China New Energy (CNER) CORRESP Correspondence with SEC

May 5, 2010

BY EDGAR

William Thompson

Accounting Branch Chief

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Re: China New Energy Group Company

Item 4.02 Form 8-K/A

Filed April 26, 2010; File No. 1-32691

Dear Mr. Thompson:

We have reviewed your letter (the “Comment Letter”) to China New Energy Group Company (the “Company”), dated April 28, 2010, relating to the Current Report on Form 8-K/A filed on April 26, 2010 (the “8-K/A”).  Set forth below is comment no. 1 contained in the Comment Letter followed by our response thereto.

Form 8-K/A Filed April 26, 2010

1.           We reviewed your response to comment one in our letter dated April 19, 2010 and your revised disclosure. The nature of each error and your revised accounting treatment discussed under number one is still unclear to us. For each separate error please tell us the financial statement line items impacted, quantify the revision made to each financial statement line item, provide a detailed explanation of the error and discuss why your revision complies with GAAP. We anticipate a separate discussion will be provided for the increase to the fair value of assets, the recalculation of depreciation expenses, the adjustment to minority interest, the adjustment to minority interest’s share of net income and translation adjustment from corrections of these errors.

Response:    Please refer to the Appendix I and below for the explanations on the restatement entries.

RJE#1 The $1,263,491 of Goodwill was previously grouped into Land Use Right, net. Goodwill is now presented as a separate line item.

AJE#1.1 We incorrectly recorded the assets acquired during the Qinhuangdao Chensheng Gas Co. Ltd. ("Chensheng") acquisition at carrying value. Adjustment is now made to record the assets acquired at fair value against Additional Paid in Capital.  The increase from carrying value to fair value is as follow: we debited $1,049,559 in Property, plant and equipment, $761,486 in land use right and $3,012 in Inventories, and credited $1,814,057 in Additional Paid in Capital.

AJE#1.2 The $1,263,491 Goodwill recorded previously comprised of $1,200,477, which is the excess of the purchase consideration over the carrying value (should be fair value) of net assets acquired at the acquisition of Chensheng and the goodwill of $63,014 in the books of the another subsidiary, Singocean. The $1,200,477 was incorrectly recorded. To correct the previous error, we made an adjustment to decrease Goodwill by $1,200,477 and against Additional Paid in Capital.

In addition, we acquired Chensheng in a two step acquisition, with the first 49% ownership acquired held by Tianjin Singocean, and the second 51% ownership acquired through CNER, resulting in a 99.5% ownership of Chensheng as a group. After the second step acquisition, we incorrectly contributed the income of $337,116 to Minority Interest by using 51% instead of 0.5% as Minority Interest’s ownership. To correct these errors, we debited $613,580 of Additional Paid In Capital and credited $337,116 and $276,464 to minority interest’s share of net income (income statement) and Accumulated other comprehensive income (Balance sheet).

AJE#1.3 For the minority interest, the Minority Interest in Balance Sheet as at December 31, 2007 add up the income contributed to Minority Interest for the year of 2008 did not agree with the Minority Interest as at December 31, 2008. We now correct this error by decreasing the Minority Interest in the Balance Sheet by $77,165 and decreased the income contributed to Minority Interest for the year ended December 31, 2008.

AJE#1.4 As a result of AJE#1.1, the additional depreciation and amortization of $16,185 was provided for the increase of the fair value of Property, plant and equipment.

AJE#1.5 We erroneously calculated the depreciation and the journal entry was incorrectly posted during the translation of the RMB financial statements to USD.  We recalculated depreciation and corrected the error by increasing depreciation by $80,384 for the year ended December 31, 2008.

AJE#1.6 As a result of AJE#1.4 &1.5, the increase in depreciation caused a corresponding decrease in retained earnings, decrease in Minority Interest’s share of the loss on the balance sheet and income statements.

The Company acknowledges that:

· the Company is responsible for the adequacy and accuracy of the disclosure in the filing:

· staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

· the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

Very truly yours,
China New Energy Group Company
By:	/s/ Eric Yu
	Chief Financial Officer

Appendix I

China New Energy Group Company

Explanation for the restated adjustment

	Reported																										Total for												Restated
	December 31, 2008			RJE			After Reclassification			AJE #1.1		AJE #1.2			AJE #1.3			AJE #1.4.4			AJE #1.5			AJE #1.6			AJE #1			AJE #2			AJE #3			AJE #4			December 31, 2008
CURRENT ASSETS
Inventory		254,585						254,585			3,012																	3,012												257,597
Related party receivable		84,120						84,120																							(84,120	)		-						-
Other current assets		11,833,293						11,833,293																										-			(3,679,744	)		8,153,549
		12,171,998			-			12,171,998			3,012		-						-			-			-			3,012			(84,120	)		-			(3,679,744	)		8,411,146
Fixed assets, net		12,433,813						12,433,813			1,049,559								(12,904	)								1,036,655						-						13,470,468
Land use right, net		1,814,316			(1,263,491	)		550,825			761,486								(3,936	)								757,550						-						1,308,375
Other non-current assets								-																				-						-			3,679,744			3,679,744
Goodwill					1,263,491			1,263,491					(1,200,477	)														(1,200,477	)					-						63,014
TOTAL ASSETS		26,420,127			-			26,420,127			1,814,057		(1,200,477	)					(16,840	)		-			-			596,740			(84,120	)		-			-			26,932,747
CURRENT LIABILITIES
Registration rights penalties payable																																		900,000						900,000
Warrant liabilities								-																				-						5,506,143						5,506,143
Other Current liabilities		4,398,890						4,398,890																										-			(57,274	)		4,341,616
		4,398,890			-			4,398,890			-		-						-			-			-			-			-			6,406,143			(57,274	)		10,747,759
Non-controlling interest (BS)		180,053						180,053								(77,165	)								(482	)		(77,647	)					-						102,406
Preferred Stock-mezzanine								-																				-						7,031,818						7,031,818
STOCKHOLDERS’ EQUITY
Preferred Stock-Equity		1,857						1,857																				-						(1,857	)
Common Stock		100,000						100,000																				-						-						100,000
													(1,200,477	)
Additional paid in capital		19,725,482						19,725,482			1,814,057		(613,580	)														-						(9,982,234	)		(347,202	)		9,396,046
Accumulated deficit		(2,439,111	)					(2,439,111	)																			-						-						(2,439,111	)
Profit for the year		1,819,754						1,819,754																				-			(54,196	)		(3,453,870	)					(1,688,312	)
Depreciation and Amortization																			(16,185	)		(80,304	)					(96,489	)											(96,489	)
(Income) Loss shared by Minority Interest													337,116			77,165									482			414,763						-						414,763
Statutory surplus reserve fund		1,903,034						1,903,034																				-						-			(156,144	)		1,746,890
Accumulated other comprehensive income		730,168						730,168					276,464						(655	)		80,304						356,113			(29,924	)		-			57,274 503,346			1,616,977
		21,841,184			-			21,841,184			1,814,057		(1,200,477	)		77,165			(16,840	)		-			482			674,387			(84,120	)		(13,437,961	)		57,274			9,050,764
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY		26,420,127			-			26,420,127			1,814,057		(1,200,477	)		-			(16,840	)		-			-			596,740			(84,120	)		-			-			26,932,747