Jilin Chemical Industrial (JCCIY) 6-K Jilin Chemical Industrial Company Limited

Exhibit 99.4

REPORT OF INDEPENDENT AUDITORS

TO THE SHAREHOLDERS OF

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

(established in the People’s Republic of China with limited liability)

We have audited the accompanying balance sheets of Jilin Chemical Industrial Company Limited (the “Company”) and its subsidiaries (the “Group”) as of December 31, 2005 and the consolidated profit and loss account, consolidated cash flow statement and consolidated statement of changes in shareholders’ equity of the Group for the year then ended. These financial statements set out on pages 2 to 59 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion the financial statements give a true and fair view of the financial position of the Company and the Group as of December 31, 2005 and of the results of operations and cash flows of the Group for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers
Certified Public Accountants
Hong Kong,
June 7, 2006

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the Year Ended December 31, 2005

(Amounts in thousands except for per share data)

						2004
	Notes		2005			(Note2(a))
			RMB			RMB
Turnover		4, 28		33,703,780			31,857,423
Cost of sales				(34,157,267	)		(28,821,880	)
Gross (loss) / profit				(453,487	)		3,035,543
Distribution costs				(16,336	)		(24,586	)
Administrative expenses				(502,034	)		(440,660	)
Other operating (expenses)/income, net				(44,683	)		22,731
Operating (loss) / profit		5		(1,016,540	)		2,593,028
Interest expense		7		(165,279	)		(270,071	)
Interest income				1,153			1,753
Exchange loss				(1,131	)		(19,337	)
Exchange gain				49,263			10,685
Share of profit of a jointly controlled entity		15		13,881			36,113
Share of profit of an associated company		16		1,719			4,397
(Loss) / profit before taxation				(1,116,934	)		2,356,568
Taxation		9		383,353			171,418
(Loss) / profit for the year				(733,581	)		2,527,986
Attributable to:
Equity holders of the Company		10		(733,325	)		2,544,510
Minority interest				(256	)		(16,524	)
				(733,581	)		2,527,986
Basic and diluted (loss) / earnings per share for (loss) / profit attributable to the equity holders of the Company during the year		11	(RMB0.21)			RMB 0.71
Dividend		12		—			—

The accompanying notes are an integral part of these financial statements.

1

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

CONSOLIDATED BALANCE SHEET

As of December 31, 2005

(Amounts in thousands)

						2004
	Notes		2005			(Note2(a))
			RMB			RMB
NON-CURRENT ASSETS
Property, plant and equipment		13		8,634,509			9,368,990
Interests in a jointly controlled entity		15		79,716			89,835
Investment in an associated company		16		11,024			9,305
Intangible assets		17		422,902			515,047
Deferred income tax assets		26		555,997			283,202
Prepaid tax				14,533			—
				9,718,681			10,266,379
CURRENT ASSETS
Inventories		18		1,878,703			2,606,053
Accounts receivable		19		283,341			265,245
Prepaid expenses and other current assets		20		100,966			441,891
Cash and cash equivalents		21		8,847			14,629
				2,271,857			3,327,818
CURRENT LIABILITIES
Accounts payable and accrued liabilities		22		4,809,589			4,429,686
Current income tax liabilities				72			113,079
Short-term borrowings		23		2,223,168			3,086,075
				7,032,829			7,628,840
NET CURRENT LIABILITIES				(4,760,972	)		(4,301,022	)
TOTAL ASSETS LESS CURRENT LIABILITIES				4,957,709			5,965,357
EQUITY
Equity attributable to equity holders of the Company
Share capital		24		3,561,078			3,561,078
Reserves		25		2,096,713			2,099,858
Accumulated losses				(1,336,050	)		(605,870	)
				4,321,741			5,055,066
Minority interest				570			14,276
Total equity				4,322,311			5,069,342
NON-CURRENT LIABILITIES
Long-term borrowings		23		635,398			896,015
				4,957,709			5,965,357

The accompanying notes are an integral part of these financial statements.

  Director   Director

2

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

BALANCE SHEET

As of December 31, 2005

(Amounts in thousands)

						2004
	Notes		2005			(Note2(a))
			RMB			RMB
NON-CURRENT ASSETS
Property, plant and equipment		13		8,456,050			9,181,390
Subsidiaries		14		34,994			70,330
Interests in a jointly controlled entity		15		60,066			60,066
Investment in an associated company		16		11,024			9,305
Intangible assets		17		422,902			515,047
Deferred income tax assets		26		555,997			283,202
Prepaid tax				14,533			—
				9,555,566			10,119,340
CURRENT ASSETS
Inventories		18		1,854,745			2,566,518
Accounts receivable		19		418,972			332,025
Prepaid expenses and other current assets		20		78,485			415,445
Cash and cash equivalents		21		8,338			11,819
				2,360,540			3,325,807
CURRENT LIABILITIES
Accounts payable and accrued liabilities		22		4,721,842			4,335,663
Current income tax liabilities				—			113,035
Short-term borrowings		23		2,223,168			3,041,435
				6,945,010			7,490,133
NET CURRENT LIABILITIES				(4,584,470	)		(4,164,326	)
TOTAL ASSETS LESS CURRENT LIABILITIES				4,971,096			5,955,014
SHAREHOLDERS’ EQUITY
Share capital		24		3,561,078			3,561,078
Reserves		25		2,091,173			2,092,146
Accumulated losses				(1,316,553	)		(594,225	)
				4,335,698			5,058,999
NON-CURRENT LIABILITIES
Long-term borrowings		23		635,398			896,015
				4,971,096			5,955,014

The accompanying notes are an integral part of these financial statements.

  Director   Director

3

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

CONSOLIDATED CASH FLOW STATEMENT

For the Year Ended December 31, 2005

(Amounts in thousands)

						2004
	Notes		2005			(Note2(a))
			RMB			RMB
CASH FLOWS FROM OPERATING ACTIVITIES		27		1,475,895			3,074,779
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures				(425,593	)		(642,091	)
Dividends received from a jointly controlled entity		15		24,000			—
Purchase of intangible assets		17		(4,417	)		(40	)
Proceeds from disposal of property, plant and equipment and intangible assets				47,857			74,289
NET CASH USED FOR INVESTING ACTIVITIES				(358,153	)		(567,842	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings				7,623,870			9,004,241
Repayments of borrowings				(8,747,394	)		(11,532,048	)
NET CASH USED FOR FINANCING ACTIVITIES				(1,123,524	)		(2,527,807	)
Decrease in cash and cash equivalents				(5,782	)		(20,870	)
Cash and cash equivalents at beginning of year				14,629			35,499
Cash and cash equivalents at end of year		21		8,847			14,629

The accompanying notes are an integral part of these financial statements.

4

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Year Ended December 31, 2005

(Amounts in thousands)

	Attributable to equity holders
	of the Company
	Share		Accumulated									Minority
	capital		losses			Reserves			Sub-total			interest			Total equity
	RMB		RMB			RMB			RMB			RMB			RMB
Balance at January 1, 2004 as previously represented		3,561,078		(3,151,353	)		2,100,831			2,510,556			—			2,510,556
Reclassification as a result of the adoption of revised IAS 1 and IAS 27 (Note2(a))		—		—			—			—			30,800			30,800
Balance at January 1, 2004		3,561,078		(3,151,353	)		2,100,831			2,510,556			30,800			2,541,356
Profit for the year		—		2,544,510			—			2,544,510			(16,524	)		2,527,986
Transfer to accumulated losses on realisation of revaluation reserve		—		973			(973	)		—			—			—
Balance at December 31, 2004		3,561,078		(605,870	)		2,099,858			5,055,066			14,276			5,069,342
Loss for the year		—		(733,325	)		—			(733,325	)		(256	)		(733,581	)
Transfer to accumulated losses on realisation of revaluation reserve		—		973			(973	)		—			—			—
Liquidation of a subsidiary		—		—			—			—			(13,450	)		(13,450	)
Other transfers		—		2,172			(2,172	)		—			—			—
Balance at December 31, 2005		3,561,078		(1,336,050	)		2,096,713			4,321,741			570			4,322,311

The accompanying notes are an integral part of these financial statements.

5

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

1	CORPORATE INFORMATION
	Jilin Chemical Industrial Company Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) on December 13, 1994 as a joint stock limited company to hold the assets and liabilities of the principal production units, certain ancillary functions and a subsidiary (“Contributed Net Assets”) of Jilin Chemical Industrial Corporation (the “Predecessor”), which was then a state-owned enterprise controlled by and under the administration of the Jilin Provincial Government.
	In connection with the aforesaid restructuring (“Restructuring”), the Contributed Net Assets of the Predecessor as of September 30, 1994 were taken over by the Company from the Predecessor at a valuation which reflected their then current fair values on October 1, 1994 in consideration for which 2,396,300,000 shares in the form of state-owned shares, with a par value of Rmb 1.00 each, were issued by the Company to the Predecessor. The Predecessor was then renamed Jilin Chemical Group Corporation (“JCGC”) and became the Company’s then ultimate holding company.
	Effective from July 1, 1998, pursuant to a directive issued by the PRC State Council on May 12, 1998, the oil and petrochemical industry in the PRC was restructured and JCGC became a wholly-owned subsidiary of China National Petroleum Corporation (“CNPC”), a state-owned enterprise established in the PRC. Following the aforesaid restructuring, CNPC became the ultimate holding company of the Company through its control of JCGC.
	According to an announcement relating to the corporate restructuring of the CNPC Group in November 1999, JCGC transferred all of the state-owned shares held in the Company together with certain assets and businesses of JCGC to PetroChina Company Limited (“PetroChina”), a wholly-owned subsidiary of CNPC which was established on November 5, 1999. Accordingly, PetroChina replaced JCGC to become the immediate holding company of the Company.

6

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
	The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
(a)	Basis of preparation
	The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements have been prepared under the historical cost convention except as disclosed in the accounting policies below.
	The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates.
	In 2005, the Group adopted the newly revised IFRS listed below, which is relevant to its operations. The 2004 comparative numbers have been amended as required, in accordance with the relevant requirements. The adoption of these IFRS revisions did not result in substantial changes to the Group’s accounting policies. In summary:
	—IAS 1 and 27 (both revised in 2003) affected the presentation of minority interest. IAS 1 (revised in 2003) also has affected the presentation of associate profit sharing and requires the disclosure of critical accounting estimates.
	—IAS 2, 8, 10, 16, 17, 21, 32, 33 (all revised in 2003) and 39 (revised in 2004) and IFRS 2 had no material effect on the Group’s policies.
	—IAS 24 (revised in 2003) affected the identification of related parties and related-party disclosures. (Note 2(r) and 29)

7

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(a)	Basis of preparation (continued)
	—IAS 27, 28 and 31 (all revised in 2003) affected the accounting for investment in associates and joint ventures in the separate financial statement of the Company. The investment is accounted for at cost rather than using equity method, which was used in prior years. As a result, the balance sheet of the Company as of December 31, 2004 and the related notes that are included in the financial statements have been restated. Compared with the previously reported numbers, investment in a jointly controlled entity and retained earnings as of December 31, 2004 have been reduced by RMB 29,769 to reflect this restatement. Investment in an associated company as of December 31, 2004 has been restated to RMB 9,305 (including cost of RMB 20,042 and impairment of RMB 10,737).
	—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 years presented.
(b)	Basis of consolidation
	The consolidated financial statements include the financial statements of the Company and the subsidiaries in which the Group has the power to govern the financial and operating policies and generally accompanying an interest of more than 50 percent of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The results of operations of subsidiaries are included in the consolidated profit and loss account, and the share attributable to minority interests is excluded from the results attributable to shareholders. Intercompany balances, transactions and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
	A listing of the Group’s principal subsidiaries is set out in Note 14.

