UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report __________

For the Transition period from                      to                     

Commission file number: 001-12126

CHINA ENTERPRISES LIMITED

(Exact Name of Registrant as Specified in its Charter)

Bermuda

(Jurisdiction of Incorporation or Organization)

25th Floor, Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong

(Address of Principal Executive Office)

Telephone: (852) 3151-0300 Fax: (852) 2372-0620

(Name, Telephone, E-mail/and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
N/A	N/A

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.01 per share

(Title of Class)

Securities for which there is a reporting obligation pursuant to section l5(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.

Common Stock: 9,017,310 shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ¨  Yes    x  No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ¨  Yes    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ¨  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨ Other ¨                            

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    ¨  Item 18

If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

TABLE OF CONTENTS

PART I	3
Item 1 Identity of Directors, Senior Management and Advisers	3
Item 2 Offer Statistics and Expected Timetable	3
Item 3 Key Information	4
Item 4 Information on the Company	12
Item 5 Operating and Financial Review and Prospects	16
Item 6 Directors, Senior Management and Employees	19
Item 7 Major Shareholders and Related Party Transactions	23
Item 8 Financial Information	26
Item 9 The Listing	27
Item 10 Additional Information	28
Item 11 Quantitative and Qualitative Disclosure about Market Risk	32
Item 12 Description of Securities Other than Equity Securities	32
PART II	32
Item 13 Defaults, Dividend Arrearages and Delinquencies	32
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds	33
Item 15 Controls and Procedures	33
Item 16A Audit Committee Financial Expert	34
Item 16B Code of Ethics	34
Item 16C Principal Accountant Fees and Services	34
Item 16D Exemptions from the Listing Standards for Audit Committees	34
Item 16E Purchases of Equity Securities by the Issuer and Affiliated Purchasers	34
Item 16F Change in Registrant’s Certifying Accountant	34
Item 16G Corporate Governance	34
PART III	35
Item 17 Financial Statements	35
Item 18 Financial Statements	35
Item 19 Exhibits
Exhibit 8
Exhibit 12(1)
Exhibit 12(2)
Exhibit 13(1)
Exhibit 13(2)
Exhibit 14(1)

2

PART I

This Annual Report for China Enterprises Limited (referred to in this report as the “Company” or “we” and which terms shall include, when the context so requires, the subsidiaries of the Company during the applicable period) should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F for the year ended December 31, 2011 contains certain forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements relating to:

• our business, operating and expansion strategy;

• our ability to finance our business strategy;

• our future business conditions and financial results; and

• future developments in the economic and political environment in China.

The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “may” and similar expressions, as they relate to us, are intended to identify certain of such forward-looking statements. We do not intend to update these forward-looking statements except as required by the U.S. securities laws.

These forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. They are based upon various assumptions, many of which are based, in turn, upon further assumptions, including, without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Although the Company believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies that are difficult or impossible to predict and are beyond the Company’s control, there can be no assurance that the company will achieve or accomplish these expectations or beliefs.

In addition to the factors and matters discussed elsewhere herein, there are a number of important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in the forward-looking statements, including, without limitation, the strength of world economies and currencies, general market conditions, changes in general domestic and international political conditions, and other matters described in the “Risk Factors” included in this Annual Report or otherwise described in the reports the Company files with the Securities and Exchange Commission.

EXCHANGE RATE INFORMATION

Unless otherwise specified, all references in this document to “U.S. Dollars”, “Dollars”, “US$” or “$” are to United States dollars; all references to “Renminbi” or “Rmb” are to Renminbi, which is the legal tender currency of the People’s Republic of China, or the “PRC” or “China”; and all references to “HK$” are to Hong Kong dollars, which is the legal tender currency of the Hong Kong Special Administrative Region, or “Hong Kong”. Where made for the convenience of the reader, conversions of amounts from Renminbi to U.S. Dollars have been made in this document at US$1.00 to Rmb6.2939, the noon buying rate from the Federal Reserve Bank of New York on December 31, 2011. No representation is made that the Renminbi amounts could have been, or could be, converted into U.S. Dollars at that or at any other rate. See section “Exchange Rate Information” under “Item 3. Key Information” in this Annual Report for more details on the exchange rate between Renminbi and US Dollars.

References and statements contained in this document regarding China do not apply to Taiwan or the Republic of China.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

3

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

The following table represents the selected consolidated financial information of the Company as of and for the years ended December 31, 2007, 2008, 2009, 2010 and 2011. The Consolidated Statements of Operations Data for each of the three years in the period ended December 31, 2011 and the Consolidated Balance Sheet Data as of December 31, 2010 and 2011 has been derived from the audited consolidated financial statements, or the “Consolidated Financial Statements”, included in Item 18 “Financial Statements” of this Annual Report. The Consolidated Statements of Operations Data for the years ended December 31, 2007 and 2008 and the Consolidated Balance Sheet Data as of December 31, 2007, 2008 and 2009, as set forth below, have been derived from audited consolidated financial statements not included in this Annual Report. The Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles in the United States, or U.S. GAAP. The selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, the respective consolidated financial statements and their accompanying notes.

Selected Consolidated Financial Information of the Company

(Amounts in thousands, except number of shares, their par values and per share data)

	Year ended December 31,
	2007 (a)			2008			2009			2010			2011 (c)
	Rmb			Rmb			Rmb			Rmb			Rmb			US$
Consolidated Statements of Operations Data:
Revenues		—			—			—			—			—			—
Income (loss) from operations		13,117			(5,770	)		(2,819	)		(3,316	)		(4,186	)		(665	)
Net (loss) income		(28,178	)		(71,441	)		246,951			168,029			(274,955	)		(43,686	)
Basic and diluted (loss) earnings per common share (b)		(3.12	)		(7.92	)		27.39			18.63			(30.49	)		(4.84	)
Weighted-average number of common share outstanding (b)		9,017,310			9,017,310			9,017,310			9,017,310			9,017,310			9,017,310
Consolidated Balance Sheets Data :
Total assets		575,076			677,945			903,905			1,076,077			721,172			114,583
Shareholders’ equity (Net assets)		538,325			458,805			705,411			877,567			597,752			94,973
Common stock — par value US$0.01 per share		770			770			770			770			770			122

Note:

(a) During fiscal year 2007, following the purchase and disposal of certain shares of Wing On Travel (Holdings) Limited a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange, or HKSE, whose name was changed to Rosedale Hotel Holdings Limited (formally named as Wing On Travel (Holdings) Limited), or Rosedale, on May 27, 2010, the Company’s interest in Rosedale was diluted from approximately 20.36% to 12.77%, and was accounted for as trading securities of the Company thereafter.

(b) The calculation of basic and diluted (loss) earnings per common share from 2007 to 2011 is based on the weighted-average number of shares of common stock outstanding during the years ended December 31, 2007 to 2011. The number of shares of common stock outstanding for 2007 to 2011 was 9,017,310. There were no dilutive securities issued by the Company.

(c) In November 2011, the Company disposed of all of its interest in Hangzhou Zhongce and it ceased to be an equity method affiliate of the Company.

4

Exchange Rate Information

The Consolidated Financial Statements are published and denominated in Renminbi. Where made for the convenience of the reader, conversion of amounts from Renminbi to U.S. Dollars has been made in this document at US$1.00 to Rmb6.2939, the noon buying rate certified by the Federal Reserve Bank of New York on December 31, 2011. For the purpose of this Annual Report, the latest practicable date with respect to share and certain exchange rate information is September 30, 2014. As of September 30, 2014, the noon buying rate certified by the Federal Reserve Bank of New York was US$1.00 to Rmb6.1380. No representation is made that the Renminbi amounts could have been, or could be, converted into U.S. Dollars at that or at any other rate.

The following table sets forth the average unified exchange rates for each of the years ended December 31, 2007, 2008, 2009, 2010 and 2011:

	Year Ended December 31,
	2007		2008		2009		2010		2011
(Rmb equivalent of US$1.00)	Rmb		Rmb		Rmb		Rmb		Rmb
At unified exchange rate
- average rate calculated by using the average of the exchange rates on the last day of each month during each period.		7.57		6.93		6.83		6.76		6.45

The following table sets forth the high and low exchange rates for each month during the previous six months:

	At Unified Exchange Rate
(Rmb equivalent of US$1.00)	High		Low
September 30, 2014		6.15		6.13
August 31, 2014		6.18		6.14
July 31, 2014		6.21		6.17
June 30, 2014		6.25		6.20
May 31, 2014		6.26		6.23
April 30, 2014		6.26		6.20

B. CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C. REASONS FOR THE OFFER AND PROCEEDS

Not applicable.

5

D. RISK FACTORS

Investing in our shares involves various risks, including the risks described below. You should carefully consider the following risks and the other information contained in this Annual Report before investing in our shares. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations, financial condition and our liquidity.

Risks Related to Our Business

AS A RESULT OF CHANGES IN THE COMPANY’S ASSETS AND SOURCES OF INCOME, THE COMPANY COULD BECOME AN INVESTMENT COMPANY FOR PURPOSES OF THE UNITED STATES INVESTMENT COMPANY ACT OF 1940

While the Company believes that, in 2011, through its subsidiaries and affiliates it is actively engaged in operating businesses and does not meet the definition of an investment company for purposes of the United States Investment Company Act of 1940, or the 1940 Act, depending on the composition and valuation of the Company’s assets and the sources of the Company’s income from time to time, including after the consummation of the transactions in 2012 to 2014 described in Item 4.A., History and Development of the Company, the Company could fall within the technical definition of the term “investment company” for purposes of the 1940 Act. If the Company were to become subject to the requirements of the 1940 Act, the Company’s operations and results would be negatively impacted, including among other possible effects, the inability of the Company to raise capital through the offer and sale of its securities in the United States. The Company may be unable to continue operating as it currently does and might need to acquire or sell assets that it would not otherwise acquire or sell in order to avoid becoming “investment company” as defined under the 1940 Act.

THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGY, IN WHICH CASE ITS BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION WOULD SUFFER

During the past few years, the Company diversified businesses outside of tire manufacturing. In addition, the Company has disposed of certain operations that it deemed to be underperforming. During 2003, the Company reduced its interest in Hangzhou Zhongce Rubber Co., Ltd or Hangzhou Zhongce from a majority to a minority position (from 51% interest to 26% interest). During 2007, following the purchase and disposal of certain shares of Rosedale, the interest of Rosedale held by the Company was diluted and was accounted for as trading securities of the Company thereafter. While a key part of the Company’s business strategy is to expand through acquiring new businesses and business lines and the Company has been actively seeking new opportunities, its results have been driven almost entirely by its affiliate Hangzhou Zhongce (which has been accounted for as an equity method affiliate in the preparation of the Company’s financial statements). In November 2011, the Company disposed of all of its interest in Hangzhou Zhongce and it ceased to be an equity method affiliate of the Company. In addition, all of the subsidiaries of the Company were inactive during fiscal year 2011.

Despite the Company’s efforts to identify new investments, it has had limited success in doing so and, if it does identify new investments, it may not be able to consummate them. Even if the Company successfully identifies and consummates new investments, the acquisition of new businesses and business lines carries substantial risk and uncertainties. Depending on the specific acquisition, there may be risks relating to the acquired business itself, risks relating to the industry in which the business operates and risks relating to the Company itself.

THE COMPANY MAY NOT BE ABLE TO FINANCE ACQUISITIONS, STRATEGIC INVESTMENTS OR OTHER EXPANSIONS OR MAY INCUR FINANCIAL OBLIGATIONS OR LIABILITIES IN CONNECTION WITH ANY ACQUISITION OR EXPANSION

The Company may experience difficulty in funding acquisitions, investments or expansion. The Company may fund any such activities through bank loans or other debt financing and could incur an increase in debt or other liabilities in connection with any acquisition or other similar matter.

FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS MAY NOT BE SUCCESSFUL AND MAY HARM OUR OPERATING RESULTS

An important element of our strategy is to review prospects for acquisition or strategic investments that would complement our existing companies. Future acquisitions or strategic investments could have a material adverse effect on our business and financial results because of possible charges to financial results for purchased technology, restructuring or impairment charges related to goodwill or amortization expenses associated with intangible assets; potential increases in our expenses and working capital requirements and the incurrence of debt and contingent liabilities; diversion or our capital and management’s attention to other business concerns; risks of entering markets or geographic areas in which we have limited prior experience; or potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.

6

DIVERSIFICATION MAY RESULT IN LOWERED RESPONSIVENESS TO CYCLICAL CHANGES OF DIFFERENT BUSINESSES

Diversification of the Company’s businesses will result in assets, resources and management being committed or allocated to businesses in different fields. As a result, the Company’s flexibility in responding to seasonal changes or periodic fluctuations in the business cycle in a particular business operation may be limited.

CHANGES IN COMPOSITION OF THE COMPANY’S ASSETS COULD RESULT IN THE COMPANY BEING DEEMED A “PASSIVE FOREIGN INVESTMENT COMPANY” WHICH COULD HAVE A NEGATIVE IMPACT ON U.S. HOLDERS

Special U.S. federal income tax rules apply to U.S. holders of shares of a non-U.S. corporation that is classified as a passive foreign investment company for U.S. federal income tax purposes. The determination of the passive foreign investment company status of the Company principally depends upon the composition of the Company’s assets, including goodwill, and the amount and nature of the income of the Company, from time to time. The Company has had no operating subsidiaries during the past few years. If we are characterized as a passive foreign investment company, our U.S. shareholders may suffer adverse tax consequences, including having gains realized on the sale of our shares taxed at ordinary income rates, rather than the capital gain rate. In addition, both gains upon disposition and amounts received as distributions could be subject to an additional interest charge by the Internal Revenue Service. A determination that we are a passive foreign investment company could also have an adverse effect on the price and marketability of our shares.

We do not believe that we were a passive foreign investment company for 2011. However, since the determination of whether we are a passive foreign investment company is based upon such factual matters as the valuation of our assets and, in certain cases, the assets of companies held by us, there can be no assurance with respect to the position of the Internal Revenue Service on our status as a passive foreign investment company. Our analysis related to 2011 is based upon certain assumptions and methodologies that we have used, the appropriate value of our ownership interest in companies we held, and the manner in which we have allocated the value among our active assets and passive assets. We cannot assure you that the Internal Revenue Service will not challenge our assumptions and methodologies. If there were such a challenge, we could be classified as a passive foreign investment company for 2011.

With respect to 2012 and subsequent years, the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. The tests are impacted by changes in value of our group companies which are difficult to predict. Accordingly, there can be no assurance that we will not become a passive foreign investment company in 2011 or a subsequent year, including after the consummation of the transactions in 2012 to 2014 described in Item 4.A., History and Development of the Company.

CHANGES IN ACCOUNTING STANDARDS AND TAXATION REQUIREMENTS COULD AFFECT OUR FINANCIAL RESULTS

New accounting standards or pronouncements that may become applicable to us from time to time, or changes in the interpretation of existing standards and pronouncements, could have a significant effect on our reported results for the affected periods. We also expect to become subject to income tax in jurisdictions in which we expect to commence generating revenues. Increases in income tax rates could reduce our after-tax income from affected jurisdictions, while increases in indirect taxes could affect our financial results.

FAILURE OF INFORMATION TECHNOLOGY COULD HAVE A NEGATIVE IMPACT ON OUR OPERATIONS

Growing standardization, more reliance on global systems, information technology services and increased regulations lead to a risk that our information technology systems may fail. This could affect the Company’s operational performance and financial position.

OUR OPERATIONS, ASSETS AND STAFF CAN BE EXPOSED TO RISKS RELATED TO EVENTS OF AN EXCEPTIONAL NATURE

The Company, including its assets and staff, could be exposed to risks related to events of an exceptional nature such as, but not limited to, severe weather, natural disasters, terrorist attacks, political unrest and accidents. Such events could have a significant effect on our financial condition, results of operations and cash flows.

7

OUR INSURANCE COVERAGE MAY NOT BE SUFFICIENT TO COVER THE RISKS RELATED TO OUR FINANCIAL LOSSES

Historically, our affiliates have not experienced any major accidents in the course of their operations that have caused significant property damage or personal injuries. However, there is no assurance that affiliates or we will not experience major accidents in the future. Although our affiliates have purchased the necessary insurance and we anticipate that future affiliates would purchase necessary insurance, the occurrence of certain incidents such as earthquakes, wars and floods, and the consequences resulting from them, may not be covered adequately, or at all, by insurance policies under which they are protected. Our affiliates may also face exposure to product liability claims in the event that any of their products are alleged to have resulted in property damage, bodily injury or other adverse effects. Losses incurred or payments we may be required to make may have a material adverse effect on our results of operations if such losses or payments are not fully insured.

FAILURE TO ESTABLISH AND MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING COULD HAVE A MATERIAL ADVERSE EFFECT ON THE ACCURACY IN REPORTING OUR FINANCIAL RESULTS OR PREVENTING FRAUD

Undetected internal control weaknesses or controls that function ineffectively represent a risk of loss or financial misstatement. Internal control over financial reporting may not prevent or detect misstatements because of inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If the Company fails to maintain the adequacy of its internal controls, including any failure to implement required new or improved controls, or if it experiences difficulties in the implementation of internal controls, the Company’s business and operating results could be harmed, and it could fail to meet its reporting obligations.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its Annual Report that contains management’s assessment of the effectiveness of the Company’s internal control over financial reporting.

Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important in helping prevent financial fraud. If we are not able to provide reliable financial reports on a timely basis or prevent financial fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.

8

Risks for Doing Business in China

ANTI-DUMPING DUTIES COULD HARM OUR RESULTS IF THE COMPANY IS EXPOSED TO LITIGATION LIABILITY

The products of the Company’s affiliates are manufactured in the PRC and some of them are sold to overseas markets. Anti-dumping duties are specifically intended to prevent cheap imports from countries with lower material and labor costs, in particular the Far East and Eastern Europe, from damaging its community industry. For this reason, goods from the PRC often attract high rates of anti-dumping duties. In 2008, an affiliate of the Company became a defendant in an anti-dumping investigation in India, and the investigation was then completed but no specific charges had been made against the Company. Accordingly, the management of the Company believes that it is not probable that an asset had been impaired or a liability had been incurred at the date of the report. However, the possibility of new legislation could have a material impact on our financial results if our affiliates was to increase its expenditures to comply with anti-dumping requirement, and the imposition of anti-dumping duties may also impact our affiliates’ export sales to India.

THE COMPANY’S BUSINESS FOCUS ON THE GREATER CHINA REGION SUBJECTS THE COMPANY AND ITS BUSINESS TO THE POLITICAL, ECONOMIC AND OTHER DEVELOPMENTS IN THE REGION

As a result of the Company’s traditional business focus on the Greater China Region, the Company’s business and its financial and operating results may be affected by significant political, economic, social and cultural developments in the region. A substantial portion of the Company’s results is derived from its affiliates, major businesses of which are located in China. These businesses are dependent in large part on the performance of the Chinese economy and Chinese government policy. As a result, the future financial condition and results of operations of the Company could be adversely affected by slowdowns in the Chinese economy, Chinese macroeconomic policies that de-emphasize the development of industries that utilize products or services of the Company’s affiliates or other governmental policies, including changes in laws, regulations or the interpretation thereof; confiscatory taxation; restrictions on currency conversion, imports or sources of supplies; or the expropriation or nationalization of private enterprises. Any measures or actions taken by the Chinese government to control industries that utilize products or services of the Company’s affiliates could restrict their business operations and adversely affect the financial positions of the Company and its affiliates.

Although the Company believes that the economic reforms and macroeconomic policies and measures adopted by the Chinese government will continue to have a positive effect on economic development in China and that the Company and its affiliates will continue to benefit from these policies and measures, there is no assurance that the government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting China’s political, economic and social life.

In addition, the Company’s financial results are significantly dependent on the economy in the region. The economy of the Greater China Region differs significantly from the economies of the United States and Western Europe in such respects as structure, level of development, growth rate, capital reinvestment, resource allocation, self-sufficiency, rate of inflation and balance of payments position, among others. Furthermore, the recent global economic downturn has had a significant impact on the region’s economic growth as it is primarily an export-oriented economy. Future adverse economic factors or changes in the policies of the Chinese government could have a material adverse effect on the overall economic growth of China. These developments could adversely affect the financial condition, results of operations and business of the Company and its affiliates by reducing the demand for the products and services of the Company’s affiliates.

As a member of the World Trade Organization, China’s economic activity is expected to become more and more export driven and China’s internal market is expected to see more competition through imports. The expected change in economic activity in China and the Greater China Region and a greater interdependence of the Chinese economy on the general world economy as a result of such changes could also impact the Company’s financial results.

9

RESTRICTIONS ON FOREIGN CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR RESOURCES EFFECTIVELY

Any future restrictions on currency exchanges may limit our ability to use resources generated in Renminbi to fund our business activities outside China or other payments in Hong Kong dollars or other foreign currencies. Although the PRC government introduced regulations in 1996 to allow greater convertibility of the Renminbi for current account transactions, significant restrictions still remain, including primarily the restriction that foreign invested enterprises may only buy, sell or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. In addition, remittance of foreign currencies abroad and conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi, especially with respect to foreign exchange transactions.

FLUCTUATIONS IN THE VALUE OF THE RENMINBI COULD NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS

Our reporting currency is the Renminbi as a substantial portion of our investments are denominated in Renminbi. Our remaining assets and liabilities and all of our operating expenses are denominated in Hong Kong dollars. As a result, we may be exposed to foreign exchange risk, and our results of operations may be negatively impacted by fluctuations in the exchange rate of Renminbi against other currencies. As our major assets and liabilities comprise a mixture of items that are denominated in Renminbi and Hong Kong dollars, our business and operating results may be materially affected in the event of a severe increase or decrease in the value of the Renminbi against other currencies.

The value of the Renminbi is subject to changes in China’s governmental policies and to international economic and political developments. Since January 1, 1994, the PRC government has used a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, publishes a daily based exchange rate with reference primarily to the supply and demand of Renminbi against U.S. dollars and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for Renminbi within a specified band around the central bank’s daily exchange rate. On March 17, 2014, the PBOC announced that the RMB exchange rate flexibility increased to 2% in order to proceed further with reform of the RMB exchange rate regime. These could result in a further and more significant floatation in the RMB’s value against the U.S. Dollars.

