounted for using the equity method of accounting, the difference between the initial cost of investment and the proportionate share of the net assets of the investee is amortized using the straight-line method over 10 years. Where long-term equity investments acquired after 17th March, 2003 are accounted for using the equity method of accounting, if the initial cost of investment is less than the proportionate share of the net assets of the investee, the difference is accounted for as capital surplus. If there is an excess of the initial cost of investment over the proportionate share of net assets of the investee, the excess is amortized using the straight-line method over 10 years. Under the equity method of accounting, the attributable share of the investees' net profit or loss for the period is recognized as an investment income or loss. When the investees declare dividends, the carrying amount of the investment is reduced accordingly. Under the cost method of accounting, investment income is recognized when the investees declare dividends. Page 49 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. LONG-TERM INVESTMENTS (CONTINUED) Provision for diminution in value of long-term investments is made when the recoverable amount of the investments is lower than their carrying amount due to continuing decrease in their market prices or a deterioration in the invested companies' operations. When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. 10. FIXED ASSETS AND DEPRECIATION Fixed assets include buildings, machinery and equipment used in production or rendering of services, or held for management purposes, which have useful lives of more than one year. Effective 1st January 2001, when construction takes place upon the Company's land and the construction is for the Company's own use, the carrying value of the land use rights is capitalized as part of the building costs within fixed assets. Fixed assets purchased or constructed are recorded at cost, or at the appraised amount as approved by the state assets administration authorities pursuant to the Company's restructuring. Fixed assets are depreciated using the straight-line method over their estimated useful lives after taking into account their residual value. For those fixed assets against which provision for impairment has been made, the depreciation rates are determined based on the net book amounts of these assets and their remaining useful lives. The categories, estimated useful lives, residual values and annual depreciation rates are as follows: ESTIMATED ESTIMATED ANNUAL USEFUL LIFE RESIDUAL VALUE DEPRECIATION RATE Buildings 10 to 45 years 3% 2.16 - 9.70% Plant and machinery 10 to 28 years 3% 3.46 - 9.70% Equipment 8 to 28 years 3% 3.46 - 12.13% Motor vehicles 12 years 3% 8.08% When fixed assets are sold, transferred, disposed of or destroyed, gains and losses on disposal are determined by comparing the proceeds with the carrying amount of the assets, reduced by related taxes and expenses, and are included in non-operating income/expenses. Repairs and maintenance of fixed assets are expensed as incurred. Subsequent expenditures for major reconstruction, expansion, improvement and renovation are capitalized when it is probable that future economic benefits in excess of the original assessment of performance will flow to the Company. Capitalized expenditures arising from major reconstruction, expansion and improvement are depreciated using the straight-line method over the remaining useful lives of the fixed assets. Capitalized expenditures arising from the renovation of fixed assets are depreciated over the expected beneficial period. Page 50 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. FIXED ASSETS AND DEPRECIATION (CONTINUED) Fixed assets are stated at the lower of the carrying amount and recoverable amount. Where indication exists that the recoverable amount may be lower than the carrying amount of a individual fixed asset, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount. When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. 11. CONSTRUCTION IN PROGRESS Construction in progress represents fixed assets under construction or installation and is stated at cost. Cost comprises the original cost of machinery and equipment, installation costs, construction costs and other direct costs. Borrowing costs on specific borrowings for financing the construction or acquisition of fixed assets are capitalized as part of the cost of the fixed assets until the assets are ready for their intended use. Construction in progress is transferred to fixed assets and depreciation commences when the assets are ready for their intended use. Where indication exists that the recoverable amount may be lower than the carrying amount of an individual construction in progress, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount. When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. 12. INTANGIBLE ASSETS AND AMORTIZATION Intangible assets include land use rights and technical know-how and are presented at cost net of accumulated amortization. Land use rights are stated at acquisition cost, or at the appraised amount as approved by the state assets administration authorities pursuant to the Group's restructuring. Land use rights are amortized using the straight-line method over a period of 50 years. From 1st January, 2001, the cost of land use rights purchased or obtained by way of payment of a land use fee is stated at the actual amount paid and is recorded as intangible assets before developed for self-use projects. The carrying value of land use rights will be transferred to construction in progress if construction takes place on the Company's land held for own use. Technical know-how represents the purchased cost of technical know-how relating to certain production facilities. The costs of know-how are included as part of the total contract price of the construction contract and are distinguishable. They are amortized using the straight-line method over the estimated useful life starting from the date when the underlying facilities are completed and ready for their intended use. Intangible assets are stated at the lower of the carrying amount and recoverable amount. Where indication exists that the recoverable amount may be lower than the carrying amount of a individual intangible asset, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount. When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. Page 51 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. LONG-TERM DEFERRED EXPENSES Long-term deferred expenses refer to those expenses which have been paid and should be amortized over one year (not including one year) and mainly include catalyst. Long-term prepaid expenses are amortized on the straight-line basis over the beneficial period and are presented at cost net of accumulated amortization. The unamortized balance of deferred expenses is expensed when the project can no longer bring any economic benefits to the Group. 