8

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(c)	Investments in associated companies
	Associated companies are entities in which the Group holds, or over which the Group has significant influence, but which it does not control and generally accompanying a shareholding between 20% and 50% of the voting rights. Investments in associated companies are accounted for using the equity method in the consolidated financial statements of the Company. Such equity interests are initially recognised at cost and their carrying amount is increased or decreased to recognise the Group’s share of the profits or losses of the associated Company after the date of acquisition and changes in equity that have not been included in the income statement. Unrealised gains on transactions between the Group and its associated companies are eliminated to the extent of the Group’s interest in the associated companies; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When the Group’s share of losses in an associated company equals or exceeds its interest in the associated company including any other unsecured receivables, the Group does not recognise further losses, unless the Group has incurred obligations or made payments on behalf of the associated company.
	Investment in an associated company is accounted for at cost in the Company’s financial statements.
	Details of the Group’s associated company are shown in Note 16.
(d)	Interests in jointly controlled entities
	A jointly controlled entity is a joint venture between two or more venturers whose rights and obligations with respect to the venture are specified in a contractual joint venture agreement which gives the venturers joint control over the venture and in which no single venturer is in a position to control, unilaterally, the activities of the venture.

9

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(d)	Interests in jointly controlled entities (continued)
	The Group’s interests in jointly controlled entities are accounted for using the equity method in the consolidated financial statements of the Company. Such equity interests are initially recognised at cost and their carrying amount is increased or decreased to recognise the Group’s share of the profits or losses of the joint venture after the date of acquisition and changes in equity that have not been included in the income statement. Unrealised gains on transactions between the Group and its jointly controlled entities are eliminated to the extent of the Group’s interest in the jointly controlled entities; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
	Interests in jointly controlled entities are accounted for at cost in the Company’s financial statements.
	Details of the Group’s jointly controlled entity are shown in Note 15.
(e)	Foreign currency translations
	Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“the functional currency”). The consolidated financial statements are presented in Renminbi, which is the functional and presentation currency of all companies in the Group.
	Foreign currency transactions of the Group are accounted for at the exchange rates prevailing at the date of the transactions; gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the consolidated profit and loss account. Monetary assets and liabilities are translated at balance sheet date exchange rates.

10

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(f)	Property, plant and equipment
	Property, plant and equipment are initially recorded at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs directly incurred to bring the asset to working condition for its intended use. Subsequent to their initial recognition, property, plant and equipment are carried at revalued amounts less accumulated depreciation and accumulated impairment losses, if any. Revaluations are performed by independent qualified valuers on a regular basis. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Increases in the carrying amount arising on revaluation of property, plant and equipment are credited to revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against that reserve; all other decreases are charged to the consolidated profit and loss account. The difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the consolidated profit and loss account) and depreciation based on the asset’s original cost is transferred from revaluation reserve to accumulated losses.
	Depreciation to write off the cost or revalued amount of each asset to their residual values over their estimated useful lives is calculated using the straight-line method.
	The Group uses the following useful lives for depreciation purposes:

Buildings	10-45 years
Plant and machinery	10-28 years
Equipment	8-28 years
Motor vehicles	12 years

Assets under construction represent capital assets under construction or installation and are stated at cost. No depreciation is provided for construction in progress until they are completed and available for use.

11

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(f)	Property, plant and equipment (continued)
	Property, plant and equipment are reviewed for impairment losses whenever there is an indication that they may be impaired. If such an indication exists, the carrying amount of an individual asset is compared with its recoverable amount, which is the higher of its net selling price and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the asset and from its ultimate disposal. When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
	Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amount and proceeds, and are taken into account in determining net profit. On disposals of revalued assets, amounts in revaluation reserve relating to these assets are transferred to accumulated losses.
	Interest costs on borrowings to finance the construction of property, plant and equipment, together with exchange differences arising from foreign currency borrowings to the extent that they are adjustments to interest costs, are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed.
	Costs for planned major maintenance activities are expensed as incurred except for costs of components that result in improvements and betterments which are capitalised as part of property, plant and equipment and depreciated over their useful lives, which is generally the period until the next scheduled major maintenance.
(g)	Intangible assets

(i)

Technical know-how

The purchase costs of technical know-how relate to certain production facilities and are included as part of the total contract price of the construction contract and are distinguishable. They are capitalised as intangible assets at cost, unless they are acquired in a business combination that is an acquisition in which case they are recorded at fair value. They are amortised using the straight-line method over the estimated useful life of 10 years, starting from the date when the underlying facilities are completed and ready for their intended use.

12

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(g)	Intangible assets (continued)

(i)	Technical know-how (continued)
	Technical know-how is not revalued and its carrying amount is reviewed annually and adjusted for impairment where it is considered necessary. An impairment loss is recognised in the consolidated profit and loss account whenever the carrying amount of an asset exceeds its recoverable amount.
(ii)	Land use rights
	Land use rights acquired as part of a business combination that is an acquisition are recorded at fair value less subsequent accumulated amortisation. Fair value is determined based on valuation performed by independent valuers.
	Land use rights are amortised using the straight-line method over their lease terms of 50 years.
	Land use rights are not revalued and their carrying amount is reviewed for impairment whenever there is an indication that they may be impaired. If such an indication exists, the carrying amount of a land use right is compared with its recoverable amount which is the higher of its net selling price and its value in use, which is the estimated net present value of future cash flows to be derived from the continuing use of the land use right and from its ultimate disposal. When the carrying amount of a land use right is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

(h)

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined by the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.

13

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(i)	Trade receivables
	Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. The amount of the provision is recognised in the consolidated profit and loss account.
(j)	Cash and cash equivalents
	Cash and cash equivalents are carried on the balance sheet at cost and comprise cash in hand and bank deposits with maturities of three months or less from the time of purchase.
(k)	Deferred income tax
	Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax.
	Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
	Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associated companies and jointly controlled entities, except where the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

14

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(l)	Borrowings
	Borrowings are recognised initially at the fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the consolidated profit and loss account over the period of the borrowings.
	Borrowings are classified as current liabilities unless the Group had an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
(m)	Revenue recognition
	Revenue comprises the sale of petroleum products, petrochemical and organic chemical products, chemical fertilisers and inorganic chemicals, synthetic rubber products and other products and services. Sales are recognised upon delivery of products and customer acceptance, if any, or performance of services, net of sales taxes and discounts. Revenues are recognised only when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods, and when the amount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
(n)	Research and development expenses
	Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technological feasibility, and only if the cost can be measured reliably. Other development expenditures are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
(o)	Government grant related to income and subsidies
	Government grant related to income and subsidies are recognised as income upon approval by the relevant government authorities, at which stage the eventual collectibility is assured.

15

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(p)	Retirement benefit plans
	The Group contributes to the employee retirement benefit plan organised by the provincial government under which it is required to make monthly contributions to the plan. The provincial government undertakes to assume the retirement benefit obligations of all existing and future retired employees of the Group. Contributions to the plan are charged to consolidated profit and loss account as incurred.
(q)	Provisions
	Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
(r)	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.
(s)	Financial instruments
	Financial instruments carried on the consolidated balance sheet include cash and bank balances, receivables, payables, and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item and in Note 29.
	The Group had no derivative financial instruments in any of the years presented.
(t)	Operating leases
	Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated profit and loss account on a straight-line basis over the period of the lease.

16

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(u)	Segment reporting
	A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.
(v)	New accounting developments
	IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements – Capital Disclosures (effective from January 1, 2007). IFRS 7 introduces new disclosures to improve the information about financial instruments. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group assessed the impact of IFRS 7 and the amendment to IAS 1 and concluded that the main additional disclosures will be the sensitivity analysis to market risk and the capital disclosures required by the amendment of IAS 1. The Group will apply IFRS 7 and the amendment to IAS 1 from annual periods beginning January 1, 2007.
	IFRIC 4, Determining whether an Arrangement contains a Lease (effective from January 1, 2006). IFRIC 4 requires the determination of whether an arrangement is or contains a lease to be based on the substance of the arrangement. It requires an assessment of whether: (a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and (b) the arrangement conveys a right to use the asset. Management is currently assessing the impact of IFRIC 4 on the Group’s operations.
	IFRIC 8, Scope of IFRS 2 (effective from May 1, 2006). IFRIC 8 clarifies that the accounting standards IFRS 2 Share-based Payment applies to arrangements where an entity makes share- based payments for apparently nil or inadequate consideration. Management is currently assessing the impact of IFRIC 8 on the Group’s operations.

17

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

2	SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)
(v)	New accounting developments (continued)
	IAS 39 and IFRS 4 (Amendments), Financial Guarantee Contracts (effective from January 1, 2006). These amendments require that issuers of financial guarantee contracts to include the resulting liabilities in their balance sheet. Management is currently assessing the impact of these amendments.
	The following new interpretations and amendment to existing standards are not relevant to the Group’s operations.
	—IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds (effective from January 1, 2006).
	—IFRIC 6, Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment (effective from December 1, 2005).
	—IFRIC 7, Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies (effective from March 1, 2006).
	—IFRIC 9, Reassessment of Embedded Derivatives (effective from June 1, 2006).
	—IAS 19 (Amendment), Employee Benefits: Actuarial Gains and Losses, Group Plans and Disclosures (effective from January 1, 2006).
	—IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup Transaction and The Fair Value Option (effective from January 1, 2006).
	—IAS 21 (Amendment), Net Investment in a Foreign Operation (effective from January 1, 2006).
3	CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
	Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
	The matters described below are considered to be the most critical in understanding the judgements that are involved in preparing the Group’s financial statements.

18

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

(a) Impairment of property, plant and equipment

Property, plant and equipment are reviewed for possible impairment when events or changes in circumstances indicate that the carrying amount 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. These assumptions also include those relative to the pricing regulations by the regulatory agencies in China that the policies will not restrict the profit margins of refined products to levels that will be insufficient to recover the carrying cost of the related production assets. 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 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 may not be recognised or may only be partially recognised.

