09:28     GUANGNAN (HOLD)<01203> - Announcement (2)                           

    Hai in the past years. For the year ended 31st December,                  
    2004, the total amount of rent for leasing of the land                    
    paid by GD Decorative to Shan Hai was approximately                       
    RMB1,587,000 (equivalent to approximately HK$1,494,000).                  
                                                                              
    The term of the Land Lease Agreement is 28 years and                      
    4 months. Under Rule 14A.35(1) of the Listing Rules,                      
    a continuing connected transaction which is not fully                     
    exempted must be governed by an agreement for a fixed                     
    period not exceeding three years unless there are                         
    special circumstances requiring a longer duration.                        
    The Directors and Hantec Capital Limited ("Hantec"),                      
    an independent financial adviser engaged by the                           
    Company in respect of the Land Lease Agreement, are                       
    of the view that the special circumstances, under Rule                    
    14A.35(1) of the Listing Rules, in this case are:                         
                                                                              
    (a)     the building and operating production                             
    facilities on the land under the Land Lease Agreement                     
    was built by GD Decorative and the investment cost                        
    was approximately RMB93 million;                                          
                                                                              
    (b)     the land under the Land Lease Agreement is used                   
    for building and operating production facilities                          
    thereon by GD Decorative and the areas nearby are also                    
    mainly used as production facilities by other users.                      
    As the land is used as production facilities by GD                        
    Decorative, there is certainly a need to have                             
    substantial investment requirements by GD Decorative                      
    for the building and operating production facilities                      
    at the preliminary stage and also on a continuing                         
    basis. As such, the need of GD Decorative to have                         
    longer term of projections for the land to minimize                       
    its building costs and relocation costs is thereby                        
    necessitating a long duration of the Land Lease                           
    Agreement;                                                                
                                                                              
    (c)     at the time before the entering into of the Land                  
    Lease Agreement, the then Directors had no definite                       
    plan as to the development of the land under the Land                     
    Lease Agreement and they expected that the supply of                      
    land and properties in Zhongshan, the PRC would                           
    increase in future and consequently the rental would                      
    decrease due to the increase in supply. Therefore,                        
    the Land Lease Agreement was the best choice to bring                     
    benefit to the Group;                                                     
                                                                              
    (d)     a long term lease is required to enable the                       
    tenant to have smooth operation in the long run for                       
    its production activities and the entering into the                       
    Land Lease Agreement provides the most cost-efficient                     
    operational environment to conduct business of GD                         
    Decorative;                                                               
                                                                              
    (e)     a long term lease will ensure Shan Hai a stable                   
    return by avoiding any adverse movement in the                            
    property market; and                                                      
                                                                              
    (f)     an independent valuer appointed by the Company                    
    stated that from the date of signing of the Land Lease                    
    Agreement until 1st April, 2005, the period of the                        
    Land Lease Agreement was set and agreed under normal                      
    business practice of this type of lease agreement.                        
                                                                              
    In view of the above special circumstances, for the                       
    purpose of compliance with Rule 14A.35(1) which came                      
    into operation after the Land Lease Agreement was                         
    first entered into, the Directors (including the                          
    independent non-executive Directors) and Hantec are                       
    of the view that it is normal business practice for                       
    companies engaged in property development and leasing                     
    business to enter into such