10:57     SHANGHAI PECHEM<00338> - Announcement (8)                           

    State tariffs; or                                                         
                                                                              
    (b)                                                                       
    if there are no State tariffs, but there are applicable State guided      
    prices, the pricing of the Company's sales 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 sales 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 sales shall be                
    determined on a cost plus basis. The margin shall be fixed at a rate      
    not exceeding 6%.                                                         
                                                                              
    China Petroleum & Chemical Corporation and its associates will            
    settle their purchases of the Company's petroleum products by way of      
    cash payments.                                                            
                                                                              
    Caps: For the three years ending 31 December 2007, the annual             
    transaction values in relation to sales of petroleum products to          
    China Petroleum & Chemical Corporation and its associates shall not,      
    in aggregate, exceed the caps of RMB 13.0 billion, RMB 14.3 billion       
    and RMB 15.7 billion, respectively.                                       
                                                                              
    The caps referred to above are determined with reference to:              
    (a)                                                                       
    the previous transactions conducted and transaction amounts in            
    respect of sales of petroleum products to China Petroleum & Chemical      
    Corporation and its associates;                                           
                                                                              
    (b)                                                                       
    the Company's estimate of the increase in the costs of raw                
    materials;                                                                
                                                                              
    (c)                                                                       
    the Company's estimate of the increase in the overall demand for          
    petroleum products in the PRC; and                                        
                                                                              
    (d)                                                                       
    the Company's estimate of the increase in the market price of             
    petroleum products.                                                       
                                                                              
    Additionally, the Company has recently completed the construction of      
    several facilities, including the 8,000,000 ton/year atmosphere and       
    vacuum distillation plants (completed on 15 December 2004), the           
    expansion of the capacity of the PTA plant to 400,000 ton/year            
    (completed at the end of September 2004), the three-kettle process        
    150,000 ton/year PET plant (completed on 1 October 2004), and the         
    construction of the technology upgrade project for industrial             
    polyester filament of 12,000 ton/year (completed on 28 December           
    2004). These newly completed projects have significantly increased        
    the production capacity of the Company. Accordingly, the Company          
    expects that its sales would increase as a result of an enlarged          
    production capacity. Taking into account these factors, the Company       
    arrives at the caps above.                                                
                                                                              
    2.3.3                                                                     
    Sales of Petrochemical Products                                           
    Background: In addition to sales of petroleum products, the Company       
    has in the past in the ordinary and usual course of its business sold     
    certain petrochemical products, including butadiene, benzene, C4 and      
    C10) to China Petroleum & Chemical Corporation (Shanghai Gao Qiao         
    branch).                                                                  
                                                                              
    The table below sets forth the historical figures of the Company's        
    total sales of petroleum products to China Petroleum & Chemical           
    Corporation (Shanghai Gao Qiao branch) and other associates of China      
    Petroleum & Chemical Corporation 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)             
    Sales of        700             2,336           3,861                     
    petrochemical                                                             
    products to                                                               
    China                                                                     
    Petroleum &                                                               
    Chemical                                                                  
    Corporation                                                               
    (Shanghai Gao                                                             
    Qiao branch)                                                              
    and other                                                                 
    associates of                                                             
    China                                                                     
    Petroleum &                                                               
    Chemical                                                                  
    Corporation