While the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar and other currencies.

NATURAL DISASTERS IN THE GREATER CHINA REGION COULD CAUSE SIGNIFICANT DAMAGE TO THE COMPANY’S BUSINESS AND FINANCIAL RESULTS

The Company’s affiliates are primarily located in the PRC. During the past several years, the PRC has experienced natural disasters, including floods, fires and earthquakes. A disaster could cause significant damage to the facilities of our affiliates, which may not be adequately covered by insurance proceeds and could materially and adversely impact the business of the Company’s affiliates. The disaster relief and assistance in the PRC is not well developed and there can be no assurance that adequate government assistance would be available in the absence of sufficient insurance coverage.

OUR RESULTS COULD BE HARMED IF WE HAVE TO COMPLY WITH NEW ENVIRONMENTAL REGULATIONS

The operations of our affiliates could create environmentally sensitive waste depending on the nature of their operations. The general issue of the disposal of hazardous waste has received increasing attention from Chinese national and local governments and foreign governments and agencies and has been subject to increasing regulation. Currently, relevant Chinese environmental protection laws and regulations impose fines on the discharge of waste materials and empower certain environmental authorities to close any facility that causes serious environmental problems. Although it has not been alleged by Chinese government officials that our affiliates have violated any current environmental regulations, there is no assurance that the Chinese government will not amend its current environmental protection laws and regulations. Our financial results could be materially and adversely affected if our affiliates were to increase expenditures to comply with environmental regulations affecting their operations.

LEGAL SYSTEM DIFFERENCES BETWEEN THE GREATER CHINA REGION AND THE UNITED STATES OF AMERICA COULD IMPACT INVESTORS

Unlike common law systems in the western world, China has a civil law system based on written statutes and, therefore, decided legal cases are without binding legal effect, although they are often followed by judges as guidance. As the Chinese legal system develops, the promulgation of new laws, changes to existing laws and the preemption of local regulations by national laws may adversely affect the interests of foreign investors.

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OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S AUDIT DOCUMENTATION RELATED TO THEIR AUDIT REPORTS INCLUDED IN THIS ANNUAL REPORT MAY BE LOCATED IN THE PEOPLE’S REPUBLIC OF CHINA. THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD CURRENTLY CANNOT INSPECT AUDIT DOCUMENTATION LOCATED IN CHINA AND, AS SUCH, YOU MAY BE DEPRIVED OF THE BENEFITS OF SUCH INSPECTION

Our independent registered public accounting firms that issue the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”), are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the applicable laws of the United States and professional standards. Because the audit documentation relating to our audits are located in the People’s Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, such auditors, like other independent registered public accounting firms operating in China, are not currently inspected by the PCAOB. In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with the PCAOB and audit Chinese companies that trade on U.S. exchanges.

Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The inability of PCAOB to conduct inspections of independent registered public accounting firms operating in China makes it more difficult to evaluate the effectiveness of our auditors’ audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

On December 3, 2012, the SEC issued an order instituting administrative proceedings against five of the largest global public accounting firms relating to work performed in the PRC and such firms’ failure to provide audit workpapers to the SEC in this regard. Our independent registered public accounting firm is not one of the accounting firms referenced in the order. On January 22, 2014, an initial administrative law decision was issued, censuring the five accounting firms and suspending four of the five firms from practicing before the SEC for a period of six months. The decision is neither final nor legally effective unless and until reviewed and approved by the SEC. These accounting firms have the ability to appeal and the four firms which are subject to the six-month suspension from practicing before the SEC have filed a petition for review of the decision. The sanction will not become effective until after a full appeal process is concluded and a final decision is issued by the SEC. The accounting firms can also further appeal the final decision of the SEC through the federal appellate courts. We cannot predict the outcome of this matter or the effect it may have on our independent registered public accounting firms or on our ability to make timely filings with the SEC.

Risks Related to Our Capital Stock

LIMITED LIQUIDITY IN THE COMPANY’S SECURITIES MAY MAKE IT DIFFICULT TO SELL SHARES

The public trading market for our common stock is limited. Beginning in November 2002, our common stock was traded on the OTCQB Securities Market. Nevertheless, an established public trading market for our common stock may never develop or, if developed, it may not be able to be sustained. The OTCQB Securities Market is an inter-dealer, over-the-counter market that provides significantly less liquidity than other markets. As a foreign private issuer whose business is substantially in China and other Asian markets, the Company has less exposure in the U.S. capital markets than comparable U.S. issuers. In addition, the Company has a relatively small public float of its securities and has a recent history of filing its Reports on Form 20-F with the Securities and Exchange Commission. These and other general economic, industry or Company factors may result in low trading volumes or prices of the Company’s securities. Accordingly, shareholders of the Company bear risks regarding the liquidity of the Company’s shares and may not be able to sell shares in desired quantities, at desired times or desired prices, or a combination thereof.

POSSIBLE VOLATILITY OF SHARE PRICES WORLDWIDE MAY HAVE SIGNIFICANT EFFECTS ON THE COMPANY’S SHARE PRICE

The trading price of the Company’s shares has been and may continue to be subject to wide fluctuations. Capital markets worldwide have generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies themselves. There can be no assurance that trading prices and price earnings ratios previously experienced by the Company’s common shares will be matched and maintained. Broad market and industry factors may adversely affect the market price of shares in the Company, regardless of its operating performance.

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ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

The Company was incorporated as an exempted company under the laws of Bermuda on January 28, 1993. From July 15, 1993 to late 2002, the Company’s shares were listed on the New York Stock Exchange. On November 26, 2002, the Company’s shares began trading on the OTCQB Securities Market in the United States. The legal name of the Company is “China Enterprises Limited” and the Company is registered in Hong Kong under the commercial name of “China Tire Holdings Limited” due to local company registration considerations. The Company has historically been engaged in tire manufacturing and trading and related businesses.

In 2001, the Company decided to reorganize its operations to improve its financial performance. The Company began to dispose of loss-making subsidiaries and tried to diversify its business. In early 2002, the Company acquired a substantive equity interest of approximately 35% in Rosedale, which allowed it to diversify its business into the travel industry. In fiscal year 2003, the Company further completed its disposals of its loss-making subsidiaries, Yinchuan CSI (Greatwall) Rubber Co., Limited, and the Company’s remaining interests in Double Happiness Tyre Industries Corporation Limited and ceased to account for the results of operations and the assets and liabilities of these subsidiaries from their respective disposal dates.

In order to realize part of its investment, the Company entered into a contract to sell a 25% interest in its subsidiary Hangzhou Zhongce, a PRC company, on June 15, 2003. As a result, the Company reduced its interest in Hangzhou Zhongce from 51% to 26%. The sale was completed in September 2003 and Hangzhou Zhongce became an equity method affiliate of the Group thereafter.

During 2006 and 2007, the Company’s interest in its affiliate Rosedale, decreased from 20.36% to 12.77% as a result of dilution caused by capital raising activities of Rosedale and the disposal of Rosedale shares by the Company in the market. As a result of its decreased ownership of Rosedale, the Company began accounting for its remaining interest in Rosedale as trading securities instead of as an interest in an affiliate company as it was in previous years.

The Company, through Manwide Holdings Limited, a then direct wholly-owned subsidiary, entered into a conditional sale and purchase agreement dated June 16, 2004 with an independent third party, Shanghai Jiu Sheng Investment Limited, or Jiu Sheng, for the acquisition and further development of Xiang Zhang Garden, a parcel of land containing a 24-story building under construction located in Shanghai, PRC. In June 2005, the Company commenced legal proceedings against Jiu Sheng, among other things, to demand that Jiu Sheng meet its obligations under the two agreements related to the purchase of Xiang Zhang Garden and petitioned a PRC court for an injunction order to prevent Xiang Zhang Garden from being transferred to the secured creditors of Jiu Sheng and the main contractor. In June 2006, the People’s High Court of the City of Shanghai ruled in favor of the Company and ordered Jiu Sheng to continue fulfilling its obligations under the applicable agreements and to proceed with the transfer of legal title of Xiang Zhang Garden to the Company. The judgment also required Jiu Sheng to pay Rmb5.9 million to the Company as compensation for the breach of the sale and purchase agreements. In August 2006, the Group petitioned the People’s High Court of Shanghai for a court execution order to enforce the June 2006 judgment against Jiu Sheng. In March 2008, the Group entered into a settlement agreement with Jiu Sheng whereby the Company disclaimed its rights in Xiang Zhang Garden in exchange for a payment of Rmb75 million, which was received in April 2008. A gain of Rmb17 million has been recognized in the consolidated statement of operations for the year ended December 31, 2008.

In March 2008, Hanny Holdings Limited (a publicly listed company in Hong Kong), or Hanny, and certain of its subsidiaries entered into conditional sale and purchase agreements with an independent third party whereby it disposed of a 29.2% interest in the Group for cash consideration of approximately Rmb142 million. The sale closed on May 8, 2008. Following this sale, Hanny’s interest in the Company decreased from approximately 55.3% to 26.1% and the Company ceased to be a subsidiary of Hanny.

In April 2008, the Company acquired 100% of the equity interests in Cosmos Regent Ltd, Cyber Generation Limited and Whole Good Limited, all of which are engaged in securities investment, from Hanny Magnetics (B.V.I.) Limited, a wholly owned subsidiary of Hanny. Total consideration for the three companies was Rmb34,417,000, and the amount was settled through the cancellation of obligations from Hanny to the Company.

In April 2008, the Company entered into a Memorandum of Understanding to acquire certain equity interest in a property investment company for consideration of Rmb150 million. A refundable deposit of Rmb75 million was paid to the third party vendor pursuant to the Memorandum of Understanding during the year ended December 31, 2008 and recorded as a deposit paid for the acquisition of investments for the years ended December 31, 2008 and 2009. The Memorandum of Understanding lapsed in June 2011. The deposit of Rmb67.5 million was refunded to the Company and the remaining Rmb7.5 million was charged as administrative charges in the year ended December 31, 2011.

In April 2009, X One Holdings Limited, or X One, an affiliate of the Company, was dissolved pursuant to Section 291 of the Hong Kong Companies Ordinance.

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The Company is a holding company and had interests in a number of subsidiaries as of December 31, 2011. The principal interests of the Company were as follows:

• Capital Canton Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Century Lead Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Cosmos Regent Ltd, a British Virgin Islands company in which the Company has a 100% interest.

• Cyber Generation Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Great Windfall Agents Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Million Good Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Orion Tire Corporation, a U.S. corporation in which the Company has a 60% interest.

• Orion (B.V.I.) Tire Corporation, a British Virgin Islands company in which the Company has a 60% interest.

• Sincere Ocean Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Supreme Solutions Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Ventures Kingdom Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Wealth Faith Limited, a British Virgin Islands company in which the Company has a 100% interest.

• Whole Good Limited, a British Virgin Islands company in which the Company has a 100% interest.

In its Report on Form 6-K filed with the Securities and Exchange Committee on November 21, 2011, the Company reported that it had entered into a definitive agreement with CZ Tire Holdings Limited, or CZ. The Agreement provided for the sale of all of the Company’s ownership interests in Hangzhou Zhongce to CZ for RMB600 million or approximately US$95.33 million in cash. The Company reported the closing of the transaction in its Report on Form 6-K filed with the Securities and Exchange Committee on November 28, 2011.

In its Report on Form 6-K filed with the Securities and Exchange Committee on October 4, 2012, the Company reported that its wholly owned subsidiary, Wealth Faith Limited had entered into a definitive agreement with Fortuneasy Limited. The agreement provides for the purchase by Wealth Faith Limited of 40% of the shares of Million Cube Limited from Fortuneasy Limited. The total purchase price for the shares being acquired by Wealth Faith Limited is HK$200 million or approximately US$25.6 million. The Company, through Wealth Faith Limited, previously deposited HK$154.8 million or approximately Rmb127.3 million in earnest money with Fortuneasy Limited, which will be applied toward the purchase price. As provided in the agreement, Million Cube Limited has acquired 45% of the issued share capital and corresponding shareholder loans of Paragon Winner Company Limited, or Paragon. Paragon was formed to invest in a joint venture that has developed the Sanya Sun Valley Golf Resort in Yalong Bay, Sanya City, People’s Republic of China and that is seeking to develop a related hotel and resort complex at such resort. The closing of the transaction is subject to, among other things, the Company and Wealth Faith Limited satisfactorily completing due diligence and the receipt of all necessary governmental and other consents. The parties to the transaction anticipate that the transaction will close sometime in the fourth quarter of 2014.

Additional information about the Company is available through the Internet at http://www.chinaenterpriseslimited.com. The principal place of business and the executive offices of the Company are located at 25th Floor, Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong and its telephone number is (852) 2372 0130.

B. BUSINESS OVERVIEW

The financial results of the Company in fiscal years 2009, 2010 and 2011 were dependent on its equity share of the results from Hangzhou Zhongce, which the Company disposed of in November 2011, as discussed above. All of the subsidiaries of the Company were inactive during fiscal year 2011. The Company is actively seeking new investment opportunities.

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Hangzhou Zhongce

Hangzhou Zhongce is incorporated in the People’s Republic of China. Its principal subsidiaries are mainly engaged in the manufacture and sale of rubber tires, tire rubber and carbon powder. Hangzhou Zhongce established Hangzhou Sunrise Rubber Co., Ltd with three other PRC enterprises in 1998 and acquired Hangzhou Fu Chun Jiang Chemical Industrial Co., Ltd in 1999, which manufactures radial tire products and a number of raw materials including tire rubbers and carbon powder. In 2008, Hangzhou Zhongce incorporated a PRC subsidiary Zhongce Rubber Fu Yang Co., Ltd, which is engaged in the manufacture and sale of rubber tires. In September 2003, the Company disposed of a portion of its interest in Hangzhou Zhongce and ceased to consolidate the results of Hangzhou Zhongce and its subsidiaries. As a result of that disposal, the Company held a 26% interest in Hangzhou Zhongce, which was treated as an equity method affiliate of the Company for the years ended December 31, 2009 and 2010 and the first eleven months of 2011. In November 2011, the Company disposed of all of its interest in Hangzhou Zhongce and it ceased to be an equity method affiliate of the Company. Hangzhou Zhongce manufactures and sells a broad line of tire products, consisting of motor vehicle (bias and radial tires for trucks, tractors, passenger cars and motorcycles), bicycle and wheelbarrow tires. See “Financial Statements” of Hangzhou Zhongce in item 17 for more details.

Rosedale

Rosedale is an exempted company incorporated in Bermuda with limited liability. Its shares are listed on the HKSE. Its principal subsidiaries are engaged in the business of hotel operation and trading of securities.

In 2002, the Company diversified into the travel business through an investment in Rosedale. However, following the disposal of a significant portion of its equity interest during fiscal year 2007, the Company’s equity interest in Rosedale decreased to 12.77% and was subsequently reclassified as trading securities of the Company. As of December 31, 2011, the equity interest had further decreased to 7.40%.

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C. ORGANIZATIONAL STRUCTURE

As of December 31, 2011, the principal subsidiaries of the Company were:

	Country of Incorporation	Principal Activities		Company’s Ownership Interest
Consolidated Subsidiary				Directly			Indirectly
Capital Canton Limited	BVI		Investment holding		100	%		—
Century Lead Limited	BVI		Investment holding		100	%		—
Cosmos Regent Ltd	BVI		Investment holding		100	%		—
Cyber Generation Limited	BVI		Investment holding		100	%		—
Great Windfall Agents Limited	BVI		Investment holding		100	%		—
Million Good Limited	BVI		Investment holding		100	%		—
Orion Tire Corporation	USA		Investment holding		60	%		—
Orion (B.V.I.) Tire Corporation	BVI		Investment holding		60	%		—
Sincere Ocean Limited	BVI		Investment holding		100	%		—
Supreme Solution Limited	BVI		Investment holding		100	%		—
Ventures Kingdom Limited	BVI		Investment holding		100	%		—
Wealth Faith Limited	BVI		Investment holding		100	%		—
Whole Good Limited	BVI		Investment holding		100	%		—

D. PROPERTY, PLANT AND EQUIPMENT

The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda. Only corporate administrative matters are conducted at this office, through the Company’s agent, MUFG Fund Services (Bermuda) Limited (formerly known as Butterfield Fulcrum Group (Bermuda) Limited.) The Company’s principal executive office is located at 25th Floor, Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong. The Company neither owns nor leases property in Bermuda or Hong Kong.

The Company did not incur any principal capital expenditures, investment and divestitures over the last three years ended December 31, 2011.

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ITEM 5. Operating and Financial Review and Prospects

Except for statements of historical facts, this section contains forward-looking statements involving risks and uncertainties. You can identify these statements by forward-looking words including “expect,” “anticipate,” “believe,” “seek,” “estimate,” “intends,” “should” or “may.” Forward-looking statements are not guarantees of our future performance or results and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the section of this Report entitled Item 3 Key Information — “Risk Factors.” This section should be read along with our Consolidated Financial Statements included as Item 18 of this Report, including the accompanying notes, that are included in this Annual Report on Form 20-F. The following discussion of operating results and the financial review and prospects as well as our consolidated financial statements have been presented and prepared in accordance with U.S. GAAP. The forward-looking statements in this Item 5 are not guarantees of future performance. They involve both risk and uncertainty. Several important factors could cause our actual results to differ materially from those anticipated by these statements. Many of those factors are macroeconomic in nature and are, therefore, beyond the control of our management. Please see the “Risk Factors” in this Annual Report for more details.

A. OPERATING RESULTS

Overview

After the completion of the Company’s restructuring discussed above in “History and Development of the Company,” the financial results of the Company for fiscal year 2011 were mainly comprised of investment and interest income and the Company’s share of the earnings and financial results of and the loss of disposal of its affiliate, Hangzhou Zhongce. Currently, the Company is still actively looking for new investments. The PRC market continues to be the focus of world industry, and the Company is confident in the PRC market and continues to explore appropriate investment projects to expand its business network in the PRC.

Critical Accounting Policies

The preparation of our financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated financial statements. For further discussion of our significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in “Item 18 — Financial Statements” of this Annual Report.

Accounting Estimates

The accounting estimates inherent in the preparation of the consolidated financial statements of the Company mainly include estimates associated with respect to collectability of receivables, deposits paid for acquisition of investments, impairment of available-for-sale securities, valuation allowances of deferred tax assets and valuation of derivative instruments. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, as well as current and expected economic conditions. Additionally, the Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate.

Income Taxes

The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. In the event the Company determines that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax asset would be made that would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Derivatives Embedded in Certain Debt Securities

Convertible notes of Rosedale held by the Company contain features that enable the Company to convert the debt securities into common stock of Rosedale. These features represent embedded derivatives that are required to be accounted for separately from the related debt securities. The estimated fair value of these features is valued using an option-pricing model, which requires us to make assumptions with respect to variables including the share price volatility of common stock of Rosedale, expected time to expiration, and expected dividend yield of Rosedale. Changes in these assumptions could significantly affect the amount of change in fair value of the conversion option we recognize in our consolidated financial statements. The adjustments will be required until the conversion features are either triggered or expire.

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Results of Operations: Fiscal year ended December 31, 2011 compared with fiscal year ended December 31, 2010

The Company

For 2011, the Company recorded consolidated net loss of Rmb275.0 million, or Rmb30.49 per share. By comparison, the net profit and the net profit per share in 2010 was Rmb168.0 million and Rmb18.63, respectively. Loss before income tax and equity in earnings from affiliates for the year ended December 31, 2011 increased to Rmb401.3 million compared to loss of Rmb6.9 million in 2010. The significant loss in fiscal year 2011 was primarily due to the loss on disposal of 26% interest in Hangzhou Zhongce of Rmb364.5 million.

The Rmb4.2 million loss from operating activities mainly represented the administrative expenses incurred for the year ended December 31, 2011. General and administrative expenses comprised expenditures for personnel and administrative functions, including accounting, information technology, human resources, legal and administration. The general and administrative expenses in 2011 amounted to Rmb4.2 million, an increase of Rmb0.9 million, compared to Rmb3.3 million in 2010. The increase in our administrative expenses during fiscal year 2011 is in line with the increase in certain legal and professional costs and administrative costs incurred on the disposal of our equity interest in Hangzhou Zhongce.

Apart from general and administrative expenses of Rmb4.2 million, losses before income tax and equity in earnings from affiliates for the year ended December 31, 2011 were mainly comprised of losses on the disposal of the interest in Hangzhou Zhongce of Rmb364.5 million, net unrealized loss on investments of Rmb27.1 million, administrative charge on investment of Rmb7.5 million, impairment loss recognized on available-for-sale investments of Rmb2.3 million and interest expenses of Rmb2.2 million, offset by net realized gain recognized on investments of Rmb4.4 million and interest income of Rmb1.5 million. In April 2008, we entered into a Memorandum of Understanding to acquire certain equity interest in a property investment company for a consideration of Rmb150 million. A refundable deposit of Rmb75 million was paid to the third party vendor pursuant to the Memorandum of Understanding during the year ended December 31, 2008. The Memorandum of Understanding lapsed in June 2011. The deposit of Rmb67.5 million was refunded to us and the remaining Rmb7.5 million was charged as administrative charges in the year ended December 31, 2011. Loss before income tax and equity in earnings from affiliates was Rmb6.9 million for the year ended December 31, 2010. The significant deterioration in financial performance in 2011 was primarily due to the loss on disposal of our equity interest in Hangzhou Zhongce of Rmb364.5 million incurred in the fiscal year.