Significant assumptions involved in the impairment assessment and deferred tax asset recognition discussed above included the future prices of crude oil and refined products. The Company has 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 earn a positive margin in line with the international benchmarks.

19

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

4	TURNOVER
	Turnover represents revenues from the sale of petroleum, petrochemical and chemical products. Analysis of turnover by segment is shown in Note 28.
5	OPERATING LOSS/(PROFIT)

	2005			2004
	RMB			RMB
Operating loss/(profit) is arrived at after crediting and charging the following items:
Crediting
Government grants and subsidies		(2,683	)		—
Charging
Amortisation of intangible assets		96,562			110,086
Auditors’ remuneration		3,500			3,500
Cost of inventories (approximates cost of sales) recognised as expense		33,916,061			28,708,451
Depreciation on property, plant and equipment		981,736			1,037,192
Employee compensation costs (including directors’ and supervisors’ emoluments) (Note 6)		801,276			747,770
Net loss/(profit) on disposals of property, plant and equipment		9,260			(26,412	)
Operating lease rentals on land and buildings		9,390			7,680
Operating lease rentals on plant and machinery		31,930			27,733
Provision for impairment of property, plant and equipment (included in “cost of sales”)		155,220			7,220
Provision for impairment of intangible assets (included in “cost of sales”)		—			6,698
(Reversal)/provision for impairment of receivables (included in “administrative expenses”)		(380	)		11,050
(Reversal)/provision for impairment of prepaid expenses and other current assets (included in “other operating expenses”)		(944	)		1,372
(Reversal)/provision for inventory writedowns (included in “cost of sales”)		(3	)		77,544
Repair and maintenance		426,914			351,938
Research and development expenditure		1,137			2,726

20

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

6 EMPLOYEE COMPENSATION COSTS

	2005		2004
	RMB		RMB
Wages and salaries		523,588		520,160
Retirement benefit cost		121,850		106,290
Staff welfare		155,838		121,320
		801,276		747,770

The Group participates in the retirement benefit plan organised by the provincial government under which it is required to make monthly contributions to the plan at 25% of the basic salaries as set by the government for the relevant periods. The Group currently has no other obligations for the payment of retirement and other post-retirement benefits of employees other than the monthly contributions described above.

7 INTEREST EXPENSE

	2005		2004
	RMB		RMB
Interest on Bank loans
— wholly repayable within five years		46,150		30,391
— not wholly repayable within five years		—		3,119
Other loans
— wholly repayable within five years		119,129		236,561
		165,279		270,071

21

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

8	EMOLUMENTS OF DIRECTORS AND SUPERVISORS
	Details of the directors’ and supervisors’ emoluments are as follows:

	2005		2004
	RMB		RMB
Fees		80		80
Salaries, allowances and other benefits		713		675
Contribution to retirement benefit plan		10		9
		803		764

The emoluments of the directors and supervisors fell within the following band:

	2005		2004
	Number		Number
Nil – Rmb 1,064		16		16

Fees for directors and supervisors disclosed above included fees of Rmb 80 (2004: Rmb 80) paid to independent non-executive directors.

None of the directors and supervisors has waived their remuneration during the year ended December 31, 2005 (2004: nil).

The five highest paid individuals in the Group for each of the two years ended December 31, 2004 and December 31, 2005 were also directors or supervisors and their emoluments are reflected in the analysis presented above.

22

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

9 TAXATION

	2005			2004
	RMB			RMB
PRC income tax		(110,558	)		111,784
Deferred tax		(272,795	)		(283,202	)
		(383,353	)		(171,418	)

In accordance with the relevant PRC income tax rules and regulations, the enacted PRC income tax rate applicable to the Group is 33% (2004: 33%). Certain subsidiaries and the jointly controlled entity are Sino-foreign joint ventures and are entitled to certain tax concessions available to foreign investment production enterprises operating in the PRC. These tax concessions include a five-year tax holiday under which these enterprises are exempt from income tax for the first two years commencing from the first cumulative profitable year of operation followed by a 50% reduction in the income tax rate for three years thereafter.

The PRC income tax for 2005 mainly represented an adjustment on prior year’s PRC income tax.

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:

	2005			2004
	RMB			RMB
(Loss)/profit before taxation		(1,116,934	)		2,356,568
Tax calculated at a rate of 33%		(368,588	)		777,667
Utilisation and recognition of previously unrecognised deferred tax assets		—			(899,719	)
Approved income tax deduction relating to capital expenditures (Note(a))		—			(65,561	)
Other		(14,765	)		16,195
Tax expense		(383,353	)		(171,418	)

(a) In accordance with a PRC income tax regulation, upon the approval of provincial tax authorities, 40% of certain capital expenditures relating to technology upgrade of property, plant and equipment can be used to offset the income tax provision. In 2005, no such capital expenditures were approved by the provincial tax authorities (2004: Rmb65,561).

23

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

10	(LOSS)/PROFIT ATTRIBUTABLE TO EQUITY HOLDERS
	The loss attributable to equity holders is dealt with in the financial statements of the Company to the extent of RMB 733,325 for the year ended December 31, 2005 (2004: Profit of RMB 2,544,510).
11	BASIC AND DILUTED LOSS PER SHARE
	Basic and diluted loss per share for the year ended December 31, 2005 have been computed by dividing loss attributable to the equity holders of the Company for the year by the weighted average number of 3,561,078,000 (2004: 3,561,078,000) shares issued and outstanding for the year.
	There are no dilutive potential ordinary shares.
12	DIVIDEND
	No dividend was declared in respect of 2004 and 2005.

24

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

13 PROPERTY, PLANT AND EQUIPMENT

				Plant and						Motor			Construction
Group	Buildings			machinery			Equipment			vehicles			in progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At December 31, 2004		1,772,674			12,016,526			2,636,383			179,886			52,612			16,658,081
Additions		3,393			146,788			608			31,966			302,078			484,833
Transfer to fixed assets		31,441			117,530			90,175			4,630			(243,776	)		—
Transfer to intangible assets		—			—			—			—			(4,417	)		(4,417	)
Disposals		(21,070	)		(122,843	)		(36,902	)		(45,062	)		—			(225,877	)
At December 31, 2005		1,786,438			12,158,001			2,690,264			171,420			106,497			16,912,620
Accumulated depreciation
At December 31, 2004		781,935			4,441,128			1,951,379			107,429			—			7,281,871
Charge for the year		82,306			702,431			175,654			21,345			—			981,736
Disposals		(8,390	)		(75,415	)		(23,040	)		(41,091	)		—			(147,936	)
At December 31, 2005		855,851			5,068,144			2,103,993			87,683			—			8,115,671
Provision for impairment
At December 31, 2004		—			—			—			—			7,220			7,220
Impairment charge (Note(i))		—			155,220			—			—			—			155,220
At December 31, 2005		—			155,220			—			—			7,220			162,440
Net book value
At December 31, 2005		930,587			6,934,637			586,271			83,737			99,277			8,634,509
At December 31, 2004		990,739			7,575,398			685,004			72,457			45,392			9,368,990
Carrying value of fixed assets had they been stated at cost less accumulated depreciation and provision for impairment		960,701			7,185,681			594,936			83,737			99,277			8,924,332

(i) In 2005, management decided to discontinue certain plant and machinery and did not expect to restart in the foreseeable future. Accordingly, an impairment provision was made against the plant and machinery based on the excess of the carrying amount over the recoverable amount.

25

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

13 PROPERTY, PLANT AND EQUIPMENT (continued)

				Plant and						Motor			Construction
Group	Buildings			machinery			Equipment			vehicles			in progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At December 31, 2003		1,753,083			11,948,861			2,465,536			144,001			35,492			16,346,973
Additions		31,615			24,300			4,817			41,134			440,135			542,001
Transfer to fixed assets		11,984			179,784			211,159			9,831			(412,758	)		—
Transfer to intangible assets		—			—			—			—			(10,257	)		(10,257	)
Disposals		(24,008	)		(136,419	)		(45,129	)		(15,080	)		—			(220,636	)
At December 31, 2004		1,772,674			12,016,526			2,636,383			179,886			52,612			16,658,081
Accumulated depreciation
At December 31, 2003		711,749			3,799,816			1,805,219			100,654			—			6,417,438
Charge for the year		82,846			754,455			178,722			21,169			—			1,037,192
Disposals		(12,660	)		(113,143	)		(32,562	)		(14,394	)		—			(172,759	)
At December 31, 2004		781,935			4,441,128			1,951,379			107,429			—			7,281,871
Provision for impairment
At December 31, 2003		—			—			—			—			—			—
Impairment charge		—			—			—			—			7,220			7,220
At December 31, 2004		—			—			—			—			7,220			7,220
Net book value
At December 31, 2004		990,739			7,575,398			685,004			72,457			45,392			9,368,990
At December 31, 2003		1,041,334			8,149,045			660,317			43,347			35,492			9,929,535
Carrying value of fixed assets had they been stated at cost less accumulated depreciation and provision for impairment		1,022,633			7,684,596			694,878			72,457			45,392			9,519,956

26

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

13 PROPERTY, PLANT AND EQUIPMENT (continued)

				Plant and						Motor			Construction
Company	Buildings			machinery			Equipment			vehicles			in progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At December 31, 2004		1,693,895			11,754,634			2,589,155			99,844			52,612			16,190,140
Additions		3,393			146,788			95			28,077			293,984			472,337
Transfer to fixed assets		31,251			115,292			84,742			4,398			(235,683	)		—
Transfer to intangible assets		—			—			—			—			(4,417	)		(4,417	)
Disposals		(21,004	)		(115,332	)		(36,609	)		(171	)		—			(173,116	)
At December 31, 2005		1,707,535			11,901,382			2,637,383			132,148			106,496			16,484,944
Accumulated depreciation
At December 31, 2004		751,288			4,274,360			1,910,667			65,215			—			7,001,530
Charge for the year		79,658			692,637			172,141			16,455			—			960,891
Disposals		(8,390	)		(65,552	)		(21,983	)		(42	)		—			(95,967	)
At December 31, 2005		822,556			4,901,445			2,060,825			81,628			—			7,866,454
Provision for impairment
At December 31, 2004		—			—			—			—			7,220			7,220
Impairment charge (Note(i))		—			155,220			—			—			—			155,220
At December 31, 2005		—			155,220			—			—			7,220			162,440
Net book value
At December 31, 2005		884,979			6,844,717			576,558			50,520			99,276			8,456,050
At December 31, 2004		942,607			7,480,274			678,488			34,629			45,392			9,181,390
Carrying value of fixed assets had they been stated at cost less accumulated depreciation and provision for impairment		914,549			7,083,414			584,130			50,520			99,276			8,731,888