14. BORROWING COSTS Borrowing costs, including interest, amortization of discounts or premiums, ancillary costs and exchange differences, incurred in connection with specific borrowings obtained for the acquisition or construction of fixed assets are capitalized as costs of the fixed assets when capital expenditures and borrowing costs are incurred and the activities have commenced to enable the assets to be ready for their intended use. The capitalization of borrowing costs ceases when the assets are ready for their intended use. Borrowing costs incurred thereafter are recognized as expenses in the period in which they are incurred. The amount of interest costs capitalized is determined based on the cumulative expenditures incurred for the acquisition or construction of a fixed asset and the weighted average interest rate, and is limited to the actual amount of interest incurred on the specific borrowings during the period. Exchange differences and ancillary costs arising from specific borrowings are capitalized based on the actual amounts incurred. All other borrowing costs are recorded as financial expenses as incurred. 15. PROVISIONS Provisions are recognized when the Company has a present obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. 16. EMPLOYEE SOCIAL SECURITY AND BENEFITS All Chinese employees of the Group participate in employee social security plans, including pension, medical, housing and other welfare benefits, organized and administered by the governmental authorities. According to the relevant regulations, the premiums and welfare benefit contributions that should be borne by the Group are calculated based on percentages of the total salary of employees, subject to a certain ceiling, and are paid to the labor and social welfare authorities. Contributions to the plans are recorded as production costs or expensed as incurred. Page 52 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. REVENUE RECOGNITION (A) SALES Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods are transferred to the buyer, the Group retains neither continuing managerial involvement nor effective control over the products; the economic benefits arising from the transaction can flow into the Group; and the related cost and revenue can be reliably measured. (B) SERVICE INCOME Service income is recognized when services are rendered and completed in the same accounting period. Revenue is recognized using the percentage of completion method at the balance sheet date. (c) Other revenues are recognized on the following bases: Interest income - recognized on a time proportion basis taking into account deposit balances and the effective yield; Subsidy income - recognized when received. 18. OPERATING LEASES Leases of fixed assets where all the risks and rewards incident to ownership of the assets are in substance transferred to the lessees are classified as finance leases. All other leases are operating leases. Payments made under operating leases are expensed on a straight-line basis over the period of the lease. 19. ACCOUNTING FOR INCOME TAX The Group accounts for enterprise and local income taxes using the liability method under the deferred tax method. The temporary difference arises from the timing difference of recognition of revenue, expense or profit and loss on tax and accounting basis. Cumulative income taxes at the end of each period are adjusted by applying the currently enacted tax rates on timing differences. Deferred income tax assets are recognized to the extent that it is probable that taxable income will be available against which timing differences can be utilized in the near future. 20. BASIS OF CONSOLIDATION Consolidated financial statements include the financial statements of the Company and its consolidated subsidiaries and are prepared in accordance with the circular (1995) No. 11 "Provisional Regulations on Consolidated Financial Statements" and other relevant regulations issued by the Ministry of Finance of the People's Republic of China. The Company starts to consolidate the revenue, cost and profit of its subsidiaries from the date it acquires effective control of the subsidiaries; and ceases to consolidate from the date effective control is lost. All material transactions, balances and unrealised profits between the Company and its consolidated subsidiaries have been eliminated in preparing the consolidated financial statements. Minority interests in the consolidated financial statements refer to the portion of the consolidated subsidiaries' equity that the Group does not own. Page 53 of 90 II. SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 20. BASIS OF CONSOLIDATION (CONTINUED) In the event that the accounting policies of the consolidated subsidiaries are not consistent with those of the Company, and the difference caused by the inconsistency has a significant impact on the consolidated financial statements, adjustment is made to ensure compliance with the Company's accounting policies. A jointly controlled entity whose revenue is below 10% of that of the Company, total assets below 10% of those of the Company and total profit below 10% of that of the Company are not consolidated. III. TAXATION The principal types of taxes applicable to the Group are as follows: (i) Value added tax ("VAT") - the Group's sales revenue is subject to VAT at 17%. VAT payable is the net difference between periodic output VAT and deductible input VAT. (ii) Business tax ("BT") - the Group's gross service income is subject to BT at 5%. (iii) Consumption tax ("CT") - the Group's sales of gasoline and diesel oil are subject to CT at RMB277.6 per ton and RMB117.6 per ton, respectively. (iv) Income tax - the Group is subject to income tax at 33% of its taxable income. (v) City construction and maintenance tax ("CCMT") - the Group is subject to CCMT at 7% of the total VAT, BT and CT payable. (vi) Education levy ("EL") - the Group is subject to EL at 3% of the total VAT, BT and CT payable. Jilin Winsway Chemical Industrial Store and Transport Limited ("Winsway"), a subsidiary of the Company, is a sino-foreign equity joint venture and subject to income tax at 33% from 2004. Jilin City Songmei Acetic Co., Ltd. ("Songmei"), another subsidiary of the Company, is a sino-foreign cooperative joint venture and is eligible for a tax holiday of full exemption from income tax for the first two years starting from its first cumulative profit-making year of operation followed by a 50% reduction in the income tax rate from the third to fifth years in accordance with the tax regulations. Songmei is exempted from income tax for 2000 and 2001, being the first two profitable years. For 2002, 2003 and 2004, Songmei is subject to income tax at 15%. From 2005, Songmei is subject to income tax at 33%. Jilin Jihua Jianxiu Company Limited ("Jianxiu"), a subsidiary of the Company established in 2001, is subject to income tax at 33%. Jilin Jihua Jinxiang Pressure Vessel Inspection Co., Ltd. ("Jinxiang"), a subsidiary of Jianxiu established in 2003, is subject to income tax at 33%. Jilin Province BASF JCIC NPG Co., Ltd. ("BASF"), a jointly controlled entity of the Company, is a sino-foreign equity joint venture and is eligible for a tax holiday of full exemption from income tax for the first two years starting from its first cumulative profit-making year of operation followed by a 50% reduction in the income tax rate from the third to fifth years. BASF commenced operation in 1998 and 2004 is the first cumulative profit-making year. Therefore, the Company is exempted from income tax in 2004 and 2005. Jilin Lianli Trading Company Limited ("Lianli"), an associated company established in 2001, is subject to income tax at 33%. Page 54 of 90 IV. MAJOR SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES

(i) Xinghua has ceased its production and started liquidation in 2000 as it incurred substantial losses and had a negative equity. By the end of 2002, the assets and liabilities of Xinghua have been written down to nil. In accordance with circular (1995) No. 11 promulgated by the Ministry of Finance of the People's Republic of China, the financial statements of Xinghua are not consolidated, and the long-term investment in Xinghua was written off. (ii) According to BASF's articles of association, BASF is jointly controlled by the Company and the other joint venture partner. Therefore, BASF is a jointly controlled entity of the Company. For the six months ended 30th June, 2005, as the amounts of revenue and total profit for the period and total assets as at 30th June, 2005 of BASF are less than 10% of the respective amounts of the Company, the financial statements of BASF are not consolidated and are accounted for using the equity method of accounting in accordance with circular (1996) No. 2 "Comments on the Consolidation Scope for the Purpose of Consolidated Financial Statements". Page 55 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. CASH AND BANK

Cash held in foreign currencies at 30th June, 2005 is as follows:

2. NOTES RECEIVABLE Notes receivable represent bank acceptance notes generated from sales transactions. At 30th June, 2005, no notes receivable were pledged (31st December, 2004: nil). 3. ACCOUNTS RECEIVABLE

(a) Analysis of accounts receivable's ageing and provision for bad debts:

Page 56 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. ACCOUNTS RECEIVABLE (CONTINUED) (b) Except for the receivables due from PetroChina Group Companies as disclosed in Note VII (g), there are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in accounts receivable. (c) At 30th June, 2005, the total balance of the five largest accounts receivable was RMB431,347,833, representing 45% of the total accounts receivable balance. (d) The Group's provisioning policy for doubtful debts is based on a detailed review of the collectibility of the receivable balances at period end. This provisioning policy and the basis for recognition of receivables have been consistently applied. At 30th June, 2005, accounts receivable aged over 3 years mainly comprise receivables due from third party debtors of RMB17.25 million (31st December, 2004: RMB27.5 million) and JCGC of RMB9.35 million (31st December, 2004: RMB13.63 million) respectively. Based on a detailed review of the collectibility of the above un-provided receivable balances at 30th June, 2005, management considers that there has been no change in the assessment results from prior years as these debtors are under stable operation status, have good historical repayment records and have complied with the debt repayment schedules as agreed with the Group. Accordingly, no provision is necessary. 4. OTHER RECEIVABLES

(a) Analysis of other receivables' ageing and provision for bad debts:

(b) There are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in other receivables. (c) At 30th June, 2005, the total balance of the five largest other receivables was RMB50,000,792, representing 47% of the total other receivables balance. Page 57 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. ADVANCES TO SUPPLIERS (a) Ageing analysis of advances to suppliers is as follows:

Advances to suppliers aged over one year mainly include advance payments to acquire plant and machinery. (b) There are no balances included in advances to suppliers which are due from shareholders who hold more than 5% (including 5%) of the shares of the Company. 6. INVENTORIES

Page 58 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. PREPAID EXPENSES

The useful lives of above catalyst are all within one year. 8. LONG-TERM EQUITY INVESTMENTS

There is no restriction on the realization of these long-term investments or transferability of investment income to the Company. Page 59 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. LONG-TERM EQUITY INVESTMENTS (CONTINUED) (a) Details of long-term investments:

(b) The movements of long-term investments accounted for using the equity method of accounting are as follows:

Page 60 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. FIXED ASSETS AND ACCUMULATED DEPRECIATION

As at 30th June, 2005, the cost of fully depreciated fixed assets still in use amounted to RMB594,276,933. Page 61 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. CONSTRUCTION IN PROGRESS

