Sheng Yuan : TERMS OF REFERENCE FOR AUDIT COMMITTEE

Terms of Reference for Audit Committee

Functions and Objectives

The audit committee (the "Committee") is appointed by the board of directors of the Company (the "Board") with a view to assisting the Board in overseeing and reviewing:

•  the effectiveness of the Company's risk management and internal control systems and regulatory compliance;

•  the balance, transparency and integrity of the Company's financial statements and the application of financial reporting principles;

•  the relationship with the external auditor and its independence assessment; and

•  the effectiveness of the Company's internal audit function.

Composition

• 1. The Committee must comprise non-executive directors only. The Committee must also comprise at least three members, with the majority being independent non-executive directors.

• 2. At least one of the independent non-executive directors serving as a member of the Committee must possess appropriate professional qualifications or accounting or related financial management expertise as required in Rule 3.10(2) of the Rules (the "Listing Rules") Governing the Listing of the Securities on The Stock Exchange of Hong Kong Limited.

• 3. The Committee must be chaired by an independent non-executive director.

• 4. Any former partner of the Company's existing auditing firm is prohibited to be a member of the Committee for a period of two years from the date of his ceasing to be a partner of the firm or to have any financial interest in the firm (whichever is later).

• 5. Unless it is agreed otherwise, the Company Secretary of the Company should assume the role of Secretary for the Committee.

Proceedings and Records of Meetings

• 1. The meetings and proceedings of the Committee are governed by the provisions of the Bye-laws of the Company for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by the regulations imposed by the Board.

• 2. Two members shall form a quorum for a meeting.

• 3. The Committee may invite such other persons (e.g. the Chief Executive Officer, Chief Financial Officer, head of accounting team, head of internal audit team and external audit engagement partner) to its meetings as it deems necessary. Other

  Board members shall also have the right of attendance.

• 4. Meetings shall be held not less than 2 times a year. Special meetings may be convened as required. The Secretary of the Committee will convene a meeting on receipt of a request by the external or internal auditor.

• 5. The Secretary of the Committee shall circulate the meeting agenda and supporting documentation to the Committee members at least 14 days in advance of each meeting.

• 6. Full minutes of the Committee should be kept by the Secretary of the Committee.

• 7. The draft and final versions of the minutes of the Committee meetings should be sent to all Committee members for their comment and records within a reasonable time after each meeting.

• 8. The chairman of the Committee or another member of the Committee shall attend the Board meeting at which the financial statements are approved.

• 9. The Committee will meet with the external auditor at least twice a year without executive Board members present.

Authority

The Board authorises the Committee:

• 1. to perform activities within the scope of these terms of reference;

• 2. to engage independent counsel and/or other independent professional advisers as it deems necessary to carry out its duties; and

• 3. to obtain information required by Committee members in pursuit of their duties, and have access to members of management and other employees for such purpose.

Duties

The authority of the Committee is derived from the Board, therefore the Committee is obliged to report to the Board on their decisions or recommendations, unless there are legal or regulatory restrictions on their ability to do so. The Committee should be provided with sufficient resources to perform its duties. The duties of the committee are as follows:

Relationship with the Company's external auditors

• 1. to be primarily responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditor, and to approve the remuneration and terms of engagement of the external auditor, and any questions of its resignation or dismissal;

• 2. to review and monitor the external auditor's independence and objectivity and

  the effectiveness of the audit process in accordance with applicable standards. The Committee should discuss with the auditor the nature and scope of the audit and reporting obligations before the audit commences;

• 3. to develop and implement policy on engaging an external auditor to supply non-audit services. For this purpose, "external auditor" includes any entity that is under common control, ownership or management with the audit firm or any entity that a reasonable and informed third party knowing all relevant information would reasonably conclude to be part of the audit firm nationally or internationally. The Committee should report to the Board, identifying and making recommendations on any matters where action or improvement is needed:

  (a) To determine the institution appointed are suitable for the provision of such non-auditing services to the Company with respect to its ability and experience;

(b)Any precautionary measures are available to ensure that the objectivity and independence of the auditing carried out by the external auditors will not be threatened when such services are provided by the institution appointed; and

(c)The nature of such non-auditing services and the level of fees, and for such auditor, the levels of the individual and aggregate services charges; and the standards on the determination of the auditor's fee;

Review of financial information of the Company

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to monitor integrity of the Company's financial statements and annual report and accounts, half-year report and, if prepared for publication, quarterly reports, and to review significant financial reporting judgements contained in them. In reviewing these reports before submission to the Board, the Committee should focus particularly on:-

• (a) any changes in accounting policies and practices;

• (b) major judgmental areas;

• (c) significant adjustments resulting from audit;

• (d) the going concern assumptions and any qualifications;

• (e) compliance with accounting standards; and

• (f) compliance with the Listing Rules and legal requirements in relation to financial reporting;

5.

In regard to 4 above:-

(a) members of the Committee should liaise with the Board and senior management and the Committee must meet, at least twice a year, with the Company's auditors;

• (b) the Committee should consider any significant or unusual items that are, or may need to be, reflected in the report and accounts, it should give due consideration to any matters that have been raised by the staff responsible for the accounting and financial reporting functions, compliance officer or auditors; and

• (c) extraordinary items, and all matters raised by the chief financial officer or auditor of the Company shall be under due consideration;

Oversight of the Company's financial reporting system and risk management and internal control systems

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to review the Company's financial controls, risk management and internal control systems;

• 7. to discuss the risk management and internal control systems with management to ensure that management has performed its duty to have effective risk management and internal control systems. This discussion should include the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company's accounting and financial reporting function;

• 8. to consider major investigation findings on risk management and internal control matters as delegated by the Board or on its own initiative and management's

  response to these findings;

• 9. where an internal audit function exists, to ensure co-ordination between the internal and external auditors, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and to review and monitor its effectiveness;

• 10. to review the group's financial and accounting policies and practices;

• 11. to review the external auditor's management letter, any material queries raised by the auditor to management about accounting records, financial accounts or systems of risk management and control and management's response;

• 12. to ensure that the Board will provide a timely response to the issues raised in the external auditor's management letter;

• 13. to report to the Board on the matters set out in the code provision under Appendix 14 to the Listing Rules;

• 14. to consider other topics, as defined by the Board;

• 15. to consider establishing procedures to review and monitor the independence of external auditor, which may include the following: -

(a) to consider all relationships between the Company and the audit firm (including non-audit services);