The net loss for fiscal year 2011, apart from the loss before income tax and equity in earnings from affiliates of Rmb401.3 million, consisted mainly of the Company’s share of net profit of Hangzhou Zhongce of Rmb157.7 million and income tax expense of Rmb31.4 million. Net income for fiscal year 2010, apart from the loss before income tax and equity in earnings from affiliates of Rmb6.9 million, consisted mainly of the Company’s share of net profit of Hangzhou Zhongce of Rmb190.2 million and income tax expense of Rmb15.2 million. The share of profit of Hangzhou Zhongce decreased Rmb32.5 million primarily due to the increase in the cost of materials causing a drop in gross profit and the Company only sharing the profit of Hangzhou Zhongce for the 11 months ended November 30, 2011 compared to a full 12 months of profit taken into account for fiscal year 2010.

Tire Business

For the 11 months ended November 30, 2011 Hangzhou Zhongce recorded a consolidated turnover of approximately Rmb23,959 million, an increase of approximately 18.3% as compared to the whole year 2010 of approximately Rmb20,258 million. The audited consolidated net profit for the 11 months ended November 30, 2011 decreased to approximately Rmb606.6 million from approximately Rmb731.4 million for the year ended December 31, 2010. In 2011, the cost of raw materials, in particular the cost of natural rubber, in the tire industry kept increasing, resulting in a drop in gross margin from 9.5% in 2010 to 8.5% in 2011.

Results of Operations: Fiscal year ended December 31, 2010 compared with fiscal year ended December 31, 2009

The Company

For 2010, the Company recorded consolidated net income of Rmb168.0 million, or Rmb18.63 per share. By comparison, the net income and the earnings per share in 2009 was Rmb247.0 million and Rmb27.39, respectively. Loss before income tax and equity in earnings from affiliates for the year ended December 31, 2010 was Rmb6.9 million compared to profit of Rmb17.3 million in 2009.

The Rmb3.3 million loss from operating activities mainly represented the administrative expenses incurred for the year ended December 31, 2010. General and administrative expenses were comprised of expenditures for personnel and administrative functions, including accounting, information technology, human resources, legal and administration. The general and administrative expenses in 2010 increased to Rmb3.3 million, as compared to Rmb2.8 million in 2009. Higher administrative and professional fees were incurred in 2010 with the Company being a public reporting company.

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Apart from the general and administrative expenses of Rmb3.3 million, included in loss before income tax and equity in earnings from affiliates of Rmb6.9 million for the year ended December 31, 2010 were mainly investment income of Rmb6 million, interest income, which mainly represented the interest income recorded on notes receivable issued by Rosedale, of Rmb3.4 million and exchange gain of Rmb1.3 million, offset by interest expenses of Rmb3.3 million, realized and unrealized loss on investments of Rmb4.8 million and impairment loss recognized on investments of Rmb6.0 million. Profit before income tax and equity in earnings from affiliates was Rmb17.3 million for the year ended December 31, 2009. The poor financial performance in 2010 was primarily due to the poor share price performance of the Company’s investment portfolio in 2010, resulting in net realized and unrealized losses on investments of Rmb4.8 million as compared to a net realized and unrealized gain of Rmb14.7 million in 2009.

Net income for fiscal year 2010, apart from the loss before income tax and equity in earnings from affiliates of Rmb6.9 million, consisted mainly of the Company’s share of net profit of Hangzhou Zhongce of Rmb190.2 million and income tax expense of Rmb15.2 million. Net income for fiscal year 2009, apart from the profit before income tax and equity in earnings from affiliates of Rmb17.3 million, consisted mainly of the Company’s share of net profit of Hangzhou Zhongce of Rmb255.1 million and income tax expense of Rmb25.5 million. The share of profit of Hangzhou Zhongce decreased Rmb65.0 million primarily due to the increase in the cost of materials causing a drop in gross profit. Income tax was primarily related to the 10% withholding tax on the undistributed earnings of the Company’s affiliate in the PRC.

Tire Business

For the year ended December 31, 2010, Hangzhou Zhongce recorded a consolidated turnover of approximately Rmb20,258 million, an increase of approximately 33.8% as compared to the same period in 2009 of approximately Rmb15,145 million. Hangzhou Zhongce was able to maintain its market when the automobile industry continued to recover in 2010. However, despite the significant growth in turnover, the audited consolidated net profit for the year ended December 31, 2010 decreased to approximately Rmb731.4 million from approximately Rmb981.2 million for the year ended December 31, 2009. In 2010, the cost of raw materials, in particular the cost of natural rubber, in the tire industry increased significantly, resulting in a drop in gross margin from 14.6% in 2009 to 9.5% in 2010, or from Rmb2.2 billion in 2009 to Rmb1.9 billion in 2010.

Impact of Inflation

Inflation and deflation in the PRC and Hong Kong has not had a material effect on our past business. During the times of inflation, the affiliated companies of the Company have generally been able to increase the price of their products or services in order to keep pace with inflation.

Impact of Tax Regulations

For the impact of tax regulations on the Company, see Note 9 to the Consolidated Financial Statements of the Company included in “Item 18. Financial Statements”.

B. LIQUIDITY AND CAPITAL RESOURCES

For 2011, cash for financing the operations of the Company was principally obtained through the disposal of its interest in Hangzhou Zhongce and trading securities. During 2010 and 2011, the Company saw a continuation of challenging financial and economic conditions. Although some signs of improvement have started to emerge, the performance of key economies remains uncertain.

The Company’s working capital saw a huge improvement in 2011, calculated as current assets less current liabilities. A negative working capital of Rmb19.5 million as of December 31, 2010 improved to a positive working capital of Rmb456.3 million as of December 31, 2011.

Over the last few years, cash flow for financing the operations of the Company was primarily obtained from the disposal of trading securities. As at December 31, 2011, the Company still held approximately Rmb39.8 million of marketable securities. In 2011, the net cash used in operating activities was approximately Rmb47.2 million compared to Rmb7.3 million provided by operating activities in 2010. The net cash provided by investing activities and used in financing activities in 2011 was approximately Rmb588.1 million and Rmb16.9 million, respectively; compared with Rmb4.3 million provided by investing activities and Rmb13.3 million used in financing activities in 2010.

Other than (i) the refund of an investment deposit as described above; (ii) the settlement of Convertible Notes receivable of Rosedale and accrued interest as described in Item 7 of this Form 20-F, (iii) the investment agreement as described in Item 4 of this Form 20-F; and (iv) the disposal of the Company’s interest in Hangzhou Zhongce as described in Item 4 of this Form 20-F, no transactions, arrangements or other relationships with unconsolidated entities or other persons that are reasonably likely to affect materially the liquidity or the availability of or requirement for capital resources of the Company have been entered into during 2011. In management’s opinion, the Group has sufficient cash and cash equivalents, notes receivable and trading securities to support its working capital for its present requirements.

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For the years ended December 31, 2010 and 2011, the Company had no expenditure for property, plant and equipment.

Cash and cash equivalents of the Company increased from Rmb0.1 million at December 31, 2010 to approximately Rmb523.6 million at December 31, 2011 of which Rmb522.7 million (approximately US$83.0 million) were U.S. dollar deposits included in cash and cash equivalents.

There are no material restrictions, including foreign exchange controls, on the ability of the Company’s subsidiaries to transfer funds to the Company in the form of cash dividends, loans, advances or product/material purchases.

For related party information, please see “Item 7. Major Shareholders and Related Party Transactions” in this Annual Report. In the opinion of management, these related party transactions have no material effect on the Company’s liquidity or cash flows.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

The Company does not conduct any research and development and does not rely on any patents or licenses.

D. TREND INFORMATION

Following its sale of a portion of its interest in Hangzhou Zhongce in 2003, the Company does not have a majority-owned operating subsidiary as of the date of this report. Following its sale of a portion of its interest in Rosedale in 2007, the Company’s financial results were largely dependent on its equity in earnings of the affiliated company, Hangzhou Zhongce, the shares of which the Company disposed of in November 2011, as discussed above. Having positioned itself as a conglomerate investor in China, the Company anticipates that it will maintain its conservative and cautious investment posture in the coming year and to continue its efforts to explore new investment opportunities.

E. OFF-BALANCE SHEET ARRANGEMENTS

For the year of 2011, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial conditions, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Additionally, the Company had not undertaken any guarantees as of December 31, 2011.

F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Company had capital commitments for the acquisition of an equity interest of Rmb75 million in respect of the MOU entered into in April 2008. On June 30, 2011, the MOU lapsed. The deposit of Rmb67.5 million was refunded to the Company. Rmb7.5 million was charged as an administrative fee and recorded as an expense of the Company for the year ended December 31, 2011. As at December 31, 2011, the Company did not have any contractual obligations and commercial commitments.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

Name	Age	Position	Since
Allan Yap	59	Chairman, Chief Executive Officer and Director	2001(1)
Eva Chan Ling	48	Deputy Chairman and Director	2004(2)
Dorothy Law	44	Director	2000
Richard Whittall	55	Independent Director and Audit Committee Member	2000
Lien Kait Long	66	Director	1999
Sin Chi Fai	55	Independent Director and Audit Committee Member	2010(3)
Jimmy Chow Chun Man (resigned on May 15, 2014)	44	Chief Financial Officer	2003
Ken Lau (appointed on May 15, 2014)	42	Chief Financial Officer	2014

(1) Dr. Allan Yap is the Chairman of Hanny and served as an executive director of China Strategic Holdings Limited (“CSH”), a publicly listed company in Hong Kong, until his resignation on June 16, 2006.

(2) Ms. Eva Chan Ling is an executive director of CSH and the managing director of Rosedale Hotel Holdings Limited (“Rosedale”), a publicly listed company in Hong Kong and an equity method affiliate of the Company until June 30, 2007 and accounted for as investments of the Company thereafter.

(3) Mr. Sin Chi Fai is an independent non-executive director of Hanny and Rosedale. He was also an independent non-executive director, a member of the audit committee and a member of the remuneration committee of CSH until his resignation on October 30, 2007.

There is no family relationship between any director or executive officer listed above and any other director or executive officer listed above. None of the directors or executive officers was elected or appointed pursuant to an arrangement or understanding with any third party.

Biographies of Directors and Senior Management

Dr. Allan Yap, age 59, is the chairman, chief executive officer and a director of the Company. He holds an honorary degree of Doctor of Laws and has over 30 years’ experience in finance, investment and banking. Dr. Yap is the chairman of Hanny and an alternate director of Television Broadcasts Limited, both are publicly listed companies in Hong Kong. He is also the chairman and chief executive officer of Burcon NutraScience Corporation, a company whose shares are listed on the Toronto Stock Exchange in Canada, NASDAQ Stock Exchange in the United States and the Frankfurt Stock Exchange in Germany. Dr. Yap is an executive chairman of Hanwell Holdings Limited (formerly known as PSC Corporation Limited) and Tat Seng Packaging Group Limited, both are publicly listed companies in Singapore. He is also the chairman of MRI Holdings Limited. The recommendation by the directors of MRI Holdings Limited to return its assets to its shareholders by way of members’ voluntary liquidation was approved by its shareholders on April 29, 2010. Dr. Yap had been an executive director of Rosedale, a public listed company in Hong Kong, and retired on May 25, 2011, and an executive chairman of Intraco Limited, a public listed company in Singapore, and resigned on December 6, 2012. He had also been an executive director of China Strategic Holdings Limited, Big Media Group Limited (now known as Neo Telemedia Limited) and See Corporation Limited, all are publicly listed companies in Hong Kong, and resigned on June 16, 2006, July 20, 2009 and June 13, 2011, respectively. Dr. Yap was appointed as the chairman and chief executive officer of the Company on December 1, 2004.

Ms. Chan Ling, Eva, age 48, is a deputy chairman and a director of the Company. She has over 25 years’ experience in auditing, accounting and finance in both international accounting firms and listed companies. Ms. Chan is a member of the Institute of Chartered Accountants in Australia, a fellow member of the Association of Chartered Certified Accountants and also a practicing member of the Hong Kong Institute of Certified Public Accountants. Effective from June 1, 2009, Ms. Chan is the managing director of Rosedale. She is also a director of MRI Holdings Limited. She had been an executive director of China Strategic Holdings Limited, and an independent non-executive director of each of Well Way Group Limited (formerly known as Trasy Gold Ex Limited) and Wonson International Holdings Limited (now known as China Ocean Shipbuilding Industry Group Limited), both are publicly listed companies in Hong Kong, and resigned on June 1, 2014, and June 23, 2014 and August 13, 2008 respectively. Ms. Chan was appointed as deputy chairman of the Company on December 1, 2004.

Ms. Dorothy Law, age 44, is a director of the Company. She received her Bachelor of Commerce and Bachelor of Laws degrees from the University of British Columbia in Canada. Ms. Law is a Barrister and Solicitor licensed to practice law in British Columbia and she has also been admitted as a Solicitor of the High Court of Hong Kong (non-practicing). Ms. Law is Senior Vice President, Legal and Corporate Secretary of Burcon NutraScience Corporation.

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Mr. Richard Whittall, age 55, is an independent director and the chairman of the audit committee of the Company. He is a partner in Watershed Capital Partners Inc., an investment banking firm, based in Vancouver, British Columbia, Canada. Mr. Whittall has 23 years’ experience in investment banking, advising domestic and international companies in the areas of fund raising, mergers, acquisitions, divestitures and strategic business alliances. Mr. Whittall currently serves as a director of a number of public and private companies, including Fortress Paper Ltd, GVIC Communications Corp., Canadian General Investments Limited and Canadian World Fund Limited.

Mr. Lien Kait Long, age 66, is a director of the Company. Mr. Lien holds a bachelor’s degree in commerce and is a fellow member of the Institute of Certified Public Accountants of Singapore and CPA Australia. He has extensive experience in finance, corporate management and business investment. He has held a number of senior management positions as well as executive directorships in various public and private corporations in Singapore, Hong Kong and China. He is also a director of MRI Holdings Limited. Mr. Lien currently serves as an independent director on the board of several Singapore and Chinese Companies listed on the Singapore Exchange Securities Trading Limited.

Mr. Sin Chi Fai, age 55, is appointed an independent director and an audit committee member of the Company on June 9, 2010. Mr. Sin obtained a diploma in Banking from The Hong Kong Polytechnic (now known as The Hong Kong Polytechnic University). He has over 17 years’ experience in banking field and has over 17 years’ sales and marketing experience in information technology industries. Mr. Sin currently serves as an independent non-executive director of Rosedale and Hanny, both publicly listed companies in Hong Kong. Mr. Sin is also currently a director and shareholder of a Singapore company engaged in the distribution of data storage media and computer-related products throughout Asia. Mr. Sin had been an independent non-executive director, member of the audit committee, and member of the remuneration committee of China Strategic Holdings Limited, and Wonson International Holdings Limited (now known as China Ocean Shipbuilding Industry Group Limited), both publicly listed companies in Hong Kong, and resigned on October 30, 2007 and May 15, 2008 respectively.

Mr. Ken Lau, aged 42, was appointed as the Chief Financial Officer of the Company on May 15, 2014. Mr. Lau is a member of CPA Australia and a certificate holder of American Institute of Certified Public Accountants. He has over 15 years of experience in international accounting and financial reporting in multinational corporations.

B. COMPENSATION

For the year ended December 31, 2011, the aggregate amount of compensation paid by the Company and its subsidiaries to the Company’s directors and executive officers, for service in all capacities, was approximately Rmb677,560 (approximately US$107,720). The grant of bonuses is determined at the discretion of the board of directors. No bonuses were paid in the year 2011 or granted with respect to the year 2011.

The following table summarizes the compensation received by our executive and non-executive directors and senior management for the year 2011.

Name	Salary (USD)		Salary (Rmb)		Total (USD)		Total (Rmb)
Executive Director
Allan Yap		20,000		125,800		20,000		125,800
Eva Chan Ling		20,000		125,800		20,000		125,800
Non-Executive Director
Dorothy Law		20,000		125,800		20,000		132,000
Lien Kait Long		20,000		125,800		20,000		125,800
Richard Whittall		20,000		125,800		20,000		125,800
Sin Chi Fai		7,720		48,560		7,720		48,560

No officer or director received any non-cash compensation in 2011.

C. BOARD PRACTICES

The 2014 annual general meeting of the Company will be held as soon as practicable, and the shareholders of the Company will be asked for re-election of the directors in the forthcoming annual general meeting of the Company.

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No director of the Company has entered into any service contract nor is entitled to any benefits upon termination of employment with the Company.

The audit committee of the board of directors reviews, acts on and reports to the board of directors with respect to various auditing and accounting matters, including the selection of our auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of the auditors and our accounting practices. During the year 2011 and as of the date of this filing, the audit committee of the Company consisted of Mr. Richard Whittall and Mr. Sin Chi Fai.

D. EMPLOYEES

As of December 31, 2009, 2010 and 2011, the Company had no employees.

E. SHARE OWNERSHIP

As of December 31, 2011, none of the Company’s directors, officers or their associates had any personal, family, corporate or other interests in any shares of the Company or any of its associated corporations.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

Based on filings on Schedule 13G under the Exchange Act and public announcements/circulars/annual reports of Hanny pursuant to the Listing Rules of HKSE, as of December 31, 2011, the following persons beneficially owned shares representing 5% or more of the issued share capital of the Company:

Name of holder	Number of shares held		Percentage of class
Hanny Holdings Limited (1) (2) (3)(4)		2,610,600		28.95	%
William F. Harnisch (5)		469,875		5.21	%

(1) On March 26, 2008, Hanny disclosed by way of announcement posted on the website of the HKSE that it would sell to an independent third party its entire issued share capital held in Kamthorn Limited, which held approximately 18.1% equity interest in the issued share capital of the Company. The transaction was completed in May 2008.

(2) On July 30, 2008, Hanny further disclosed in its annual report 2007-08 that 29.2% interest including the interest as mentioned in (1) above in the issued share capital of the Company was disposed of subsequent to its financial year ended March 31, 2008.

(3) The 2,610,600 shares that Hanny beneficially owned during fiscal year 2009 included 610,600 shares held by its indirect, non-wholly owned subsidiary, which represented an effective equity interest of 3.88% in the issued share capital of the Company.

(4) On December 7, 2010, Hanny disclosed by way of announcement posted on the website of the HKSE that its indirect wholly-owned subsidiary had conditionally agreed to purchase 610,600 shares of the Company from its indirect, non-wholly owned subsidiary (that is, the number of shares as mentioned in note (3) above). Hanny further disclosed in its annual report 2010-2011 that the transaction was completed on 30 December 2010. Hanny’s effective equity interest in the Company therefore increased to 28.95%.

(5) (a) According to Amendment No. 17 to a report on Schedule 13G/A dated February 4, 2011, the 469,875 shares beneficially owned by William F. Harnisch consist of (A) 79,800 shares beneficially owned individually by Mr. Harnisch; and (B) (i) 218,775 shares beneficially owned by Grenadier Fund; (ii) 116,100 shares beneficially owned by Triumph Fund II L.P.; (iii) 52,500 shares beneficially owned by Peconic Partners International Fund Ltd.; and (iv) 2,700 shares beneficially owned by Triumph Fund III L.P., all of which shares Mr. Harnisch may be deemed to beneficially own by virtue of his position as President and Chief Executive Officer of Peconic Partners LLC, the investment adviser to the above-mentioned clients.

(b) According to Amendment No. 7 to a report on Schedule 13G/A dated February 14, 2013, the number of shares beneficially owned by William F. Harnisch as of December 31, 2012 changed to 467,175 shares, representing a 5.18% equity interest in the Company, consisting of (A) 79,800 shares beneficially owned individually by Mr. Harnisch; and (B) (i) 218,775 shares beneficially owned by Grenadier Fund; (ii) 116,100 shares beneficially owned by Triumph Fund II L.P.; (iii) 52,500 shares beneficially owned by Peconic Partners International Fund Ltd.; and (iv) 0 shares beneficially owned by Triumph Fund III L.P., all of which shares Mr. Harnisch may be deemed to beneficially own by virtue of his position as President and Chief Executive Officer of Peconic Partners LLC, the investment adviser to the above-mentioned clients.

(c) According to Amendment No. 8 to a report on Schedule 13G/A dated February 13, 2014, the 467,175 shares beneficially owned by William F. Harnisch as of December 31, 2003 consist of (A)79,800 shares beneficially owned individually by Mr. Harnisch; and (B)(i)218,775 shares beneficially owned by Grenadier Fund; (ii) 116,100 shares beneficially owned by Triumph Fund II L.P.; (iii) 52,500 shares beneficially owned by Peconic Partners International Fund Ltd., all of which shares Mr. Harnisch may be deemed to beneficially own by virtue of his position as President and Chief Executive Officer of Peconic Partners LLC, the investment adviser to the above-mentioned clients.

According to the shareholders list provided to the Company by its transfer agent, there were 51 shareholders (representing all issued common stock of 9,017,310 shares) of record of the Company’s common stock as of September 30, 2014.

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B. RELATED PARTY TRANSACTIONS

Convertible Notes

On March 23, 2006, Rosedale entered into a subscription agreement with the Company and other subscribers for convertible notes with an aggregate principal amount of HK$1,000 million, of which the Company agreed to subscribe for HK$300 million. The initial conversion price of the convertible notes was HK$0.79 per share, subject to anti-dilutive adjustments. In July 2008, the conversion price was reduced from HK$0.79 per share to HK$0.339 per share as a result of rights issued by Rosedale. Unless previously converted or lapsed or redeemed by Rosedale, Rosedale will redeem the convertible notes on the fifth anniversary from the date of issue of the convertible notes at a redemption amount equal to 110% of the principal amount of the convertible notes outstanding. The Company has the right to convert the whole or any part (in an amount or integral multiple of HK$1 million) of the principal amount of the convertible notes into shares of Rosedale at the then prevailing conversion price.

Subject to certain restrictions intended to facilitate compliance with relevant rules and regulations, each noteholder has the right to exchange all or part (in the amount or integral multiple of HK$10 million) of 50% of the initial principal amount of its convertible notes for shares of any company that is an affiliated company of Rosedale as defined in the Rules Governing the Listing of Securities on the HKSE or a subsidiary of Rosedale that is to be listed on a stock exchange through an initial public offering at the price, subject to anti-dilutive adjustments, at which the such shares are actually issued to the public at the time of the listing on that stock exchange. The decision on whether to list any of its affiliated company or subsidiary in the future is at the sole discretion of the directors of Rosedale. During 2007, the Company converted a total of HK$237 million of convertible notes of Rosedale into ordinary shares at a conversion price of HK$0.79 per share. The Company did not convert any convertible notes of Rosedale in 2009, 2010 and 2011.