27

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

13 PROPERTY, PLANT AND EQUIPMENT (continued)

				Plant and						Motor			Construction
Company	Buildings			machinery			Equipment			vehicles			in progress			Total
	RMB			RMB			RMB			RMB			RMB			RMB
Cost or valuation
At December 31, 2003		1,672,064			11,686,969			2,413,448			74,066			35,492			15,882,039
Additions		29,678			24,300			4,817			30,847			440,135			529,777
Transfer to fixed assets		11,984			179,784			211,159			9,831			(412,758	)		—
Transfer to intangible assets		—			—			—			—			(10,257	)		(10,257	)
Disposals		(19,831	)		(136,419	)		(40,269	)		(14,900	)		—			(211,419	)
At December 31, 2004		1,693,895			11,754,634			2,589,155			99,844			52,612			16,190,140
Accumulated depreciation
At December 31, 2003		681,623			3,643,115			1,761,917			63,621			—			6,150,276
Charge for the year		81,409			741,346			176,290			15,844			—			1,014,889
Disposals		(11,744	)		(110,101	)		(27,540	)		(14,250	)		—			(163,635	)
At December 31, 2004		751,288			4,274,360			1,910,667			65,215			—			7,001,530
Provision for impairment
At December 31, 2003		—			—			—			—			—			—
Impairment charge		—			—			—			—			7,220			7,220
At December 31, 2004		—			—			—			—			7,220			7,220
Net book value
At December 31, 2004		942,607			7,480,274			678,488			34,629			45,392			9,181,390
At December 31, 2003		990,441			8,043,854			651,531			10,445			35,492			9,731,763
Carrying value of fixed assets had they been stated at cost less accumulated depreciation and provision for impairment		973,901			7,577,174			687,277			34,629			45,392			9,318,373

28

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

13 PROPERTY, PLANT AND EQUIPMENT (continued)

(a)	As part of the Restructuring described in Note 1 and as required by the relevant PRC regulations, a valuation of all of the contributed fixed assets and land use rights was carried out as of September 30, 1994 by China Assets Appraisal Co., Ltd., a firm of independent valuers registered in the PRC. The valuation was performed in order to determine the fair value of such contributed fixed assets and land use rights and establish amounts for share capital and capital reserve. The valuation of fixed assets was based on market value where available or depreciated replacement cost where market value was not available. The valuation of land use rights was based on standard land prices determined by the Jilin Province Land Administration Bureau. The value at which the above contributed fixed assets and land use rights were assumed by the Company was determined at Rmb 2,834,034 and Rmb 1,088,843, respectively. These contributed fixed assets and land use rights were initially accounted for by the Company at their predecessor values and are subsequently carried at revalued amounts less accumulated depreciation.
	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 February 28, 1995. The valuation, which was based on the market value where available or depreciated replacement costs where market value was not available, resulted in an additional surplus of Rmb 29,033. The surplus arising from the valuation was credited to the revaluation reserve.
	Revaluations of property, plant and equipment are to be performed periodically, normally by professionally qualified valuers. As at December 31, 2003, a revaluation of the Company’s property, plant and equipment was undertaken by China United Assets Appraiser Co., Ltd, a firm of independent valuers registered in the PRC. Because of the specialised nature of the assets under valuation, they were valued on a depreciated replacement cost basis. Following adjustments for the impairment provisions made in prior periods as noted below, the results of revaluation were substantially in line with the carrying amounts of property, plant and equipment.
	At December 31, 2002, the directors of the Company compared the carrying amount of the Group’s property, plant and equipment to their estimate of the fair value, and on the basis of their review, made an adjustment to reduce the carrying amount of certain assets by Rmb 323,844.

29

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

14 SUBSIDIARIES

	Company
	2005			2004
	RMB			RMB
Unlisted investments, at cost		77,307			113,461
Less: Provision for impairment loss		(42,313	)		(43,131	)
		34,994			70,330

All subsidiaries are unlisted companies with limited liability established and operating in the PRC.

Particulars of subsidiaries at December 31, 2005 are set out as follows:

	Paid-up			Attributable
	capital		Type of legal	equity interest
Company name	RMB		entity	(%)		Principal activities
Jilin Jihua Jianxiu Company Limited (“Jianxiu”)		45,200	Limited liability company		99	Machinery repair and installation
Jilin Xinhua Nitrochloro-benzene Company Limited (“Xinhua”)		25,668	Limited liability company		75	Manufacture and sales of nitrochloro-benzene
Jilin Winsway Chemical Industrial Store and Transport Limited (“Winsway”) (Note (a))		51,454	Sino-foreign equity joint venture		70	Provision of transportation services for chemical raw materials and products
Jilin City Songmei Acetic Co., Ltd. (“Songmei”)		72,000	Sino-foreign co-operative joint venture		66	Manufacture of acetic acid
Jilin Jihua Jinxiang Pressure Vessel Inspection Co., Ltd. (“Jinxiang”)		2,000	Limited liability company		94	Inspection, research and consultation of pressure vessels

(a) In August 2005, Winsway was liquidated upon the end of the approved operating period. There was no significant income or loss occurred during the liquidation. Except for Winsway, there were no changes in the interests held in other subsidiaries in 2004 and 2005.

30

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

15 INTERESTS IN A JOINTLY CONTROLLED ENTITY

	Group
	2005		2004
	RMB		RMB
Share of net assets		79,716		89,835

Movements of the share of net assets are set out as follows:

	At December		Share of		Dividend			At December
	31,2004		profit		received			31,2005
	RMB		RMB		RMB			RMB
Jilin Province BASF JCIC NPG Co., Ltd. (“BASF”)		89,835		13,881		(24,000	)		79,716

The jointly controlled entity is an unlisted company with limited liability established and operating in the PRC.

Particulars of the jointly controlled entity at December 31, 2005 are set out as follows:

	Paid-up		Attributable
	capital		equity interest (%)
Company name	RMB		2005		2004		Principal activities
BASF		150,000		40		40	Manufacture of petrochemical products

The Company’s investment cost to BASF was RMB 60,066. There was no change in the interest held in BASF during 2004 and 2005.

There were no material contingencies or commitments relating to BASF at December 31, 2005 and 2004.

A summary of the financial position and operating results of the jointly controlled entity is as follows:

	Certain financial
	information of the jointly
	controlled entity						Group’s share
	2005			2004			2005			2004
	RMB			RMB			RMB			RMB
Non-current assets		79,325			77,750			31,730			31,100
Current assets		129,664			148,989			51,866			59,597
Current liabilities		9,699			2,151			3,880			862
Turnover		178,427			232,113			71,371			92,845
Gross profit		58,451			114,077			23,381			45,631
Operating expenses		(23,749	)		(23,794	)		(9,500	)		(9,518	)
Profit before taxation		34,702			90,283			13,881			36,113
Taxation		—			—			—			—
Profit after taxation		34,702			90,283			13,881			36,113

31

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

16 INVESTMENT IN AN ASSOCIATED COMPANY

	Group
	2005		2004
	RMB		RMB
Share of net assets		11,024		9,305

	Company
	2005			2004
	RMB			RMB
Investment cost		20,042			20,042
Less: impairment		(9,018	)		(10,737	)
		11,024			9,305

The associated company is an unlisted company with limited liability established and operating in the PRC.

Particulars of the associated company are set out as follows:

			Attributable
	Paid-up		equity
	capital		interest
Company name	RMB		(%)		Principal activities
Jilin Lianli Industrial Co., Ltd.		42,214		47	Wholesale and retailing of petrochemical products

There was no change in the interest held in the associated company during 2004 and 2005.

A summary of the financial position and operating results of the associated company is as follows:

	Certain financial
	information of the
	associated company						Group’s share
	2005			2004			2005			2004
	RMB			RMB			RMB			RMB
Non-current assets		48,979			45,564			23,255			21,634
Current assets		49,835			61,694			23,662			29,292
Current liabilities		75,591			87,656			35,893			41,621
Turnover		247,714			178,875			117,615			84,930
Gross profit		26,996			37,956			12,817			18,022
Operating expenses		(23,044	)		(28,549	)		(10,941	)		(13,557	)
Profit before taxation		3,952			9,407			1,876			4,465
Taxation		(331	)		(143	)		(157	)		(68	)
Profit after taxation		3,621			9,264			1,719			4,397

32

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

17 INTANGIBLE ASSETS

	Group
	Technical			Land use
	know-how			rights		Others		Total
	RMB			RMB		RMB		RMB
Cost
At December 31, 2004		924,505			61,843		84,089		1,070,437
Transfer from construction in progress		4,417			—		—		4,417
Disposal		(44,805	)		—		—		(44,805	)
At December 31, 2005		884,117			61,843		84,089		1,030,049
Accumulated amortisation
At December 31, 2004		486,268			12,536		49,888		548,692
Charge for the year		85,987			1,256		9,319		96,562
Disposal		(44,805	)		—		—		(44,805	)
At December 31, 2005		527,450			13,792		59,207		600,449
Provision for impairment
At December 31, 2004		6,698			—		—		6,698
Impairment charge		—			—		—		—
At December 31, 2005		6,698			—		—		6,698
Net book value
At December 31, 2005		349,969			48,051		24,882		422,902
At December 31, 2004		431,539			49,307		34,201		515,047

33

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

17 INTANGIBLE ASSETS (continued)

	Group
	Technical		Land use
	know-how		rights		Others		Total
	RMB		RMB		RMB		RMB
Cost
At December 31, 2003		914,208		61,843		84,089		1,060,140
Transfer from construction in progress		10,257		—		—		10,257
Additions		40		—		—		40
At December 31, 2004		924,505		61,843		84,089		1,070,437
Accumulated amortisation
At December 31, 2003		386,758		11,279		40,569		438,606
Charge for the year		99,510		1,257		9,319		110,086
At December 31, 2004		486,268		12,536		49,888		548,692
Provision for impairment
At December 31, 2003		—		—		—		—
Impairment charge		6,698		—		—		6,698
At December 31, 2004		6,698		—		—		6,698
Net book value
At December 31, 2004		431,539		49,307		34,201		515,047
At December 31, 2003		527,450		50,564		43,520		621,534

34

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Amounts in thousands unless otherwise stated)

17 INTANGIBLE ASSETS (continued)

	Company
	Technical			Land use
	know-how			rights		Others		Total
	RMB			RMB		RMB		RMB
Cost
At December 31, 2004		924,408			61,843		84,089		1,070,340
Transfer from construction in progress		4,417			—		—		4,417
Disposal		(44,805	)		—		—		(44,805	)
At December 31, 2005		884,020			61,843		84,089		1,029,952
Accumulated amortisation
At December 31, 2004		486,171			12,536		49,888		548,595
Charge for the year		85,987			1,256		9,319		96,562
Disposal		(44,805	)		—		—		(44,805	)
At December 31, 2005		527,353			13,792		59,207		600,352
Provision for impairment
At December 31, 2004		6,698			—		—		6,698
Impairment charge		—			—		—		—
At December 31, 2005		6,698			—		—		6,698
Net book value
At December 31, 2005		349,969			48,051		24,882		422,902
At December 31, 2004		431,539			49,307		34,201		515,047