(a) Other projects represent construction in progress with individual cost of less than RMB15 million. (b) Certain construction in progress has been discontinued for a long period of time and is not expected to restart in the foreseeable future in 2004. Accordingly, an impairment provision was made against the construction in progress based on the excess of the carrying amount over the recoverable amount. Page 62 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. INTANGIBLE ASSETS

Page 63 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 12. LONG-TERM DEFERRED EXPENSES

The useful life for these catalysts is over 1 year. 13. DEFERRED TAX ASSETS

(a) At 31st December, 2004, the Company's deductible timing differences amounted to RMB1,318 million, including asset impairment provision of RMB1,222 million and fixed asset disposal loss of RMB96 million, which had not been approved by the tax authorities. Accordingly, deferred income tax assets of RMB435 million are recognised under the deferred tax method, as the Group believes that the realisation of the related tax benefit through taxable income in the near future is probable. In the six months ended 30th June, 2005, deferred income tax assets of RMB8 million are realised for the depreciation of unapproved assets impairment. (b) At 30th June, 2005, the Company's deductible taxable loss amounted to RMB206 million. Deferred income tax assets of RMB68 million are recognised under the deferred tax method, as the Company believes that the realisation of the related taxable loss through taxable income in the near future is probable. (c) On 20th September, 2004, the Chinese Ministry of Finance and State Tax Bureau issued an income tax regulation which allows certain old industrial companies in northeast China to shorten the depreciation and amortization periods of fixed assets (excluding building) and intangible assets up to 40% of their useful lives on tax basis, effective 1st July, 2004. As a result, timing differences of RMB338 million relating to the accelerated depreciation and amortization of fixed assets and intangible assets are derived as of 30th June, 2005, which resulted in a deferred tax liability and cumulative balance of RMB111 million and 231 million, respectively. Page 64 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. SHORT-TERM LOANS 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Guaranteed loans - RMB 44,640,000 44,640,000 Unsecured loans - RMB 975,120,000 2,874,330,000 1,019,760,000 2,918,970,000 As at 30th June, 2005, guaranteed loans totalling RMB45 milzlion were guaranteed by Jilin Merchandise Group, and the interest rate is ranging from 5.84% to 7.25% per annum. Pursuant to the loan facility commitment letter of 19th July, 2005, CP Finance has confirmed to extend period of RMB8 billion credit facilities to the Company to 31st December, 2008. At 30th June, 2005, total borrowings from CP Finance amounted to RMB975 million, and the average interest rate is ranging from 4.776% to 5.019% per annum. 15. ACCOUNTS PAYABLE, ADVANCES FROM CUSTOMERS AND OTHER PAYABLES Except for the payables due to PetroChina Group Companies as disclosed in Note VII (g), there are no balances included in accounts payable, advances from customers and other payables which are due to shareholders who hold more than 5% (including 5%) of the shares of the Company. Except for certain payables in respect of construction in progress, a portion of which was aged over 3 years, there were no balances included in other payables of which the age exceeded 3 years at the period end. There were no balances included in advances from customers of which the age exceeded 1 year at the period end. 16. TAXES PAYABLE 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Value added tax 20,467,192 (53,327,903) Business tax 340,059 817,735 City construction and maintenance tax 5,313,327 1,457,548 Consumption tax 56,483,542 89,320,743 Income tax 97,523,461 113,079,160 Property tax (330) (13,044) Other 1,749,151 3,000,658 181,876,402 154,334,897 Page 65 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 17. ACCRUED EXPENSES 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Repair and maintenance expenses 32,445,848 -- Public administration expenses 9,700,000 -- Interest expense on loans 34,767,101 26,049,897 Others 20,709,590 -- 97,622,539 26,049,897 18. LONG-TERM LIABILITIES DUE WITHIN ONE YEAR 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Long-term loans due within one year (NOTE V 19) Guaranteed loans - USD 122,554,833 44,329,941 Unsecured loans - USD 3,082,023 3,082,023 125,636,856 47,411,964 Other long-term liabilities due within one year (NOTE V 20) Guaranteed loans - USD 46,282,644 46,282,726 - JPY 51,245,042 54,349,108 - EUR 25,287,830 19,061,632 122,815,516 119,693,466 248,452,372 167,105,430 19. LONG-TERM LOANS 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Guaranteed loans 508,129,510 608,530,564 Unsecured loans 72,427,539 73,968,550 580,557,049 682,499,114 Page 66 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 19. LONG-TERM LOANS (CONTINUED)

(a) The Company has decided to fully repay the long-term loans in advance in the second half year of 2005. As a result, the Company recorded the full amount in current portion of long-term loans at 30th June, 2005. 20. OTHER LONG-TERM LIABILITIES Other long-term liabilities include unsecured long-term loans from JCGC.

As at 30 June 2005, the payables to JCGC of RMB262,609,396(2004: RMB333,208,992) are bank loans borrowed through JCGC and Guaranteed by PetroChina. Page 67 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 20. OTHER LONG-TERM LIABILITIES (CONTINUED) The Ethylene Project loans include loans denominated in US Dollar, Japanese Yen and Euro. These loans will mature through 30th September, 2008.

