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

Exhibit 99.5

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

FINANCIAL STATEMENTS AND REPORT OF THE AUDITORS

FOR THE YEAR ENDED DECEMBER 31, 2005

PricewaterhouseCoopers

Zhong Tian CPAs Co., Ltd.

11th Floor,

PricewaterhouseCoopers Center

202 Hu Bin Road

Shanghai 200021

People’s Republic of China

Telephone +86 (21) 6123 8888

Facsimile +86 (21) 6123 8800

Report of the Auditors

PwC ZT Shen Zi (20065) No. 1805

TO THE SHAREHOLDERS OF
JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED

We have audited the accompanying balance sheets of Jilin Chemical Industrial Company Limited (the “Company”) and its subsidiaries (the “Group”) as at December 31, 2005 and the related income statements, profit appropriation statements and cash flow statements of the Company and the Group, respectively, for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with China’s Independent Auditing Standards. 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 policies 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 referred to above conform with the Accounting Standards for Business Enterprises and the “Accounting System for Business Enterprises” promulgated by the People’s Republic of China and present fairly, in all material respects, the financial position of the Group and the Company as at 31 December 2005 and the results of operations and cash flows for the year then ended.

PricewaterhouseCoopers Zhong Tian CPAs Ltd. Co.,

June 7, 2006

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
BALANCE SHEETS AS AT DECEMBER 31, 2005

In Rmb Yuan

	December 31, 2005			December 31, 2004			December 31, 2005			December 31, 2004
	Company			Company			Company			Company
ASSETS
CURRENT ASSETS
Cash and bank (Note V-1)		8,847,111			14,629,219			8,338,394			11,819,321
Short-term investments		—			—			—			—
Notes receivable		—			10,545,237			—			9,456,637
Dividend receivable		—			—			—
Interest receivable		—			—			—
Accounts receivable (Note V-2(a))		283,341,825			254,700,444			418,972,008			322,568,028
Other receivables (Note V-2(b))		22,140,124			45,075,155			677,925			19,094,936
Advances to suppliers (Note V-3)		67,434,717			376,959,411			67,359,593			376,874,901
Subsidy receivable		—			—			—			—
Inventories (Note V-4)		1,878,702,874			2,606,053,383			1,854,744,566			2,566,518,007
Prepaid expenses (Note V-5)		11,391,435			19,856,484			10,447,402			19,474,862
Long-term bond investments maturing within one year		—			—			—			—
Other current assets		—			—			—			—
Total current assets		2,271,858,086			3,327,819,333			2,360,539,888			3,325,806,692
LONG-TERM INVESTMENTS
Long-term equity investments (Note V-6)		90,740,352			99,139,594			125,734,310			169,469,728
Long-term bond investments		—			—			—			—
Total long-term investments		90,740,352			99,139,594			125,734,310			169,469,728
Including: Consolidation difference		—			—			—			—
FIXED ASSETS
Fixed assets-cost		16,250,842,364			16,196,975,563			15,916,646,763			15,822,513,692
Less: Accumulated depreciation		(7,525,525,049	)		(6,719,916,853	)		(7,378,217,445	)		(6,545,147,557	)
Fixed assets-net book value		8,725,317,315			9,477,058,710			8,538,429,318			9,277,366,135
Less: Impairment of fixed assets		(419,228,779	)		(282,023,248	)		(410,799,267	)		(269,931,112	)
Fixed assets-net book amount (Note V-7)		8,306,088,536			9,195,035,462			8,127,630,051			9,007,435,023
Construction materials		2,833,640			2,837,473			2,833,640			2,837,473
Construction in progress (Note V-8)		96,443,016			42,555,665			96,443,016			42,555,665
Fixed assets pending disposal		—			—			—			—
Total fixed assets		8,405,365,192			9,240,428,600			8,226,906,707			9,052,828,161
INTANGIBLE AND OTHER ASSETS
Intangible assets (Note V-9)		1,222,968,023			1,345,139,741			1,221,503,378			1,343,581,225
Long-term deferred expenses (Note V-10)		173,993,448			64,648,462			173,993,448			64,648,462
Other long-term assets		—			—			—			—
Total intangible and other assets		1,396,961,471			1,409,788,203			1,395,496,826			1,408,229,687
DEFERRED TAXES
Deferred tax assets (Note V-11)		582,408,756			315,580,641			582,408,756			315,580,641
TOTAL ASSETS		12,747,333,857			14,392,756,371			12,691,086,487			14,271,914,909

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
BALANCE SHEETS AS AT DECEMBER 31, 2005 (continued)

In Rmb Yuan

	December 31, 2005			December 31, 2004			December 31, 2005			December 31, 2004
	Company			Company			Company			Company
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term loans (Note V-12)		2,102,570,000			2,918,970,000			2,102,570,000			2,874,330,000
Notes payable		—			—			—			—
Accounts payable (Note V-13)		3,422,298,837			1,891,153,893			3,395,084,977			1,864,805,946
Advances from customers (Note V-13)		1,145,106,846			2,137,105,902			1,134,327,047			2,119,941,248
Salaries payable		144,451,913			139,240,168			144,451,913			139,183,607
Welfare payable		56,757,036			57,854,011			43,388,386			48,261,501
Dividend payable		—			—			—			—
Taxes payable (Note V-14)		(167,939,594	)		154,334,897			(167,527,022	)		150,912,286
Other levies payable		—			—			—			—
Other payables (Note V-13)		168,731,596			137,027,193			164,004,320			131,685,926
Accrued expenses (Note V-15)		25,721,583			26,049,897			25,721,583			26,049,897
Provisions		—			—			—			—
Long-term liabilities due within one year (Note V-16)		120,598,417			167,105,430			120,598,417			167,105,430
Other current liabilities		—			—			—			—
Total current liabilities		7,018,296,634			7,628,841,391			6,962,619,621			7,522,275,841
LONG-TERM LIABILITIES
Long-term loans (Note V-17)		549,449,465			682,499,114			549,449,465			682,499,114
Debentures payable		—			—			—			—
Payables due after one year		—			—			—			—
Special project payables		—			—			—			—
Other long-term liabilities (Note V-18)		85,948,543			213,515,526			85,948,543			213,515,526
Total long-term liabilities		635,398,008			896,014,640			635,398,008			896,014,640
DEFERRED TAXES
Deferred tax liabilities		—			—			—			—
TOTAL LIABILITIES		7,653,694,642			8,524,856,031			7,598,017,629			8,418,290,481
MINORITY INTERESTS		570,357			14,275,912			—			—
SHAREHOLDERS’ EQUITY
Share capital (Note V-19)		3,561,078,000			3,561,078,000			3,561,078,000			3,561,078,000
Capital surplus (Note V-20)		2,295,542,695			2,293,618,886			2,295,542,695			2,293,618,886
Statutory common reserve fund (Note V-21)		699,270,943			701,442,717			693,730,248			693,730,248
Including: Statutory common welfare fund		126,834,279			126,834,279			125,287,623			125,287,623
Accumulated losses (Note V-22)		(1,462,822,780	)		(702,515,175	)		(1,457,282,085	)		(694,802,706	)
Foreign exchange difference reserve		—			—			—			—
Total shareholders’ equity		5,093,068,858			5,853,624,428			5,093,068,858			5,853,624,428
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		12,747,333,857			14,392,756,371			12,691,086,487			14,271,914,909

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
PROFIT AND LOSS ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2005

In Rmb Yuan

		2005			2004			2005			2004
	Items	Group			Group			Company			Company
1.SALES REVENUE (Note V-23)			30,390,292,677			27,902,786,502			30,308,325,750			27,865,067,353
Less:	Cost of sales (Note V-24)		(29,683,431,101	)		(23,884,903,088	)		(29,629,394,193	)		(23,820,659,441	)
	Sales tax and other levies (Note V-25)		(747,337,833	)		(728,022,767	)		(747,337,833	)		(728,022,767	)
2.GROSS (LOSS)/PROFIT ON SALES			(40,476,257	)		3,289,860,647			(68,406,276	)		3,316,385,145
Add:	Other operating loss (Note V-26)		(154,637,854	)		(54,161,881	)		(178,791,872	)		(61,427,912	)
Less:	Selling expenses		(16,335,929	)		(24,585,845	)		(16,328,994	)		(24,278,421	)
	General and administrative expenses		(578,068,593	)		(612,394,717	)		(536,332,637	)		(588,118,886	)
	Financial expenses, net (Note V-27)		(116,173,896	)		(277,411,445	)		(112,995,611	)		(270,812,410	)
3.OPERATING (LOSS)/PROFIT			(905,692,529	)		2,321,306,759			(912,855,390	)		2,371,747,516
Add:	Investment income (Note V-28)		15,600,758			40,509,303			16,338,136			8,441,868
	Subsidy income		2,683,084			—			2,683,084			—
	Non-operating income (Note V-29)		32,682,136			76,854,281			32,633,904			74,712,368
Less:	Non-operating expenses (Note V-29)		(285,394,988	)		(85,229,818	)		(278,843,175	)		(85,135,655	)
4.TOTAL (LOSS)/PROFIT			(1,140,121,539	)		2,353,440,525			(1,140,043,441	)		2,369,766,097
Less:	Income tax (Note V-30)		377,386,147			203,795,690			377,564,062			203,993,953
	Minority interests		256,013			16,523,835			—			—
5.NET (LOSS)/PROFIT			(762,479,379	)		2,573,760,050			(762,479,379	)		2,573,760,050

Supplementary Information

	2005				2004
	Group		Company		Group		Company
1. Income from sale and disposal of departments or investees		—		—		—		—
2. Loss from natural catastrophe		—		—		—		—
3. Increase in total profit resulting from change in accounting policies		—		—		—		—
4. Increase in total profit resulting from change in accounting estimates		—		—		—		—
5. Loss from debt restructuring		—		—		—		—
6. Other		—		—		—		—