35

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Amounts in thousands unless otherwise stated)

17 INTANGIBLE ASSETS (continued)

	Company
	Technical		Land use
	know-how		rights		Others		Total
	RMB		RMB		RMB		RMB
Cost
At December 31, 2003		914,151		61,843		84,089		1,060,083
Transfer from construction in progress		10,257		—		—		10,257
Additions		40		—		—		40
At December 31, 2004		924,408		61,843		84,089		1,070,340
Accumulated amortisation
At December 31, 2003		386,757		11,279		40,569		438,605
Charge for the year		99,414		1,257		9,319		110,990
At December 31, 2004		486,171		12,536		49,888		548,595
Provision for impairment
At December 31, 2003		—		—		—		—
Impairment charge		6,698		—		—		6,698
At December 31, 2004		6,698		—		—		6,698
Net book value
At December 31, 2004		431,539		49,307		34,201		515,047
At December 31, 2003		527,394		50,564		43,520		621,478

36

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

18 INVENTORIES

	Group						Company
	2005			2004			2005			2004
	RMB			RMB			RMB			RMB
Raw materials		945,520			1,294,877			939,760			1,286,486
Work in progress		572,050			692,320			559,570			669,917
Finished goods		145,908			460,687			139,519			451,272
Spare parts		468,402			406,903			468,402			406,903
Low value consumables and packing materials		3,117			7,563			3,117			7,563
		2,134,997			2,862,350			2,110,368			2,822,141
Less: Provision of inventory writedowns		(256,294	)		(256,297	)		(255,623	)		(255,623	)
		1,878,703			2,606,053			1,854,745			2,566,518

Inventories of the Group carried at net realisable value amounted to RMB 540,251 (2004: RMB 570,964) at December 31, 2005.

19 ACCOUNTS RECEIVABLE

	Group						Company
	2005			2004			2005			2004
	RMB			RMB			RMB			RMB
Due from third parties		278,643			296,220			275,935			292,423
Due from related parties
- PetroChina		256,777			211,530			254,149			165,242
- JCGC (a fellow subsidiary) Group Companies		28,845			169,077			28,845			169,077
- Subsidiaries		—			—			140,300			116,198
- An associated company		19,473			23,138			19,473			23,138
- Other state-controlled enterprises		203,660			206,722			203,660			206,722
		787,398			906,687			922,362			972,800
Less: Provision for impairment loss
- Due from third parties		(211,932	)		(211,932	)		(211,265	)		(211,265	)
- Due from related parties		(292,125	)		(429,510	)		(292,125	)		(429,510	)
		283,341			265,245			418,972			332,025

Amounts due from related parties are interest free and unsecured. Related parties are offered credit terms of no more than 30 days.

In 2005, accounts receivable of Rmb 137,005 (2004: Rmb 237,879) were written off against the provision for impairment loss.

37

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

19 ACCOUNTS RECEIVABLE (continued)

     The ageing analysis of accounts receivable at December 31, 2005 is as follows:

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Within 1 year		256,777		222,075		394,450		290,897
Between 1 to 2 years		—		2,042		—		—
Between 2 to 3 years		2,042		299		—		299
Over 3 years		528,579		682,271		527,912		681,604
		787,398		906,687		922,362		972,800

     In 2002, the Group implemented a cash sales policy for the majority of its customers. Certain selected customers are offered credit terms of not more than 30 days.

20 PREPAID EXPENSES AND OTHER CURRENT ASSETS

	Group						Company
	2005			2004			2005			2004
	RMB			RMB			RMB			RMB
Other receivables		75,636			98,315			54,174			72,334
Amounts due from related parties
- CNPC Group Companies		118			7,172			118			7,172
- JCGC (a fellow subsidiary) Group Companies		987			138,347			987			138,347
-An associated company		—			239			—			239
- Other state-controlled enterprises		39,267			99,708			39,198			99,624
Down payments to suppliers		39,356			151,635			39,350			151,635
Prepaid expenses		11,391			19,856			10,447			19,475
		166,755			515,272			144,274			488,826
Less: Provision for impairment loss
- Due from third parties		(52,742	)		(52,927	)		(52,742	)		(52,927	)
- Due from related parties		(13,047	)		(20,454	)		(13,047	)		(20,454	)
		100,966			441,891			78,485			415,445

     Amounts due from related parties are interest free, unsecured and repayable in accordance with normal commercial terms.

     In 2005, other receivables of Rmb 6,648(2004: Rmb 134) were written off against the provision for impairment loss.

38

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

21 CASH AND CASH EQUIVALENTS

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Cash on hand		20		6		19		5
Bank deposits balance
- China Petroleum Finance Company Limited (Note (i))		14		19		14		19
- State-controlled banks		8,813		14,604		8,305		11,795
		8,847		14,629		8,338		11,819

(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 year ended December 31, 2005.

22 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Trade payables		1,215,824		1,556,828		1,125,265		1,448,366
Advances from customers		217,236		545,264		211,991		539,233
Salaries and welfare payable		201,209		197,094		187,840		187,446
Other payables and accrued liabilities		191,414		121,461		186,687		116,117
Amounts due to related parties
- PetroChina Group Companies		2,677,218		1,667,303		2,660,016		1,635,648
- CNPC Group Companies		20,214		—		20,214		—
- JCGC (a fellow subsidiary) Group Companies		76,324		85,623		76,324		85,623
- Subsidiaries		—		—		50,340		81,816
- An associated company		7,188		9,109		7,188		9,109
- Other state-controlled enterprises		202,962		247,004		195,977		232,305
		4,809,589		4,429,686		4,721,842		4,335,663

     Amounts due to related parties are interest free, unsecured and with no fixed term of repayment.

39

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

22 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (continued)

     The ageing analysis of trade payables at December 31, 2005 is as follows:

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Within 1 year		1,093,696		1,458,093		1,007,069		1,351,162
Between 1 to 2 years		51,473		33,123		49,907		31,592
Between 2 to 3 years		21,669		23,267		20,293		23,267
Over 3 years		48,986		42,345		47,996		42,345
		1,215,824		1,556,828		1,125,265		1,448,366

23 BORROWINGS

(a) Short-term borrowings

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Bank loans – unsecured (Note (i))		—		44,640		—		—
Loans from a fellow subsidiary (Note (ii))		2,102,570		2,874,330		2,102,570		2,874,330
		2,102,570		2,918,970		2,102,570		2,874,330
Current portion of long-term borrowings		120,598		167,105		120,598		167,105
		2,223,168		3,086,075		2,223,168		3,041,435

(i)	At December 31, 2004, bank loans bear interest at the rate ranging from 5.84% to 7.25% per annum and are guaranteed by Jilin Merchandise Group, a third-party to the Group. These bank loans were fully repaid during 2005.
(ii)	The outstanding loans are the drawn down part of the borrowing facilities provided by CP Finance totalling Rmb 8 billion. The loans are unsecured and bear interest at the rate ranging from 4.776% to 5.262% (2004: from 4.776% to 5.019%) per annum. On July 19, 2005, CP Finance agreed to extend the borrowing facilities period to December 31, 2008.
(iii)	The carrying amounts of short-term borrowings approximate their fair value.

40

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

23 BORROWINGS (continued)

(b) Long-term borrowings

		Group and Company
	Interest rate and final maturity	2005			2004
		RMB			RMB
US dollar - denominated loans
Construction Bank of China	Fixed interest rates of 8.66% per annum as of December 31, 2005, with maturities through 2009		102,420			239,035
JCGC Group Companies	Fixed interest rates ranging from 6.55% to 7.86% per annum as of December 31, 2005, with maturities through 2008		88,795			137,340
Bank of China	Interest free as of December 31, 2005, with maturities through 2029		72,125			77,051
Bank of China	Variable interest rates of Libor + 0.6% as of December 31, 2005, with maturities through 2007		403,510			413,825
Japanese Yen - denominated loans
JCGC Group Companies	Fixed interest rates ranging from 4.10% to 5.30% per annum as of December 31, 2005, with maturities through 2008		89,146			157,746
Euro - denominated loans
JCGC Group Companies	Fixed interest rate of 8.30% per annum as of December 31, 2004, with maturities through 2006, repaid in 2005		—			38,123
Total long-term borrowings			755,996			1,063,120
Less: Current portion of long-term borrowings			(120,598	)		(167,105	)
			635,398			896,015

41

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

23 BORROWINGS (continued)

(b)	Long-term borrowings (continued)
	At December 31, 2005, all long-term borrowings are unsecured (2004: Same).
	At December 31, 2005, long-term borrowings of Rmb 177,941 (2004: Rmb 333,209) from JCGC Group Companies represented borrowings from certain banks through JCGC Group Companies.
	The periods in which the short-term and long-term borrowings reprice and the exposure of the borrowings of the Group to interest rate changes are as follows:

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
6 months or less		60,301		83,553		60,301		83,553
6 – 12 months		2,566,381		3,416,348		2,566,381		3,371,708
1 – 5 years		174,785		403,163		174,785		403,163
Over 5 years		57,099		79,026		57,099		79,026
		2,858,566		3,982,090		2,858,566		3,937,450

	Group				Company
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Total borrowings
- at fixed rates		2,455,056		3,568,265		2,455,056		3,523,625
- at variable rates		403,510		413,825		403,510		413,825
		2,858,566		3,982,090		2,858,566		3,937,450

The weighted average effective interest rates at the balance sheet date are as follows:

Weighted average effective interest rates:
- bank loans	4.63	%	5.15	%	4.63	%	5.07	%
- loans from other related parties	5.17	%	5.11	%	5.17	%	5.11	%

42

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

23 BORROWINGS (continued)

     The carrying amounts and fair values of long-term borrowings are as follows:

	Group and Company				Group and Company
	Carrying amounts				Fair values
	2005		2004		2005		2004
	RMB		RMB		RMB		RMB
Bank loans		578,055		729,911		552,685		718,887
Loans from other related parties		177,941		333,209		193,680		355,796
		755,996		1,063,120		746,365		1,074,683

The fair values are based on discounted cash flows using applicable discount rates based upon the prevailing market rates of interest available to the Group for financial instruments with substantially the same terms and characteristics at the balance sheet date. Such discount rates ranged from 0.13% to 5.85% as of December 31, 2005 depending on the type of the borrowings. The carrying amounts of current portion of long term borrowings approximate their fair value.