21. SHARE CAPITAL 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) (SHARES IN (SHARES IN THOUSAND) THOUSAND) Non-listed shares: - State-owned shares 2,396,300 2,396,300 Listed shares: - H shares and ADSs 964,778 964,778 - A shares 200,000 200,000 1,164,778 1,164,778 Total 3,561,078 3,561,078 Total share capital (RMB) 3,561,078,000 3,561,078,000 (a) The Company issued 893,027,000 shares, with a par value of RMB1.00 each, in overseas stock exchanges on 23rd May, 1995, of which 89,302,700 shares were H shares and 8,037,243 shares were American Depositary Shares ("ADSs") (1 ADS = 100 H shares). The issue prices for the H shares and ADSs were HK$ 1.589 per H share and US$ 20.75 per ADS, respectively. (b) The Company issued 71,751,000 H shares, with a par value of RMB1.00 each, to overseas underwriters in the form of 717,510 ADSs on 17th June, 1995. The issue price was US$20.75 per ADS. These ADSs were issued pursuant to the exercise of the over-allotment option by the underwriters in accordance with the underwriting agreement dated 23rd May, 1995. Page 68 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 21. SHARE CAPITAL (CONTINUED) (c) Pursuant to the approval of China Securities Regulatory Commission Zhengjianfazi (1996) No. 234, the Company issued 50,000,000 A shares, with a par value of RMB1.00 each, of which 30,000,000 shares were issued to the public at RMB3.5 per share and the remaining 20,000,000 shares were issued to the Company's employees at the same price. The 30,000,000 A shares issued to the public were traded on the Shenzhen Stock Exchange on 15th October, 1996 and the 20,000,000 A shares issued to the employees were traded on the Shenzhen Stock Exchange on 15th April, 1997. (d) Pursuant to a document issued by China Securities Regulatory Commission on 13th December, 1999, approval was granted to the Company to issue an additional 150,000,000 A shares with a par value of RMB1.00 each, of which 22,500,000 shares were issued to investment funds and the remaining 127,500,000 shares were issued to the Company's A shareholders at a ratio of 1:2.55 shares for each share held by such shareholders. The Company issued these shares in January 2000 at a price of RMB3.3 per share. The gross proceeds from the issue totalled RMB495,000,000; after deducting issue expenses, the net proceeds amounted to RMB485,520,000. The Company's total number of issued shares increased from 3,411,078,000 shares to 3,561,078,000 shares. 22. CAPITAL SURPLUS

23. COMMON RESERVE FUNDS

According to the Company Law of the People's Republic of China, the Company's Articles of Association and resolutions of the Board of Directors, the Company is required to transfer 10% of each year's net profit (after netting off prior years' losses) to the statutory common reserve fund until the fund balance reaches 50% of the registered share capital after which the transfer may cease. Upon approval by the relevant authorities, this reserve can be used to make up losses or to increase share capital. Other than using the reserve to make up losses, the balance remaining after the use of this reserve to increase capital should not be less than 25% of the registered share capital. Page 69 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 23. COMMON RESERVE FUNDS (CONTINUED) In addition, the Company is required to transfer 5% to 10% of each year's net profit (after netting off prior years' losses) to the statutory common welfare fund. This reserve can only be used for employees' collective welfare benefits and is not available for distribution to shareholders. When the funds from the statutory common welfare fund are utilized, the amount utilized is transferred from this fund to the discretionary common reserve fund. The amount utilized is either capitalized as assets or expensed. The Board of Directors may propose, subject to the approval of the shareholders' general meeting, the transfer to the discretionary common reserve fund. Upon obtaining the relevant approvals, this reserve can be used to make up prior years' losses or to increase share capital. 24. ACCUMULATED LOSSES

In accordance with the PRC Company Law and the Articles of Association of the Company, the Company is required to appropriate net profit after taxation in the following order: (i) to offset accumulated losses; (ii) to transfer 10% of profit after taxation to the statutory common reserve fund; (iii) to transfer 5% to 10% of profit after taxation to the statutory common welfare fund; (iv) to transfer to discretionary common reserve fund according to the approval of the shareholders' general meeting; (v) to distribute common stock dividend. Page 70 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 25. SALES REVENUE The Group's principal activities consist of the processing of crude oil and coal into petroleum products, petrochemical and organic chemical products, synthetic rubber products, chemical fertilizers and inorganic chemical products for sale in the PRC.