In July 2009, Rosedale made a repurchase offer to all Convertible Notes holders to repurchase the Convertible Notes at their full value by issuing its share at HK$0.035 per share (the “Repurchase Offer I”). Rosedale has to fulfill several conditions before the completion of the offer as stated in the Repurchase Offer I agreement. As of November 11, 2009, the Board of Directors of Rosedale determined Rosedale could not fulfill certain of the conditions and the Repurchase Offer I lapsed automatically.

In December 2009, Rosedale made another repurchase offer to all Convertible Notes holders to repurchase the Convertible Notes at a price equal to 80% of the outstanding principal amount of the Convertible Notes (the “Repurchase Offer II”). The Repurchase Offer II is conditional upon fulfillment of several conditions. The Company accepted the Repurchase Offer II in full. However, Rosedale could not fulfill certain of the conditions and the Repurchase Offer II also lapsed automatically.

In February 2010, Rosedale had completed a capital reorganization which involved, among others, consolidation of every twenty (20) of its then issued shares of HK$0.01 each into 1 issued consolidated share of HK$0.20 each. Consequently, the conversion price of the Convertible Notes was adjusted from HK$0.339 to HK$6.780 with effect from February 1, 2010.

In June 2010, Rosedale announced that it proposed to make a repurchase offer to repurchase the Convertible Notes (the “Repurchase Offer III”). The Company did not accept the Repurchase Offer III.

Pursuant to the instrument constituting the Convertible Notes, the conversion price of the Convertible Notes is to be adjusted from HK$6.780 to HK$6.774 (the “Adjustment”) as a result of the issue and allotment of 111,666,000 shares pursuant to the terms of the Repurchase Offer III. Since the Adjustment when aggregated with the 2009 Adjustment is less than 3% of the prevailing conversion price of HK$6.780, pursuant to the terms and conditions of the Notes, the 2009 Adjustment and the Adjustment will not take effect but shall be carried forward and be taken into account in the next subsequent adjustment.

On June 7, 2011, the maturity date of the Convertible Notes, there were a total of HK$63 million, or approximately US$8 million, of Convertible Notes remained outstanding. All such Convertible Notes, together with accrued interest of HK$10.8 million, or approximately US$1.4 million, have been subsequently fully settled (see Item 8 below).

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Other Related Party Transactions

The Company entered into the following related party transactions:

	2010		2011		2011
	Rmb’000		Rmb’000		USD’000
Due from:
CSH and its subsidiaries		95		90		14
GDI and its subsidiaries (“GDI Group”)		2		2		1
Hanny and its subsidiaries (except GDI Group)		1, 217		1,207		192
Rosedale and its subsidiaries		22,779		13,399		2,129
		24,093		14,698		2,336
Due to:
CSH and its subsidiaries		382		295		47
GDI and its subsidiaries		1,737		1,737		276
Hanny and its subsidiaries (except GDI Group)		90,835		70,641		11,224
Rosedale and its subsidiaries		258		—		—
Paul Y. Finance Limited		544		—		—
		93,756		72,673		11,547

As of December 31, 2010 and 2011, the amounts due from/to related parties were unsecured, non-interest bearing and had no fixed repayment terms.

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ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See the Consolidated Financial Statements to the Company included in “Item 18. Financial Statements” of this Annual Report. See also “Item 17. Financial Statements” of this Annual Report for financial statements of Hangzhou Zhongce, included pursuant to the requirements of Article 3-09 of Regulation S-X.

Dividend Policy

On July 3, 2001, the board of directors of the Company announced that the Company would suspend the declaration and payment of any quarterly dividend until the profitability of the Company and its subsidiaries reached an acceptable level. During 2009, 2010 and 2011, no dividend was declared or paid by the Company. Any future determination to pay a dividend to shareholders of the Company will depend on the Company’s results of operations and financial condition, and other factors deemed relevant by its board of directors.

Since the Company is a holding company, its ability to pay dividends depends substantially on its receipt of distributions from its subsidiaries. Applicable Chinese laws and regulations require that, before a Sino-foreign equity joint venture enterprise (such as each PRC subsidiary) distributes profits to investors, it must: (1) satisfy all tax liabilities; (2) provide for losses in previous years; and (3) make allocations, in proportions determined at the sole discretion of the board of directors, to a general reserve fund and an enterprise expansion fund. During 2009, 2010 and 2011, no distribution of dividends was made from any subsidiary to the Company.

B. SIGNIFICANT CHANGES

The Company did not convert any of the Convertible Notes of Rosedale that it held in 2011. On June 7, 2011, the maturity date of the Convertible Notes, there were a total of HK$63 million, or approximately US$8 million, of Convertible Notes remained outstanding. All such Convertible Notes, together with accrued interest of HK$10.8 million, totaled Rmb59.8 million, have been subsequently fully settled (see below).

On June 30, 2011, the Memorandum of Understanding, dated April 15, 2008, between a direct wholly owned subsidiary of the Company and a third party regarding the acquisition of a certain equity interest in a property investment company, lapsed. The deposit of Rmb67.5 million was refunded to the Company (see below).

On November 28, 2011, the Company sold all of its ownership interests in Hangzhou Zhongce Rubber Company Limited to CZ Tire Holdings Limited, an independent third-party company incorporated in the British Virgin Islands, for a purchase price of Rmb600 million or approximately US$95.3 million. The Company is required to pay an income tax of Rmb79.5 million on the disposal of Hangzhou Zhongce. According to the disposal agreement, CZ Tire Holdings Limited bore the difference of the tax payment in excess of Rmb40 million or approximately US$6.4 million.

On September 28, 2012, the Company reported that its wholly owned subsidiary, Wealth Faith Limited had entered into a definitive agreement with Fortuneasy Limited, a third party. The agreement provides for the purchase by Wealth Faith Limited of 40% of the shares of Million Cube Limited from Fortuneasy Limited. The total purchase price for the shares being acquired by Wealth Faith Limited is HK$200 million or approximately US$25.6 million. The Company, through Wealth Faith Limited, previously deposited HK$154.8 million or approximately Rmb127.3 million in earnest money with Fortuneasy Limited, which will be applied toward the purchase price. The deposits are refundable in full and were funded by the settlement of the Convertible Notes of Rosedale and accrued interest that totaled HK$73.8 million, or approximately Rmb59.8 million (see above), and a refund of deposits paid for acquisition of a property investment company of Rmb67.5 million (see above).

As provided in the agreement, effective on May 31, 2012, Million Cube Limited acquired from ITC Properties Group Limited (“ITC Properties”), a company incorporated in Bermuda and listed on The Stock Exchange of Hong Kong Limited (“HKSE”), 45% of the issued share capital and corresponding shareholder loans of Paragon Winner Company Limited, or Paragon. Paragon was incorporated in the British Virgin Islands and formed to invest in a joint venture that has developed and operated the Sanya Sun Valley Golf Resort in Yalong Bay, Sanya City, the People’s Republic of China which is seeking to develop a related hotel and resort complex at such resort. The closing of the transaction is subject to, among other things, the Company and Wealth Faith Limited satisfactorily completing due diligence and the receipt of all necessary governmental and other consents. The parties to the transaction anticipate that the transaction will close sometime in the fourth quarter of 2014. According to the 2014 annual report of ITC Properties, ITC Corporation Limited (also a company listed on the HKSE) held a 30% equity interest in ITC Properties as of June 25, 2014, and the chairman of ITC Properties is also the chairman and a director of Rosedale.

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ITEM 9. THE LISTING

Since November 26, 2002, the Company’s common stock has traded on the OTC Pink Sheets and OTCQB Securities Market under the stock symbol “CSHEF”. The OTCQB is a regulated quotation service that displays real-time quotes, last sale prices and volume information in over-the-counter equity securities for companies that are registrants with the SEC. Prior to that, the Company’s common stock traded on the New York Stock Exchange, or NYSE, under the symbol “CSH”. However, the trading was suspended on September 27, 2002 by the NYSE for the failure of the Company to meet the NYSE’s continuing listing standards. Effective December 30, 2002, the common stock of the Company was removed from listing on the NYSE.

The following table sets forth, for the periods indicated, the high and low closing sale prices of the common stock as reported by the OTCQB Securities Market from January 1, 2007 to December 31, 2011.

Year Ended	High (US$)		Low (US$)
December 31, 2011		0.76		0.04
December 31, 2010		0.19		0.01
December 31, 2009		0.50		0.03
December 31, 2008		0.60		0.02
December 31, 2007		2.21		0.55

The following table sets forth the high and low closing sale prices for the common stock as reported during each of the quarters in the two-year period ended December 31, 2011 and each of the most recent periods.

Quarter Ended	High (US$)		Low (US$)
September 30, 2014		0.40		0.36
June 30, 2014		0.37		0.27
March 31, 2014		0.37		0.31
December 31, 2013		0.50		0.19
September 30, 2013		0.26		0.16
June 30, 2013		0.74		0.26
March 31, 2013		0.80		0.21
December 31, 2012		0.62		0.25
September 30, 2012		1.10		0.10
June 30, 2012		1.11		1.10
March 31, 2012		1.75		0.85
December 31, 2011		0.76		0.10
September 30, 2011		0.40		0.20
June 30, 2011		0.50		0.25
March 31, 2011		0.35		0.04
December 31, 2010		0.06		0.01
September 30, 2010		0.07		0.04
June 30, 2010		0.16		0.05
March 31, 2010		0.19		0.05

The following table sets forth the high and low closing sale prices for the common stock as reported during each of the most recent six months.

Month Ended	High (US$)		Low (US$)
September 30, 2014		0.36		0.36
August 31, 2014		0.40		0.36
July 31, 2014		0.37		0.36
June 30, 2014		0.37		0.37
May 31, 2014		0.37		0.33
April 30, 2014		0.33		0.27

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ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

The Company was incorporated with an initial 1,200,000 shares of common stock, US$0.01 par value, all of which were later reclassified as Supervoting Common Stock. On May 14, 1993, the authorized number of shares of the Company was increased by the creation of 50,000,000 shares of Common Stock, US$0.01 par value, and 18,800,000 shares of Supervoting Common Stock, US$0.01 par value. As a result, the total number of authorized Supervoting Common Stock is 20,000,000 shares and the total number of authorized shares of Common Stock is 50,000,000. 6,000,000 shares of Supervoting Common Stock (including the 1,200,000 Common Stock reclassified to Supervoting Common Stock) were issued to the then ultimate parent company of the Company.

On June 23, 1993, the Company redeemed 3,000,000 shares of its outstanding Supervoting Common Stock at the par value of US$0.01 per share. In September 2006, upon the request of the sole holder of the Supervoting Common Stock and pursuant to the Company’s bylaws, the Company converted the entire outstanding 3,000,000 shares of Supervoting Common Stock into the same number of shares of Common Stock, US$0.01 par value. There were no outstanding shares of Supervoting Common Stock as of December 31, 2010 and 2011.

Each share of Supervoting Common Stock is entitled to 10 votes whereas each share of Common Stock is entitled to one vote. The Common Stock is identical to the Supervoting Common Stock as to the payment of dividends. Except for the difference in voting rights described above, the Supervoting Common Stock and the Common Stock rank pari passu in all respects.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

For a summary of the Company’s Memorandum and Articles of Association see Item 10 of the Company’s Form 20-F for the year ended 2001 to which specific reference is made.

C. MATERIAL CONTRACTS

The following is a summary of material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any subsidiary of the Company is a party, for the two years immediately preceding the filing of this report.

• On November 21, 2011, the Company entered into an agreement pursuant to which the Company sold all of its ownership interests in Hangzhou Zhongce Rubber Company Limited to CZ Tire Holdings Limited, an independent third-party company incorporated in the British Virgin Islands, for a purchase price of Rmb600 million or approximately US$91 million.

• On September 28, 2012, the Company’s wholly owned subsidiary, Wealth Faith Limited entered into a definitive agreement with Fortuneasy Limited. The agreement provides for the purchase by Wealth Faith Limited of 40% of the shares of Million Cube Limited from Fortuneasy Limited. The total purchase price for the shares being acquired by Wealth Faith Limited is HK$200 million or approximately US$25.6 million.

D. EXCHANGE CONTROLS

Certain Foreign Issuer Considerations

The Company has been designated as a non-resident for exchange control purposes by the Bermuda Monetary Authority, Foreign Exchange Control, whose permission for the issue of shares of common stock of the Company has been obtained. The transfer of shares between persons regarded as resident outside Bermuda for exchange control purposes and the issue of shares to or by such persons may be effected without specific consent under the Exchange Control Act of 1972 and regulations thereunder. Issues and transfers of shares involving any person regarded as resident in Bermuda for exchange control purposes require specific prior approval under the Exchange Control Act of 1972.

There are no limitations on the rights of non-Bermuda owners of the Company’s common stock to hold or vote their shares. Because the Company has been designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on its ability to transfer funds in and out of Bermuda or to pay dividends to United States residents who are holders of the Company’s common stock, other than in respect of local Bermuda currency.

In accordance with Bermuda law, share certificates are only issued in the names of corporations or individuals. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust. The Company will take no notice of any trust applicable to any of its shares whether or not it had notice of such trust.

28

As an exempted company, the Company is exempt from Bermuda laws restricting the percentage of share capital that may be held by non-Bermudan persons, but as an exempted company the Company may not participate in certain business transactions, including: (1) the acquisition or holding of land in Bermuda (except land required for business and held by way of lease or tenancy for terms of not more than 21 years) without the express authorization of the Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an amount in excess of US$50,000 without the consent of the Minister of Finance of Bermuda; (3) the acquisition of securities created or issued by, or any interest in, any local company or business, other than certain types of Bermuda government securities or securities of another exempted company, partnership or other corporation resident in Bermuda but incorporated abroad; or (4) the carrying on of business of any kind in Bermuda, except in furtherance of the business of the Company carried on outside Bermuda or under a license granted by the Minister of Finance of Bermuda.

The Bermuda government actively encourages foreign investment in exempted entities like the Company that are based in Bermuda but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, the Company is subject neither to taxes on its income or dividends nor to any foreign controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can be accumulated by the Company, as required, without limitation.

E. TAXATION

The following discussion is a summary of certain tax consequences of an investment in the Company’s common stock under Bermuda tax laws and United States Federal income tax laws. The discussion does not deal with all possible tax consequences relating to an investment in the common stock and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under State, local and other laws (e.g., non-Bermuda, non-United States Federal tax laws). This discussion is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change.

Bermuda Taxation

The Company is incorporated in Bermuda. Under current Bermuda law, the Company is not subject to tax on income or capital gains, and no Bermuda withholding tax will be imposed upon payments of dividends by the Company to its shareholders. Furthermore, the Company has received from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966, as amended, an undertaking that, in the event that Bermuda enacts any legislation imposing any tax computed on profits or income, including any dividend or capital gains withholding tax, or computed on any capital assets appreciation thereof, or any tax in the nature of an estate, duty or inheritance tax, the imposition of such tax will not be applicable to the Company or any of its operations, nor to the shares, debentures or other obligations of the Company, until March 28, 2016. This undertaking does not, however, prevent the imposition of property taxes on Company-owned real property or leasehold interests in Bermuda.

The United States does not have a comprehensive income tax treaty with Bermuda.

As an exempted company, the Company is required to pay to the Bermuda government an annual registration fee calculated on a sliding-scale basis by reference to its assessable capital, that is, its authorized capital plus any share premium.

British Virgin Islands (“BVI”) Taxation

The Company has certain of its subsidiaries incorporated under the laws of the BVI. Pursuant to the rules and regulations of the BVI, these subsidiaries are not subject to any income tax in the BVI.

Under the International Business Companies Act of the BVI, as currently in effect, a holder of common stock who is not a resident of BVI is exempt from BVI income tax on dividends paid with respect to the common stock and all holders of common stock are not liable for BVI income tax on gains realized during that year on sale or disposal of such shares; BVI does not impose a withholding tax on dividends paid by a company incorporated under the International Business Companies Act.

There are no capital gains, gift or inheritance taxes levied by the BVI on companies incorporated under the International Business Companies Act. In addition, the common stock is not subject to transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

29

United States Federal Income Taxation

Taxation of Shareholders

The following discussion addresses the United States Federal income taxation of a United States Investor (i.e., a United States citizen or resident, corporation or partnership organized under the laws of the United States or any state thereof, an estate subject to United States tax on all of its income regardless of source or a trust subject to the primary supervision of a U.S. court and the control of one or more U.S. persons) making an investment in the Company’s common stock. The summary does not address the United States tax treatment of certain types of investors (e.g., a dealer or trader in securities, a regulated investment company or a grantor trust, individual retirement and other tax deferred accounts, a bank, financial institution or life insurance company, a tax-exempt organization, a person liable for the alternative minimum tax, a person who receives shares in compensation for services, certain U.S. expatriates, or a person that holds shares as part of a straddle or a hedging or conversion transaction) or of persons other than a U.S. Investor, all of whom may be subject to tax rules that differ significantly from those summarized below. If the U.S. investor holds its common stock through a foreign branch or other foreign business unit, the following discussion may not be accurate in all respects as to such investor. Investors are advised to consult their own tax advisors with respect to their particular circumstances and with respect to the effects of State, local or foreign tax laws to which they may be subject. In addition, future changes to United States tax laws could have an effect on the United States Federal income tax consequences of the purchase, ownership and disposition of common stock.

A U.S. Investor receiving a distribution in respect of the common stock will be required to include such distribution in gross income as a taxable dividend to the extent such distribution is paid from earnings and profits of the Company as determined under United States Federal income tax principles. Distributions in excess of the earnings and profits of the Company first will be treated, for United States Federal income tax purposes, as a nontaxable return on capital to the extent of the U.S. Investor’s tax basis in the common stock and then as gain from the sale or exchange of a capital asset, provided that the common stock constitutes a capital asset in the hands of the U.S. Investor. Dividends received on the common stock will not be eligible for the corporate dividends-received deduction nor is it likely that dividends received by non-corporate shareholders will be entitled to the reduced U.S. tax rate applicable to “qualified dividends.” Any amount treated as a dividend for United States Federal income tax purposes generally will constitute foreign source “passive income” (or, in the case of certain holders, “financial services income”). With respect to taxable years beginning after December 31, 2006, the foreign tax credit limitation categories will be limited to “passive category income” and “general category income”. Except for corporations that own 10% or more of the common stock of the Company, no shareholder will be entitled to claim a foreign tax credit against United States Federal income tax for any tax paid by the Company or any entity in which the Company invests, directly or indirectly. For reporting purposes, any dividends that are paid in any currency other than U.S. dollars must be translated into U.S. dollars at the spot rate on the date the dividends are accrued or received by the U.S. Investor, regardless of whether the dividend receipt is in fact converted into U.S. dollars.

With certain exceptions, gain or loss on the sale or exchange of the common stock will be treated as capital gain or loss (if the common stock is held as a capital asset). Such capital gain or loss will be long-term capital gain or loss if the U.S. Investor has held the common stock for more than one year at the time of the sale or exchange. Gains or loss realized upon the disposition of common stock will generally be U.S. source gain or loss for purposes of the United States foreign tax credit limitation.

The “controlled foreign corporation” (“CFC”) and “passive foreign investment company” rules under United States Federal income tax law could apply to the Company and U.S. investors who own Common Stock. Based on the current and anticipated ownership of the Company, the Company does not believe it will constitute a CFC. In light of the Company’s disposition of most of its operating subsidiaries or its majority interests in such subsidiaries during the prior three years, there is some risk that the Company could qualify as a passive foreign investment company for 2011 or subsequent years. The Company does not believe it was a passive foreign investment company during 2011; however, since passive foreign investment company status is determined annually, there can be no assurance that the Company might not become a passive foreign investment company in 2011 or subsequent years, including after the consummation of the transactions in 2012 and 2013 described in Item 4.A., History and Development of the Company.

United States Backup Withholding and Information Reporting

Dividends on and proceeds from the sale, redemption or other disposition of common stock made within the United States, or by a U.S. payer or U.S. middleman, to a holder of common stock generally will be reported to the U.S. Internal Revenue Service unless the holder is a corporation or otherwise establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax requirements. The backup withholding tax rate is currently 28 percent. Any amounts withheld under the backup withholding tax rules will be refunded or allowed as a credit against the U.S. Holder’s U.S. federal income tax liability, provided that the required information is furnished to the Internal Revenue Service.

F. DIVIDENDS AND PAYING AGENTS

Not applicable.

G. STATEMENTS BY EXPERTS

Not applicable.

30

H. DOCUMENTS ON DISPLAY

The Company is subject to certain of the information reporting requirements of the Exchange Act. The Company, as a “foreign private issuer,” is exempt from the rules and regulations under the Exchange Act prescribing the furnishing and content of proxy statements, and the officers, directors and principal shareholders of the Company are exempt from the reporting and “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act, with respect to their purchase and sale of the Company’s shares. In addition, the Company is not required to file reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, the Company does file with the SEC an Annual Report on Form 20-F containing consolidated financial statements audited by an independent accounting firm.

Documents concerning us that are referred to herein may be inspected at the Company’s offices at 25th Floor, Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong. You may read and copy any document that the Company files with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of this web site is http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

31

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to fluctuations in interest rates and currency exchange rates primarily with respect to any borrowings it may make and to our operating results. Under its current policies, the Company does not use interest rate derivative instruments to manage exposure to interest rate changes.

Exchange Rate Information

The Consolidated Financial Statements are prepared in Rmb. The financial statements of foreign subsidiaries are translated into Renminbi in accordance with ASC Topic 830, Foreign Currency Matters.