Maturities of long-term borrowings at the balance sheet date are as follows:

	Group and Company
	2005		2004
	RMB		RMB
Bank loans
- within 1 year		28,605		47,412
- between 1 to 2 years		432,125		47,412
- between 2 to 5 years		60,226		556,061
- after 5 years		57,099		79,026
		578,055		729,911

	Group and Company
	2005		2004
	RMB		RMB
Loans from other related parties
- within 1 year		91,993		119,693
- between 1 to 2 years		59,314		119,693
- between 2 to 5 years		26,634		93,823
		177,941		333,209

43

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

24 SHARE CAPITAL

	Group and Company
	2005		2004
	RMB		RMB
Registered, issued and fully paid:
- 2,396,300,000 state-owned shares of Rmb 1.00 each		2,396,300		2,396,300
- 964,778,000 H shares and ADS of Rmb 1.00 each		964,778		964,778
- 200,000,000 A shares of Rmb 1.00 each		200,000		200,000
		3,561,078		3,561,078

The state-owned shares, H shares, A shares and ADS rank para passu in all respects.

Following the announcement of the Company’s audited results for 2002, the Company’s A shares (which are available only to the PRC nationals) were suspended from trading on the Shenzhen Stock Exchange (the “Exchange”) of the PRC on April 30, 2003 pursuant to the relevant provisions of the China Securities Regulatory Commission and the Exchange, following the recording of losses, computed in accordance with the PRC accounting standards and regulations, for three consecutive years from 2000 to 2002. Following the announcement of the Company’s audited profitable interim results, computed in accordance with the PRC accounting standards and regulations, for the six months ended June 30, 2003, the Company’s A shares resumed trading on the Exchange on September 25, 2003.

44

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

25 RESERVES

						Statutory			Statutory		Discretionary
	Capital		Revaluation			common reserve			common welfare		common
	reserve		reserve			fund			fund		reserve fund		Total
	RMB		RMB			RMB			RMB		RMB		RMB
							(Note (a))			(Note (b))		(Note (c))
Group
Balance at January 1, 2004		1,391,114		8,274			160,155			140,997		400,291		2,100,831
Transfer to accumulated losses on realisation of revaluation reserve		—		(973	)		—			—		—		(973	)
Balance at December 31, 2004		1,391,114		7,301			160,155			140,997		400,291		2,099,858
Transfer to accumulated losses on realisation of revaluation reserve		—		(973	)		—			—		—		(973	)
Other transfers		—		—			(2,172	)		—		—		(2,172	)
Balance at December 31, 2005		1,391,114		6,328			157,983			140,997		400,291		2,096,713
Company
Balance at January 1, 2004		1,391,114		8,274			152,443			140,997		400,291		2,093,119
Transfer to accumulated losses on realisation of revaluation reserve		—		(973	)		—			—		—		(973	)
Balance at December 31, 2004		1,391,114		7,301			152,443			140,997		400,291		2,092,146
Transfer to accumulated losses on realisation of revaluation reserve		—		(973	)		—			—		—		(973	)
Balance at December 31, 2005		1,391,114		6,328			152,443			140,997		400,291		2,091,173

45

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

25 RESERVES (continued)

(a)	Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 10% of its distributable profit, as determined under the PRC accounting regulations, to the statutory common reserve fund until the fund aggregates to 50% of the Company’s registered capital. The transfer to this reserve must be made before distribution of dividend to shareholders.
	The statutory common reserve fund shall only be used to make good previous years’ losses, to expand the Company’s production operations, or to increase the capital of the Company. Upon approval by a resolution of shareholders’ general meeting, the Company may convert its statutory common reserve fund into share capital and issue bonus shares to existing shareholders in proportion to their original shareholdings or to increase the nominal value of each share currently held by them, provided that the balance of the reserve fund after such issue is not less than 25% of the registered capital.
	Since the Company had an accumulated loss at December 31, 2005, no appropriation to the statutory common reserve fund was made in 2005 (2004: nil).
(b)	Pursuant to the PRC regulations and the Company’s Articles of Association, the Company is required to transfer 5% to 10% of its distributable profit, as determined under the PRC accounting regulations, to the statutory common welfare fund. This fund can only be used to provide staff welfare facilities and other collective benefits to the Company’s employees. This fund is non-distributable other than in liquidation.
	Since the Company had an accumulated loss at December 31, 2005, no appropriation to the statutory common welfare fund was made in 2005 (2004: nil).
(c)	Transfer to the discretionary common reserve fund is subject to approval by the shareholders at general meeting. Its usage is similar to that of the statutory common reserve fund.
	No transfer to the discretionary common reserve fund has been proposed by the Board of Directors.
(d)	The Company’s distributable reserve at December 31, 2005 under the PRC accounting regulations is nil (2004: nil).

46

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

26	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:

	Group and Company
	At January 1,		Profit and			At December 31,
	2005		loss account			2005
	RMB		RMB			RMB
Deferred tax liabilities:
Non-current:
Revaluation of fixed assets (Note 13)		2,787		(479	)		2,308
Exchange gain in respect of loans borrowed for fixed assets		18,304		(2,413	)		15,891
Deferred tax effect on housing subsidy cost		11,288		(3,075	)		8,213
Deferred tax effect on accelerated depreciation and amortisation		119,622		217,612			337,234
Total deferred tax liabilities		152,001		211,645			363,646
Deferred tax assets:
Non-current:
Deferred tax effect on tax losses		—		542,971			542,971
Deferred tax effect on deductible temporary differences		435,203		(58,531	)		376,672
Total deferred tax assets		435,203		484,440			919,643
Net deferred tax balance		283,202		272,795			555,997

47

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

26 DEFERRED INCOME TAX (continued)

	Group and Company
	At January 1,		Profit and			At December 31,
	2004		loss account			2004
	RMB		RMB			RMB
Deferred tax liabilities:
Non-current:
Revaluation of fixed assets (Note 13)		3,266		(479	)		2,787
Exchange gain in respect of loans borrowed for fixed assets		20,717		(2,413	)		18,304
Deferred tax effect on housing subsidy cost		14,363		(3,075	)		11,288
Deferred tax effect on accelerated depreciation and amortisation		—		119,622			119,622
Total deferred tax liabilities		38,346		113,655			152,001
Deferred tax assets:
Non-current:
Deferred tax effect on tax losses		38,346		(38,346	)		—
Deferred tax effect on deductible temporary differences		—		435,203			435,203
Total deferred tax assets		38,346		396,857			435,203
Net deferred tax balance		—		283,202			283,202

The deferred tax assets were arising from tax losses available to be offset against future taxable income.

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 September 20, 2004, the Chinese Ministry of Finance and State Administration of Taxation 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 July 1, 2004. Therefore, at December 31, 2005, deferred tax liabilities of Rmb 337,234 (2004: Rmb 119,622) is recognised on the temporary difference arising from accelerated depreciation and amortisation.

48

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

27 CASH FLOWS FROM OPERATING ACTIVITIES

						2004
	Notes		2005			(Note2(a))
			RMB			RMB
(Loss) / profit for the year				(733,581	)		2,527,986
Adjustments for:
Income tax		9		(383,353	)		(171,418	)
Depreciation and amortisation		5		1,078,298			1,147,278
(Reversal)/provision for impairment of receivables		5		(380	)		11,050
(Reversal)/provision for impairment of prepaid expenses and other current assets		5		(944	)		1,372
(Reversal)/provision for inventory writedowns		5		(3	)		77,544
Provision for impairment of property, plant and equipment		5		155,220			7,220
Provision for impairment of intangible assets		5		—			6,698
Net loss/(profit) on disposal of property, plant and equipment		5		9,260			(26,412	)
Share of profit of a jointly controlled entity		15		(13,881	)		(36,113	)
Share of profit of an associated company		16		(1,719	)		(4,397	)
Interest income				(1,153	)		(1,753	)
Interest expense		7		165,279			270,071
Changes in working capital:
Accounts and other receivables (net)				326,621			(256,510	)
Inventories				727,353			(1,115,504	)
Payables and accrued liabilities (net)				330,315			933,663
CASH GENERATED FROM OPERATIONS				1,657,332			3,370,775
Income tax paid				(16,982	)		—
Interest received				1,153			1,753
Interest paid				(165,608	)		(297,749	)
NET CASH PROVIDED BY OPERATING ACTIVITIES				1,475,895			3,074,779

49

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

28	SEGMENT INFORMATION
(a)	Primary reporting format — business segments
	The Group is principally engaged in the following four business segments in the PRC, petroleum products, petrochemical and organic chemical products, chemical fertilisers and inorganic chemicals, and synthetic rubber products.

(i)	The petroleum products segment is engaged in the production of gasoline, diesel oil, solvent oil and other by-products such as lubricants. While certain of the products produced by the Group are used as raw materials in the production of petrochemicals, a major portion is sold to outside customers.
(ii)	The petrochemical and organic chemical products segment primarily produces ethanol, acetic acid and acetic anhydride.
(iii)	The chemical fertilisers and inorganic chemicals segment principally produces ammonium nitrate, urea, ammonium chloride, sulphuric acid and slag.
(iv)	The synthetic rubber products segment primarily produces styrene-butadiene-rubber.

The other products and services segment includes sales of raw materials purchased from third parties to related parties at cost to receive favourable discounts and provision of utilities, maintenance and other related services.

The accounting policies of the operating segments are the same as those described in Note 2 - “Summary of principal accounting policies”.

Intersegment sales are conducted principally at market price.

Operating segment information for the years ended December 31, 2004 and 2005 is presented below.

