09:26     CHINA WATER<00855> - Announcement (2)                               

    The Group will fund the Investment Agreement from the                     
    internal resources of the Group.                                          
                                                                              
    Information on the Water Project Company                                  
    The Water Project Company was established in the PRC on 16th              
    April, 2003 by A, B, C, D as a PRC domestic enterprise for a              
    term of 20 years. As at the date hereof, the registered                   
    capital of Water Project Company is RMB17,000,000 (equivalent             
    to approximately HK$16,038,000) and has been fully paid by A,             
    B, C and D in accordance with their respective shareholdings              
    in the Water Project Company.                                             
                                                                              
    Pursuant to the Investment Agreement, the registered capital              
    of the Water Project Company will be increased to                         
    RMB36,000,000 (equivalent to approximately HK$33,962,000)                 
    with the Company injecting RMB19,000,000 (equivalent to                   
    approximately HK$17,925,000) to its registered capital. The               
    shareholding structure of the Water Project Company                       
    immediately before and after completion of the Investment                 
    Agreement is set out under the paragraph headed "Parties"                 
    above in this announcement.                                               
                                                                              
    For the purpose of enabling the Company to inject new capital             
    into the Water Project Company, the Water Project Company                 
    will be reconstituted from a PRC domestic enterprise into a               
    sino-foreign enterprise. The reconstituted Water Project                  
    Company will have a term of 30 years, commencing from the                 
    date of issue of the sino-foreign enterprise business licence             
    by the relevant governmental authorities. It is currently                 
    expected that such licence will be obtained about two months              
    from the date of the Investment Agreement. The Water Project              
    Company will be principally engaging in the business of water             
    supply, water sewage and waste management related business.               
    It's operation will be based in Nanchang, Jiangxi, the PRC                
    but will expand into other cities and provinces in the PRC                
    should opportunities arise.                                               
                                                                              
    The board of directors of the Water Project Company after                 
    completion of the Investment Agreement will consist of nine               
    directors, five of whom will be appointed by the Company and              
    the other four directors will be appointed by A. The chairman             
    of the board of directors of the Water Project Company will               
    be appointed by the Company. A, B, C and D will assist in                 
    applying for the requisite approval and license for the                   
    injection of capital by the Company. All registered owners of             
    the Water Project Company will be entitled to share the                   
    profit or to bear the loss in proportion to their respective              
    equity interests in the Water Project Company.                            
                                                                              
    Based on the unaudited management accounts of the Water                   
    Project Company for the period commencing from 16th April,                
    2003 (being the date of establishment of the Water Project                
    Company) to 31st December, 2004 and from 1st January, 2005 to             
    28th February, 2005, the unaudited loss of Water Project                  
    Company was approximately RMB180,000 and RMB42,000,                       
    respectively (equivalent to approximately HK$169,800 and                  
    HK$39,600, respectively). As at 28th February, 2005, the                  
    unaudited net assets of the Water Project Company was                     
    approximately RMB17,467,000 (equivalent to approximately                  
    HK$16,478,000). The Water Project Company is yet to generate              
    any revenue as it is in the stage of exploring and evaluating             
    potential water investment projects. Upon completion of the               
    Investment Agreement, should the Water Project Company make               
    any investment, the Company will comply with the requirements             
    of the Listing Rules.                                                     
                                                                              
    Completion                                                                
    Completion of the Investment Agreement is subject to the                  
    Water Project Company being reconstituted from a PRC domestic             
    enterprise into a sino-foreign enterprise, which is expected              
    to take place about two months from the date of the                       
    Investment Agreement.