The Hong Kong dollar is tied to and allowed to fluctuate within a narrow range against the value of the U.S. dollar. Historically, there has been no material fluctuation in the exchange rate between the Rmb and the U.S. dollar and restrictions were set on the flow of Rmb between the PRC and the United States. Starting on July 21, 2005, the PRC shifted to a managed floating exchange rate regime based on market supply and demand with reference to a basket of other currencies. The Renminbi is no longer pegged to the U.S. dollar.

Fluctuations in the value of foreign currencies cause U.S. dollar translated amounts to change in comparison with previous periods. However, the fluctuation in exchange rates did not have material effect on the financial position of the Company in the past three years.

Foreign Currency Risk

As our major assets and liabilities are comprised of a mixture of items denominated in Renminbi , U.S. dollars and Hong Kong dollars, our business and operating results may be materially affected in the event of a severe increase or decrease in the value of Renminbi against other currencies. If Renminbi appreciates against U.S. dollars/Hong Kong dollars, our operating expenses and net income may be affected depending upon the then composition of our assets and liabilities.

Historically, both Hong Kong dollars and Renminbi were pegged to U.S. dollars. As a result, the exchange rate of U.S. dollars/Hong Kong dollars to Renminbi fluctuated within a narrow range. However, on July 21, 2005, the PBOC adjusted the exchange rate of U.S. dollars to Renminbi from 1:8.27 to 1:8.11, resulting in an approximately 2% appreciation in the value of Renminbi against U.S. dollars. As Hong Kong dollars are pegged to U.S. dollars, such adjustment has effectively resulted in an approximately 2% appreciation in the value of Renminbi against Hong Kong dollar. For more details, see “RISK FACTORS — FLUCTUATIONS IN THE VALUE OF THE RENMINBI COULD NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS”.

As of December 31, 2011, the Company had no open forward contracts or option contracts. The Company’s cash and cash equivalents as of December 31, 2011 was Rmb523.6 million of which approximately Rmb522.7 million equivalents (approximately US$83.0 million) were held in U.S. dollar deposits.

Interest Rate Fluctuations

The Company’s interest income is sensitive to change in interest rates. However, the amount of interest income has been immaterial to the Company.

The Company did not have any short-term or long-term debt which bore a floating interest rate as of December 31, 2010 or 2011.

The Company will be exposed to interest rate fluctuations on its cash on hand and any new borrowings under any new loan facility and any change in interest rate could affect its results of operations and cash flows.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There has been no material default in the payment of principal or interest or other material default requiring disclosure pursuant to this item. There have been no arrears in the payment of dividends or other material delinquency requiring disclosure pursuant to this item.

32

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There has been no material modification to the rights of security holders required to be disclosed pursuant to this item.

ITEM 15. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e), as of the end of the period covered by this Annual Report on Form 20-F. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are ineffective as they are not sufficient to ensure that the information that the Company is required to disclose in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. The Company is developing a set of procedures and controls that will allow it to meet such time periods specified in the Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by it in its reports is accumulated and communicated to its management, including the Issuer’s principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

The directors and management of the Company are responsible for establishing and maintaining adequate internal control over our financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance, but not absolute assurance, regarding the reliability of financial reporting and the preparation of its published financial statements. Internal control over financial reporting includes policies and procedures that:

1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

2. Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles;

3. Provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorizations of management and directors of the Company; and

4. Provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements will be prevented or detected in a timely manner.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurances, but not absolute assurances, with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may decline.

Our management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the assessment, management has concluded that our internal control over financial reporting was ineffective as of December 31, 2011.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 20-F.

There have been no changes in the Company’s internal control over financial reporting during the period covered by this Annual Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT

As the Company’s common stock is not currently listed on a U.S. national securities exchange, the Company is not obligated to have an audit committee of the board of directors. The Company has, however, had an Audit Committee for many years and continues to do so. As of December 31, 2011, the Company’s Board of Directors has determined that the two members of the Audit Committee, Mr. Richard Whittall and Mr. Sin Chi Fai, do not qualify as “audit committee financial experts” as defined by Item 401(h) of Regulation S-K adopted pursuant to the Exchange Act. The Company is currently in the process of seeking a qualified financial expert for the audit committee.

ITEM 16B CODE OF ETHICS

The Company has adopted a Code of Ethics for the Chief Executive and Senior Financial Officers, which applies to the Company’s principal executive officer and to its principal financial and accounting officers. A copy of the Code of Ethics is attached as Exhibit 14.1 to this Annual Report on Form 20-F.

ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents the aggregate fees for services rendered by our principal external auditors for the periods indicated below:

	2010		2011
	US$’000		US$’000
Audit Fees		226		328
Audit-Related Fees		—		—
Tax Fees		—		—
All Other Fees		—		—
Total		226		328

Audit fees means the aggregate fees in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual consolidated financial statements or services that are normally provided by the auditors in connection with statutory and regulatory filings or engagements. Services comprising the fees disclosed under this category also involve principally limited reviews performed on our consolidated financial statements and the audits of the annual financial statements of our subsidiaries and affiliated companies.

Audit-related fees means the aggregate fees in each of the fiscal years listed for assurance and related services by our principal auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees”.

The Audit Committee members are responsible for the review of the quality and performance of external auditors. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by our independent auditors. Under the policy, the Audit Committee pre-approves all auditing services. The engagement of Crowe Horwath (HK) CPA Limited as independent registered public accounting firm has been approved by the Audit Committee. If the Audit Committee approves an audit service within the scope of the engagement of the audit service, such audit service is deemed to have been pre-approved.

ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

As the Company’s common stock is not listed on a U.S. national securities exchange, the information called for by Part II, Item 16D of the Form 20-F is not applicable.

ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The Company has not made any repurchases of its equity securities during the period covered by this report.

ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Previously reported on a Form 6K dated December 3, 2010 (as amended on January 26, 2011).

ITEM 16G CORPORATE GOVERNANCE

Not applicable.

34

PART III

ITEM 17. FINANCIAL STATEMENTS

See the Index to the Consolidated Financial Statements accompanying this report beginning on page F-1.

Pursuant to Article 3-09 of Regulation S-X of the Exchange Act, separate financial statements of significant unconsolidated companies of the Company prepared in accordance with U.S. GAAP or reconciled to U.S. GAAP must be filed as part of the Company’s Form 20-F.

Hangzhou Zhongce prepared its statutory financial statements in accordance with the accounting principles and the relevant financial regulations as established by the Ministry of Finance of the PRC; however, for the purposes of complying with Article 3-09 of Regulation S-X, Hangzhou Zhongce prepared separate financial statements in accordance with U.S. GAAP. Pursuant to Article 3-09 of Regulation S-X, Hangzhou Zhongce’s financial statements for the three years ended December 31, 2009 and 2010 and for the first eleven months of 2011 accompany this report beginning on page F-1.

ITEM 18. FINANCIAL STATEMENTS

See the Index to the Consolidated Financial Statements accompanying this report beginning page FF-1.

35

HANGZHOU ZHONGCE RUBBER CO., LTD.

Report of Independent Registered Public

Accounting Firm and Consolidated Financial Statements

for the years ended December 31, 2009, 2010

    and the eleven months ended November 30, 2011

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

HANGZHOU ZHONGCE RUBBER CO., LTD.

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Statements of Operations and Comprehensive Income for the years ended December  31, 2009, 2010 and the eleven months ended November 30, 2011	F-2
Consolidated Balance Sheets as of December 31, 2010 and November 30, 2011	F-3
Consolidated Statements of Changes in Equity for the years ended December  31, 2009, 2010 and the eleven months ended November 30, 2011	F-7
Consolidated Statements of Cash Flows for the years ended December  31, 2009, 2010 and the eleven months ended November 30, 2011	F-8
Notes to Consolidated Financial Statements	F-10

DTT(A)(14)U0042

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Management of China Enterprises Limited

We have audited the accompanying consolidated balance sheets of Hangzhou Zhongce Rubber Co., Ltd. (the “Company”), its consolidated subsidiaries and VIE (collectively referred to as the “Group”) as of December 31, 2010 and November 30, 2011, and the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2010 and the eleven months ended November 30, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2010 and November 30, 2011, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2010 and the eleven months ended November 30, 2011, in conformity with accounting principles generally accepted in the United States of America.

Our audits also comprehended the translation of Renminbi amounts into United States Dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2(o). Such United States Dollar amounts are presented solely for the convenience of the readers in the United States of America.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP, Shanghai

September 25, 2014

F - 1

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Amounts in thousands)

	Year ended December 31,						Eleven months ended November 30,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
Net revenues:
- third parties		15,084,814			20,171,781			23,876,059			3,744,383
- related companies		60,514			86,685			83,419			13,082
Total		15,145,328			20,258,466			23,959,478			3,757,465
Cost of revenues		(12,936,757	)		(18,340,738	)		(21,925,225	)		(3,438,442	)
Gross profit		2,208,571			1,917,728			2,034,253			319,023
Selling, general and administrative expenses		(877,338	)		(980,301	)		(1,049,407	)		(164,574	)
Government subsidies		28,439			67,573			8,580			1,346
Other operating income, net		16,669			267			47,696			7,480
Operating income		1,376,341			1,005,267			1,041,122			163,275
Non-operating income (expenses):
Interest income		6,314			5,393			2,387			374
Interest expenses		(178,176	)		(179,292	)		(216,561	)		(33,962	)
Other income (loss)		549			(11,928	)		1,315			206
Income before income taxes and noncontrolling interests		1,205,028			819,440			828,263			129,893
Income tax expenses		(181,748	)		(46,289	)		(190,936	)		(29,944	)
Net income		1,023,280			773,151			637,327			99,949
Net income attributable to noncontrolling interests		(42,059	)		(41,740	)		(30,745	)		(4,822	)
Net income attributable to the shareholders of the Company		981,221			731,411			606,582			95,127

The accompanying notes are an integral part of these consolidated financial statements.

F - 2

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
ASSETS
Current assets:
Cash and cash equivalents		687,920		678,291		106,374
Restricted cash		19,938		132,887		20,840
Accounts receivable, net of allowances for doubtful receivables of Rmb69,631 and Rmb69,628 (US$10,919) as of December 31, 2010 and November 30, 2011, respectively		1,099,536		1,284,958		201,515
Notes receivable		406,656		2,249,240		352,739
Other receivables		191,115		110,001		17,251
Inventories		3,223,915		3,920,847		614,890
Prepaid expenses and other current assets		213,098		203,721		31,948
Due from related companies		48,782		51,241		8,036
Deferred tax assets		196,103		228,233		35,793
Total current assets		6,087,063		8,859,419		1,389,386
Prepayments for equipment		224,669		226,950		35,591
Prepayment for land use rights		35,000		—		—
Property, plant and equipment, net		5,146,020		5,904,585		925,992
Prepaid land use rights		281,540		243,592		38,202
Deferred tax assets		10,717		7,405		1,161
Due from related companies		8,129		6,255		981
Other assets		3,120		5,011		786
Total assets		11,796,258		15,253,217		2,392,099

F - 3

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED BALANCE SHEETS - continued

(Amounts in thousands)

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
LIABILITIES AND EQUITY
Current liabilities:
Bond interest payable		—		6,000		941
Short-term bank loans		2,832,161		4,054,350		635,827
Current portion of long-term bank loans		539,700		810,300		127,076
Accounts payable		1,938,801		2,375,155		372,486
Advances from customers		369,763		361,248		56,653
Transportation expenses payable		72,957		105,196		16,497
Other payables		422,235		468,669		73,499
Accrued liabilities		492,415		618,415		96,983
Due to related companies		118,768		77,459		12,148
Due to a shareholder		134		—		—
Income taxes payable		53,087		76,688		12,027
Total current liabilities		6,840,021		8,953,480		1,404,137
Government subsidies		454,066		736,826		115,553
Non-current portion of long-term bank loans		941,550		484,600		75,998
Bond payable		—		880,363		138,064
Total liabilities		8,235,637		11,055,269		1,733,752
Commitments and contingencies
Equity:
Registered capital		613,603		613,603		96,229
Additional paid-in capital		20,266		20,266		3,178
Retained earnings		2,592,171		3,198,753		501,647
Total Company equity		3,226,040		3,832,622		601,054
Noncontrolling interests		334,581		365,326		57,293
Total equity		3,560,621		4,197,948		658,347
Total liabilities and equity		11,796,258		15,253,217		2,392,099

The accompanying notes are an integral part of these consolidated financial statements.

F - 4

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED BALANCE SHEETS - continued

(Amounts in thousands)

The following table presents the carrying amounts and classification of the assets of the consolidated variable interest entity (“VIE”), which is included in the Consolidated Balance Sheets above. The assets in the table below include intercompany balances that eliminate in consolidation. The assets of the VIE as presented in the following table can only be used to settle obligations of the VIE.

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
ASSETS OF VIE
Current assets:
Cash and cash equivalents		75,882		56,443		8,852
Restricted cash		60		—		—
Accounts receivable		160		570		89
Notes receivable		115,025		198,692		31,160
Other receivables		2,119		3,709		582
Inventories		38,654		40,611		6,369
Prepaid expenses and other current assets		20,228		33,875		5,312
Due from related companies		15,366		13,162		2,064
Deferred tax assets		1,029		1,700		267
Total current assets		268,523		348,762		54,695
Prepayments for equipment		24,033		22,961		3,601
Property, plant and equipment, net		1,308,942		1,364,451		213,981
Prepaid land use rights		51,882		50,422		7,907
Deferred tax assets		16,531		10,954		1,718
Total assets of VIE		1,669,911		1,797,550		281,902

F - 5

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED BALANCE SHEETS - continued

(Amounts in thousands)

The following table presents the carrying amounts and classification of the liabilities of the consolidated VIE, which are included in the Consolidated Balance Sheets above. The liabilities in the table below include intercompany balances that eliminate in consolidation. All the liabilities of the consolidated VIE as presented in the following table are without recourse to the general credit of Hangzhou Zhongce Rubber Co., Ltd.

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
LIABILITIES OF VIE
Current liabilities:
Short-term bank loans		360,000		333,480		52,298
Current portion of long-term bank loans		79,700		110,300		17,298
Accounts payable		76,715		71,565		11,223
Other payables		136,469		174,378		27,347
Due to related companies		382,861		534,598		83,839
Income taxes payable		8,399		—		—
Total current liabilities		1,044,144		1,224,321		192,005
Non-current portion of long-term bank loans		170,300		60,000		9,410
Total liabilities of VIE		1,214,444		1,284,321		201,415

F - 6

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in thousands)

	Registered capital		Additional paid-in capital		Retained earnings		Total Company equity		Noncontrolling interests		Total equity
	Rmb		Rmb		Rmb		Rmb		Rmb		Rmb
Balance at January 1, 2009		613,603		20,266		879,539		1,513,408		241,030		1,754,438
Net income		—		—		981,221		981,221		42,059		1,023,280
Capital injection		—		—		—		—		9,752		9,752
Balance at December 31, 2009		613,603		20,266		1,860,760		2,494,629		292,841		2,787,470
Net income		—		—		731,411		731,411		41,740		773,151
Balance at December 31, 2010		613,603		20,266		2,592,171		3,226,040		334,581		3,560,621
Net income		—		—		606,582		606,582		30,745		637,327
Balance at November 30, 2011		613,603		20,266		3,198,753		3,832,622		365,326		4,197,948
Balance at November 30, 2011 (in US$)		96,229		3,178		501,647		601,054		57,293		658,347

The accompanying notes are an integral part of these consolidated financial statements.

F - 7

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year ended December 31,						Eleven months ended November 30,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
Cash flows from operating activities:
Net income		1,023,280			773,151			637,327			99,949
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income taxes		(25,788	)		(79,506	)		(28,818	)		(4,519	)
Loss on disposal of property, plant and equipment		20,035			6,052			5,456			856
Gain on disposal of prepaid land use rights		—			—			(4,180	)		(656	)
Depreciation		559,286			664,308			628,262			98,528
Amortization		5,525			6,643			6,549			1,027
Allowance for (reversal of) doubtful accounts receivable		210			(207	)		(3	)		—
Amortization of government subsidies		—			(67,573	)		—			—
Bond interest		—			—			8,455			1,326
Changes in operating assets and liabilities:
Accounts receivable and other receivables		159,191			(381,698	)		(104,305	)		(16,358	)
Notes receivable		(91,370	)		(295,411	)		(1,842,584	)		(288,965	)
Inventories		(225,441	)		(1,060,449	)		(696,932	)		(109,297	)
Prepaid expenses and other current assets		27,545			(77,766	)		9,377			1,471
Prepaid land use right		(59,433	)		(3,347	)		(39,861	)		(6,251	)
Due from related companies		(35,199	)		25,929			(2,459	)		(386	)
Other assets		(49	)		2,477			(1,344	)		(211	)
Accounts payable and other payables		528,551			467,134			505,857			79,331
Government subsidies		27,523			8,334			4,400			690
Due to related companies		73,115			24,929			(41,309	)		(6,478	)
Accrued liabilities		46,388			35,000			126,000			19,760
Income taxes payable		109,173			(66,948	)		22,142			3,472
Net cash provided by (used in) operating activities		2,142,542			(18,948	)		(807,970	)		(126,711	)

F - 8

HANGZHOU ZHONGCE RUBBER CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(Amounts in thousands)

	Year ended December 31,						Eleven months ended November 30,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
Cash flows from investing activities:
Purchase of property, plant and equipment		(966,414	)		(1,332,504	)		(1,423,833	)		(223,294	)
Payment for prepaid land use right		—			(35,000	)		—			—
Increase in prepayment paid for property, plant and equipment		(97,401	)		(60,413	)		(2,281	)		(358	)
Proceeds from government subsidies		200,587			37,843			342,639			53,735
Changes in restricted bank deposits		81,093			(2,667	)		(112,949	)		(17,713	)
Proceeds from disposal of property, plant and equipment		5,865			2,588			31,658			4,965
Proceeds from disposal of prepaid land use rights		—			—			47,620			7,468
Changes in amounts due from related companies		(1,078	)		(6,164	)		1,874			294
Net cash used in investing activities		(777,348	)		(1,396,317	)		(1,115,272	)		(174,903	)
Cash flows from financing activities:
Capital injection from noncontrolling interests		9,752			—			—			—
Proceeds from short-term bank loans		2,907,251			5,230,188			6,715,741			1,053,202
Repayment of short-term bank loans		(3,818,263	)		(4,299,027	)		(5,493,552	)		(861,531	)
Proceeds from long-term bank loans		540,000			841,250			253,350			39,731
Repayment of long-term bank loans		(593,000	)		(480,000	)		(439,700	)		(68,956	)
Proceeds from bond payable		—			—			877,908			137,679
Decrease in amount due to a shareholder		—			—			(134	)		(21	)
Net cash provided by (used in) financing activities		(954,260	)		1,292,411			1,913,613			300,104
Net increase (decrease) in cash and cash equivalents		410,934			(122,854	)		(9,629	)		(1,510	)
Cash and cash equivalents, beginning of the year		399,840			810,774			687,920			107,884
Cash and cash equivalents, end of the year		810,774			687,920			678,291			106,374
Supplemental disclosures of cash flow information:
Interest paid, net of interest capitalized		189,773			183,561			185,954			29,162
Income tax paid		98,363			192,743			140,462			22,028
Non-cash investing activities:
Other payables for property, plant and equipment		67,364			58,343			655			103

The accompanying notes are an integral part of these consolidated financial statements.

F - 9

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands unless otherwise stated)

1. ORGANIZATION AND BASIS OF PREPARATION

Hangzhou Zhongce Rubber Co., Ltd. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on June 12, 1992. The Company is engaged in the manufacture and sale of rubber tires in the PRC. The Company has a 51.24% equity interest in Hangzhou Fu Chun Jiang Chemical Industrial Co., Ltd. (“FCJ”), incorporated in the PRC for a term of 20 years commencing from September 28, 2001, and it is engaged in the manufacture and sale of tire rubber and carbon powder.

In 2008, the Company incorporated a PRC subsidiary Zhongce Rubber Fu Yang Co., Ltd. (“Fu Yang”) and wholly owned 100% of Fu Yang. The principal activity of Fu Yang is in the manufacture and sale of rubber tires in the PRC.

In 2009, the Company incorporated a PRC subsidiary Zhongce Rubber (Jiande) Co., Ltd. (“Jian De”) and wholly owned 100% of Jian De. The principal activity of Jian De is in the manufacture and sale of rubber tires in the PRC.

In 2010, the Company incorporated a PRC subsidiary of Haichao Trading Co., Ltd. (“Haichao Trading”), and wholly owned 100% of the entity. The principal activity of Haichao Trading is in trade of rubber tires.

In 1998, an agreement was entered into by the Company with three other PRC enterprises to establish a Sino-foreign equity joint venture, Hangzhou Sunrise Rubber Co., Ltd. (“Hangzhou Sunrise”) in Hangzhou, Zhejiang Province, the PRC, to construct and operate a radial tire factory. The total investment and registered capital of this joint venture was US$38,893 (Rmb248,000). The equity interest owned by the Company was 49.2% and its investment commitment was satisfied by the contribution of its existing radial tire project under construction into Hangzhou Sunrise while the other three shareholders contributed cash for the remaining 50.8% interest in Hangzhou Sunrise, which includes the 12.8% interest held by a significant shareholder of the Group. The Company determined that Hangzhou Sunrise is a variable interest entity (“VIE”) of the Group.

The Company is the primary beneficiary of Hangzhou Sunrise because the Company has the power to direct the activities of Hangzhou Sunrise that most significantly affect its economic performance and the obligation to absorb losses and the right to receive benefits from Hangzhou Sunrise that could potentially be significant to the VIE. Accordingly, the Company has consolidated Hangzhou Sunrise as its VIE for the two years ended December 31, 2010 and the eleven months ended November 30, 2011.

The Company, its VIE, Hangzhou Sunrise, all of its consolidated subsidiaries are collectively referred to as the “Group”.

The consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the special purpose of filing with the United States Securities and Exchange Commission for complying with Article 3-09 of Regulation S-X of the Securities Act of 1933 as the Company is a significant equity method investee of China Enterprises Limited, a company traded on the OTC (Over-the-Counter) Securities Market in the United States of America (the “US”).

