09:28     AVICHINA<02357> - Announcement (2)                                  

    CONNECTED TRANSACTION                                                     
    Changhe Industry Company is a wholly-owned subsidiary of the              
    Company, and holds 63.88% of shares in Changhe Auto. China Aviation       
    Industry Corporation II (`AVIC II'), the controlling shareholder of       
    the Company, holds 61.06% of Shares in the Company. Changhe Aircraft      
    Industries (Group) Ltd. (`Changhe Group') is a wholly-owned               
    subsidiary of AVIC II and holds 84% of shares in Hefei Changhe. Hefei     
    Changhe (i) as a subsidiary of AVIC II, is an associate of AVIC II        
    (as defined under the Listing Rules) and is therefore a connected         
    person of the Company, and the transaction between Changhe Industry       
    Company and Hefei Changhe constitutes a connected transaction of the      
    Company. However, as the applicable percentage ratios referred to in      
    Rule 14.07 of the Listing Rules are lower than 2.5% (asset ratio:         
    1.46%, profits test: 0.88%, revenue ratio: 2.28%, consideration           
    ratio: 2.40%), the transaction is therefore not subject to approval       
    by independent shareholders under Rule 14A.32 of the Listing Rules.       
    Details of the Agreement will be disclosed in the Company's next          
    annual report and accounts.                                               
                                                                              
    MAJOR TERMS OF THE AGREEMENT                                              
    Date:                          14 October 2004                            
    Purchaser:                     Changhe Industry Company                   
    Vendor:                        Hefei Changhe                              
    Description:                   Hefei Changhe transfers 7.70%              
                                   shares (31,553,620 shares) in              
                                   Changhe Auto to Changhe                    
                                   Industry Company. Upon                     
                                   completion of the                          
                                   transaction, the shares held               
                                   by Changhe Industry Company                
                                   in Changhe Auto will be                    
                                   increased from 63.88% to                   
                                   71.58%.                                    
    Consideration:                 RMB100,971,584 (approximately              
                                   HK$95,256,211), equivalent to              
                                   RMB3.20 per share, will be                 
                                   paid in full within 3 days by              
                                   Changhe Industry Company from              
                                   its internal resource upon                 
                                   the completion of the                      
                                   transaction. The                           
                                   consideration has been                     
                                   determined based on the                    
                                   audited net assets per share               
                                   of Changhe Auto as at 31                   
                                   December 2003 of RMB3.20                   
                                   (approximately HK$3.02)                    
                                   calculated under the                       
                                   accounting standards of the                
                                   Peoples' Republic of China.                
                                   The closing price of the                   
                                   shares of Changhe Auto listed              
                                   on the Shanghai Stock                      
                                   Exchange as at 15 October                  
                                   2004 was RMB5.05                           
                                   (approximately HK$4.76),                   
                                   representing a premium of                  
                                   57.81% over the consideration              
                                   per share of RMB3.20.                      
                                   The original investment cost               
                                   incurred by Hefei Changhe for              
                                   the 7.70% of shares in                     
                                   Changhe Auto was                           
                                   RMB48,151,319 (approximately               
                                   HK$45,425,773).                            
    Conditions:                    Completion of the transaction              
                                   will be conditional upon:  1.              
                                    the review and approval by                
                                   the State-owned Assets                     
                                   Supervision Administration                 
                                   Committee of the State                     
                                   Council;  2.  the approval by              
                                   CSRC for the waiver of                     
                                   obligation to propose a                    
                                   general offer for Changhe                  
                                   Industry Company.                          
                                   The transaction will be                    
                                   completed within 3 days upon               
                                   the fulfilment of the above                
                                   conditions. In the event that              
                                   the above conditions are not               
                                   approved by the relevant                   
                                   authorities within six                     
                                   months, the Agreement will be              
                                   discharged immediately. The                
                                   above conditions may not be                
                                   waived by any party to the                 
                                   Agreement.                                 
                                                                              
                                                                              
                                                                              
    REASONS FOR THE CONNECTED TRANSACTION                                     
    Through the transaction, the shareholding of Changhe Industry