The sales to the five largest customers of the Group for the six months ended 30th June, 2005 amounted to RMB11,766,968,098, representing 73% of Group's total sales. 26. COST OF SALES

27. SALES TAX AND OTHER LEVIES Sales tax and other levies mainly include consumption tax, city construction and maintenance tax, and education levy. 28. OTHER OPERATING LOSS Other operating loss mainly includes sales of material and utilities, repairment and transportation fee. Page 71 of 90 V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) 29. FINANCIAL EXPENSES, NET

30. INVESTMENT INCOME

31. NON-OPERATING EXPENSES

Page 72 of 90 VI. NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY 1. ACCOUNTS RECEIVABLE 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Accounts receivable 1,025,172,847 963,343,437 Less: Specific provision (639,893,120) (640,775,409) 385,279,727 322,568,028 (a) Analysis of accounts receivable's ageing and provision for bad debts:

(b) Except for the receivables due from PetroChina Group Companies as disclosed in Note VII(g), there are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in accounts receivable. (c) At 30th June, 2005, the total balance of the five largest accounts receivable was RMB431,347,833, representing 42% of the total accounts receivable balance. (d) The Company's provisioning policy for doubtful debts is based on a detailed review of the collectibility of the receivable balances at year end. This provisioning policy and the basis for recognition of receivables have been consistently applied. At 30th June, 2005, accounts receivable aged over 3 years which have not been provided provision mainly comprise receivables due from third party debtors of RMB17.25 million (31st December, 2004: 27.5 million) and JCGC of RMB9.35 million (31st December, 2004: 13.63 million) respectively. Based on a detailed review of the collectibility of the above un-provided receivable balances at 30th June, 2005, management considers that there has been no change in the assessment results from prior years as these debtors are under stable operation status, have good historical repayment records and have complied with the debt repayment schedules as agreed with the Company. Accordingly, no provision is necessary. Page 73 of 90 VI. NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (Continued) 2. OTHER RECEIVABLES 30TH JUNE, 31st December, 2005 2004 (UNAUDITED) (Audited) Other receivables 80,858,155 92,476,222 Less: Specific provision (73,363,471) (73,381,286) 7,494,684 19,094,936 (a) Analysis of other receivables' ageing and provision for bad debts:

(b) There are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in other receivables. (c) As at 30th June, 2005, the total balance of the five largest other receivables was RMB25,873,532, representing 32% of the total other receivables balance. 3. LONG-TERM EQUITY INVESTMENTS

As at 30th June, 2005, total investment of the Company represents 3% of the net assets. Page 74 of 90 VI. NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (Continued) 3. LONG-TERM EQUITY INVESTMENTS (CONTINUED) (1) Subsidiaries (a) Details of long-term investments:

(b) The movements of investments in subsidiaries accounted for using the equity method of accounting are as follows:

(2) See Note V 8 for investments in jointly controlled entity and associated company. Page 75 of 90 VI. NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (Continued) 4. SALES REVENUE

5. COST OF SALES

6. INVESTMENT INCOME/(LOSS)

Page 76 of 90 VII. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (A) RELATED COMPANIES IN WHICH CONTROL EXISTS

(B) REGISTERED CAPITAL (AND ITS MOVEMENTS) OF RELATED COMPANIES IN WHICH CONTROL EXISTS 1st January, 30TH JUNE, NAME 2005 ADDITIONS DECREASE 2005 (Audited) (Unaudited) (Unaudited) (UNAUDITED) RMB'000 RMB'000 RMB'000 RMB'000 CNPC 114,900,000 -- -- 114,900,000 PetroChina 175,824,180 -- -- 175,824,180 Winsway 51,450 -- -- 51,450 Songmei 72,000 -- -- 72,000 Jianxiu 45,200 -- -- 45,200 Jinxiang 2,000 -- -- 2,000 Page 77 of 90 VII. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (Continued) (C) REGISTERED CAPITAL OF THE COMPANY HELD BY THE RELATED COMPANY WHICH CONTROLS THE COMPANY

(D) MOVEMENTS OF THE CAPITAL OR EQUITY OF SUBSIDIARIES CONTROLLED BY THE COMPANY

(E) RELATED COMPANIES IN WHICH NO CONTROL EXISTS

Besides the above jointly controlled entity and associated company, CP Finance, JCGC and its subsidiaries and the Company are subsidiaries of CNPC. Page 78 of 90 VII. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (Continued) (F) SIGNIFICANT RELATED PARTY TRANSACTIONS

The prices of the transactions between the Group and related companies are primarily based on market prices or agreement. (1) The Group participates in the property safe and insurance fund plan established and organised by CNPC under which it is required to make annual contribution to the plan at the 0.4% of the average cost of fixed assets and inventory. The fund is mainly used to compensate for the accidental property loss. Page 79 of 90 VII. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (Continued) (G) RELATED PARTY BALANCES

Page 80 of 90 VII. RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (Continued) (H) LOANS GUARANTEED BY RELATED PARTIES

VIII. CAPITAL COMMITMENTS At the balance sheet date, capital expenditures contracted for but not recognized in the financial statements are as follows:

IX. NET PROFIT BEFORE NON-OPERATING LOSS

Page 81 of 90 SUPPLEMENTARY INFORMATION SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER PRC ACCOUNTING REGULATIONS ("PRC GAAP") AND INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) Effect of significant differences between PRC GAAP and IFRS on profit and equity is summarised below.