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
PROFIT APPROPRIATION STATEMENTS FOR YEAR ENDED DECEMBER 31, 2005

In Rmb Yuan

		2005			2004			2005			2004
	Items	Group			Group			Company			Company
1. NET (LOSS)/PROFIT			(762,479,379	)		2,573,760,050			(762,479,379	)		2,573,760,050
Add:	Accumulated losses at the beginning of the year		(702,515,175	)		(3,276,275,225	)		(694,802,706	)		(3,268,562,756	)
	Other transfers		2,171,774			—			—			—
2. ACCUMULATED LOSSES			(1,462,822,780	)		(702,515,175	)		(1,457,282,085	)		(694,802,706	)
Less:	Transfer to statutory common reserve fund		—			—			—			—
	Transfer to statutory common welfare fund		—			—			—			—
	Transfer to staff and workers’ bonus and welfare fund		—			—			—			—
3. ACCUMULATED LOSSES			(1,462,822,780	)		(702,515,175	)		(1,457,282,085	)		(694,802,706	)
Less:	Dividend for preference stocks		—			—			—			—
	Transfer to discretionary common reserve fund		—			—			—			—
	Dividend for common stocks		—			—			—			—
	Dividend for common stocks transferred to capital		—			—			—			—
4. ACCUMULATED LOSSES			(1,462,822,780	)		(702,515,175	)		(1,457,282,085	)		(694,802,706	)

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
CASH FLOW STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

In Rmb Yuan

	2005			2004			2005			2004
Items	Group			Group			Company			Company
1.Cash flows from operating activities
Cash received from sale of goods or rendering of services		38,518,820,505			34,339,225,120			38,210,801,510			34,118,606,354
Government grants		2,683,084			—			2,683,084			—
Cash received relating to other operating activities		7,123,677			4,317,299			6,575,477			9,050,668
Sub-total of cash inflows		38,528,627,266			34,343,542,419			38,220,060,071			34,127,657,022
Cash paid for goods and services		(34,438,797,449	)		(28,406,626,351	)		(34,333,886,492	)		(28,313,185,838	)
Cash paid to and on behalf of employees		(778,575,229	)		(554,644,033	)		(692,984,808	)		(482,321,296	)
Payment of all types of taxes		(1,549,757,010	)		(1,738,994,156	)		(1,511,603,253	)		(1,722,245,226	)
Cash paid relating to other operating activities		(119,995,195	)		(270,749,194	)		(99,595,109	)		(253,296,751	)
Sub-total of cash outflows		(36,887,124,883	)		(30,971,013,734	)		(36,638,069,662	)		(30,771,049,111	)
Net cash flows from operating activities		1,641,502,383			3,372,528,685			1,581,990,409			3,356,607,911
2.Cash flows from investing activities
Cash received from sale of investments		—			—			1,641,580			—
Cash received from return of investments		24,000,000			—			24,000,000			—
Net cash received from disposal of fixed assets and intangible assets		47,857,415			74,290,268			47,661,636			72,178,273
Cash received relating to other investing activities		—			—			—			—
Sub-total of cash inflows		71,857,415			74,290,268			73,303,216			72,178,273
Cash paid to acquire fixed assets, intangible assets and other long-term assets		(430,010,460	)		(642,131,733	)		(417,516,119	)		(629,866,868	)
Cash paid to acquire investments		—			—			—			—
Cash paid relating to other investing activities		—			—			—			—
Sub-total of cash outflows		(430,010,460	)		(642,131,733	)		(417,516,119	)		(629,866,868	)
Net cash flows from investing activities		(358,153,045	)		(567,841,465	)		(344,212,903	)		(557,688,595	)
3.Cash flows from financing activities
Proceeds from issuing shares		—			—			—			—
Including: Cash received from minority shareholders		—			—			—			—
Proceeds from borrowings		7,623,870,000			9,004,240,367			7,623,870,000			8,959,600,367
Cash received relating to other financing activities		—			—			—			—
Sub-total of cash inflows		7,623,870,000			9,004,240,367			7,623,870,000			8,959,600,367
Repayment of borrowings		(8,747,393,645	)		(11,532,047,974	)		(8,702,753,645	)		(11,482,447,974	)
Cash paid for interest expense and distribution of dividends		(165,607,801	)		(297,749,213	)		(162,374,788	)		(294,927,456	)
Including: Dividends paid to minority shareholders		—			—			—			—
Cash paid relating to other financing activities		—			—			—			—
Including: Cash paid to minority shareholders due to reduction of capital of subsidiaries		—			—			—			—
Sub-total of cash outflows		(8,913,001,446	)		(11,829,797,187	)		(8,865,128,433	)		(11,777,375,430	)
Net cash flows from financing activities		(1,289,131,446	)		(2,825,556,820	)		(1,241,258,433	)		(2,817,775,063	)
4.Effect of foreign exchange rate changes on cash		—			—			—			—
5.Net decrease in cash and cash equivalents		(5,782,108	)		(20,869,600	)		(3,480,927	)		(18,855,747	)

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
CASH FLOW STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005

Supplementary Information In Rmb Yuan

	2005			2004			2005			2004
Items	Group			Group			Company			Company
1. Reconciliation of net (loss)/profit to cash flows from operating activities
Net (loss)/profit		(762,479,379	)		2,573,760,050			(762,479,379	)		2,573,760,050
Add: Minority interests		(256,013	)		(16,523,835	)		—			—
Provision for impairment of assets		153,892,661			103,884,647			153,895,409			102,547,603
Depreciation of fixed assets		935,529,062			968,250,527			914,685,336			945,948,808
Amortization of intangible assets		108,852,144			121,977,554			108,758,273			121,784,090
Amortization of long-term deferred expenses		37,441,231			60,177,738			37,441,231			60,177,738
Decrease/(increase) in prepaid expenses		8,465,049			(7,461,221	)		9,027,460			(7,471,708	)
Increase in accrued expenses		—			—			—			—
Gain on disposal of fixed assets and intangible assets		(26,711,283	)		(74,290,268	)		(26,711,283	)		(72,178,273	)
Loss on scrapping of fixed assets		53,707,931			47,878,367			53,111,141			47,784,207
Financial expenses		165,279,487			270,070,785			162,046,474			267,249,028
Investment income		(15,600,758	)		(40,509,303	)		(16,338,136	)		(8,441,868	)
Deferred tax assets		(266,828,115	)		(315,580,641	)		(266,828,115	)		(315,580,641	)
Decrease/(increase) in inventories		727,353,257			(1,115,504,793	)		712,443,041			(1,118,704,503	)
Decrease/(increase) in operating receivables		318,156,647			(249,049,275	)		294,226,041			(235,892,783	)
Increase in operating payables		204,700,462			1,045,448,353			208,712,916			995,626,163
Net cash flows from operating activities		1,641,502,383			3,372,528,685			1,581,990,409			3,356,607,911
2. Investing and financing activities that do not involve cash receipts and payments
Fixed assets transferred to parent company from a liquidated subsidiary		—			—			6,823,919			—
Write-off waived payables to capital surplus		1,923,809			—			1,923,809			—
3. Net decrease in cash and cash equivalents
Cash at the end of the year		8,847,111			14,629,219			8,338,394			11,819,321
Less: Cash at the beginning of the year		(14,629,219	)		(35,498,819	)		(11,819,321	)		(30,675,068	)
Cash equivalents at the end of the year		—			—			—			—
Less: Cash equivalents at the beginning of the year		—			—			—			—
Net decrease in cash and cash equivalents		(5,782,108	)		(20,869,600	)		(3,480,927	)		(18,855,747	)

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

Legal representative:	General manager:	Person in charge of accounting function:	Person in charge of accounting department:
Shen Dian Cheng	Zhang Xing Fu	Wang Chun Xia	Wang Zhong Min

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

I.	CORPORATE INFORMATION
	Jilin Chemical Industrial Company Limited (the “Company”) was established in the People’s Republic of China (the “PRC”) on December 13, 1994 as a joint stock limited company upon the restructuring of Jilin Chemical Industrial Corporation. The principal activities of the Company are the production and sale of petroleum products, petrochemical and organic chemical products, synthetic rubber products, chemical fertilizers and inorganic chemical products, and other related products, and the provision of related services.
	In accordance with the restructuring agreement, the Company issued 2,396,300,000 state-owned shares with a par value of Rmb 1.00 each to Jilin Chemical Industrial Corporation to take over the assets and liabilities of the principal production units, certain ancillary functions and a subsidiary of Jilin Chemical Industrial Corporation. Jilin Chemical Industrial Corporation then changed its name to Jilin Chemical Group Corporation (“JCGC”) and became the Company’s immediate holding company.
	As a state-owned enterprise, JCGC was originally controlled and administered by Jilin provincial government, as well as supervised by the National Administration of Petroleum and Chemical Industries. According to the restructuring regulations promulgated by the State Council of the PRC, JCGC, together with certain oil fields and oil distribution companies, became wholly-owned subsidiaries of China National Petroleum Corporation (“CNPC”) since July 1, 1998. Therefore, CNPC becomes the ultimate holding company of the Company through its control over JCGC. Since then, the Company has been receiving continuing support from CNPC for its working capital requirements. At the date of this report, China Petroleum Finance Company Limited (“CP Finance”), subsidiary of CNPC, has agreed to provide credit facilities of Rmb 8 billion to the Company (see Note V 12).
	In 1999, CNPC and its subsidiaries underwent a corporate restructuring (the “Corporate Restructuring”). According to the Corporate Restructuring, CNPC transferred the 2,396,300,000 state-owned shares of the Company owned by JCGC, together with certain assets and business undertakings of JCGC, to PetroChina Company Limited (“PetroChina”), a wholly-owned subsidiary of CNPC established on November 5, 1999. Accordingly, PetroChina becomes the Company’s immediate holding company.
II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
1.	Basis of preparation of the financial statements
	The financial statements have been prepared in accordance with the Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises as promulgated by the State of the People’s Republic of China.
2.	Accounting period
	The Group’s accounting year starts on January 1 and ends on December 31.
3.	Reporting currency
	The Group uses the Renminbi (“Rmb”) as its reporting currency.