F - 10

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

1. ORGANIZATION AND BASIS OF PREPARATION - continued

The following financial information of Hangzhou Sunrise was included in the Company’s consolidated financial statements for the two years ended December 31, 2010 and the eleven months ended November 30, 2011.

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
Total revenues (sales to the Company and its consolidated subsidiaries)		1,080,145		1,051,713		164,936
Net income		54,548		57,762		9,059

These consolidated financial statements are prepared assuming that the Group will continue as a going concern, which assumes the realization of assets and the settlement of liabilities in the normal course of operations. The Group has net current liabilities of Rmb94,061 (US$14,751) as of November 30, 2011, with bank borrowings of Rmb4,864,650 (US$762,903) which will mature in the following 12 months.

The consolidated financial statements do not include any adjustments in the carrying amounts of the assets and liabilities to their realizable amounts and the classification that might be necessary if the Group be unable to continue as a going concern.

The Group has historically met cash needs from borrowings and operating cash flows. The Group’s continuation as a going concern is dependent upon its ability to generate sufficient cash flows to meet its obligations on a timely basis and to obtain additional financing as may be required.

The directors of the Company are of the opinion that taking into account the presently available banking facilities and cash flow generated from its operations, the Group will have sufficient resources to meet its debts when they fall due for the foreseeable future.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Consolidation

The Company consolidates all entities in which it is the primary beneficiary of variable interest entities and in those entities in which it has a controlling financial interest.

The consolidated financial statements include the assets, liabilities, revenue and expenses of the Company and its consolidated subsidiaries and VIE.

F - 11

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(a) Basis of Consolidation - continued

Net income or loss of a subsidiary is attributed to the Company and to the noncontrolling interests on the basis of relative ownership interest. Noncontrolling interests in subsidiaries are presented separately from the Group’s equity therein.

All intercompany balances and transactions have been eliminated on consolidation.

(b) Cash and Cash Equivalents

The Group considers cash in hand and demand deposits in banks with an original maturity of three months or less when purchased to be cash and cash equivalents.

(c) Restricted Cash

Bank deposits pledged as security for bank guarantees and bank drafts, and those bank balances for staff quarters’ repair and maintenance as required by PRC municipal government amounted to Rmb19,938 and Rmb132,887 (US$20,840) as of December 31, 2010 and November 30, 2011, respectively.

(d) Notes Receivable

Notes receivable represent bank drafts that are non-interest bearing and due within six months. Such bank drafts have been arranged with third-party financial institutions by certain customers to settle their purchases from the Group.

(e) Inventories

Inventories are stated at the lower of cost, on an average cost basis, or market value. Costs of work-in-progress and finished goods comprise direct materials, direct labor and an attributable proportion of production overheads. The Group writes down the cost of excess and slow moving inventories to the estimated market value based on forecast demand. No slow moving inventories were written down for the year ended December 31, 2010 and the eleven months ended November 30, 2011, respectively.

(f) Property, Plant and Equipment, net

Property, plant and equipment, net are stated at cost less accumulated depreciation.

Depreciation is computed using the straight-line method over the assets’ estimated economic useful lives. The estimated useful lives are as follows:

Buildings	20 years
Machinery and equipment	10 years
Motor vehicles	5 years
Furniture, fixtures and office equipment	5 years

F - 12

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(f) Property, Plant and Equipment, net - continued

Construction-in-progress represents factory and office buildings under construction and plant and machinery pending installation. Interest capitalized was Rmb7,744, Rmb5,900 and Rmb50,600 (US$7,935) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use.

(g) Prepaid Land Use Rights

Prepaid land use rights represent prepaid rent for land under 50 year operating lease arrangements. Prepaid land use rights are amortized and recognized as rent expense over 50 years.

(h) Impairment of Long-Lived Assets

The Group evaluates its long-lived assets for potential impairment whenever events and circumstances exist that indicates the carrying amount of these assets may not be recoverable. When these events occur, the Group assesses the recoverability of these long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the future undiscounted cash flow is less than the carrying amount of the assets, the Group recognizes an impairment equal to the difference between the carrying amount and fair value of these assets. No impairment loss was recognised for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

(i) Revenues

Revenues are recognized upon acceptance of goods by the customers and collectability is reasonably assured and the prices are fixed and determinable.

The Group presents revenues net of sales taxes incurred, which amounted to Rmb47,483, Rmb72,947 and Rmb102,921 (US$16,141) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

(j) Shipping and Handling Fees and Costs

Costs for transportation of products to customers is recorded as selling, general and administrative expenses, and amounted to Rmb372,764, Rmb432,599 and Rmb474,595 (US$74,429) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

F - 13

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(k) Advertising Expenses

Advertising expenses were Rmb13,167, Rmb7,048 and Rmb4,649 (US$729) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

(l) Government Subsidies

Government subsidies are recognized when received and all the conditions for their receipt have been met. Government subsidies are recognized in the consolidated statements of operations and comprehensive income in the period in which the related expenditure is recorded. Capital grants for the acquisition of equipment are recorded as a liability until earned and are recognized as income over the periods and in the proportion in which depreciation on those assets is charged.

(m) Product Warranty

The estimated cost of product warranty claims is accrued as cost of revenues at the time the sale is recognized, based on historical experience.

(n) Income Taxes

The Company accounts for income taxes using the asset and liability method whereby the deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, unutilized tax loss carry forwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

(o) Foreign Currencies

The functional currency of the Company and its consolidated subsidiaries and VIE is Renminbi (“Rmb”). Foreign currency transactions are translated into the functional currency of the Company and its consolidated subsidiaries and VIE at the applicable exchange rate quoted by the People’s Bank of China (the “exchange rates”) prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are remeasured into functional currency using the applicable exchange rates prevailing at the respective balance sheet dates. Exchange differences are included in the consolidated statement of operations and comprehensive income. The Group had foreign exchange loss of Rmb2,210, Rmb12,647 and Rmb5,313 (US$833) in 2009, 2010 and eleven months ended November 30, 2011, respectively.

F - 14

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(o) Foreign Currencies - continued

The RMB is not a freely convertible currency. The PRC State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in China’s foreign exchange trading system market.

The translation of Rmb amounts into United States dollar (US$) amounts as of and for the eleven months period ended November 30, 2011 are included solely for the convenience of readers in the United States of America and have been made at US$1.00 = Rmb6.3765, the noon buying rate certified by the Federal Reserve Bank of New York on November 30, 2011. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollar at that or at any other rate.

(p) Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the years presented. Actual results may differ from those estimates. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in the Company’s consolidated financial statements includes allowance for doubtful accounts and other receivables, lower of cost or market charges and other provisions for inventory, useful lives of property, plant and equipment, accruals for warranty costs, valuation allowances for deferred tax assets, and valuation of certain financial instruments.

F - 15

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(q) Fair Value of Financial Instruments

Fair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs may be used to measure fair value include:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying values of financial instruments, which consist of cash and cash equivalents, accounts receivable, notes receivable, other receivables, due from related companies, accounts payable, short-term bank loans, other payables, due to related companies and due to a shareholder are recorded at cost which approximates their fair value due to the short-term nature of these instruments.

The carrying values of bond payable approximates its fair value as the interest rate used to discount the bond payable did not fluctuate significantly between the date the bond was recorded and November 30, 2011. The Company’s other financial instruments that are not recorded at fair value are not significant.

F - 16

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(r) Concentration of Credit Risk

The Group’s financial instruments that are exposed to concentration of credit risk consist primarily of its cash and cash equivalents, restricted cash, accounts and other receivables and advances to related companies and guarantee issued by the Group. The Group’s cash and cash equivalents and restricted cash are high-quality deposits placed with banking institutions with high credit ratings; therefore, the credit risk is limited. The accounts receivable largely represent amounts due from the Group’s customers and the concentrations of credit risk associated with the accounts receivable are considered minimal due to the Group’s diverse customer base. Majority of the customers are located in the PRC. The Group maintains allowances to cover potential bad debts and believes that no significant credit risk exists as a result of its diverse group of customers. Credit losses, when realized, have historically been within the range of management’s expectations. The other receivables comprise principally deposits and other tax receivable. The Company does not believe there is a significant credit risk from any of these counterparties as they are either major suppliers of the Group or local government authorities. The Group has reviewed the credit worthiness and financial position of its affiliate for credit risks associated with advances to these entities. This affiliate has good credit standing and the Group does not expect to incur significant loss for uncollected advances from these entities. The credit risk arising on the guarantee is low because of the credit quality of the related companies who historically have not had any event of default.

The Group does not purchase derivative instruments to manage risks.

(s) Recently Issued Accounting Pronouncements

In June 2011, the FASB issued an accounting standards update to revise the manner in which entities present comprehensive income in their financial statements. This guidance amends existing presentation and disclosure requirements concerning comprehensive income, most significantly by requiring that comprehensive income be presented with net income in a continuous financial statement, or in a separate but consecutive financial statement. Furthermore, the accounting standards update prohibits an entity from presenting other comprehensive income and losses in a statement of equity. In December 2011, the FASB issued an accounting standards update to defer the requirement for an entity to present reclassifications between other comprehensive income or loss and net income or loss. This supersedes the requirement that was originally included in the June 2011 accounting standard update. This accounting standards update (as modified) is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is evaluating the impact, if any, of the adoption of the guidance. It is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

F - 17

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(s) Recently Issued Accounting Pronouncements - continued

In December 2011, the FASB issued an accounting standard update related to disclosures about offsetting assets and liabilities. The amendments require that a company disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on its financial position. The amendments enhance current disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current accounting guidance or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current accounting guidance. The amended guidance is effective for the first fiscal quarter of 2013. The Company considered it is no impact of the adoption of the guidance of the Company’s financial position results of operations and cash flows.

On January 31, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-01, which clarifies the offsetting disclosure requirements in ASU 2011-11. Under ASU 2013-01, the disclosure requirements would apply to derivative instruments accounted for in accordance with ASC 815, including bifurcated embedded derivatives. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those years. Retrospective application is required for all comparative periods presented. The Company does not expect any significant impact on its consolidated results of operations, financial position or cash flows.

In February 2013, the FASB issued ASU 2013-02, an authoritative pronouncement related to reporting of amounts reclassified out of accumulated other comprehensive income. Under the guidance, an entity is required to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under US GAAP to be reclassified in its entirety to net income. For other amounts that are not required under US GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under US GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. The Company does not expect any significant impact on its consolidated results of operations, financial position or cash flows.

F - 18

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(s) Recently Issued Accounting Pronouncements - continued

In March 2013, the FASB issued ASU 2013-05, an authoritative pronouncement related to parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an Investment in a foreign entity. Under the guidance, the cumulative translation adjustment should be released into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. A pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of an equity method investment which is a foreign entity. The amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The Company does not expect any significant impact on its consolidated results of operations, financial position or cash flows.

On July 18, 2013, the FASB issued ASU 2013-11 in response to a consensus reached at the EITF’s June 11, 2013, meeting. ASU 2013-11 provides guidance on financial statement presentation of an unrecognized tax benefits (“UTB”) when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. Under ASU 2013-11, an entity must present a UTB, or a portion of a UTB, in the financial statements as a reduction to a deferred tax asset (“DTA”) for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when:

• An NOL carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position.

• The entity does not intend to use the DTA for this purpose (provided that the tax law permits a choice).

If either of these conditions exists, an entity should present a UTB in the financial statements as a liability and should not net the UTB with a DTA. New recurring disclosures are not required because ASU2013-11 does not affect the recognition or measurement of uncertain tax positions under ASC 740. This amendment does not affect the amounts public entities disclose in the tabular reconciliation of the total amounts of UTBs because the tabular reconciliation presents the gross amounts of UTBs. ASU 2013-11 is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. ASU 2013-11 should be applied to all UTBs that exist as of the effective date. Entities may choose to apply ASU 2013-11 retrospectively to each prior reporting period presented. The Company is required to adopt ASU 2013-11 as of January 1, 2014, and does not expect any significant impact on its consolidated results of operations, financial position or cash flows.

F - 19

HANGZHOU ZHONGCE RUBBER CO., LTD.

3. FAIR VALUE MEASUREMENT

Assets and liabilities measured on the Group’s balance sheet at fair value on a recurring basis subsequent to initial recognition consisted of the following:

			Fair Value Measurements at December 31, 2010 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Liabilities:
Guarantees to third parties		—		—		12,275		—
Total		—		—		12,275		—
			Fair Value Measurements at November 30, 2011 Using
Description	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Liabilities:
Guarantees to third parties		—		—		12,275		—
Total		—		—		12,275		—

The Group provided guarantees to third parties to secure their bank borrowing, and recorded such guarantees in other payables at the estimated fair values. Details of the guarantees please refer to Note 10.

F - 20

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

4. INVENTORIES

Inventories by major categories are summarized as follows:

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
Raw materials		1,337,775		1,335,291		209,408
Work-in-progress		157,486		171,478		26,892
Finished goods		1,728,654		2,414,078		378,590
		3,223,915		3,920,847		614,890

5. PROPERTY, PLANT AND EQUIPMENT, NET

	As of December 31,			As of November 30,
	2010			2011			2011
	Rmb			Rmb			US$
Property, plant and equipment, net consists of the following:
At cost:
Buildings		1,122,330			1,202,654			188,607
Leasehold improvement		1,350			1,350			212
Machinery and equipment		5,628,092			6,334,090			993,349
Motor vehicles		49,262			51,742			8,115
Furniture, fixtures and office equipment		657,397			762,425			119,568
Total		7,458,431			8,352,261			1,309,851
Less: Accumulated depreciation		(3,101,869	)		(3,692,371	)		(579,059	)
Construction-in-progress		789,458			1,244,695			195,200
Total		5,146,020			5,904,585			925,992

Depreciation expenses of property, plant and equipment were Rmb559,286, Rmb664,308 and Rmb628,262 (US$98,528) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

F - 21

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

6. PREPAID LAND USE RIGHTS

Amortization expenses of prepaid land use rights were Rmb5,525, Rmb6,643 and Rmb6,549 (US$1,027) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

As of December 31, 2010 and November 30, 2011, the Group had not obtained land use right certificates on certain of their prepaid land use rights with a carrying amount of Rmb2,497 and Rmb76,490 (US$11,996), respectively. As of December 31, 2010 and November 30, 2011, Hangzhou Sunrise and Fu Yang have pledged certain prepaid land use rights having an aggregate carrying amount of Rmb80,000 and Rmb70,300 (US$11,025), respectively, to secure bank loans to the Group.

7. BANK LOANS

As of December 31, 2010 and November 30, 2011, long-term bank loans of Rmb70,000 and Rmb60,300 (US$9,457) were secured by prepaid land use rights, respectively. Long-term bank loans of Rmb960,000 and Rmb900,000 (US$141,143) were guaranteed by related companies as of December 31, 2010 and November 30, 2011, respectively. Long-term bank loans of Rmb100,000 and Rmb Nil (US$ Nil) were guaranteed by a third party as of December 31, 2010 and November 30, 2011, respectively. Long-term bank loans carried annual average interest rate of 6.0% in 2010 and 4.7% for the eleven months ended November 30, 2011.

The outstanding balances of long-term bank loans as of November 30, 2011 were repayable as follows:

	Rmb		US$
2011		100,000		15,683
2012		710,300		111,393
2013		412,940		64,760
2014		71,660		11,238
		1,294,900		203,074

As of December 31, 2010 and November 30, 2011, short-term bank loans are repayable on demand or within twelve months from the balance sheet dates.

F - 22

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

7. BANK LOANS - continued

Short-term bank loans of Rmb10,000 and Rmb10,000 (US$ 1,568) were secured by prepaid land use rights as of December 31, 2010 and November 30, 2011, respectively. Also, short-term bank loans of Rmb345,000 and Rmb554,050 (US$86,889) were guaranteed by related parties as of December 31, 2010 and November 30, 2011, respectively. Short-term bank loans of Rmb497,000 and Rmb477,000 (US$74,806) were guaranteed by third parties as of December 31, 2010 and November 30, 2011, respectively. Short-term bank loans of Rmb Nil and Rmb57,018 (US$8,942) were secured by pledged notes receivable as of December 31, 2010 and November 30, 2011. The short-term bank loans carried annual average interest rate of 4.1% in 2010 and 4.6% in eleven months ended November 30, 2011.The Group has drawn down short-term bank loans of Rmb5,230,188 and Rmb6,715,741 (US$1,053,202), long-term bank loans of Rmb841,250 and Rmb253,350 (US$39,731), and repaid short-term bank loans of Rmb4,299,027 and Rmb5,493,552 (US$861,531), long-term bank loans of Rmb480,000 and Rmb439,700 (US$68,956) in 2010 and eleven months ended November 30, 2011, respectively. The Group has total banking facility of Rmb5,373,931 and Rmb7,238,619 (US$1,135,203), within which the unused banking facility is Rmb2,210,448 and Rmb3,228,744 (US$506,350) as of December 31, 2010 and November 30, 2011, respectively.

These borrowings do not contain any financial covenants.

8. BOND PAYABLE

On July 26, 2011, the Group issued a 3-year corporate bond with a par value of Rmb900,000 and interest rate of 2% (the “Bond”). The interest will be payable semi-annually in arrear falling on 4 February and 4 August in each year commencing on February 4, 2012. The direct costs including commissions, consulting fees and legal fees amounting to Rmb22,092 were recorded as a deduction of the face amount of the Bond, and amortized as interest expense over the life of the Bond.

9. INCOME TAXES

Income taxes consist of:

	As of December 31,						As of November 30,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
PRC Enterprise Income Tax (“EIT”)
Current		207,536			125,795			219,754			34,464
Deferred taxation expenses (benefit)
- Current		(25,788	)		(11,204	)		(28,138	)		(4,413	)
- Change in tax rate		—			(68,302	)		(680	)		(107	)
		181,748			46,289			190,936			29,944

F - 23

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

9. INCOME TAXES - continued

On December 16, 2008, the Company obtained a High and New Technology Enterprise certificate for a valid period of 3 years and is entitled to a preferential tax rate of 15% from 2008 to 2010. The tax concession expired by 2010. The impact on the deferred taxes resulting from the change in the enacted tax is an increase to the net deferred tax assets of Rmb68,302.

On August 7, 2009, Hangzhou Sunrise obtained a High and New Technology Enterprise certificate for a valid period of 3 years and is entitled to a preferential tax rate of 15% from 2009 to 2011. The impact on the deferred taxes resulting from change in enacted tax is Rmb680 (US$107).

Based on its analysis under ASC 740-10, the Company has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits, and has measured the unrecognized tax benefits associated with the tax positions. Based on the evaluation by the Company, it was concluded that there are no significant uncertain tax positions requiring recognition in financial statements. The Company has no material unrecognized tax benefit which would favourably affect the effective income tax rate in future periods. The Group classifies interest related to income tax matters in income tax expense. As of November 30, 2011, there is no interest related to uncertain tax positions. The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefit within the next twelve months.

According to PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined (but an underpayment of tax liability exceeding RMB0.1 million is specifically listed as a special circumstance). In the case of a related party transaction, the statute of limitations is 10 years. There is no statute of limitations in the case of tax evasion.

The reconciliation of the effective income tax rate based on profit before income taxes and noncontrolling interests stated in the consolidated statements of operations and comprehensive income to the statutory income tax rates in the PRC is as follows:

	2009			2010			2011
Tax provision at PRC enterprise income tax rates		25	%		25	%		25	%
Effect of Company’s lower income tax rate		(9	%)		(10	%)		(1	%)
Effect of change in tax rate		—			(8	%)		(1	%)
Others		(1	%)		(1	%)		—
Effective tax rate		15	%		6	%		23	%

F - 24

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

9. INCOME TAXES - continued

The tax impact of temporary differences give rise to the following deferred tax assets and liabilities are as follows:

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
Deferred tax assets:
Allowance for doubtful receivables		17,407		17,407		2,730
Warranty expenses		58,200		65,450		10,264
Accrued liabilities		92,443		129,873		20,367
Depreciation		26,789		10,387		1,629
Others		11,981		12,521		1,964
Total deferred tax assets		206,820		235,638		36,954

Net deferred tax asset is classified as follows:

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
Current
Deferred tax assets		196,103		228,233		35,793
Non-current
Deferred tax assets		10,717		7,405		1,161
Total deferred tax assets		206,820		235,638		36,954

The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible for tax purposes. The Group believes it is more-likely-than-not that the Group will realize the benefits of these deductible differences. Accordingly, no valuation allowance has currently been established. The amount of the deferred tax assets considered to be realizable, however, could be reduced in the near term if estimates of future taxable income during the tax loss carry forward periods are reduced.

F - 25

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

10. COMMITMENTS AND CONTINGENCIES

As of December 31, 2010 and November 30, 2011, the Group had outstanding capital commitments for construction of factories and purchase of equipment amounting to approximately Rmb447,457 and Rmb517,639 (US$81,179), respectively.

The Group leases certain of its warehouses under non-cancelable operating leases. Rental expense was Rmb63,505, Rmb61,705 and Rmb77,300 (US$12,123) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

Future minimum lease payments under non-cancellable operating lease agreements as of November 30, 2011 are:

	Rmb		US$
2012		45,850		7,190
2013		9,500		1,490
2014		6,250		980
2015		3,250		510
2016		3,000		470
2016 above		1,250		196
Total minimum lease payments		69,100		10,836

The Group also records an estimate of the product warranty obligation at the time of sale based on the Group’s historical experience. Changes in product warranty provision are as follows:

	2010			2011			2011
	Rmb			Rmb			US$
Balance at beginning of year		232,800			232,800			36,509
Warranties paid		(484,100	)		(677,473	)		(106,245	)
Warranty provision		484,100			706,473			110,793
Balance at end of year		232,800			261,800			41,057

In addition, the Group provided guarantees to third parties as of November 30, 2011. These guarantees are full and unconditional and would require the Group to make scheduled payments immediately if the third parties failed to do so. As of December 31, 2010 and November 30, 2011, the maximum potential future payments of the bank guarantees to be Rmb305,000 and Rmb361,250 (US$56,653), respectively. The Group estimated that the fair value of the obligations assumed under guarantees as of December 31, 2010 and November 30, 2011 to be Rmb12,275 and Rmb12,275 (US$1,925) and recognized liabilities for such amount in the consolidated financial statements.