Page 82 of 90 SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER PRC ACCOUNTING REGULATIONS ("PRC GAAP") AND INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS") (Continued) (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) (i) In connection with the application for listing of the Company's shares on The Stock Exchange of Hong Kong Limited, the Company engaged American Appraisal Hong Kong Limited, independent valuers in Hong Kong, to perform a valuation of all of the Group's fixed assets as of 28th February, 1995. The valuation resulted in a surplus of RMB29,033. The surplus arising from the valuation was credited to revaluation reserve. Depreciation expense under IFRS includes the effect of revaluation of fixed assets at 28th February, 1995. Under PRC GAAP, this revaluation, which was not officially approved as part of the 1994 Restructuring, was not recognised. Accordingly, depreciation charge calculated under PRC GAAP is lower than that under IFRS. (ii) In prior years, certain fixed assets including those revalued at 28th February, 1995 were written off in connection with the shut down of manufacturing assets. As the effect of the valuation at 28th February, 1995 has not been recognised under PRC GAAP, additional loss on write-off of fixed assets relating to the surplus arising from the 28th February, 1995 revaluation was recorded in the IFRS financial statements. (iii) Under IFRS, foreign currency translation gains relating to borrowings to the extent that they are adjustments to the interest costs of funds used to finance the construction of fixed assets are capitalised. Under PRC GAAP, all foreign currency translation differences relating to funds borrowed to finance the construction of fixed assets are capitalised during the construction period. Accordingly, the cost of the underlying fixed assets as reported in the IFRS financial statements is greater than that as determined under PRC GAAP, and thus resulted in additional depreciation charge. (iv) As a result of the reorganisation of CNPC and PetroChina, PetroChina agreed to bear the cost of housing subsidy and accordingly the relevant payable to JCGC of RMB84,089, after netting off deferred tax of RMB23,587, was credited to capital reserve under IFRS. Under PRC GAAP, the payable of RMB84,089 was offset against housing subsidy cost brought forward of RMB75,681 and the balance of RMB8,408 was credited to capital reserve. Consequently, there is no amortisation of housing subsidy cost under PRC GAAP. (v) Under PRC GAAP, land use rights are recognised at the appraised value and amortised over 50 years. With effect from 1st January, 2001, the Company has applied IAS 17 "Leases", as clarified by IAS 40 "Investment Property", to the accounting for land use rights. The Company has therefore reclassified land use rights as operating leases and is now reflecting the carrying value of land use rights at historical cost of RMB nil. Consequently, there is no amortisation of land use rights under IFRS commencing 2001. (vi) Adjustment of deferred tax effect of items (i) through (iv) above. (vii) In accordance with the revised IAS1 and 27 (both revised in 2003), minority interest becomes part of the profit for the period and total equity of the Group, whereas under PRC GAAP, they are respectively excluded from the net profit and total shareholders' equity of the Group. Page 83 of 90 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA ("US GAAP") (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED) Effect of significant differences between IFRS and US GAAP on profit and equity is summarised below:

Page 84 of 90 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA ("US GAAP") (Continued) (AMOUNTS IN THOUSANDS UNLESS OTHERWISE STATED)

Changes in equity under US GAAP for the six months ended 30th June, 2005 and 2004 are as follows:

Page 85 of 90 SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA ("US GAAP") (Continued) (I) REVALUATION OF FIXED ASSETS On 30th September, 1994, the fixed assets transferred to the Company by Jilin Chemical Industrial Corporation as part of the Restructuring were appraised, as required by the relevant PRC regulations, by a firm of independent valuers registered in the PRC. The revaluation of the fixed assets transferred resulted in RMB714,974 in excess of the prior carrying value and was recorded in share capital and capital reserve and not as a revaluation reserve. The depreciation charge on the revaluation surplus for the six months ended 30th June, 2005 was RMB3,815 (2004: RMB4,885), represented the depreciation charge on the revaluation surplus of Jilian (previously a jointly controlled entity of the Company) reclassified since 2003 as a result of the Company's acquisition of the remaining 35% equity interest in Jilian in December 2002. For purposes of reconciling to the US GAAP financial data, the effect of the revaluation and the related depreciation charge is reversed. On 28th February, 1995, the Group's fixed assets were further revalued by a firm of independent valuers registered in Hong Kong to satisfy the Hong Kong Stock Exchange listing requirements. This revaluation, which resulted in an additional revaluation surplus of RMB29,033, was not recognised by the PRC authorities and was therefore not recorded in the statutory accounting books. The depreciation charge on the revaluation surplus for the six months ended 30th June, 2005 was RMB726 (2004: RMB726). For purposes of reconciling to the US GAAP financial data, the revaluation surplus, the related depreciation charge and the tax effect are reversed. In prior years, certain fixed assets with a net book value of RMB11,532 related to revaluation surplus recorded in share capital and capital reserve were written off as a charge to the income statement in connection with the shut down of manufacturing assets. For purposes of reconciling to the US GAAP financial data, the effect of the revaluation relating to the write-off of fixed assets is reversed. As at 31st December, 2002, the directors of the Company compared the carrying amount of the Group's property, plant and equipment to their estimate of its fair value, and on the basis of this review, made an adjustment to reduce the carrying amount by RMB323,844. Under IFRS, the adjustment arising from the comparison, net of minority interests of RMB1,604, amounting to RMB322,240 was charged to the income statement. For purposes of reconciling to the US GAAP financial data, the write-down adjustment is reversed since the related undiscounted cash flows adequately recover the carrying value of these assets despite a decrease in fair value. As at 31st December, 2003, the discounted cash flows of certain fixed assets among the above write-down fixed assets were lower than their carrying value by RMB42,700 and was charged to the income statement for the reconciliation to US GAAP. In 2004, certain fixed assets of which the carrying amount under IFRS is lower than that under US GAAP by RMB25,094 (for the six months ended 30th June, 2005: nil; for the six months ended 30th June, 2004: RMB19,978) due to the above write-down adjustment of RMB322,240 at 31st December, 2002 were written off. For purposes of reconciling to the US GAAP financial data, the additional loss on fixed assets write-down, amounting to RMB25,094 is charged to the income statement. The net impact of the above write-down adjustment of RMB254,446 (2004: RMB254,446) is reversed as at 30th June, 2005. The related depreciation of above write-down adjustment for the six months ended 30th June, 2005 of RMB12,722 (2004: RMB12,978) is charged to the income statement. Page 86 of 90 (II) FOREIGN EXCHANGE LOSSES Under US GAAP, foreign exchange losses are expensed in the period in which they occur. Under IFRS, the Group capitalised foreign currency translation difference relating to borrowings to the extent that these are adjustments to the interest costs of funds used to finance the construction of fixed assets during the period of construction. For purposes of reconciling to the US GAAP financial data, the effect of the capitalised foreign currency translation difference and the related depreciation charge is reversed. (III) FIXED ASSETS TRANSFERRED TO JILIAN During the period ended 31st December, 1994, certain fixed assets of the Company were appraised and transferred to Jilian, which was 65% owned and jointly controlled by the Company prior to December 2002 when the Company acquired the 35% minority interest. At the time of the 1994 transfer, the Company retained 65% of revaluation surplus arising from the appraisal of these assets which amounted to RMB121,309 within the revaluation reserve and recognized a gain of RMB65,320, representing 35% of revaluation surplus, from the transfer to the other joint venture partner of a 35% interest in the fixed assets. The depreciation charge on the revaluation surplus related to these assets for the six months ended 30th June, 2005 was RMB3,815 (2004: RMB3,815). For purposes of reconciling to the US GAAP financial data, the effect of the revaluation, the related depreciation charge and the gain on the transfer is reversed. In addition, as the Company acquired the remaining 35% equity interest in Jilian in December 2002, Jilian has become a branch of the Company. Therefore, since 2003, the reversed depreciation charge on the revaluation surplus for Jilian's fixed assets has been included in the Company's depreciation charge on fixed assets due to revaluation on Restructuring and at 28th February, 1995 for the reconciliation to US GAAP. (IV) INCOME TAX EFFECT Adjustment to reflect deferred tax effect of US GAAP reconciliation items (i) through (iii) above. In years prior to 2004, a full valuation allowance was established under US GAAP to reduce net deferred tax assets to zero. Beginning 31st December, 2004, the valuation allowance was reversed as it is more likely than not that such deferred tax assets would be realised. (V) In accordance with the revised IAS1 and 27 (both revised in 2003), minority interest becomes part of the profit for the period and total equity of the Group, whereas under US GAAP, they are respectively excluded from the net profit and total shareholders' equity of the Group. (VI) Amounts in RMB have been converted into United States dollars at the respective rates of USD1.00 : RMB8.2765 announced by the People's Bank of China as at 30th June, 2005. No representation is made that the RMB amounts could have been or could be converted into US dollars at that rate. Page 87 of 90 ASSET IMPAIRMENT PROVISION AS AT 30TH JUNE, 2005 (UNAUDITED) (ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)

Page 88 of 90 ASSET IMPAIRMENT PROVISION AS AT 30TH JUNE, 2005 (UNAUDITED) (ALL AMOUNTS ARE STATED IN RMB YUAN UNLESS OTHERWISE STATED)

Page 89 of 90 NOTE: The other transfer-out of bad debt provision in the first half of 2005 represents the reversal of the provision due to the collection of according receivables. DOCUMENTS AVAILABLE FOR INSPECTION AND ADDRESS FOR INSPECTION OF DOCUMENTS 1. The original copy of 2005 interim report of the Company signed by the chairman of the Board. 2. The original copies of financial statements for the six months ended 30th June, 2005 prepared under PRC GAAP and IFRS signed by the legal representative, the chief financial officer and the head of the finance department of the Company. 3. The original copies of all the corporate correspondences and announcements released by the Company in the newspapers designated by CSRC during the reporting period. 4. The articles of association of the Company. 5. The interim report released in Hong Kong. All the above documents are available for inspection at: Jilin Chemical Industrial Company Limited The Secretary's Office to the board of directors No. 9 Longtan Street, Longtan District, Jilin City, Jilin Province, PRC Tel : (86432) 3903651 3903652 Fax : (86432) 3028126 NOTE: This interim report is prepared in both Chinese and English. In the event of any inconsistency between the two versions, the Chinese version shall prevail. Page 90 of 90

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