- 8 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.	Basis of accounting
	The Company uses the accrual basis of accounting. Assets are initially recorded at actual cost and subsequently adjusted for impairment, if any.
5.	Foreign currency transactions
	Transactions denominated in foreign currencies are translated into Rmb at the exchange rates stipulated by the People’s Bank of China prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Rmb at the exchange rates stipulated by the People’s Bank of China at the balance sheet date. Exchange differences arising from these translations are expensed, except for those relating to funds borrowed to finance the acquisition of fixed assets during the construction period which have been capitalized.
6.	Cash and cash equivalents
	For the purposes of the cash flow statements, cash refers to all cash on hand and call deposits. Cash equivalents refer to short-term and highly-liquid investments (with original maturities of 3 months or less) that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
7.	Receivables and provision for bad debts
	Receivables comprise accounts receivable and other receivables. The provision method is used to account for potential bad debts identified by management. Receivables are presented at actual amounts net of provision for bad debts.
(a)	Accounts receivables
	Accounts receivable comprises related-party receivables and receivables from non-related parties.
	The Company makes provision for bad debts based on an assessment of the recoverability of accounts receivable. Specific bad debt provisions are made for accounts receivables on an individual basis.
(b)	Other receivables
	Specific provisions are made upon the assessment of the recoverability of other receivables on an individual basis.
(c)	Recognition criteria of bad debts loss
	Where evidence (including liquidation, bankruptcy, negative equity, and significant cash flow problems of debtors, etc.) exists that balances cannot be recovered, bad debts are recognized and the balances are written off against the provision for bad debts.

- 9 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.	Receivables and provision for bad debts (continued)
(d)	Transfer and factor
	Where accounts receivable and notes receivable have been transferred or factored and the cash have been substantially received from customers, the difference between proceeds derived from the transaction, net of relevant taxes, and the carrying amount of the accounts receivable and notes receivable is expensed in the period.
8.	Inventories
	Inventories include raw materials, work in progress, finished goods, low value consumables and packing materials, and are presented at the lower of cost and net realizable value.
	Inventories are recorded at their cost on acquisition. Cost is determined using the weighted average method. Low cost consumables are expensed in full when issued for use. Packaging materials are expensed upon issuance. The cost of finished goods and work in progress comprises raw material, direct labor and an allocation of all production overhead expenditures incurred based on normal operating capacity.
	Provisions for declines in the value of inventories are determined on an item-by-item basis when the carrying value of the inventories is higher than their net realizable value. For large quantity and low value items of inventories, provision is made based on classes of inventories. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale.
	The Group adopts perpetual inventory method for physical inventories.
9.	Long-term investments
	Long-term equity investments comprise equity investments in subsidiaries, joint ventures and associates and other investments in companies that the Company intends to hold for more than one year.
	Subsidiaries are investees in which the Company has, directly or indirectly, an interest of more than 50% of the voting rights, or otherwise has power to govern the investees’ financial and operating policies and obtain benefits from their operating activities. Joint ventures are investees that are under the joint control of the Company and other venturers. Associates generally represent investees in which the Company has an interest of between 20% to 50% of the voting rights or otherwise has significant influence over the financial and operating policies.
	Long-term equity investments are recorded at the cost paid on acquisition. The Company accounts for long-term equity investments in subsidiaries, joint ventures and associates using the equity method of accounting. Other equity investments, which the Company intends to hold for more than one year, are accounted for using the cost method of accounting.

- 10 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9.	Long-term investments (continued)
	When long-term equity investments acquired prior to 17 March 2003 are accounted for using the equity method of accounting, the difference between the initial cost of investment and the proportionate share of the net assets of the investee is amortized using the straight-line method over 10 years. Where long-term equity investments acquired after 17 March 2003 are accounted for using the equity method of accounting, if the initial cost of investment is less than the proportionate share of the net assets of the investee, the difference is accounted for as capital surplus. If there is an excess of the initial cost of investment over the proportionate share of net assets of the investee, the excess is amortized using the straight-line method over 10 years.
	Under the equity method of accounting, the attributable share of the investees’ net profit or loss for the period is recognized as an investment income or loss and the carrying amount of the investment is adjusted accordingly. Cash dividends declared by an investee are accounted for as a reduction of the carrying amount of the investment. Under the cost method of accounting, investment income is recognized when the investees declare dividends.
	Provision for diminution in value of long-term investments is made when the recoverable amount of the investments is lower than their carrying amount due to continuing decrease in their market prices or a deterioration in the invested companies’ operations. The recoverable amount of an individual asset is the higher of its net selling price and its value in use. The net selling price is the amount obtainable from the sale of the asset in an arm’s length transaction between knowledgeable and willing parties, after deducting any incremental direct disposal costs. Value in use is the present value of estimated future cash flows expected to be derived from continuing use of the asset and from its disposal at the end of its useful life.
	When there is an indication that the need for an impairment provision recorded in a prior year no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.
10.	Fixed assets and depreciation
	Fixed assets are tangible assets that are used in production, rendering of services, or held for management purposes, which have useful lives of more than one year and have relatively high unit price. Effective 1 January 2001, when construction takes place upon the Company’s land and the construction is for the Company’s own use, the carrying value of the land use rights is reclassified as part of the building costs within fixed assets.
	Fixed assets purchased or constructed are recorded at cost, or at the appraised amount as approved by the state assets administration authorities pursuant to the Company’s restructuring.

- 11 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.	Fixed assets and depreciation (continued)
	Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. If land use rights used for buildings has longer estimated useful lives than those of buildings, the excessive portion’s value is reflected in determination of the residual value of buildings. For the fixed assets being provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.
	The categories, estimated useful lives, estimated residual values expressed as a percentage of cost and annual depreciation rates are as follows:

	Estimated useful		Estimated residual			Annual depreciation
	life		value			rate
Buildings		10 to 45 years		3	%		2.16 – 9.70	%
Plant and machinery		10 to 28 years		3	%		3.46 – 9.70	%
Equipment		8 to 28 years		3	%		3.46 – 12.13	%
Motor vehicles	12 years			3	%		8.08	%

When fixed assets are sold, transferred, disposed of or damaged, gains and losses on disposal are determined by comparing the proceeds with the carrying amount of the assets, adjusted by related taxes and expenses, and are included in non-operating income or expenses.

Repairs and maintenance of fixed assets are expensed as incurred. Subsequent expenditures for major reconstruction, expansion, improvement and renovation are capitalized when it is probable that future economic benefits in excess of the original assessment of performance will flow to the Company. Capitalized expenditures arising from major reconstruction, expansion and improvement are depreciated using the straight-line method over the remaining useful lives of the fixed assets. Capitalized expenditures arising from the renovation of fixed assets are depreciated on the straight-line basis over the expected beneficial periods.

Where indication exists that the recoverable amount may be lower than the carrying amount of an individual fixed asset, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount.

When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.

- 12 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.	Construction in progress
	Construction in progress represents fixed assets under construction or installation, which is recorded at actual cost. Cost comprises the original cost of machinery and equipment, installation costs, construction costs and other direct costs. Borrowing costs on specific borrowings for financing the construction or acquisition of fixed assets are capitalized as part of the cost of the fixed assets until the assets are ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month.
	Where indication exists that the recoverable amount may be lower than the carrying amount of an individual construction in progress, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount. When there is an indication that the need for an impairment provision recorded in a prior period no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.
12.	Intangible assets and amortization
	Intangible assets include land use rights and technical know-how.
(a)	Land use rights
	Land use rights are stated at acquisition cost, or at the appraised amount as approved by the state assets administration authorities pursuant to the Group’s restructuring. Land use rights are amortized on the straight-line basis over a period of 50 years.
	From January 1, 2001, the cost of land use rights purchased or obtained by way of payment of a land use fee is stated at the actual amount paid and is recorded as intangible assets before developed for self-use projects. The carrying value of land use rights will be transferred to construction in progress if construction takes place on the Company’s land held for own use.
(b)	Technical know-how
	Technical know-how represents the purchased cost of technical know-how relating to certain production facilities. The costs of know-how are included as part of the total contract price of the construction contract and are distinguishable. They are amortized using the straight-line method over the estimated useful life starting from the date when the underlying facilities are completed and ready for their intended use.

- 13 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12.	Intangible assets and amortization (continued)
(c)	Impairment provision of intangible assets
	Intangible assets are stated at the lower of the carrying amount and recoverable amount. Where indication exists that the recoverable amount may be lower than the carrying amount of an individual intangible asset, the Group will perform impairment test on it. An impairment provision is made when the recoverable amount is lower than the carrying amount.
	When there is an indication that the need for an impairment provision recorded in a prior year no longer exists or has decreased, the provision for impairment loss is reversed. The increased carrying amount of the assets should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years.
13.	Long-term deferred expenses
	Long-term deferred expenses refer to those expenses which have been paid and should be amortized over one year (not including one year) and mainly include catalyst. Long-term prepaid expenses are amortized on the straight-line basis over the beneficial period and are presented at cost net of accumulated amortization.
14.	Borrowing costs
	Borrowing costs, including interest, amortized premiums / discounts and exchange differences, incurred in connection with specific borrowings obtained for the acquisition or construction of fixed assets are capitalized as costs of the fixed assets when capital expenditures and borrowing costs are incurred and the activities have commenced to enable the assets to be ready for their intended use. The capitalization of borrowing costs ceases when the assets are ready for their intended use. Borrowing costs incurred thereafter are expensed. Capitalisation of borrowing costs should be suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally, and the interruption period is more than 3 months. These costs should be recognised as expenses for the current period until the acquisition or construction is resumed.
	Ancillary costs incurred in connection with the arrangement of specific borrowings before the relevant fixed asset being acquired or constructed is ready for its intended use should be capitalised in the period in which they are incurred. Ancillary costs incurred thereafter should be recognised as an expense in the period in which they are incurred.
	The capitalized interests for each accounting period are determined by using the weighted average amount of accumulated expenditures incurred in that period for the acquisition or construction of fixed assets and the weighted average capitalization rate of the borrowings. The amount of interest capitalized during a period shall not exceed the amount of interest incurred during that period.
	Interests incurred in connection with other borrowings are expensed as incurred.

- 14 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15.	Provisions
	Provisions for product warranties, external guarantees and pending litigation are recognized when the Company has a present obligation as a result of past transactions or events, and it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
16.	Employee social security and benefits
	All Chinese employees of the Group participate in employee social security plans, including pension, medical, housing and other welfare benefits, organized and administered by the governmental authorities.
	According to the relevant regulations, the premiums and welfare benefit contributions that should be borne by the Group are calculated based on percentages of the total salary of employees, subject to a certain ceiling, and are paid to the labor and social welfare authorities. Contributions to the plans are recorded as production costs or expensed as incurred.
17.	Revenue recognition
(a)	Sales
	Revenue from the sale of goods is recognized when significant risks and rewards of ownership of the goods are transferred to the buyer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and it is probable that the economic benefit associated with the transaction will flow to the Company and the relevant revenue and costs can be measured reliably.
(b)	Service income
	When the total amount of revenue and costs arising from provision of services can be estimated reliably, it is probable that the economic benefits associated with the transaction will flow in and the stage of completion of the services provided can be measured reliably, service revenue is recognized using the percentage of completion method.
(c)	Other revenues are recognized on the following bases:
	Interest income – recognized on a time proportion basis taking into account deposit balances and the effective yield;
	Subsidy income – recognized when received.