50

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

28	SEGMENT INFORMATION (continued)
(a)	Primary reporting format — business segments (continued)

							Chemical
				Petrochemical			fertilisers and
	Petroleum			and organic			inorganic			Synthetic rubber		Other products
Year ended December 31, 2005	products			chemical products			chemicals			products		and services			Total
	RMB			RMB			RMB			RMB		RMB			RMB
Profit and loss
Sales (including intersegment)		22,064,250			14,736,452			596,192			1,696,853		3,659,911			42,753,658
Less: Intersegment sales		(7,358,576	)		(1,243,723	)		—			—		(447,579	)		(9,049,878	)
Total sales to external customers		14,705,674			13,492,729			596,192			1,696,853		3,212,332			33,703,780
Segment results		(2,498,485	)		1,515,106			(108,334	)		276,777		(201,604	)		(1,016,540	)
Finance costs – net																(115,994	)
Share of profit of a jointly controlled entity		—			13,881			—			—		—			13,881
Share of profit of an associated company		—			—			—			—		1,719			1,719
Loss before taxation																(1,116,934	)
Taxation																383,353
Minority interest																256
Loss attributable to equity holders of the Company																(733,325	)
Depreciation and amortisation		538,673			367,095			21,955			44,254		106,321			1,078,298
Impairment of property, plant and equipment		—			—			90,430			—		64,790			155,220
Reversal of impairment of current assets (receivables and inventories)																(1,327	)
Assets and liabilities
Segment assets		1,768,965			7,600,953			333,794			1,253,899		386,190			11,343,801
Interests in a jointly controlled entity		—			79,716			—			—		—			79,716
Investment in an associated company		—			—			—			—		11,024			11,024
Deferred income tax assets																555,997
Total assets																11,990,538
Segment current liabilities		3,204,455			658,959			585,389			138,153		222,705			4,809,661
Borrowings																2,858,566
Total liabilities																7,668,227
Segment capital expenditure on property, plant and equipment and on intangible assets		610			311,435			13,431			143,406		15,951			484,833

51

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

28	SEGMENT INFORMATION (continued)
(a)	Primary reporting format — business segments (continued)

							Chemical
				Petrochemical			fertilisers and
	Petroleum			and organic			inorganic			Synthetic rubber		Other products
Year ended December 31, 2004	products			chemical products			chemicals			products		and services			Total
	RMB			RMB			RMB			RMB		RMB			RMB
Profit and loss
Sales (including intersegment)		18,079,875			13,550,409			664,246			1,793,689		3,666,195			37,754,414
Less: Intersegment sales		(4,702,040	)		(782,150	)		—			—		(412,801	)		(5,896,991	)
Total sales to external customers		13,377,835			12,768,259			664,246			1,793,689		3,253,394			31,857,423
Segment results		(475,328	)		2,939,339			(80,353	)		317,016		(107,646	)		2,593,028
Finance costs – net																(276,970	)
Share of profit of a jointly controlled entity		—			36,113			—			—		—			36,113
Share of profit of an associated company		—			—			—			—		4,397			4,397
Profit before taxation																2,356,568
Taxation																171,418
Minority interest																16,524
Profit attributable to equity holders of the Company																2,544,510
Depreciation and amortisation		549,867			377,907			29,290			58,087		132,127			1,147,278
Impairment of property, plant and equipment		—			—			4,680			—		2,540			7,220
Impairment of intangible assets		—			6,698			—			—		—			6,698
Impairment of current assets (receivables and inventories)																89,966
Assets and liabilities
Segment assets		1,844,441			9,175,528			561,825			991,418		638,643			13,211,855
Interests in a jointly controlled entity		—			89,835			—			—		—			89,835
Investment in an associated company		—			—			—			—		9,305			9,305
Deferred income tax assets																283,202
Total assets																13,594,197
Segment current liabilities		594,431			3,054,582			552,913			130,489		210,350			4,542,765
Borrowings																3,982,090
Total liabilities																8,524,855
Segment capital expenditure on property, plant and equipment and on intangible assets		263,201			189,023			11,462			65,136		13,219			542,041

52

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

28	SEGMENT INFORMATION (continued)
(b)	Secondary reporting format — geographical segments
	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.
29	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.
	In addition to the related party information shown elsewhere in these consolidated financial statements (amounts due from and due to related parties are disclosed in Note 19 – “Accounts receivable”, Note 20 – “Prepaid expenses and other current assets”, Note 21 – “Cash and cash equivalents” and Note 22 – “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:

	Note			2005		2004
				RMB		RMB
PetroChina (parent)
Purchase of crude oil		(a	)		17,475,693		11,789,022
Purchase of production materials		(a	)		3,572,397		7,447,892
Sale of gasoline and diesel oil		(b	)		13,643,594		10,712,175
Sale of petrochemical goods		(b	)		10,660,878		11,519,222
Railway transport and water treatment services		(b	)		40,906		29,706
Lease machinery and equipment		(c	)		31,930		27,733
Property safety insurance fund		(d	)		32,961		32,958
CNPC Group Companies
Interest income		(e	)		235		133
Purchase of production materials		(f	)		56,755		52,830

53

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

29 RELATED PARTY TRANSACTIONS (continued)

	Note			2005		2004
				RMB		RMB
JCGC (a fellow subsidiary) Group Companies
Sale of products		(g	)		1,134,403		1,417,140
Examination and maintenance services		(h	)		15,977		19,665
Construction of property, plant and equipment		(i	)		31,802		76,342
Purchase of production materials and spare parts		(j	)		404,238		148,587
Purchase of utilities and logistic services		(k	)		276,180		262,961
Operating lease rentals in land and property		(l	)		9,390		7,680
An associated company
Sale of goods		(m	)		389,035		56,142
Purchase of materials		(n	)		28,154		26,596
Other state-controlled banks and enterprises
Interest income		(o	)		918		1,620
Sale of goods		(p	)		1,283,444		1,089,952
Purchase of crude oil		(q	)		4,263,531		3,415,809
Purchase of materials		(q	)		1,267,492		1,004,850

(a)	Represents purchase of crude oil, naphtha, benzene, etc.
(b)	Represents sale of diesel oil, gasoline, 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.

54

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

29 RELATED PARTY TRANSACTIONS (continued)

(j)	Represents purchase of spare parts, low value consumables etc.
(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.

55

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

29 RELATED PARTY TRANSACTIONS (continued)

	2005			2004
Loan from related parties	RMB			RMB
CNPC Group Companies
Principal
Beginning of the year		2,874,330			4,791,900
Loan received during the year		7,623,870			8,531,610
Loan repayments		(8,395,630	)		(10,449,180	)
End of the year		2,102,570			2,874,330
Interest expenses
Beginning of the year		—			—
Interest charged during the year		101,734			212,814
Interest paid		(101,734	)		(212,814	)
End of the year		—			—
JCGC (a fellow subsidiary) Group Companies
Principal
Beginning of the year		333,209			441,726
Loan repayments		(155,268	)		(108,517	)
End of the year		177,941			333,209
Interest expenses
Beginning of the year		14,731			14,503
Interest charged during the year		17,395			23,747
Interest paid		(18,114	)		(23,519	)
End of the year		14,012			14,731
State-controlled Banks
Principal
Beginning of the year		774,551			1,276,271
Loan received during the year		—			472,631
Loan repayments		(196,496	)		(974,351	)
End of the year		578,055			774,551
Interest expenses
Beginning of the year		11,319			39,225
Interest charged during the year		46,150			33,510
Interest paid		(45,760	)		(61,416	)
End of the year		11,709			11,319

	2005		2004
Key management compensation	RMB		RMB
Fee for key management personnel		80		80
Salaries, allowance and other benefits		713		675
Contribution to retirement benefit scheme		10		9
		803		764

56

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

30	FINANCIAL INSTRUMENTS
(a)	Financial risk factors
	The Group’s operations expose it to various financial risks, including credit risk, foreign exchange risk, interest rate risk and liquidity risk. While the Group has not used derivative financial instruments for hedging or trading purposes, it focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on its financial performance of the Group. The Group’s senior management has written policies covering specific financial risks indicated above.

(i)	Credit risk
	The carrying amounts of receivables included in the consolidated balance sheet represent the Group’s maximum exposure to credit risk in relation to its financial assets. No other financial assets carry a significant exposure to credit risk. Cash is placed with state-owned banks and financial institutions.
(ii)	Foreign exchange risk
	The Group operates in the PRC and transactions are primarily denominated in Renminbi, the national currency. The Group is exposed to foreign exchange risk arising from various currency exposures with respect to borrowings denominated in foreign currencies (Note 23).
(iii)	Interest rate risk
	The Group has no significant interest-bearing assets, as such its income and operating cash flows are substantially independent of changes in market interest rates. The Group sometimes borrows at variable rates and these represent the Group’s maximum exposure to interest rate risk in relation to its financial liabilities.

57

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(Amounts in thousands unless otherwise stated)

30 FINANCIAL INSTRUMENTS (continued)

(iv)

Liquidity risk

The Group depends on cash flows from operations, loans from banks and related parties, and equity financing to satisfy its liquidity and capital needs. Management reviews the Group’s working capital and liquidity position on a regular basis to ensure it has sufficient resources to meet its working capital needs and to continue its operations for the foreseeable future. In addition, management also aims at maintaining flexibility in funding by keeping committed credit lines available. The Company expects to receive continuing support from CNPC for its working capital requirements in the foreseeable future. In this regard, CP Finance, a subsidiary of CNPC, has agreed to extend the period of borrowing facilities, totalling Rmb 8 billion, available to the Company to December 31, 2008 (Note 23).

(b)	Fair values
	The carrying amounts of the following financial assets and financial liabilities, net of impairment provisions, approximate their fair values: cash, trade receivables and payables, other receivables and payables and short-term borrowings. The fair value of long-term borrowings is disclosed in Note 23.
31	MAJOR CUSTOMERS
	The Group’s major customers are as follows:

			2005				2004
			% to total				% to total
	Turnover		turnover		Turnover		turnover
	RMB		%		RMB		%
PetroChina Group Companies		24,345,378		73		22,261,103		70
JCGC Group Companies		1,134,403		3		1,417,140		4
		25,479,781		76		23,678,243		74

58

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

32 CAPITAL COMMITMENTS

	2005		2004
	RMB		RMB
Contracted but not provided for in respect of plant and equipment		47,733		153,564

33	SUBSEQUENT EVENT
	Pursuant to the resolution passed by PetroChina’s Board of Directors’ meeting held on October 26, 2005, PetroChina offered to acquire all the outstanding 200,000,000 A shares and 964,778,000 H shares (including ADS) of the Company from the minority shareholders at Rmb 5.25 per A share and HK$ 2.80 per H share respectively and the offer period ended in February 2006. Subsequent to the end of the respective offering periods in February 2006, PetroChina has acquired from tendering minority shareholders 922,833,976 H shares (including ADS) and 184,227,550 A shares of the Company, representing totally 31.09% of the total issued share capital. As a result of this acquisition, PetroChina owns 98.38% of the total issued share capital of the Company. As approved by the related authorities, the Company ceased to be listed on the Stock Exchange of Hong Kong Limited, New York Stock Exchange and Shenzhen Stock Exchange on January 23, 2006, February 15, 2006 and February 20, 2006, respectively.
34	APPROVAL OF FINANCIAL STATEMENTS
	The financial statements have been approved by the board of directors on June 7, 2006 and will be submitted to the shareholders for approval at the annual general meeting to be held on June 28, 2006.

59

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS

PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”)

AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

Effect of significant differences between PRC GAAP and IFRS on (loss)/profit and equity is summarised below.