F - 26

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

11. DISTRIBUTION OF PROFIT

(a) Dividends

The Group can declare dividends based on the profits as reported in their statutory financial statements. Such profits will be different from the amounts reported under US GAAP. The Group had an aggregate retained earnings on a consolidated basis of Rmb2,510,485 as of December 31, 2010, as reported in their statutory financial statement. There is no statutory financial statement as of November 30, 2011.

(b) Profit appropriation

In accordance with the relevant laws and regulations for Sino-foreign equity joint venture enterprises, the Company and FCJ are required to make appropriation of 5% or a higher percentage of after tax profit as prepared in accordance with accounting principles generally accepted in the PRC to non-distributable reserve funds as determined by the Board of Director of the entities. These reserves include a general reserve fund and an enterprise expansion fund. The general reserve fund is used to offset future extraordinary losses. The entities may, upon resolution passed by the shareholders, convert the general reserve fund into capital. The enterprises expansion fund is used for the expansion of the entities’ operation and can be converted to capital subject to approval by the relevant authorities. In addition, certain of the entities were granted special reserve fund by the government for specific projects carried out by the relevant PRC entities. There is no specific requirement for appropriation for Hangzhou Sunrise. All these reserve funds are included in retained earnings of the entities but can only be used for specific purpose and are not distributable as cash dividend.

Included in the retained earnings of the Group as of December 31, 2009, 2010 and November 30, 2011, was non-distributable amounts of Rmb4,273, Rmb4,273 and Rmb4,273 (US$670).

F - 27

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

12. RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

(a) Due from (to) Related Companies

Amounts due from (to) related companies are as follows:

				As of December 31,		As of November 30,
	Note			2010		2011		2011
				Rmb		Rmb		US$
Due from related companies:
- Current		(1	)		48,782		51,241		8,036
- Non-current		(2	)		8,129		6,255		981
Due to related companies:
- Current		(3	)		118,768		77,459		12,148

(1) The related companies were the subsidiaries owned by a controlling shareholder of the Company. The balances were unsecured, non-interest bearing and repayable on demand.

(2) The related companies were a shareholder of the Company, a joint venture partner of FCJ and a joint venture partner of Hangzhou Sunrise. The balances were unsecured, non-interest bearing and repayable after one year.

(3) The related companies included a shareholder of the Company, the subsidiaries owned by a shareholder of the Company and a joint venture partner of FCJ. The balances were unsecured, non-interest bearing and repayable on demand.

(b) Amount due to a shareholder

	As of December 31,		As of November 30,
	2010		2011		2011
	Rmb		Rmb		US$
Amount due to a shareholder		134		—		—

The amount due to a shareholder was unsecured, non-interest bearing and repayable on demand.

F - 28

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

12. RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - continued

(c) Transaction with Related Companies

The Group paid sub-contracting charges to a shareholder of the Company of approximately Rmb57,947, Rmb67,523 and Rmb38,617 (US$6,056) for tire processing for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Company paid rental fees to a subsidiary owned by a shareholder of the Company of approximately Rmb2,424, Rmb2,432 and Rmb2,086 (US$327) that have been reflected in the Group’s consolidated financial statements for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group paid repair charges to a subsidiary owned by a shareholder of the Company of approximately Rmb301, RmbNil and RmbNil (US$Nil) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group purchased raw materials from a shareholder of the Company totaling approximately Rmb21,198, Rmb27,865 and Rmb404 (US$63) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group purchased raw materials from subsidiaries owned by shareholders of the Company of approximately Rmb26,353, Rmb52,021 and Rmb22,889 (US$3,590) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded sales to a shareholder of the Company of approximately Rmb136, Rmb1 and RmbNil (US$Nil) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded sales to subsidiaries owned by shareholders of the Company of approximately Rmb60,377, Rmb86,683 and Rmb83,419 (US$13,082) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded repair income from a shareholder of the Company of approximately Rmb552, RmbNil and RmbNil (US$Nil) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded repair income from a subsidiary owned by a shareholder of the Company of approximately RmbNil, Rmb659 and Rmb979 (US$154) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded sales of scrap to a subsidiary owned by a shareholder of the Company of approximately Rmb2,051, RmbNil and Rmb2,204 (US$346) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

F - 29

HANGZHOU ZHONGCE RUBBER CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued

(Amounts in thousands unless otherwise stated)

12. RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - continued

(c) Transaction with Related Companies - continued

The Group recorded sales of raw materials to a shareholder of the Company of approximately Rmb8,002, RmbNil and RmbNil (US$Nil) for years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

The Group recorded sales of raw materials to subsidiaries owned by shareholders of the Company of approximately Rmb95,002, Rmb85,124 and Rmb91,410 (US$14,335) for years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

13. STAFF RETIREMENT PLANS

All of the employees of the Group located in People’s Republic of China are entitled to an annual pension on retirement, which is equal to their ending basic salaries determined by the Chinese government at their retirement dates. The Chinese government is responsible for the pension liabilities to these retired employees. The Group is only required to make specified contributions to the state-sponsored retirement plan calculated at rates ranging from 12% to 20% of basic monthly salaries for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011. The expenses reported in the consolidated statements of operations and comprehensive income related to these arrangements were Rmb71,738, Rmb81,315 and Rmb90,890 (US$14,254) for the years ended December 31, 2009, 2010 and eleven months ended November 30, 2011, respectively.

***********

F - 30

CHINA ENTERPRISES LIMITED

Reports of Independent Registered Public Accounting Firm and Consolidated Financial Statements
For the years ended December 31, 2009, 2010 and 2011

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CHINA ENTERPRISES LIMITED

Report of Independent Registered Public Accounting Firm	FF-1
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended December 31, 2009, 2010 and 2011	FF-2
Consolidated Balance Sheets as of December 31, 2010 and 2011	FF-3
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended December  31, 2009, 2010 and 2011	FF-4
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2010 and 2011	FF-5
Notes to Consolidated Financial Statements	FF-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

CHINA ENTERPRISES LIMITED

We have audited the accompanying consolidated balance sheets of China Enterprises Limited (the “Company”) and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and subsidiaries as of December 31, 2011 and 2010 and the consolidated results of their operations and cash flows for each of the years in the three-year period ended December 31, 2011 in conformity with U.S. generally accepted accounting principles.

Our audits also included the translation of Renminbi (RMB) amounts into United States dollar (US$) amounts and, in our opinion, such translation, where provided, has been made in conformity with the basis stated in Note 2(h) to the consolidated financial statements. Such United States dollar amounts are presented for the convenience of the readers.

/s/ Crowe Horwath (HK) CPA Limited

Hong Kong, China

October 28, 2014

FF - 1

CHINA ENTERPRISES LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except number of shares and per share data)

	Year ended December 31,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
Operating activities
General and administrative expenses		(2,819	)		(3,316	)		(4,186	)		(665	)
Non-operating income (expenses):
Interest income		3,291			3,379			1,471			234
Interest expense		(4,493	)		(3,299	)		(2,239	)		(356	)
Investment income		6,062			5,989			—			—
Net realized (loss) gain recognized on investments		(780	)		(1,287	)		4,393			698
Unrealized gain (loss) on trading securities still held at the balance sheet date		15,483			(3,555	)		(27,063	)		(4,300	)
Change in fair value of conversion option (note 7)		72			(185	)		—			—
Impairment loss recognized on available-for-sale securities		—			(6,015	)		(2,281	)		(362	)
Loss on disposal of an affiliate (note 3)		—			—			(364,480	)		(57,910	)
Administrative charges on investment (note 8)		—			—			(7,500	)		(1,192	)
Others (note 14(a))		—			—			744			118
Exchange gain (loss)		530			1,345			(114	)		(18	)
Profit (loss) before income tax and equity in earnings of equity method affiliates		17,346			(6,944	)		(401,255	)		(63,753	)
Income tax expense (note 9)		(25,512	)		(15,194	)		(31,411	)		(4,991	)
Equity in earnings of equity method affiliates (note 6)		255,117			190,167			157,711			25,058
Net income (loss)		246,951			168,029			(274,955	)		(43,686	)
Earnings (loss) per common share
Basic and diluted		27.39			18.63			(30.49	)		(4.84	)
Weighted average number of shares used in the calculation of earnings (loss) per common share
Basic and diluted		9,017,310			9,017,310			9,017,310			9,017,310

See accompanying notes to consolidated financial statements.

FF - 2

CHINA ENTERPRISES LIMITED

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except number of shares and their par values)

	As of December 31,
	2010			2011			2011
	Rmb			Rmb			US$
ASSETS
Current assets:
Cash and cash equivalents		87			523,594			83,191
Notes receivable (note 4)		—			—			—
Prepaid expenses and other current assets		161			284			45
Other receivables (note 4)		—			15,465			2,457
Due from related parties (note 14)		24,093			14,698			2,336
Trading securities (note 5)		54,821			25,634			4,073
Convertible note receivable (note 7)		51,764			—			—
Total current assets		130,926			579,675			92,102
Investments in and advances to equity method affiliates (Less allowance of Rmb7,601 in 2010) (note 6)		838,634			—			—
Deposits paid for acquisition of investments (note 8)		75,000			127,278			20,222
Available-for-sale securities (note 5)		31,511			14,213			2,258
Other assets		6			6			1
Total assets		1,076,077			721,172			114,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Due to related parties (note 14)		93,756			72,673			11,547
Amounts due to securities brokers (note 15)		23,961			19,776			3,142
Other payables		667			204			32
Accrued liabilities		5,815			5,285			840
Other taxes payable		2,753			2,753			438
Income taxes payable		23,484			22,729			3,611
Total current liabilities		150,436			123,420			19,610
Deferred tax liability (note 9)		48,074			—			—
Total liabilities		198,510			123,420			19,610
Commitments and contingencies (note 12)
Shareholders’ equity:
Common stock—par value US$0.01 per share (50,000,000 shares authorized; 9,017,310 shares issued and outstanding at December 31, 2010 and December 31, 2011)(note 10)		770			770			122
Additional paid-in capital		1,000,958			1,000,958			159,036
Accumulated other comprehensive losses		(11,585	)		(16,445	)		(2,613	)
Accumulated deficit		(112,576	)		(387,531	)		(61,572	)
Total shareholders’ equity		877,567			597,752			94,973
Total liabilities and shareholders’ equity		1,076,077			721,172			114,583

See accompanying notes to consolidated financial statements.

FF - 3

CHINA ENTERPRISES LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

(Amounts in thousands, except number of shares)

											Accumulated
											other
											compre-
	Supervoting				Supervoting				Additional		hensive									Compre-
	common		Common		common		Common		paid-in		(losses)			Accumulated						hensive
	stock		stock		stock		stock		capital		income			deficit			Total			income
	Number		Number		Rmb		Rmb		Rmb		Rmb			Rmb			Rmb			Rmb
Balance at January 1, 2009		—		9,017,310		—		770		1,000,958		(15,367	)		(527,556	)		458,805
Net income		—		—		—		—		—		—			246,951			246,951			246,951
Foreign currency translation adjustment		—		—		—		—		—		(174	)		—			(174	)		(174	)
Unrealized loss on available-for-sale securities		—		—		—		—		—		(171	)		—			(171	)		(171	)
Balance at December 31, 2009		—		9,017,310		—		770		1,000,958		(15,712	)		(280,605	)		705,411			246,606
Net income		—		—		—		—		—		—			168,029			168,029			168,029
Foreign currency translation adjustment		—		—		—		—		—		(1,023	)		—			(1,023	)		(1,023	)
Unrealized loss on available-for-sale securities		—		—		—		—		—		(865	)		—			(865	)		(865	)
Impairment loss on available-for-sale securities		—		—		—		—		—		6,015			—			6,015			6,015
Balance at December 31, 2010		—		9,017,310		—		770		1,000,958		(11,585	)		(112,576	)		877,567			172,156
Net loss		—		—		—		—		—		—			(274,955	)		(274,955	)		(274,955	)
Foreign currency translation adjustment		—		—		—		—		—		119			—			119			119
Reclassification adjustments relating to available-for-sale investments disposed of during the year		—		—		—		—		—		(4,979	)		—			(4,979	)		(4,979	)
Unrealized loss on available-for-sale securities		—		—		—		—		—		(2,281	)		—			(2,281	)		(2,281	)
Impairment loss on available-for-sale securities		—		—		—		—		—		2,281			—			2,281			2,281
Balance at December 31, 2011		—		9,017,310		—		770		1,000,958		(16,445	)		(387,531	)		597,752			(279,815	)
Balance at December 31, 2011 (in US$)						—		122		159,036		(2,613	)		(61,572	)		94,973			(44,458	)

See accompanying notes to consolidated financial statements.

FF - 4

CHINA ENTERPRISES LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year ended December 31,
	2009			2010			2011			2011
	Rmb			Rmb			Rmb			US$
Cash flows from operating activities:
Net income (loss)		246,951			168,029			(274,955	)		(43,686	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net realized loss (gain) recognized on investments		780			1,287			(4,393	)		(698	)
Unrealized (gain) loss on trading securities still held at the balance sheet date		(15,483	)		3,555			27,063			4,300
Impairment loss on available-for-sale securities		—			6,015			2,281			362
Loss on disposal of an affiliate		—			—			364,480			57,910
Administrative charges on investment		—			—			7,500			1,192
Others		—			—			(744	)		(118	)
Change in fair value of conversion option		(72	)		185			—			—
Equity in earnings of equity method affiliates		(255,117	)		(190,167	)		(157,711	)		(25,058	)
Amortization of discount on subscription of convertible note receivable		(3,275	)		(3,379	)		(1,471	)		(234	)
Interest income collected on convertible note		1,110			1,097			458			73
Interest income from note receivable and related party receivable		(16	)		—			—			—
Deferred tax		25,512			19,017			15,771			2,506
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(789	)		804			(123	)		(20	)
Other payables		(15,668	)		(429	)		(463	)		(74	)
Accrued liabilities		(1,141	)		1,292			(530	)		(84	)
Income taxes payable		—			—			(24,360	)		(3,870	)
Net cash (used in) provided by operating activities		(17,208	)		7,306			(47,197	)		(7,499	)
Cash flows from investing activities:
Advances to an unrelated party		—			—			(15,465	)		(2,457	)
Decrease in due from related parties		27,648			6,155			1,595			254
Purchases of trading securities		(9,946	)		(165	)		(3	)		(1	)
Proceeds from trading securities		11,229			3,215			693			110
Increase in amounts due to securities brokers		(11,278	)		(4,879	)		(4,185	)		(665	)
Proceeds from available-for-sale securities		1,326			—			13,118			2,084
Proceeds from disposal of an affiliate (note 3)		—			—			592,380			94,120
Net cash provided by investing activities		18,979			4,326			588,133			93,445
Cash flows used in financing activities:
Changes in due to related parties		(1,191	)		(13,282	)		(16,932	)		(2,690	)
Net cash used in financing activities		(1,191	)		(13,282	)		(16,932	)		(2,690	)
Effect of exchange rate change		(471	)		1,508			(497	)		(79	)
Net increase (decrease) in cash and cash equivalents		109			(142	)		523,507			83,177
Cash and cash equivalents, beginning of year		120			229			87			14
Cash and cash equivalents, end of year		229			87			523,594			83,191
Supplemental schedule of cash flow information:
Income taxes paid (note 3)		—			—			40,000			6,355
Interest paid		4,493			3,299			2,239			356
Non-cash investing and financing activities:
Deposits paid for new investment through settlement of Convertible Notes and accrued interest and refund of investment deposit (note 8)		—			—			127,278			20,222
Settlement of notes receivable and other payables (note 4)		20,523			—			—			—
Income tax on disposal of HZ borne by an independent party (note 3)		—			—			39,485			6,274
Disposal of an affiliate (note 3)

See accompanying notes to consolidated financial statements.

FF - 5

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

China Enterprises Limited (the “Company”) was incorporated in Bermuda on January 28, 1993. Its common stock trades on the OTC (Over-the-Counter) Securities Market in the United States of America (the “US”).

China Strategic Holdings Limited (“CSH”), a public company listed on The Stock Exchange of Hong Kong Limited (the “HKSE”), was the Company’s ultimate parent company before its completion of a group reorganization in May 2006 following which the Company became a wholly-owned subsidiary of Group Dragon Investments Limited (“GDI”), a then equity method affiliate of Hanny Holdings Limited (“Hanny”), a public company listed on the HKSE. In June 2006, Hanny acquired a controlling interest in GDI and became the parent company. On December 8, 2006, Hanny became a subsidiary of ITC Corporation Limited (“ITC”), a public company listed on HKSE and, as a result, ITC became the ultimate parent company. On May 18, 2007, Hanny ceased to be a subsidiary of ITC and Hanny became the ultimate parent company until 2008 when Hanny reduced its equity interest in the Company. Following the completion of the distribution of its Hanny shares to its shareholders in November 2010, ITC’s interests in Hanny dropped from 42% to 0.1%. As of December 31, 2011, Hanny held a 28.95% equity interest in the Company. There have been no further changes in the Company’s ownership status.

The accompanying financial statements include the financial statements of the Company and its wholly owned subsidiaries which primarily consist of Million Good Limited (“Million Good”, incorporated in the British Virgin Islands, “BVI”, principally engaged in investment holding), Wealth Faith Limited (“Wealth Faith”, incorporated in the BVI, principally engaged in investment holding), Cosmos Regent Limited (“Cosmos Regent”, incorporated in the BVI, principally engaged in investment holding), Cyber Generation Limited (“Cyber Generation”, incorporated in the BVI, principally engaged in investment holding) and Whole Good Limited (“Whole Good”, incorporated in the BVI, principally engaged in investment holding). The Company and all of its subsidiaries are collectively referred to as the “Group”.

As of December 31, 2010, the Company also had a 26% equity interest in Hangzhou Zhongce Rubber Co., Limited (“HZ”, located in Hangzhou, Zhejiang Province, the PRC). HZ and its consolidated subsidiaries (the “PRC entities”) are engaged in the manufacture of rubber tires in the PRC.

On November 28, 2011, the Company sold all of its ownership interests in HZ to CZ Tire Holdings Limited, an independent third party company incorporated in the British Virgin Islands (note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

FF - 6

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(a) Basis of Presentation - continued

Certain amounts included in the 2010 financial statements have been reclassified to conform to the 2011 financial statement presentation. In presenting the 2010 consolidated balance sheet, convertible note receivable of Rmb51,764 was included as non-current assets. The Company has reclassified this as current assets. As a result of reclassification, the amount of the current assets of December 31, 2010 has changed from Rmb79,162 to Rmb130,926.

(b) Basis of Consolidation

The Company consolidates all entities in which it is the primary beneficiary of variable interests in variable interest entities and entities in which it has a controlling financial interest. The Company did not have a variable interest in any variable interest entity during the periods presented.

The consolidated financial statements include the assets, liabilities, revenue and expenses of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.

(c) Equity Method Investments in Affiliates

Investments in 50% or less owned companies over which the Company exercises significant influence but not control, are accounted for using the equity method. Under the equity method, the Company’s proportionate share of the affiliate’s net income or loss is included in the consolidated statements of operations.

Investment in equity method affiliates is accounted for under the equity method, under which the amount of the investment is recorded at cost, with adjustments to recognize the Group’s share of the earnings or losses of the unconsolidated subsidiaries from the date of acquisition. The amount recorded in income is adjusted to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between the Group’s cost and the underlying equity in net assets of the affiliate at the date of investment. The investment amount is also adjusted to reflect the Group’s share of changes in the equity method affiliates’ capital. Dividends received from the unconsolidated subsidiaries reduce the carrying amount of the investment.

(d) Cash and Cash Equivalents

The Company considers cash on hand, demand deposits with banks with original maturities of three months or less when purchased to be cash and cash equivalents.

(e) Trading Securities

Trading securities refer to equity securities that are bought and held principally for the purpose of selling them in the near term, and are reported at fair value, with unrealized gains and losses included in earnings. The fair value of the Company’s investments in trading securities is based on the quoted market price on the last business day of the fiscal year.

FF - 7

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(f) Available-for-sale Securities

Available-for-sale securities consist of quoted equity securities that are not designated as trading securities. They are held at fair value with unrealized gains and losses, net of tax, reported in accumulated other comprehensive gain or losses. Any unrealized losses that are deemed other-than-temporary are included in current period earnings and removed from accumulated other comprehensive gain or losses.

Realized gains and losses on investment securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each investment sold is generally based on the average cost method.

The Company regularly evaluates whether the decline in fair value of available-for-sale securities is other-than-temporary and objective evidence of impairment could include:

• The severity and duration of the fair value decline;

• Deterioration in the financial condition of the issuer; and

• Evaluation of the factors that could cause individual securities to have an other-than-temporary impairment.

During the years ended December 31, 2010 and 2011, Rmb6,015 and Rmb2,281 of losses previously classified in other comprehensive gain or losses were reclassified into earnings to recognize an other-than-temporary decline in fair value. No such other-than-temporary decline in fair value was recognized during the year ended December 31, 2009.

(g) Income Taxes

Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements and unutilized tax loss carry forwards by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities.

The Company adopted ASC Topic 740, Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

FF - 8

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(h) Foreign Currencies

The functional currency of the Company and its Hong Kong domiciled subsidiaries is Hong Kong dollars. The Company has elected Renminbi as its reporting currency.

Foreign currency transactions are translated into the functional currencies of the Company and its subsidiaries at the applicable exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into functional currencies using the applicable exchange rates prevailing at the respective balance sheet dates. Exchange differences are included in the consolidated statements of operations.

Assets and liabilities of the Company and its subsidiaries domiciled in Hong Kong have been translated into Renminbi at the rates of exchange prevailing at the balance sheet dates and all income and expense items are translated into Renminbi at the average rates of exchange over the year. Exchange differences resulting from the translation have been recorded as a component of comprehensive losses.