- 15 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

II.	SIGNIFICANT ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18.	Operating leases
	Leases of fixed assets where all the risks and rewards incident to ownership of the assets are in substance transferred to the lessees are classified as finance leases. All other leases are operating leases.
	Payments made under operating leases are expensed on a straight-line basis over the period of the lease.
19.	Accounting for income tax
	The Group accounts for enterprise and local income taxes using the liability method under the deferred tax method. The temporary difference arises from the timing difference of recognition of revenue, expense or profit and loss on tax and accounting basis. Cumulative income taxes at the end of each period are adjusted by applying the currently enacted tax rates on timing differences.
	Deferred income tax assets are recognized to the extent that it is probable that taxable income will be available against which timing differences can be utilized in the near future.
20.	Basis of consolidation
	Consolidated financial statements include the financial statements of the Company and its consolidated subsidiaries and are prepared in accordance with the circular [1995] No. 11 “Provisional Regulations on Consolidated Financial Statements” and other relevant regulations issued by the Ministry of Finance of the People’s Republic of China.
	The Company starts to consolidate the revenue, cost and profit of its subsidiaries from the date it acquires effective control of the subsidiaries; and ceases to consolidate from the date effective control is lost. All material transactions, balances and unrealised profits between the Company and its consolidated subsidiaries have been eliminated in preparing the consolidated financial statements. Minority interests in the consolidated financial statements refer to the portion of the consolidated subsidiaries’ equity that the Group does not own.
	In the event that the accounting policies of the consolidated subsidiaries are not consistent with those of the Company, and the difference caused by the inconsistency has a significant impact on the consolidated financial statements, adjustment is made to ensure compliance with the Company’s accounting policies.
	A jointly controlled entity whose revenue is below 10% of that of the Company, total assets below 10% of those of the Company and total profit below 10% of that of the Company are not consolidated.

- 16 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

III.	TAXATION
	The principal types of taxes applicable to the Group are as follows:

(i)	Value added tax (“VAT”) – the Group’s sales revenue is subject to VAT at 17%. VAT payable is the net difference between periodic output VAT and deductible input VAT.
(ii)	Business tax (“BT”) – the Group’s gross service income is subject to BT at 5%.
(iii)	Consumption tax (“CT”) – the Group’s sales of gasoline and diesel oil are subject to CT at Rmb 277.6 per ton and Rmb 117.6 per ton, respectively.
(iv)	Income tax – the Group is subject to income tax at 33% of its taxable income.
(v)	City construction and maintenance tax (“CCMT”) – the Group is subject to CCMT at 7% of the total VAT, BT and CT payable.
(vi)	Education levy (“EL”) – the Group is subject to EL at 3% of the total VAT, BT and CT payable.

Jilin Winsway Chemical Industrial Store and Transport Limited (“Winsway”), a subsidiary of the Company, is a sino-foreign equity joint venture and subject to income tax at 33% from 2004. In August 2005, Winsway was liquidated upon the end of the approved operating period and was not consolidated into the Group’s financial statements (see Note IV (iii)).

Jilin City Songmei Acetic Co., Ltd. (“Songmei”), another subsidiary of the Company, is a sino-foreign cooperative joint venture and is eligible for a tax holiday of full exemption from income tax for the first two years starting from its first cumulative profit-making year of operation followed by a 50% reduction in the income tax rate from the third to fifth years in accordance with the tax regulations. Songmei is exempted from income tax for 2000 and 2001, being the first two profitable years. For 2002, 2003 and 2004, Songmei is subject to income tax at 15%. From 2005, Songmei is subject to income tax at 33%.

Jilin Jihua Jianxiu Company Limited (“Jianxiu”), a subsidiary of the Company established in 2001, is subject to income tax at 33%.

Jilin Jihua Jinxiang Pressure Vessel Inspection Co., Ltd. (“Jinxiang”), a subsidiary of Jianxiu established in 2003, is subject to income tax at 33%.

Jilin Province BASF JCIC NPG Co., Ltd. (“BASF”), a jointly controlled entity of the Company, is a sino-foreign equity joint venture and is eligible for a tax holiday of full exemption from income tax for the first two years starting from its first cumulative profit-making year of operation followed by a 50% reduction in the income tax rate from the third to fifth years. BASF commenced operation in 1998 and 2004 is the first cumulative profit-making year. Therefore, the Company is exempted from income tax in 2004 and 2005.

Jilin Lianli Trading Company Limited (“Lianli”), an associated company established in 2001, is subject to income tax at 33%.

- 17 -

IV. MAJOR SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES

	Type of	Registered/			Investment		Percentage of
Name of enterprise	enterprise	paid-in capital		Business scope	amount		equity held			Consolidated
Subsidiaries
Winsway	Transportation		51,454,000	Provision of		36,154,000		70	%	No (note iii)
	enterprise			transportation
				services for
				chemical materials
				and products
Songmei	Manufacturing		72,000,000	Manufacturing of		47,660,421		66	%	Yes
	enterprise			acetic acid
Jianxiu	Construction		45,200,000	Machinery repair		44,537,759		99	%	Yes
	enterprise			and installation
Jilin Xinghua Nitrochloro- benzene Company Limited (“Xinghua”)	Manufacturing enterprise		25,668,000	Manufacturing of Nitrochloro-benzene		19,250,000		75	%	No (note i)
Jinxiang	Pressure		2,000,000	Inspection,		1,900,000		94	%	Yes
	vessels			research and
	inspection			consultation of
	enterprise			pressure
				vessels
Jointly controlled entity
BASF	Manufacturing		150,000,000	Manufacturing of		60,066,150		40	%	No (note ii)
	enterprise			petrochemical
				products

(i)	Xinghua has ceased its production and started liquidation in 2000 as it incurred substantial losses and had a negative equity. By the end of 2002, the assets and liabilities of Xinghua have been written down to nil. In accordance with circular (1995) No. 11 promulgated by the Ministry of Finance of the People’s Republic of China, the financial statements of Xinghua are not consolidated, and the long-term investment in Xinghua was written off.
(ii)	According to BASF’s articles of association, BASF is jointly controlled by the Company and the other joint venture partner. Therefore, BASF is a jointly controlled entity of the Company. As the amounts of revenue and total profit for 2004 and total assets as at December 31, 2004 of BASF are less than 10% of the respective amounts of the Company, the financial statements of BASF are not consolidated and are accounted for using the equity method of accounting in accordance with circular (1996) No. 2 “Comments on the Consolidation Scope for the Purpose of Consolidated Financial Statements”.
(iii)	On August 6, 2005, Winsway was liquidated upon the end of the approved operating period. The liquidation process was completed before the year end. In accordance with circular (1995) No. 11 promulgated by the Ministry of Finance of the People’s Republic of China, the financial statements of Winsway has not been consolidated since August 2005.

- 18 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Cash and bank

	December 31, 2005		December 31, 2004
Cash on hand		19,591		6,486
Cash in bank		8,827,520		14,622,733
		8,847,111		14,629,219

Cash held in foreign currencies at December 31, 2005 is as follows:

Currency	Amount		Exchange rate		Rmb equivalent
USD		5,225		8.0702		42,167

2.	Accounts receivable and other receivables
(a)	Accounts receivable

	December 31, 2005			December 31, 2004
Accounts receivable		787,397,955			896,142,211
Less: Specific provision		(504,056,130	)		(641,441,767	)
		283,341,825			254,700,444

(1) Ageing analysis for accounts receivable and provision for bad debts:

	December 31, 2005							December 31, 2004
	Accounts				Provision for			Accounts				Provision for
	receivable		%		bad debts			receivable		%		bad debts
Ageing:
Within 1 year		256,776,796		33		—			211,529,663		24		—
1-2 years		—		—		—			2,042,308		—		—
2-3 years		2,042,308		—		(666,358	)		298,777		—		(298,777	)
More than 3 years		528,578,851		67		(503,389,772	)		682,271,463		76		(641,142,990	)
		787,397,955		100		(504,056,130	)		896,142,211		100		(641,441,767	)

In 2005, accounts receivable of Rmb 137,005,574 (2004: Rmb 237,879,702) were written off against the provision for bad debts.

- 19 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2.	Accounts receivable and other receivables (continued)
(2)	Except for the receivables due from PetroChina Group Companies as disclosed in Note VII (g), there are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in accounts receivable.
(3)	At December 31, 2005, the total balance of the five largest accounts receivable was Rmb329,628,654, representing 42% of the total accounts receivable balance.
(4)	The Group’s provisioning policy for doubtful debts is based on a detailed review of the collectibility of the receivable balances at year end. This provisioning policy and the basis for recognition of receivables have been consistently applied. At December 31, 2005, accounts receivable aged over 3 years mainly comprise receivables due from third party debtors of Rmb 12.18 million (2004: Rmb 27.50 million) and JCGC of Rmb 13.01 million (2004: Rmb 13.63 million), respectively. Based on a detailed review of the collectibility of the above un-provided receivable balances at December 31, 2005, management considers that there has been no change in the assessment results from prior years as these debtors are under stable operation status, have good historical repayment records and have complied with the debt repayment schedules as agreed with the Group. Accordingly, no provision is necessary.
(b)	Other receivables

	December 31, 2005			December 31, 2004
Other receivables		87,928,899			118,456,441
Less: Specific provision		(65,788,775	)		(73,381,286	)
		22,140,124			45,075,155

(1) Ageing analysis for other receivables and provision for bad debts:

	December 31, 2005							December 31, 2004
					Provision for			Other				Provision for
	Other receivables		%		bad debts			receivables		%		bad debts
Ageing:
Within 1 year		92,816		—		—			24,807,982		21		—
1-2 years		5,313,807		6		—			837,310		—		(127,602	)
2-3 years		91,298		—		—			1,154,676		—		(163,607	)
More than 3 years		82,430,978		94		(65,788,775	)		91,656,473		79		(73,090,077	)
		87,928,899		100		(65,788,775	)		118,456,441		100		(73,381,286	)

In 2005, other receivables of Rmb 6,647,976 (2004: Rmb 133,691) were written off against the provision for bad debts.

