10:56     SHANGHAI PECHEM<00338> - Announcement (6)                           

    (The details of the  ownership and controlling relationship between the   
    Company and ultimate parent, please refer to the press announcemet today.)
                                                                              
                                                                              
    The Company and each of the connected parties involved in the             
    Continuing Connected Transactions (except where the connected party       
    is China Petrochemical Corporation) are owned by the same ultimate        
    parent, China Petrochemical Corporation, either directly or               
    indirectly.                                                               
                                                                              
    2.3                                                                       
    Background, Reasons for Transactions, Pricing Policies and Caps           
    2.3.1                                                                     
    Purchases of Raw Materials                                                
    Background: The Company produces over 60 different types of products      
    representing a broad range of synthetic fibres, resins and plastics,      
    intermediate petrochemicals and petroleum products. Each of these         
    products are created from chemical processing of crude oil, naphtha,      
    paraxylene and other intermediate petrochemical raw materials. Since      
    the Company's initial public offer on 6 July 1993, the Company has        
    been purchasing crude oil, naphtha, paraxylene and other petroleum        
    raw materials from China Petroleum & Chemical Corporation and its         
    associates, including, Sinopec Transport and Storage Company, Sinopec     
    United Petroleum and Chemical Company Limited and China Petroleum &       
    Chemical Corporation (Shanghai Gao Qiao branch).                          
                                                                              
    The table below sets forth the historical figures of the Company's        
    aggregate purchases of petroleum raw materials from China Petroleum &     
    Chemical Corporation and China Petroleum & Chemical Corporation's         
    associates for each of the three years ended 31 December 2004:            
                                                                              
                                                    Historical                
                                                    Figures for               
                                                    the year ended            
                                                    31 December               
                    2002            2003            2004                      
                    (RMB million)   (RMB million)   (RMB million)             
                                                                              
    Aggregate       11,913          16,661          20,526                    
    purchases of                                                              
    raw materials                                                             
    from China                                                                
    Petroleum &                                                               
    Chemical                                                                  
    Corporation                                                               
    and its                                                                   
    associates                                                                
                                                                              
                                                                              
                                                                              
    The Company proposes to enter into the Sales and Purchases Framework      
    Agreement to continue to purchase raw materials from China Petroleum      
    & Chemical Corporation and its associates for the three years ending      
    31 December 2007.                                                         
                                                                              
    Reasons for such transactions: China's oil and petrochemical              
    industry has always been the subject of extensive regulation by the       
    PRC government. Transactions involving sales and purchases of crude       
    oil related raw materials are subject to State plan. Accordingly, the     
    Company's allocation of raw material requirements is governed by          
    State regulations and measures including Measures for the                 
    Administration of Ningbo-Shanghai-Nanjing Pipeline Network, Notice on     
    Pipeline Crude Oil Price for Ningbo-Shanghai-Nanjing Area in 2004,        
    Measures for Crude Oil Administration (for Trial Implementation) and      
    Letter Concerning Adjustment to Commission Standards on Foreign Trade     
    Agency for Crude Oil Import. These regulations and measures are           
    promulgated by the PRC government and dictate the transaction value,      
    the volume and all other terms and conditions at which the Company        
    conducts its purchases of raw materials.                                  
                                                                              
    Pricing: Pursuant to the Sales and Purchases Framework Agreement,         
    the crude oil related raw materials from China Petroleum & Chemical       
    Corporation and its associates are determined in accordance with the      
    following pricing policies:                                               
                                                                              
    (a)                                                                       
    if there are applicable State (central and local governments)             
    tariffs, the pricing of the Company's purchases shall be bound by the     
    State tariffs; or                                                         
    (b)                                                                       
    if there are no State tariffs, but there are applicable State guided      
    prices, the pricing of the Company's purchases shall be bound by the      
    State guided prices; or                                                   
                                                                              
    (c)                                                                       
    if there are no applicable State tariffs or State guided prices, the      
    pricing of the Company's purchases shall be determined in accordance      
    with the prevailing market price (including any bidding price); or        
                                                                              
    (d)                                                                       
    if none of the above applies, the Company's purchases shall be            
    determined on a cost plus basis. The margin shall be fixed at a rate