10:57     SHANGHAI PECHEM<00338> - Announcement (9)                           

    The Company proposes to enter into the Sales and Purchases Framework      
    Agreement to continue to sell petrochemical products to China             
    Petroleum & Chemical Corporation and its associates for the three         
    years ending 31 December 2007.                                            
                                                                              
    Reasons for such transactions: The Company believes that sales of         
    petrochemical products to China Petroleum & Chemical Corporation          
    would reduce the need for the stocking of an inventory of the             
    Company's products. In addition, as the Company has established an        
    amicable customer-supplier relationship with China Petroleum &            
    Chemical Corporation, it believes that alliances with a reputable         
    international petrochemical corporation such as China Petroleum &         
    Chemical Corporation will promote its brand name and assist it in         
    developing and expanding the markets for its products.                    
                                                                              
    Pricing: Pursuant to the Sales and Purchases Framework Agreement,         
    the sales of petrochemical products to China Petroleum & Chemical         
    Corporation and its associates under the Sales and Purchases              
    Framework Agreement are determined according to the following pricing     
    policies:                                                                 
                                                                              
    (a)                                                                       
    if there are applicable State (central and local governments)             
    tariffs, the pricing of the Company's sales 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 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 petrochemical 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 4.0 billion, RMB 4.4 billion and     
    RMB 4.84 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 petrochemical 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          
    petrochemical products in the PRC; and                                    
                                                                              
    (d)                                                                       
    the Company's estimate of the increase in the market price of             
    petrochemical products.                                                   
                                                                              
    The Company's estimates for 2006 and 2007 are based on the estimate       
    for 2005 increased by a fixed annual growth rate per year.                
                                                                              
    2.3.4                                                                     
    Agency Sales of Petrochemical Products                                    
    Background: In the ordinary and usual course of the Company's             
    business, the Company has in the past entered into sales arrangements     
    with agents pursuant to which agents will procure purchasers for the      
    Company's petrochemical products, including acrylic, on a commission      
    basis.                                                                    
                                                                              
    Sales agents with whom the Company entered into these ongoing             
    arrangements include China Petroleum & Chemical Corporation and its       
    associates. The table below sets forth the historical figures of the      
    aggregate agency commissions the Company paid to China Petroleum &        
    Chemical Corporation and its associates for each of the three years       
    ended 31 December 2004:                                                   
                                                                              
                                                    Historical                
                                                    Figures for               
                                                    the year ended            
                                                    31 December