(2)	There are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in other receivables.
(3)	At December 31, 2005, the total balance of the five largest other receivables was Rmb 44,939,037, representing 51% of the total other receivables balance.

- 20 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3.	Advances to suppliers
(a)	Ageing analysis of advances to suppliers is as follows:

	December 31, 2005				December 31, 2004
	Balance		%		Balance		%
Ageing:
Within 1 year		51,164,749		76		361,188,190		95
1-2 years		5,478,233		8		7,984,731		3
2-3 years		7,945,710		12		1,918,666		—
More than 3 years		2,846,025		4		5,867,824		2
		67,434,717		100		376,959,411		100

Advances to suppliers aged over one year mainly include advance payments to acquire plant and machinery.

(b)	There are no balances included in advances to suppliers which are due from shareholders who hold more than 5% (including 5%) of the shares of the Company.
4.	Inventories

	December 31,							December 31,
	2004							2005
Cost:
Raw materials		1,294,876,600							945,519,998
Work in progress		692,320,089							572,050,085
Finished goods		460,687,071							145,907,542
Spare parts		406,903,650							468,402,126
Low value consumables and packing materials		7,563,052							3,117,454
		2,862,350,462							2,134,997,205
Provision for diminution in value of inventories:				Additions		Deductions
Raw materials		(70,820,662	)		—		—		(70,820,662	)
Work in progress		(5,643,854	)		—		—		(5,643,854	)
Finished goods		(16,210,129	)		—		2,748		(16,207,381	)
Spare parts		(163,262,401	)		—		—		(163,262,401	)
Low value consumables and packing materials		(360,033	)		—		—		(360,033	)
		(256,297,079	)		—		2,748		(256,294,331	)
		2,606,053,383							1,878,702,874

In 2005, cost of inventories recognised in cost of sales and operating expenses amounts to Rmb 33,916,060,780 (2004: Rmb 28,708,451,378).

- 21 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5.	Prepaid expenses

	January 1,							December 31,
	2005		Additions		Amortization			2005
Catalyst		14,692,609		15,777,859		(25,474,175	)		4,996,293
Insurance premium		934,351		2,533,799		(2,396,611	)		1,071,539
Other		4,229,524		37,736,218		(36,642,139	)		5,323,603
		19,856,484		56,047,876		(64,512,925	)		11,391,435

The useful life of above catalyst is within one year.

6. Long-term equity investments

	January 1,							December 31,
	2005		Additions		Decrease			2005
Jointly controlled entity		89,834,909		13,881,496		(24,000,000	)		79,716,405
Associated company		9,304,685		1,719,262		—			11,023,947
		99,139,594		15,600,758		(24,000,000	)		90,740,352

There is no restriction on the realization of these long-term investments or transferability of investment income to the Company.

- 22 -

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.	Long-term equity investments (continued)
(a)	Details of long-term investments:

		Percentage of equity held				Original investment
		January 1,		December 31,		January 1,							December 31,
Name of enterprise	Investment period	2005		2005		2005		Additions		Decrease			2005
		%		%
Unconsolidated subsidiary
- Xinghua (Note IV (i))			—		—		—		—		—			—
- Winsway (Note IV (iii))			70		—		36,154,000		—		(36,154,000	)		—
Jointly controlled entity
- BASF	From November 18, 1995		40		40		60,066,150		—		—			60,066,150
Associated company
- Lianli	March 22, 2001 to March 22, 2006		47		47		20,042,147		—		—			20,042,147
							116,262,297		—		(36,154,000	)		80,108,297

- 23 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6.	Long-term equity investments (continued)
(b)	The movement of long-term investments accounted for using the equity method of accounting is as follows:

	January 1, 2005		Additional		Reduction in		Share of net		Dividend			December 31, 2005
	carrying amount		investment		investment		profit		received			carrying amount
Jointly controlled entity
- BASF		89,834,909		—		—		13,881,496		(24,000,000	)		79,716,405
Associated company
- Lianli		9,304,685		—		—		1,719,262		—			11,023,947
		99,139,594		—		—		15,600,758		(24,000,000	)		90,740,352

- 24 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7.	Fixed assets and accumulated depreciation

				Plant and
	Buildings			machinery			Equipment			Motor vehicles			Total
Cost
January 1, 2005		1,758,552,631			11,622,153,893			2,636,382,789			179,886,250			16,196,975,563
Transfer from CIP (Note V 8)		31,440,581			117,531,248			90,174,830			4,629,817			243,776,476
Other additions		3,392,615			—			607,912			31,966,422			35,966,949
Disposals		(21,071,432	)		(122,840,929	)		(36,901,872	)		(45,062,391	)		(225,876,624	)
December 31, 2005		1,772,314,395			11,616,844,212			2,690,263,659			171,420,098			16,250,842,364
Accumulated depreciation
January 1, 2005		722,644,107			3,989,998,260			1,904,382,191			102,892,295			6,719,916,853
Depreciation		81,629,979			656,900,918			175,653,524			21,344,641			935,529,062
Disposals		(8,390,021	)		(57,399,593	)		(23,039,978	)		(41,091,274	)		(129,920,866	)
December 31, 2005		795,884,065			4,589,499,585			2,056,995,737			83,145,662			7,525,525,049
Net book value
December 31, 2005		976,430,330			7,027,344,627			633,267,922			88,274,436			8,725,317,315
December 31, 2004		1,035,908,524			7,632,155,633			732,000,598			76,993,955			9,477,058,710
Provision for Impairment
January 1, 2005		54,004,790			176,484,961			46,996,897			4,536,600			282,023,248
Depreciation		—			155,220,007			—			—			155,220,007
Deductions		—			(18,014,476	)		—			—			(18,014,476	)
December 31, 2005		54,004,790			313,690,492			46,996,897			4,536,600			419,228,779
Net carrying amount
December 31, 2005		922,425,540			6,713,654,135			586,271,025			83,737,836			8,306,088,536
December 31, 2004		981,903,734			7,455,670,672			685,003,701			72,457,355			9,195,035,462

As at December 31, 2005, the cost of fully depreciated fixed assets still in use amounted to Rmb 638,019,761.

At the end of 2005, the Group reviewed its fixed assets and made an impairment provision of Rmb 155,220,007. The provision was included in non-operating expenses for the year (Note V 29)

- 25 -

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8.	Construction in progress

																		Total additions
			January 1					Transfer out to			Transfer out to			December 31,				as a % of
Name of project	Budget		,2005			Additions		fixed assets			intangible assets (c)			2005			Source of funds	budget
Improvement project for F0501 boiler		25,000,000		—			23,331,331		(23,331,331	)		—			—		Working capital		93	%
Improvement project for F0301 boiler		25,000,000		—			22,543,492		(22,543,492	)		—			—		Working capital		90	%
Improvement project for F0201 boiler		25,000,000		—			21,057,408		—			—			21,057,408		Working capital		84	%
Improvement project for spin-drier system		19,000,000		—			18,540,960		(18,540,960	)		—			—		Working capital		98	%
Improvement project for F0601 boiler		25,000,000		—			18,013,744		—			—			18,013,744		Working capital		72	%
Improvement project for commutation project		19,998,000		16,276,011			2,591,208		(18,867,219	)		—			—		Working capital		94	%
Other (a)				33,499,735			196,002,684		(160,493,474	)		(4,417,000	)		64,591,945
				49,775,746			302,080,827		(243,776,476	)		(4,417,000	)		103,663,097
Provision for impairment (b)				(7,220,081	)		—		—			—			(7,220,081	)
				42,555,665											96,443,016

(a) Other projects represent construction in progress with individual cost of less than Rmb 15 million.

- 26 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9.	Intangible assets

				Technical
	Land use rights			know-how			Total
Cost
January 1, 2005		1,149,201,148			924,504,667			2,073,705,815
Transfer from CIP (Note V 8)		—			4,417,000			4,417,000
Deductions		(22,642,434	)		(44,804,880	)		(67,447,314	)
December 31, 2005		1,126,558,714			884,116,787			2,010,675,501
Accumulated amortization
January 1, 2005		235,599,745			486,268,134			721,867,879
Additions		22,866,259			85,985,885			108,852,144
Amortization		(4,905,860	)		(44,804,880	)		(49,710,740	)
December 31, 2005		253,560,144			527,449,139			781,009,283
Net book value
December 31, 2005		872,998,570			356,667,648			1,229,666,218
December 31, 2004		913,601,403			438,236,533			1,351,837,916
Provision for impairment
January 1, 2005		—			6,698,195			6,698,195
Additions		—			—			—
December 31, 2005		—			6,698,195			6,698,195
Net carrying amount
December 31, 2005		872,998,570			349,969,453			1,222,968,023
December 31, 2004		913,601,403			431,538,338			1,345,139,741
Remaining years of amortization	39 – 46 years			2 – 10 years

- 27 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10.	Long-term deferred expenses

			Accumulated		January 1,							December 31,		Remaining years
	Cost		amortization		2005		Additions		Amortization			2005		of amortization
Catalyst		423,778,573		249,785,125		64,648,462		146,786,217		(37,441,231	)		173,993,448		1-5

The useful life of above catalyst is over 1 year.

- 28 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.	Deferred tax assets

	December 31, 2005			December 31, 2004
Assets impairment provision and disposal loss (a)		376,671,546			435,203,118
Tax losses (b)		542,971,315			—
Accelerated depreciation and amortisation (c)		(337,234,105	)		(119,622,477	)
		582,408,756			315,580,641

(a)	At December 31, 2004, the Company’s deductible timing differences amounted to Rmb 1,318 million, including asset impairment provision of Rmb 1,222 million and fixed asset disposal loss of Rmb 96 million, which had not been approved by the tax authorities. Accordingly, deferred income tax assets of Rmb 435 million are recognised under the deferred tax method, as the Group believes that the realisation of the related tax benefit through taxable income in the near future is probable. In the year ended December 31, 2005, deferred income tax assets of Rmb 58 million are realised for the depreciation of unapproved assets impairment.
(b)	At December 31, 2005, the Company’s deductible taxable loss amounted to Rmb 1,645 million. Deferred income tax assets of Rmb 543 million are recognised under the deferred tax method, as the Company believes that the realisation of the related taxable loss through taxable income in the near future is probable.
(c)	On September 20, 2004, the Chinese Ministry of Finance and State Tax Bureau issued an income tax regulation which allows certain old industrial companies in northeast China to shorten the depreciation and amortization periods of fixed assets (excluding building) and intangible assets up to 40% of their useful lives on tax basis, effective July 1, 2004. As a result, timing differences of Rmb 659 million relating to the accelerated depreciation and amortization of fixed assets and intangible assets are derived as of December 31, 2005, which resulted in a deferred tax liability and year end cumulative balance of Rmb 218 million and 337 million, respectively.