		Year ended December 31,
	Notes	2005			2004
		RMB			RMB
Net (loss)/profit as reported under PRC GAAP			(762,479	)		2,573,760
Adjustments to conform with IFRS:
- Depreciation expense due to revaluation of fixed assets at February 28, 1995	(i)		(1,452	)		(1,452	)
- Depreciation expense on fixed assets due to difference in exchange gains capitalised	(iii)		(7,311	)		(7,311	)
- Amortisation of housing subsidy cost	(iv)		(9,319	)		(9,319	)
- Reversal of amortisation of land use rights	(v)		21,608			21,211
- Profit on disposal of land use right	(vi)		17,737			—
- Write-off waived payables	(vii)		1,924			—
- Tax adjustment	(viii)		5,967			(32,379	)
- Minority interest	(ix)		(256	)		(16,524	)
(Loss)/profit as reported under IFRS			(733,581	)		2,527,986

1

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS

PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”)

AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

(continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

	Notes	December 31, 2005			December 31, 2004
		RMB			RMB
Shareholders’ equity as reported under PRC GAAP			5,093,069			5,853,624
Adjustments to conform with IFRS:
- Surplus on revaluation of fixed assets at February 28, 1995	(i)		29,033			29,033
- Deferred tax effect on revaluation surplus on revaluation of fixed assets at February 28, 1995	(i)		(9,580	)		(9,580	)
- Depreciation expense due to revaluation at February 28, 1995	(i)		(15,729	)		(14,277	)
- Difference in loss on write-off of fixed assets due to revaluation at February 28, 1995	(ii)		(6,309	)		(6,309	)
- Exchange gains in respect of funds borrowed for fixed assets	(iii)		112,471			112,471
- Depreciation expense on fixed assets due to difference in exchange gains capitalised	(iii)		(64,317	)		(57,006	)
- Housing subsidy cost	(iv)		24,883			34,202
- Deferred tax effect on housing subsidy cost	(iv)		(23,587	)		(23,587	)
- Adjustment of land use rights at January 1, 2001	(v)		(842,685	)		(864,293	)
- Profit on disposal of land use right	(vi)		17,737			—
- Tax adjustment	(viii)		6,755			788
- Minority interest	(ix)		570			14,276
Equity as reported under IFRS			4,322,311			5,069,342

2

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS

PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”)

AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

(continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(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 February 28, 1995. The valuation resulted in a surplus of Rmb 29,033. The surplus arising from the valuation was credited to revaluation reserve. Depreciation expense under IFRS includes the effect of revaluation of fixed assets at February 28, 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 February 28, 1995 were written off in connection with the shut down of manufacturing assets. As the effect of the valuation at February 28, 1995 has not been recognised under PRC GAAP, additional loss on write-off of fixed assets relating to the surplus arising from the February 28, 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 Rmb 84,089, after netting off deferred tax of Rmb 23,587, was credited to capital reserve under IFRS. Under PRC GAAP, the payable of Rmb 84,089 was offset against housing subsidy cost brought forward of Rmb 75,681 and the balance of Rmb 8,408 was credited to capital reserve. Consequently, there is no amortisation of housing subsidy cost under PRC GAAP.

3

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN FINANCIAL STATEMENTS

PREPARED UNDER PRC ACCOUNTING REGULATIONS (“PRC GAAP”)

AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)

(continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

(v)	Under PRC GAAP, land use rights are recognised at the appraised value and amortised over 50 years. With effect from January 1, 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)	It represents the profit recognised on the land use right disposal in August 2005. Revaluation surplus on this land use right was recognised under PRC GAAP but not under IFRS. Hence, the profit on this disposal recognised under IFRS exceeded the one recognised under PRC accounting standards by Rmb 17,737.
(vii)	Under IFRS, write-off waived payables is recorded as income. Under PRC GAAP, write-off waived payables is directly recorded in reserves, after netting off income tax.
(viii)	Adjustment of deferred tax effect in (i) and (iv) above.
(ix)	In accordance with the revised IAS1 and 27 (both revised in 2003), minority interest becomes part of the (loss)/profit for the period and total equity of the Group, whereas under PRC GAAP, they are respectively excluded from the net (loss)/profit and total shareholders’ equity of the Group.

4

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

Effect of significant differences between IFRS and US GAAP on (loss)/profit and equity is summarised below:

		Year ended December 31,
	Notes	2005			2004			2005
		RMB			RMB			USD
(Loss)/profit under IFRS			(733,581	)		2,527,986			(90,900	)
US GAAP adjustments:
- Depreciation charge on fixed asset revaluation surplus on Restructuring and at February 28, 1995	(i)		9,082			11,223			1,125
- Depreciation charge on writedown in carrying amount (net of minority interests) of fixed assets, net of impairment	(i)		(25,445	)		(25,445	)		(3,153	)
- Difference in loss on write-off of fixed assets due to writedown in carrying amount of fixed assets	(i)		—			(25,094	)		—
- Depreciation charge on foreign currency translation difference on interest components capitalised in fixed assets	(ii)		1,531			1,531			190
- Tax effect	(iv)		4,894			(20,317	)		606
- Minority interest	(v)		256			16,524			32
(Loss)/profit under US GAAP			(743,263	)		2,486,408			(92,100	)
Basic and diluted (loss)/earnings per share			(RMB 0.21	)		RMB 0.70			(USD 0.03	)

5

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

		December			December			December
	Notes	31, 2005			31, 2004			31, 2005
		RMB			RMB			USD
Equity as reported under IFRS			4,322,311			5,069,342			535,589
US GAAP adjustments:
- Fixed asset revaluation on Restructuring and at February 28, 1995	(i)		(744,007	)		(744,007	)		(92,192	)
- Depreciation charge on fixed assets due to revaluation on Restructuring and at February 28, 1995	(i)		685,766			676,684			84,975
- Reduction in loss on write-off of fixed assets	(i)		11,532			11,532			1,429
- Reversal of writedown in carrying amount (net of minority interests) of fixed assets, net of impairment of fixed assets	(i)		254,446			254,446			31,529
- Depreciation charge on writedown in carrying amount (net of minority interests) of fixed assets, net of impairment	(i)		(78,844	)		(53,399	)		(9,770	)
- Foreign currency translation difference on interest components capitalised in fixed assets	(ii)		(30,616	)		(30,616	)		(3,794	)
- Depreciation charge on foreign currency translation difference on interest components capitalised in fixed assets	(ii)		13,779			12,248			1,707
- Gain on transfer of fixed assets to Jilian	(iii)		(65,320	)		(65,320	)		(8,094	)
- Tax effect	(iv)		(15,423	)		(20,317	)		(1,910	)
- Minority interest	(v)		(570	)		(14,276	)		(71	)
Equity as reported under US GAAP			4,353,054			5,096,317			539,398

6

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

Changes in equity under US GAAP for the years ended December 31, 2005 and 2004 are as follows:

	Year ended December 31,
	2005			2004		2005
	RMB			RMB		USD
Equity as reported under US GAAP at beginning of the year		5,096,317			2,609,909		631,498
(Loss)/profit for the year		(743,263	)		2,486,408		(92,100	)
Equity as reported under US GAAP at end of the year		4,353,054			5,096,317		539,398

7

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

(i)	Revaluation of fixed assets
	On September 30, 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 Rmb 714,974 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 year ended December 31, 2005 was Rmb 7,630 (2004: Rmb 9,771), representing the depreciation charge of Rmb 7,630 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 February 28, 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 Rmb 29,033, 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 year ended December 31, 2005 was Rmb 1,452 (2004: Rmb 1,452). For purposes of reconciling to the US GAAP financial data, the revaluation surplus, the related depreciation charge are reversed.
	In prior years, certain fixed assets with a net book value of Rmb 11,532 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.

8

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

(i)	Revaluation of fixed assets (continued)
	As at December 31, 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 Rmb 323,844. Under IFRS, the adjustment arising from the comparison, net of minority interests of Rmb 1,604, amounting to Rmb 322,240 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 December 31, 2003, the discounted cash flows of certain fixed assets among the above write-down fixed assets were lower than their carrying value by Rmb 42,700 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 Rmb 25,094 (2005: nil) due to the above write-down adjustment of Rmb 322,240 at December 31, 2002 were written off. For purposes of reconciling to the US GAAP financial data, the additional loss on fixed assets write-down, amounting to Rmb 25,094 is charged to the income statement.
	The net impact of the above write-down adjustment of Rmb 254,446 (2004: Rmb 254,446) is reversed as at December 31, 2005. The related depreciation of above write-down adjustment in 2005 of Rmb 25,445 (2004: Rmb 25,445) is charged to the income statement.
(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.

9

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

(iii)	Fixed assets transferred to Jilian
	During the period ended December 31, 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 Rmb 121,309 within the revaluation reserve and recognized a gain of Rmb 65,320, 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 year ended December 31, 2005 was Rmb 7,630 (2004: Rmb 7,630). 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 February 28, 1995 for the reconciliation to US GAAP.
(iv)	Income tax effect
	Adjustment to reflect deferred tax effect of U.S. GAAP reconciliation items (i) through (iii) above. Prior to year 2004, a full valuation allowance was established under U.S. GAAP to reduce net deferred tax assets to zero. Beginning year 2004, no valuation allowance is needed 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 (loss)/profit for the period and total equity of the Group, whereas under US GAAP, they are respectively excluded from the net (loss)/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 : Rmb8.0702 announced by the People’s Bank of China as at December 31, 2005. No representation is made that the Rmb amounts could have been or could be converted into US dollars at that rate.

10

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

Recent US accounting pronouncements

On November 24, 2004, the FASB issued Statement No. 151, “Inventory Costs”, an amendment of ARB No. 43, Chapter 4 (FAS 151). FAS 151 requires that abnormal amounts of idle capacity and spoilage costs be excluded from the cost of inventory and expensed when incurred. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. The Group does not expect the adoption of FAS 151 to have a material impact on the Group’s financial position or results of operation.

On December 15, 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets”, an amendment of APB Opinion No. 29 (FAS 153). FAS 153 requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless (1) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits or (2) the transactions lack commercial substance. FAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Group does not expect the adoption of FAS 153 to have a material impact on the Group’s financial position or results of operation.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement” (FIN 47), an Interpretation of FASB Statement No.143. This Interpretation clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated when incurred. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimated the fair value of an asset retirement obligation. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on the Group’s financial position or operational results.

11

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

UNAUDITED SUPPLEMENTARY INFORMATION

SIGNIFICANT DIFFERENCES BETWEEN IFRS AND ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF

AMERICA (“US GAAP”) (continued)

FOR THE YEAR ENDED DECEMBER 31, 2005

(Amounts in thousands unless otherwise stated)

In May 2005, the FASB issued Statement No.154, “Accounting changes and Error Corrections” (FAS 154), which replaces APB Opinions No. 20 “Accounting Changes”, and FASB Statement No.3, “Reporting Accounting changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. The reporting of a correction of an error by restating previously issued financial statements is also addressed by this Statement. FAS154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Group does not expect the adoption of FAS 154 to have a material impact on the Group’s financial position or operational results.

12