12. Short-term loans

	December 31, 2005		December 31, 2004
Guaranteed loans – Rmb		—		44,640,000
Unsecured loans – Rmb		2,102,570,000		2,874,330,000
		2,102,570,000		2,918,970,000

Pursuant to a loan facility commitment letter dated February 6, 2004, CP Finance has confirmed to extend the period of borrowing facilities of Rmb 8 billion granted to the Company to December 31, 2008. At December 31, 2005, borrowings from CP Finance amounted to Rmb 2.1 billion. The loans bear average interest at a rate of 5.10% per annum.

- 29 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13.	Accounts payable, advances from customers and other payables
	Except for the payables due to PetroChina Group Companies as disclosed in Note VII (g), there are no balances included in accounts payable, advances from customers and other payables which are due to shareholders who hold more than 5% (including 5%) of the shares of the Company.
	Except for certain payables in respect of capital expenditures, a portion of which was aged over 3 years, there were no balances included in other payables of which the age exceeded 3 years at the year end. There were no balances included in advances from customers of which the age exceeded 1 year at the year end.
14.	Taxes payable

	December 31, 2005			December 31, 2004
Value added tax		(146,644,835	)		(53,327,903	)
Business tax		659,567			817,735
City construction and maintenance tax		(7,325,833	)		1,457,548
Consumption tax		(1,103,554	)		89,320,743
Income tax		(14,461,196	)		113,079,160
Property tax		(365	)		(13,044	)
Other		936,622			3,000,658
		(167,939,594	)		154,334,897

15. Accrued expenses

	December 31, 2005		December 31, 2004
Interest expense on loans		25,721,583		26,049,897

- 30 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16.	Long-term liabilities due within one year

	December 31, 2005		December 31, 2004
Long-term loans due within one year (Note V 17)
Guaranteed loans – USD		25,600,454		44,329,941
Unsecured loans   – USD		3,005,201		3,082,023
		28,605,655		47,411,964
Other long-term liabilities due within one year (Note V 18)
Guaranteed loans – USD		45,134,463		46,282,726
– JPY		46,858,299		54,349,108
– EUR		—		19,061,632
		91,992,762		119,693,466
		120,598,417		167,105,430

17. Long-term loans

	December 31, 2005		December 31, 2004
Guaranteed loans		480,329,855		608,530,564
Unsecured loans		69,119,610		73,968,550
		549,449,465		682,499,114

- 31 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17.	Long-term loans (continued)

Balance at

Foreign

Exchange

Interest

Name of lender

December 31, 2005

Currency

currency amount

rate

rate%

Due date

Conditions

Construction Bank of China, Jilin Branch

102,420,309

USD

13,022,000

8.0702

8.66

September 30, 2009

Guaranteed by JCGC

Bank of China, Changchun sub-branch

72,124,811

USD

8,937,178

8.0702

—

September 29, 2029

Unsecured

Bank of China, Jilin Branch

403,510,000

USD

50,000,000

8.0702

LIBOR+60bps

March 14, 2007

Guaranteed by PetroChina

578,055,120

Current portion of long-term loans (Note V 16)

(28,605,655

)

549,449,465

- 32 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18.	Other long-term liabilities
	Other long-term liabilities include unsecured long-term loans from JCGC.

	December 31, 2005			December 31, 2004			Interest rate
Payables to JCGC - - Ethylene Project loans		177,941,305			333,208,992			4.1%-7.86	%
Other long-term liabilities due within one year (Note V 16)		(91,992,762	)		(119,693,466	)
		85,948,543			213,515,526

As at 31 December 2005, the payables to JCGC of Rmb 177,941,305 (2004: Rmb 333,208,992) are bank loans borrowed through JCGC and Guaranteed by PetroChina.

The Ethylene Project loans include loans denominated in US Dollar and Japanese Yen. These loans will mature through September 30, 2008.

	December 31, 2005				December 31, 2004
	Original		Rmb		Original		Rmb
	currency		equivalent		currency		equivalent
US Dollar		11,002,848		88,795,180		16,593,913		137,339,517
Japanese Yen		1,297,312,500		89,146,125		1,979,225,000		157,746,212
Euro		—		—		3,384,913		38,123,263
				177,941,305				333,208,992

19. Share capital

	December 31, 2005		December 31, 2004
	(Shares in thousand)		(Shares in thousand)
Non-listed shares:
- State-owned shares		2,396,300		2,396,300
Listed shares:
- H shares and ADSs		964,778		964,778
- A shares		200,000		200,000
		1,164,778		1,164,778
Total		3,561,078		3,561,078
Total share capital (Rmb)		3,561,078,000		3,561,078,000

- 33 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19.	Share capital (continued)
(a)	On May 23, 1995, the Company issued 893,027,000 shares, with a par value of Rmb 1.00 each, in overseas stock exchanges, of which 89,302,700 shares were H shares and 8,037,243 shares were American Depositary Shares (“ADSs”) (1 ADS = 100 H shares). The issue prices for the H shares and ADSs were HK$ 1.589 per H share and US$ 20.75 per ADS, respectively.
(b)	On June 17, 1995, the Company issued 71,751,000 H shares, with a par value of Rmb 1.00 each, to overseas underwriters in the form of 717,510 ADSs. The issue price was US$ 20.75 per ADS. These ADSs were issued pursuant to the exercise of the over-allotment option by the underwriters in accordance with the underwriting agreement dated May 23, 1995.
(c)	Pursuant to the approval of China Securities Regulatory Commission Zhengjianfazi [1996] No. 234, the Company issued 50,000,000 A shares, with a par value of Rmb 1.00 each, of which 30,000,000 shares were issued to the public at Rmb 3.5 per share and the remaining 20,000,000 shares were issued to the Company’s employees at the same price. The 30,000,000 A shares issued to the public were traded on the Shenzhen Stock Exchange on October 15, 1996 and the 20,000,000 A shares issued to the employees were traded on the Shenzhen Stock Exchange on April 15, 1997.
(d)	Pursuant to a document issued by China Securities Regulatory Commission at December 13, 1999, approval was granted to the Company to issue an additional 150,000,000 A shares with a par value of Rmb 1.00 each, of which 22,500,000 shares were issued to investment funds and the remaining 127,500,000 shares were issued to the Company’s A shareholders at a ratio of 1:2.55 shares for each share held by such shareholders. The Company issued these shares in January 2000 at a price of Rmb 3.3 per share. The gross proceeds from the issue totalled Rmb 495,000,000; after deducting issue expenses, the net proceeds amounted to Rmb 485,520,000. The Company’s total number of issued shares increased from 3,411,078,000 shares to 3,561,078,000 shares.
20.	Capital surplus

	January 1, 2005		Additions		Decrease		December 31, 2005
Share premium		2,281,092,338		—		—		2,281,092,338
Reserve for non-cash donations received		8,408,898		—		—		8,408,898
Reserve for equity investments		4,106,100		—		—		4,106,100
Other		11,550		1,923,809		—		1,935,359
		2,293,618,886		1,923,809		—		2,295,542,695

- 34 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
21.	Common reserve funds

	January 1, 2005		Additions		Decrease			December 31, 2005
Statutory common reserve fund		160,154,718		—		(2,171,774	)		157,982,944
Statutory common welfare fund		126,834,279		—		—			126,834,279
Discretionary common reserve fund		414,453,720		—		—			414,453,720
		701,442,717		—		(2,171,774	)		699,270,943

According to the Company Law of the People’s Republic of China, the Company’s Articles of Association and resolutions of the Board of Directors, the Company is required to transfer 10% of each year’s net profit, net of losses carried forward, to the statutory common reserve fund until the fund balance reaches 50% of the registered share capital after which the transfer may cease. Upon approval by the relevant authorities, this reserve can be used to offset losses carried forward, or to increase share capital. Other than using the reserve to offset losses carried forward, the balance remaining after the use of this reserve to increase capital should not be less than 25% of the registered share capital.

In addition, the Company is required to transfer 5% to 10% of each year’s net profit, net of losses carried forward, to the statutory common welfare fund. This reserve can only be used for employees’ collective welfare benefits and is not available for distribution to shareholders. When the funds from the statutory common welfare fund are utilized, the amount utilized is transferred from this fund to the discretionary common reserve fund. The amount utilized is either capitalized as assets or expensed.

The Board of Directors may propose, subject to the approval of the shareholders’ general meeting, the transfer to the discretionary common reserve fund. Upon obtaining the relevant approvals, this reserve can be used to offset losses carried forward, or to increase share capital.

In 2005, Winsway was liquidated upon the end of the approved operating period and was not consolidated into the Company’s financial statements (see Note IV (iii)). Therefore, its statutory common reserve fund was transferred out accordingly.

- 35 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
22.	Accumulated losses

	2005			2004
Accumulated losses at January 1, 2005		(702,515,175	)		(3,276,275,225	)
Add: Net (loss)/profit for the year		(762,479,379	)		2,573,760,050
Other transfer in		2,171,774			—
Accumulated losses at December 31, 2005		(1,462,822,780	)		(702,515,175	)

In accordance with the PRC Company Law and the Articles of Association of the Company, the Company is required to appropriate net profit after taxation in the following order:

(i)	to offset accumulated losses
(ii)	to transfer 10% of profit after taxation to the statutory common reserve fund;
(iii)	to transfer 5% to 10% of profit after taxation to the statutory common welfare fund;
(iv)	to transfer to discretionary common reserve fund according to the approval of the shareholders’ general meeting;
(v)	to distribute common stock dividend.

23.	Sales revenue
	The Group’s principal activities consist of the processing of crude oil and coal into petroleum products, petrochemical and organic chemical products, synthetic rubber products, chemical fertilizers and inorganic chemical products for sale in the PRC.

	2005		2004
Petroleum products		15,355,627,117		14,076,504,026
Petrochemical and organic chemical products		12,876,789,276		11,743,834,984
Synthetic rubber products		1,559,417,163		1,416,846,689
Chemical fertilizers and inorganic chemical products		598,459,121		665,600,803
		30,390,292,677		27,902,786,502

The sales to the five largest customers of the Group in 2005 amounted to Rmb 22,922,405,789, representing 75% of Group’s total sales.

- 36 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
24.	Cost of sales

	2005		2004
Petroleum products		17,018,140,356		13,754,338,869
Petrochemical and organic chemical products		10,746,346,357		8,325,196,060
Synthetic rubber products		1,233,266,230		1,072,712,774
Chemical fertilizers and inorganic chemical products		685,678,158		732,655,385
		29,683,431,101		23,884,903,088

25.	Sales tax and other levies
	Sales tax and other levies mainly include consumption tax, city construction and maintenance tax, and education levy.
26.	Other operating expenses
	Other operating expenses were derived from sales of materials and utilities, repairment and transportation business.
27.	Financial expenses, net

	2005			2004
Interest expense		165,279,487			270,070,785
Less: Interest income		(1,152,824	)		(1,753,286	)
Exchange loss		1,130,544			19,337,171
Less: Exchange gain		(49,263,597	)		(10,684,854	)
Other		180,286			441,629
		116,173,896			277,411,445

- 37 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

V.	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
28.	Investment income

	2005		2004
Share of profit of a jointly controlled entity		13,881,496		36,112,288
Share of profit of an associated company		1,719,262		4,397,015
		15,600,758		40,509,303

29. Non-operating income and expenses

	2005		2004
Non-operating income:
Gain on disposal of fixed assets		7,067,857		74,290,268
Gain on disposal of intangible assets		19,643,426		—
Other		5,970,853		2,564,013
		32,682,136		76,854,281

	2005		2004
Non-operating expenses:
Loss on impairment of fixed assets		155,220,007		—
Loss on disposal of fixed assets		53,707,931		47,878,367
Litigation loss		44,918,000		—
Loss on temporary shutdown		30,448,375		18,560,533
Loss on impairment of CIP		—		7,220,081
Loss on impairment of intangible assets		—		6,698,195
Other		1,100,675		4,872,642
		285,394,988		85,229,818

30. Income tax

	2005			2004
Income tax:
- Company		(110,735,947	)		177,147,262
- Approved income tax deduction relating to capital expenditures (a)		—			(65,560,574	)
- Subsidiaries		177,915			198,263
Deferred tax (Note V 11)		(266,828,115	)		(315,580,641	)
		(377,386,147	)		(203,795,690	)

(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 fixed assets can be used to offset the income tax provision. In 2005, there’s no such capital expenditures for the year (2004: Rmb 66 milllion).

- 38 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VI.	NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY
1.	Accounts receivable
(a)	Accounts receivable

	December 31, 2005			December 31, 2004
Accounts receivable		922,361,780			963,343,437
Less: Specific provision		(503,389,772	)		(640,775,409	)
		418,972,008			322,568,028

(1) Ageing analysis for accounts receivable and provision for bad debts:

	December 31, 2005							December 31, 2004
	Accounts				Provision for			Accounts				Provision for
	receivable		%		bad debts			receivable		%		bad debts
Ageing:
Within 1 year		394,449,288		43		—			281,439,555		29		—
1-2 years		—		—		—			—		—		—
2-3 years		—		—		—			298,777		—		(298,777	)
More than 3 years		527,912,492		57		(503,389,772	)		681,605,105		71		(640,476,632	)
		922,361,780		100		(503,389,772	)		963,343,437		100		(640,775,409	)

In 2005, accounts receivable of Rmb 137,070,574 (2004: Rmb 237,879,702) were written off against the provision for bad debts.

(2)	Except for the receivables due from PetroChina Group Companies as disclosed in Note VII (g), there are no balances due from shareholders who hold more than 5% (including 5%) of the shares of the Company included in accounts receivable.
(3)	At December 31, 2005, the total balance of the five largest accounts receivable was Rmb 453,715,513, representing 49% of the total accounts receivable balance.
(4)	The Company’s provisioning policy for doubtful debts is based on a detailed review of the collectibility of the receivable balances at year end. This provisioning policy and the basis for recognition of receivables have been consistently applied. At December 31, 2005, accounts receivable aged over 3 years which have not been provided provision mainly comprise receivables due from third party debtors of Rmb 11.51 million (2004: Rmb 27.5 million) and JCGC of Rmb 13.01 million (2004: Rmb 13.63 million), respectively. Based on a detailed review of the collectibility of the above un-provided receivable balances at December 31, 2005, management considers that there has been no change in the assessment results from prior years as these debtors are under stable operation status, have good historical repayment records and have complied with the debt repayment schedules as agreed with the Company. Accordingly, no provision is necessary.

- 39 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VI.	NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (continued)
(b)	Other receivables

	December 31, 2005			December 31, 2004
Other receivables		66,466,700			92,476,222
Less: Specific provision		(65,788,775	)		(73,381,286	)
		677,925			19,094,936

(1) Ageing analysis for other receivables and provision for bad debts:

	December 31, 2005							December 31, 2004
	Other				Provision for			Other				Provision for
	receivables		%		bad debts			receivables		%		bad debts
Ageing:
Within 1 year		92,816		—		—			18,310,771		20		—
1-2 years		96,351		—		—			302,810		—		(127,602	)
2-3 years		91,298		—		—			772,564		—		(163,607	)
More than 3 years		66,186,235		100		(65,788,775	)		73,090,077		80		(73,090,077	)
		66,466,700		100		(65,788,775	)		92,476,222		100		(73,381,286	)

In 2005, other receivables of Rmb 6,647,976 (2004: Rmb 133,691) were written off against the provision for bad debts.

(2)	There are no balances due from shareholders who hold more than 5% (including 5%) of the             shares of the Company included in other receivables.
(3)	At December 31, 2005, the total balance of the five largest other receivables was Rmb 25,511,571, representing 38% of the total other receivables balance.
2.	Long-term equity investments

	January 1,							December 31,
	2005		Additions		Decrease			2005
Subsidiaries (Note (1))		70,330,134		737,378		(36,073,554	)		34,993,958
Jointly controlled entity (Note (2))		89,834,909		13,881,496		(24,000,000	)		79,716,405
Associated company (Note (2))		9,304,685		1,719,262		—			11,023,947
		169,469,728		16,338,136		(60,073,554	)		125,734,310

As at December 31, 2005, total investment of the Company represents 2% of the net assets.

- 40 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VI.	NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (continued)
2.	Long-term equity investments (continued)
(1)	Subsidiaries
(a)	Details of long-term investments:

Name of enterprise	Investment period	Percentage of equity held				Original investment
		January 1,		December		January 1,							December 31,
		2005		31, 2005		2005		Additions		Deductions			2005
		%		%
Winsway	August 7, 1995 to August 6, 2005		70		—		36,154,000		—		(36,154,000	)		—
Songmei	December 26, 1997 to December 25, 2017		66		66		47,660,421		—		—			47,660,421
Jianxiu	February 12, 2001 to February 12, 2008		99		99		44,537,759		—		—			44,537,759
Xinghua	February 21, 1991 to February 20, 2011		75		75		19,250,000		—		—			19,250,000
							147,602,180		—		(36,154,000	)		111,448,180

- 41 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VI.	NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (continued)
2.	Long-term equity investments (continued)
(1)	Subsidiaries (continued)
(b)	The movement of investments in subsidiaries accounted for using the equity method of accounting is as follows:

	January 1, 2005		Additional		Share of						December 31, 2005
	carrying amounts		investment		net profit /(loss)			Dividend received			carrying amounts
Winsway (Note)		36,740,580		—		(667,026	)		(36,073,554	)		—
Songmei		19,638,596		—		639,986			—			20,278,582
Jianxiu		13,950,958		—		764,418			—			14,715,376
Xinghua (Note IV (i))		—		—		—			—			—
		70,330,134		—		737,378			(36,073,554	)		34,993,958

Note: In August 2005, Winsway was liquidated upon the end of the approved operating period and was not consolidated into the Company’s financial statements. The Company’s long-term investments are realised through fixed assets, inventory, cash, etc.

(2) See Note V 6 for investments in jointly controlled entity and associated company.

- 42 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VI.	NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY (continued)
3.	Sales revenue

	2005		2004
Petroleum products		15,355,627,117		14,076,504,026
Petrochemical and organic chemical products		12,794,822,349		11,706,115,835
Synthetic rubber products		1,559,417,163		1,416,846,689
Chemical fertilizers and inorganic chemical products		598,459,121		665,600,803
		30,308,325,750		27,865,067,353

4. Cost of sales

	2005		2004
Petroleum products		17,018,140,356		13,754,338,869
Petrochemical and organic chemical products		10,692,309,449		8,260,952,413
Synthetic rubber products		1,233,266,230		1,072,712,774
Chemical fertilizers and inorganic chemical products		685,678,158		732,655,385
		29,629,394,193		23,820,659,441

5. Investment income

	2005		2004
Share of profit of a jointly controlled entity		13,881,496		36,112,288
Share of profit of an associated company		1,719,262		4,397,015
Share of profit / (loss) of subsidiaries		737,378		(32,067,435	)
		16,338,136		8,441,868

There is no restriction on the transferability of investment income to the Company.

- 43 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS
(a)	Related companies in which control exists:

	Place of		Relationship with	Nature of the
Name of enterprise	registration	Principal activities	the Company	enterprise	Legal representative
CNPC	PRC	Exploration, development, production and sale of natural resources	Ultimate holding company	State-owned enterprise	Chen Geng
PetroChina	PRC	Exploration, manufacture and sale of petroleum and natural gas; pipeline transportation, manufacture and sale of petrochemical products	Immediate holding company	Joint stock limited company	Chen Geng
Winsway (Note)	PRC	Transportation of petrochemical products	Original subsidiary	Sino-foreign equity joint venture	Ni Muhua
Songmei	PRC	Manufacture of acetic acid	Subsidiary	Sino-foreign co-operative joint venture	Ni Muhua
Jianxiu	PRC	Machinery repair and installation	Subsidiary	Joint venture	Duan Liangwei
Jinxiang	PRC	Inspection, research and consultation of pressure vessels	Indirect subsidiary	Limited company	Li Jianqiang

Note: In 2005, Winsway was liquidated upon the end of the approved operating period and was not consolidated into the Company’s financial statements (see Note IV (iii)).

- 44 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued)
(b)	Registered capital (and its movements) of related companies in which control exists:

	January 1, 2005		Additions		Decrease			December 31, 2005
Name	Rmb’000		Rmb’000		Rmb’000			Rmb’000
CNPC		114,900,000		—		—			114,900,000
PetroChina		175,824,180		—		—			175,824,180
Winsway		51,450		—		(51,450	)		—
Songmei		72,000		—		—			72,000
Jianxiu		45,200		—		—			45,200
Jinxiang		2,000		—		—			2,000

(c) Registered capital of the Company held by the related company which controls the Company:

	January 1, 2005				Additions			Decrease			December 31, 2005
Name	Rmb’000		%		Rmb’000		%	Rmb’000		%	Rmb’000		%
PetroChina		2,396,300		67		—	—		—	—		2,396,300		67

(d) Movement of the capital or equity of subsidiaries controlled by the Company:

	Capital or equity													Capital or equity
	held at													held at
	January 1, 2005		%		Additions		%		Reduction			%		December 31, 2005		%
Winsway		36,154,000		70		—		—		(36,154,000	)		70		—		—
Songmei		47,660,421		66		—		—		—			—		47,660,421		66
Jianxiu		44,537,759		99		—		—		—			—		44,537,759		99
Jinxiang		1,881,000		94		—		—		—			—		1,881,000		94

- 45 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued)
(e)	Related companies in which no control exists:

				Registered
	Nature of the	Date of	Place of	capital			Equity percentage held
Name	enterprise	registration	registration	Rmb’000		Currency	at December 31, 2005			Principal activities
Jointly controlled entity
- BASF	Sino-foreign joint venture	November 18, 1995	Jilin		150,000	Rmb		40	%	Manufacturing of petrochemical products
Associated company
- Lianli	State-owned	March 22, 2001	Jilin		42,210	Rmb		47	%	Wholesale and retail of petrochemical products

Besides the above jointly controlled entity and associated company, CP Finance, JCGC and its subsidiaries and the Company are subsidiaries of CNPC.

- 46 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued)
(f)	Significant related party transactions

	2005		2004
PetroChina Group Companies
Purchase of crude oil		17,475,693,428		11,789,022,188
Purchase of raw materials		3,572,397,979		7,447,892,133
Sale of gasoline and diesel oil		13,643,594,095		10,712,174,225
Sale of petrochemical goods		10,660,878,179		11,519,222,083
Railway transport and water treatment services		40,906,000		29,706,260
Property safe insurance fund (1)		32,961,353		32,957,882
Lease machinery and equipment		31,930,488		27,733,340
CNPC Group Companies
Loan drawn		7,623,870,000		8,531,610,000
Interest income		235,125		133,420
Interest expenses		101,734,052		212,814,226
Purchase of production materials		56,754,491		52,829,582
JCGC Group Companies
Sale of products		1,134,403,392		1,417,140,422
Examination and maintenance services		15,976,852		19,665,874
Construction of fixed assets		31,802,103		76,342,410
Purchase of production materials and spare parts		404,238,276		148,587,235
Purchase of utilities and logistics services		276,179,679		262,960,978
Operating lease rentals in land and property		9,390,000		7,680,000
Lianli
Sale of goods		389,034,527		56,142,216
Purchase of materials		28,154,210		26,596,450

The prices of the transactions between the Group and related companies are primarily based on market prices.

(1) 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 the 0.4% of the average cost of fixed assets and inventory. The fund is mainly used to compensate for the accidental property loss.

- 47 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued)
(g)	Related party balances

	December 31, 2005		December 31, 2004
Accounts receivable from
- PetroChina Group Companies		256,776,796		211,529,663
- JCGC Group Companies		28,844,777		169,077,379
- Lianli		19,472,600		23,138,266
Accounts receivable due from related parties are for goods sold to these companies.
Other receivables from
- JCGC Group Companies		681,859		8,633,041
- CNPC Group Companies		117,800		—
Other receivables due from related parties are mainly for expenses paid on their behalf.
Advances to suppliers to
- JCGC Group Companies		305,468		129,713,525
- CNPC Group Companies		—		7,171,710
- Lianli		—		239,298

The balance mainly represents advance payments for import of machinery through JCGC.

- 48 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

VII.	RELATED COMPANIES AND RELATED PARTY TRANSACTIONS (continued)
(g)	Related party balances (continued)

	December 31, 2005		December 31, 2004
Accounts payable to
- PetroChina Group Companies		1,804,187,973		186,038,691
- JCGC Group Companies		62,798,581		32,486,521
- CNPC Group Companies		19,861,065		—
- Lianli		6,426,534		4,482,628
Advances from
- PetroChina Group Companies		873,030,000		1,481,263,819
- JCGC Group Companies		10,485,679		11,517,711
- Lianli		761,455		4,625,674
- CNPC Group Companies		353,275		—
Other payables to
- JCGC Group Companies		3,039,223		41,618,179
Short-term loans from
- CP Finance		2,102,570,000		2,874,330,000
Other long-term liabilities through
- JCGC Group Companies		177,941,306		333,208,992

(h) Loans guaranteed by related parties

	December 31, 2005		December 31, 2004
Guaranteed by
- PetroChina Group Companies (Note V 17,18)		581,451,305		747,033,992
- JCGC Group Companies (Note V 17)		102,420,309		239,035,505

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

	December 31, 2005		December 31, 2004
Property, plant and equipment		47,732,779		40,646,387

- 49 -

JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(All amounts are stated in Rmb Yuan unless otherwise stated)

IX.	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.
X.	NET (LOSS)/PROFIT BEFORE NON-OPERATING (PROFIT) / LOSS

	2005			2004
Net (loss)/profit		(762,479,379	)		2,573,760,050
Add / (Deduct): Non-operating (profit) / loss
- Net loss from disposal of fixed assets		46,640,074			(26,411,901	)
- Litigation loss		44,918,000			—
- Non-seasonal shutdown		30,448,375			18,560,533
- Net profit from disposal of intangible assets		(19,643,426	)		—
- Subsidy income		(2,683,084	)		—
- Reversal of assets impairment provision		(1,327,346	)		—
- Others		(4,870,178	)		1,116,751
		(668,996,964	)		2,567,025,433
Net impact on income tax		(16,026,257	)		2,222,424
Net (loss)/profit before non-operating (profit) / loss		(685,023,221	)		2,569,247,857

X.	COMPARATIVE FIGURES
	Certain comparative figures have been reclassified to conform to the current year presentation.

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JILIN CHEMICAL INDUSTRIAL COMPANY LIMITED
Supplementary Information
Asset impairment provision as at December 31, 2005

Appendix I

Items	As at January 1, 2005				Current year addition				Current year reduction																		As at December 31, 2005
									Reveral caused by increase of
									assets value						Other transfer-out (Note)						Total
	Group		Company		Group		Company		Group			Company			Group			Company			Group			Company			Group		Company
1. Bad debt provision		714,823,053		714,156,695		—		—		(1,324,598	)		(1,324,598	)		(143,653,550	)		(143,653,550	)		(144,978,148	)		(144,978,148	)		569,844,905		569,178,547
Including: Accounts receivable		641,441,767		640,775,409		—		—		(380,063	)		(380,063	)		(137,005,574	)		(137,005,574	)		(137,385,637	)		(137,385,637	)		504,056,130		503,389,772
Other receivables		73,381,286		73,381,286		—		—		(944,535	)		(944,535	)		(6,647,976	)		(6,647,976	)		(7,592,511	)		(7,592,511	)		65,788,775		65,788,775
2. Provision for impairment of short-term investments
Including: Equity investments
Bond investments
3. Inventory provision		256,297,079		255,622,836		—		—		(2,748	)		—			—			—			(2,748	)		—			256,294,331		255,622,836
Including: Raw materials		70,820,662		70,820,662		—		—		—			—			—			—			—			—			70,820,662		70,820,662
Work in progress		5,643,854		5,643,854		—		—		—			—			—			—			—			—			5,643,854		5,643,854
Finished goods		16,210,129		15,535,886		—		—		(2,748	)		—						—			(2,748	)		—			16,207,381		15,535,886
Spare parts		163,262,401		163,262,401		—		—		—			—			—			—			—			—			163,262,401		163,262,401
Low value consumables and packing materials		360,033		360,033		—		—		—			—			—			—			—			—			360,033		360,033
4. Provision for impairment of long-term investments
Including: Long-term equity investments
Long-term bond investments
5. Provision for impairment of fixed assets		282,023,248		269,931,112		155,220,007		155,220,007		—			—			(18,014,476	)		(14,351,852	)		(18,014,476	)		(14,351,852	)		419,228,779		410,799,267
Including: Buildings		54,004,790		54,320,147		—		—		—			—			—			—			—			—			54,004,790		54,320,147
Machinery		176,484,961		175,250,656		155,220,007		155,220,007		—			—			(18,014,476	)		(14,351,852	)		(18,014,476	)		(14,351,852	)		313,690,492		316,118,811
Equipment		46,996,897		39,123,709		—		—		—			—			—			—			—			—			46,996,897		39,123,709
Motor vehicles		4,536,600		1,236,600		—		—		—			—			—			—			—			—			4,536,600		1,236,600
6. Provision for impairment of intangible assets		6,698,195		6,698,195		—		—		—			—			—			—			—			—			6,698,195		6,698,195
Including: Technical know-how		6,698,195		6,698,195		—		—		—			—			—			—			—			—			6,698,195		6,698,195
Land use right		—		—		—		—		—			—			—			—			—			—			—		—
7. Provision for impairment of construction in progress		7,220,081		7,220,081		—		—		—			—			—			—			—			—			7,220,081		7,220,081
8. Provision for trust loan

Note:
(1).	The reduction in bad debt provision in 2005 represents the write-off of receivables against the related bad debt provision due to bankrupcy of the debtors.
(2).	The other transfer-out of provision for impairment of fixed assets in 2005 is due to the disposal or scrapping of fixed assets provided in prior years.