The translation of Renminbi amounts into US$ amounts are included solely for the convenience of readers and have been made at US$1.00 = Rmb6.2939, the noon buying rate from the Federal Reserve Bank of New York on December 31, 2011. No representation is made that the Renminbi amounts could have been, or could be, converted into United States dollar at that rate or at any other rate.

(i) Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the year. The Company did not have dilutive potential common shares during fiscal 2009, 2010 and 2011.

(j) Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the years presented. Actual results may differ from those estimates. Significant estimates in these financial statements that are susceptible to change as more information becomes available are collectability of receivables, impairment of deposits paid for acquisition of investments and available-for-sale securities, valuation of derivative instruments and valuation allowances for deferred tax assets.

FF - 9

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(k) Financial Instruments

The Company recognizes all derivative instruments on the balance sheet at fair value with changes in fair values reported in the consolidated statements of operations.

The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of its cash and cash equivalents, advances to affiliates, notes receivable, amounts due from related parties and convertible note receivables. The Company has reviewed the credit worthiness and financial position of its related parties for credit risks associated with amounts due from them. These entities have good credit standing and the Company does not expect to incur significant losses for uncollected advances from these entities.

(l) Comprehensive Income

Comprehensive income represents changes in equity resulting from transactions and other events and circumstances from non-owner sources. Comprehensive income consists of net income (loss) and the foreign exchange differences arising from translation to the reporting currency and unrealized gains and losses on available-for-sale securities.

(m) Recently Issued Accounting Pronouncements

In January 2011, the FASB issued ASU No. 2011-02- Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this update provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. Early application is permitted. The adoption of the provisions in ASU 2011-02 will have no material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04 – Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this update intend to converge requirements for how to measure fair value and for disclosing information about fair value measurements in US GAAP with International Financial Reporting Standards. For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of the provisions in ASU 2011-04 will have no material impact on the Company’s consolidated financial statements.

FF - 10

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(m) Recently Issued Accounting Pronouncements - continued

In June 2011, the FASB issued ASU No. 2011-05 – Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this update require (i) that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements (the current option to present components of other comprehensive income (“OCI”) as part of the statement of changes in shareholders’ equity is eliminated) and (ii) presentation of reclassification adjustments from OCI to net income on the face of the financial statements. For public entities, the amendments in this ASU are effective for years, and interim periods within those years, beginning after December 15, 2011. The amendments in this update should be applied retrospectively. Because the Company currently presents comprehensive income within the consolidated statements of changes of equity and therefore, it is expected this ASU adoption would change the presentation of comprehensive income in the Company’s consolidated financial statements. The adoption of its guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-12 — Comprehensive Income (Topic 220). The amendments in this update supersede certain pending paragraphs in ASU No. 2011-05, to effectively defer only those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. The amendments in this update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not expect the adoption of the provisions in this update will have a significant impact on its consolidated financial statements.

In December 2011, the FASB issued an update regarding disclosure about offsetting assets and liabilities: The amendments in this update are intended to enhance disclosures required by US GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with applicable accounting guidance, or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with applicable accounting guidance. This information is intended to enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position, including the effect or potential effect of rights of setoff associated with certain financial instruments and derivative instruments in the scope of this update. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of this update is not expected to have a significant effect on the Company’s consolidated financial statements.

FF - 11

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(m) Recently Issued Accounting Pronouncements - continued

In July 2012, the FASB issued ASU 2012-02 “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.” This ASU simplifies how entities test indefinite-lived intangible assets for impairment to improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012; early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In February 2013, the FASB issued Accounting Standards Update No. 2013-02 Comprehensive Income (Topic 220): The objective of this update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this update seek to attain that objective by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account (for example, inventory) instead of directly to income or expense in the same reporting period. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company does not expect the adoption of the provisions in this update will have a significant impact on its consolidated financial statements.

FF - 12

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(m) Recently Issued Accounting Pronouncements - continued

In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters, (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”, to resolve a diversity in accounting for the cumulative translation adjustment of foreign currency upon derecognition of a foreign subsidiary or group of assets. This ASU requires the parent to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Further, this ASU clarified that the parent should apply the guidance in subtopic 810-10 if there is a sale of an investment in a foreign entity, including both (1) events that result in the loss of a controlling financial interest in a foreign entity and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. The provisions in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Income Taxes (Topic 740)”. The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or tax credit carryforward exists. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The Company does not expect ASU 2013-11 to have a significant impact on its consolidated financial statements.

FF - 13

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

(m) Recently Issued Accounting Pronouncements - continued

In April 2014, the FASB issued ASU 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360)—Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal that “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The standard is required to be adopted by public business entities in annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. Entities may “early adopt” the guidance for new disposals. The Company does not expect ASU 2014-08 to have a significant impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” which clarifies and improves the principles for recognizing revenue and develops a common revenue standard for United States generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) that among other things, improves comparability of revenue recognition practices and provides more useful information to users of financial statements through improved disclosure requirements. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company does not expect ASU 2014-09 to have a significant impact on its revenue recognition.

In June 2014, the FASB issued ASU 2014-12, “Compensation—Stock Compensation (Topic 718)” which provides explicit guidance on the treatment of awards with performance targets that could be achieved after the requisite service period. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company does not expect that the adoption will have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

FF - 14

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

3. DISPOSAL OF AN AFFILIATE

On November 28, 2011, the Company sold all of its ownership interests in HZ to CZ Tire Holdings Limited, an independent third party company incorporated in the British Virgin Islands, for cash consideration of Rmb600,000 or approximately US$95,330. The Company is subject to the PRC EIT on the taxable gain arising from the disposal of HZ (notes 6 and 9) at a statutory rate of 10%. As such, the Company is required to pay an income tax of Rmb79,485 on the disposal of HZ. According to the disposal agreement, CZ Tire Holdings Limited bore the difference of the tax payment in excess of Rmb40,000 or approximately US$6,355.

The proceeds, net of expenses, were fully settled on November 28, 2011.

A loss on disposal of Rmb364,480 was recognized which was the difference between the consideration and the net book value of HZ’s consolidated net assets at the date of disposal summarized in the table below:

	Rmb’000
Current assets		8,859,419
Non-current assets		6,393,798
Current liabilities		8,953,480
Non-current liabilities		2,101,789
Total equity, excluding non-controlling interests		3,832,622
Company’s net equity interest		26%
Investments in equity method affiliates		996,345
Net consideration received		(592,380	)
Income tax payment borne by CZ Tire Holdings Limited		(39,485	)
Loss on disposal		364,480

FF - 15

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

4. NOTES RECEIVABLE AND OTHER RECEIVABLES

a) The notes, carrying interest at commercial rates, were unsecured and receivable from an unrelated party. During 2009, the Company instructed the debtor to fully settle the notes receivable by directly paying off the Company’s other payables.

b) Other receivables mainly as of December 31, 2011 represented a short-term advance to an independent third party company which was unsecured, non-interest bearing and had no fixed repayment terms. The amount was settled in full in December 2013.

5. INVESTMENTS

	2010			2011			2011
	Rmb			Rmb			US$
Trading securities:
Equity securities listed in Hong Kong		38,846			16,557			2,631
Equity securities listed in Singapore		15,975			9,077			1,442
Total		54,821			25,634			4,073
Available-for-sale securities:
Equity securities listed in Hong Kong		31,511			14,213			2,258
	2010			2011			2011
	Rmb			Rmb			US$
Trading securities:
Adjusted cost		117,600			110,667			17,583
Unrealized gains		16,016			876			139
Unrealized losses		(78,795	)		(85,909	)		(13,649	)
Total at fair value		54,821			25,634			4,073
Available-for-sale securities:
Cost		97,872			65,142			10,350
Impairment recognized in earnings		(71,511	)		(50,929	)		(8,092	)
Adjusted amortized cost		26,361			14,213			2,258
Unrealized gains		5,150			—			—
Unrealized losses		—			—			—
Total at fair value		31,511			14,213			2,258

FF - 16

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

5. INVESTMENTS - continued

As of December 31, 2011, the Company considers the declines in market value of one of its marketable securities in its investment portfolio to be other than temporary in nature and considers this investment other-than-temporarily impaired. Fair values were determined using closing prices of each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. During 2009, 2010 and 2011, the Company recognized impairment charges of Nil, Rmb6,015 and Rmb2,281, respectively.

6. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD AFFILIATES

	2010			2011		2011
	Rmb			Rmb		US$
Investments in equity method affiliates		838,500			—		—
Advances to equity method affiliates		7,735			—		—
Total		846,235			—		—
Less: Allowance for advances to equity method affiliate		(7,601	)		—		—
		838,634			—		—

As of December 31, 2010, the Company had a 26% equity interest in Hangzhou Zhongce Rubber Co., Limited (“HZ”, located in Hangzhou, Zhejiang Province, the PRC). HZ and its consolidated subsidiaries (the “PRC entities”) are engaged in the manufacture of rubber tires in the PRC.

On November 28, 2011, the Company sold all of its ownership interests in HZ to CZ Tire Holdings Limited, an independent third party company incorporated in the British Virgin Islands (note 3).

The advances to the affiliate were interest free and the Group would not demand repayment within one year from the respective balance sheet date and the amount was therefore considered non-current.

FF - 17

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

6. INVESTMENTS IN AND ADVANCES TO EQUITY METHOD AFFILIATES - continued

Summarized financial information of HZ:

	2010
	Rmb’000
Current assets		6,087,063
Non-current assets		5,709,195
Current liabilities		6,840,021
Non-current liabilities		1,395,616
Total equity, excluding non-controlling interests		3,226,040
Company’s share of net assets of HZ		838,634

	2010		2011*		2011*
	Rmb’000		Rmb’000		US$’000
Revenues		20,258,466		23,959,478		3,806,778
Net income and comprehensive income attributable to shareholders of HZ		731,411		606,582		96,376
Company’s share of net income of HZ		190,167		157,711		25,058

* Up to the date of disposal.

7. CONVERTIBLE NOTE RECEIVABLE

On March 23, 2006, Rosedale Hotel Holdings Limited (“Rosedale”) entered into a subscription agreement with the Company and other subscribers for 2% convertible exchangeable notes (the “Convertible Notes”) with an aggregate principal amount of HK$1,000,000. The Company and other subscribers agreed to subscribe for the Convertible Notes in exchange for cash in the principal amount of HK$300,000 and HK$700,000, respectively.

The initial conversion price of the Convertible Note was HK$0.79 per share, subject to anti-dilutive adjustments. In July 2008, the conversion price was reduced from HK$0.79 per share to HK$0.339 per share as a result of rights issued by Rosedale. Unless previously converted or lapsed or redeemed by Rosedale, Rosedale will redeem the Notes on the fifth anniversary from the date of issue of the Notes (i.e. June 7, 2011, the “Maturity Date”) at the redemption amount which is 110% of the principal amount of the Notes outstanding.

FF - 18

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

7. CONVERTIBLE NOTE RECEIVABLE - continued

The Company shall have the right to convert, on any business day commencing from the 7th day after the date of issue of the Convertible Note up to and including the date which is 7 days prior to the Maturity Date, the whole or any part (in an amount or integral multiple of HK$1,000) of the principal amount of the Convertible Note into shares of Rosedale at the then prevailing conversion price. Had the Company’s Convertible Notes been converted into new shares of Rosedale in full as of December 31, 2009 and 2010, the equity ownership percentage held by the Company in Rosedale would change from 10.72% to 10.59% and 8.90% to 9.64% respectively.

Subject to certain restrictions which are intended to facilitate compliance with relevant rules and regulations, each noteholder shall have the right to exchange from time to time all or part (in the amount of HK$10,000 or integral multiples thereof) of 50% of the initial principal amount of its Convertible Notes for shares in the share capital of any company which is an affiliated company of Rosedale as defined in the Rules Governing the Listing of Securities on the HKSE or subsidiary of Rosedale that is to be listed on a stock exchange through an initial public offering at the price (the “Spin-off Shares”), subject to anti-dilutive adjustments, at which the Spin-off Shares are actually issued to the public at the time of the listing on that stock exchange. The decision on whether to list any of its affiliated companies or subsidiaries in the future is at the sole discretion of the directors of Rosedale.

The subscription of the Convertible Notes by the Company was completed on June 8, 2006 which resulted in a payment by its then intermediate holding company, GDI, on behalf of the Company, of Rmb205,049, with the remainder of Rmb104,071 being offset by an advance previously made to Rosedale.

The Company exercised certain of its conversion rights in the principal amount of HK$158,000 (equivalent to approximately Rmb148,916) and HK$79,000 (equivalent to approximately Rmb74,458) in June 2007 and July 2007, respectively, under the terms of the Convertible Notes. No Convertible Notes were converted during the years ended December 31, 2009, 2010 and 2011.

Pursuant to the instrument constituting the Convertible Notes, the conversion price should be adjusted from HK$0.339 to HK$0.337 (the “2009 Adjustment”) as a result of completion of the placing of 1,800 million shares as announced by Rosedale on August 4, 2009. Since the 2009 Adjustment was less than 3% of the then prevailing conversion price of HK$0.339, pursuant to the terms of the Convertible Notes, the 2009 Adjustment did not take effect but would be carried forward and be taken into account in the next subsequent adjustment.

On February 2, 2010, Rosedale had completed a capital reorganization which involved, among others, consolidation of every 20 of its then issued shares of HK$0.01 each into 1 issued consolidated share of HK$0.20 each. Consequently, the conversion price of the Convertible Notes was adjusted from HK$0.339 to HK$6.780 with effect from February 1, 2010.

FF - 19

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

7. CONVERTIBLE NOTE RECEIVABLE - continued

In accordance with Derivative and Hedging Topic of the FASB Accounting Standards Codification Topic 815 (“ASC 815”), the conversion option element of the Convertible Notes represents an embedded derivative instrument which must be accounted for separately from the Convertible Notes and, as such, to be measured at fair value when initially recorded and at subsequent reporting dates. The debt element of the Convertible Notes was also measured at fair value initially and subsequently at amortized cost with an effective interest rate of 6.5%. The fair value of the conversion option was estimated using the Black-Scholes option pricing model at the date of its issuance and at each subsequent balance sheet date. The impact of changes in fair value of this conversion option, taking into account the portion of the conversion option exercised during fiscal 2009 and 2010, was a gain of Rmb72 and a loss of Rmb185 which have been recognized in the consolidated statements of operations for 2009 and 2010, respectively. No changes in fair value of conversion option were recognized in the consolidated statement of operations for 2011.

The assumptions adopted for the valuation of the conversion option as of December 31, 2010 under the Black-Scholes model are as follows:

	December 31, 2010
Risk-free interest rate (by reference to the yield of Hong Kong Exchange Fund Bills & Notes)		0.30	%
Expected volatility (estimated by the average annualized standard deviations of the continuously compounded rates of return on the Company’s share prices)		37.98	%
Expected life (in years)		0.43
Expected dividend yield (per annum)		0	%
Share price of Rosedale as of December 31, 2010	HK$	0.470
Fair Value:
Conversion feature (Rmb)		—

Convertible note receivable consists of:

	2010
	Rmb
Debt element		51,764
Embedded derivative instrument		—
		51,764

On June 7, 2011, the maturity date of the Convertible Notes, Convertible Notes in the amount of HK$63,000 remained outstanding. All such Convertible Notes, together with accrued interest of HK$10,800, totaled Rmb59,778, were subsequently fully settled (note 8).

As of December 31, 2011, the Company held a total of 7.40% equity interest of Rosedale, of which 43,325,554 shares and 5,334,860 shares were recorded as available-for-sale securities and trading securities respectively.

FF - 20

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

8. DEPOSIT PAID FOR ACQUISITION OF INVESTMENTS

a) On April 15, 2008, Wealth Faith, a direct, wholly owned subsidiary, entered into a Memorandum of Understanding (“MOU”) with a third party for the acquisition of a 10% equity ownership interest in Always Rich Resources Inc. (“Always Rich”), an unrelated investment holding company. Always Rich indirectly holds a partial interest in a property under development and a parcel of land situated in Guangzhou, the PRC.

The total consideration for the acquisition of the interest in Always Rich was Rmb150,000. A deposit of Rmb75,000 was paid to a third party vendor on April 24, 2008.

On June 30, 2011, the MOU lapsed. The deposit of Rmb67,500 was refunded to the Company. Rmb7,500 was charged by the third party as an administrative fee and recorded as an expense of the Company for the year ended December 31, 2011.

b) On June 1, 2011, the Company, through Wealth Faith, entered into a Memorandum of Understanding under which Wealth Faith will acquire an equity interest from a third party in an investment holding company with the intention of jointly operating a golf and hotel complex in the PRC. Under the Memorandum of Understanding, refundable deposits amounting to HK$154,800 or Rmb127,278 have been paid to the third party. The deposits were funded by the settlement of the Convertible Notes of Rosedale and accrued interest that totaled HK$73,800 or Rmb59,778 (note 7) and a refund of deposits paid for acquisition of a property investment company of Rmb67,500 (see (a) above).

On September 28, 2012, the Company entered into a definitive investment agreement (the “Agreement”) with a third party vendor. The Agreement provides for the purchase by Wealth Faith Limited of 40% of the equity interest in Million Cube Limited (“Million Cube”), a company incorporated in BVI from the third party vendor at a consideration of HK$200,000 or approximately US$25,600. The Company, through Wealth Faith, has previously deposited HK$154,800 or Rmb127,278 in earnest money with the third party vendor, which will be applied toward the purchase price. According to the Agreement, the earnest money is refundable in full, without interest, within one month from the date of the receipt of a written notice from the Company should the Company is not satisfied. At the date of these financial statements, this transaction is not yet completed. The closing of the transaction is subject to, among other things, the Company and Wealth Faith Limited satisfactorily completing due diligence and the receipt of all necessary governmental and other consents. The parties to the transaction anticipate that the transaction will close sometime in the fourth quarter of 2014.

FF - 21

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

8. DEPOSIT PAID FOR ACQUISITION OF INVESTMENTS - continued

(b) (Continued)

Business of Million Cube

Effective on May 31, 2012, Million Cube acquired from ITC Properties Group Limited, a company incorporated in Bermuda and listed on the HKSE (“ITC Properties”), effectively a 45% equity interest of Paragon Winner Company Limited (“Paragon”). Paragon was incorporated in the BVI and engages in the development and operation of a hotel and golf resort, ie Sanya Sun Valley Golf Resort in Yalong Bay, Sanya City, PRC. ITC Properties retained effectively a 55% equity interest in Paragon and accounted for Paragon as its jointly controlled entity, and reduced to 36.5% in February 2014 and to 11% in April 2014. According to the 2014 annual report of ITC Properties, ITC held a 30% equity interest in ITC Properties as of the latest date (ie June 25, 2014) and the chairman of ITC Properties is also the chairman and a director of Rosedale (note 14).

9. INCOME TAXES

The components of profit (loss) from operations before income taxes and equity in earnings of equity method affiliates are as follows:

	Year ended December 31,
	2009		2010			2011			2011
	Rmb		Rmb			Rmb			US$
The PRC		—		—			(371,980	)		(59,102	)
All other jurisdictions		17,346		(6,944	)		(29,275	)		(4,651	)
		17,346		(6,944	)		(401,255	)		(63,753	)

Income taxes expense consists of:

	Year ended December 31,
	2009		2010			2011		2011
	Rmb		Rmb			Rmb		US$
Current		—		(3,823	)		15,640		2,485
Deferred		25,512		19,017			15,771		2,506
		25,512		15,194			31,411		4,991

FF - 22

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

9. INCOME TAXES - continued

Bermuda

The Company was incorporated under the laws of Bermuda and, under current Bermuda law, is not subject to tax on income or on capital gains. The Company has received an undertaking from the Ministry of Finance of Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act, 1966, as amended, that in the event that Bermuda enacts any legislation imposing tax computed on profits or income, including any dividend or capital gains withholding tax, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax shall not be applicable to the Company or to any of its operations or the shares, debentures or other obligations of the Company until March 28, 2016. This undertaking is not to be construed so as to (i) prevent the application of any such tax or duty on such person as an ordinary resident in Bermuda; or (ii) prevent the application of any tax payable in accordance with the provision of the Land Tax Act, 1967 or otherwise payable in relation to any land leased to the Company in Bermuda.

British Virgin Islands (“BVI”)

The Company has certain of its subsidiaries incorporated under the laws of BVI. Pursuant to the rules and regulations of the BVI, these subsidiaries are not subject to any income tax in the BVI.

Under the International Business Companies Act of the BVI as currently in effect, a holder of common stock who is not a resident of BVI is exempt from BVI income tax on dividends paid with respect to the common stock and all holders of common stock are not liable for BVI income tax on gains realized during that year on sale or disposal of such shares; BVI does not impose a withholding tax on dividends paid by a company incorporated under the International Business Companies Act.

There are no capital gains, gift or inheritance taxes levied by BVI on companies incorporated under the International Business Companies Act. In addition, the common stock is not subject to transfer taxes, stamp duties or similar charges.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

Hong Kong

The Company and certain of its subsidiaries are operating in Hong Kong and their income taxes have been calculated by applying a profits tax rate of 16.5% to the estimated taxable income earned in or derived from Hong Kong.

FF - 23

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

9. INCOME TAXES - continued

PRC

The Group’s PRC entities (note 6) are subject to income taxes calculated at tax rates (15% to 25% beginning from January 1, 2008) on the taxable income.

The deferred tax liability of Rmb48,074 and Nil as of December 31, 2010 and 2011, respectively, has been recognized on the undistributed earnings of the Company’s affiliate in the PRC at a rate of 10%. In an announcement formally made on February 22, 2008, the PRC authorities clarified the distributions made out of undistributed earnings that arose prior to January 1, 2008 would not be subject to withholding tax. Consequently, the deferred tax liability on the undistributed earnings of the Company’s PRC affiliate at December 31, 2007 of Rmb19,324 was written off during the year ended December 31, 2008.

The Company is subject to the PRC EIT on the taxable gain arising from the disposal of HZ (notes 3 and 6) at a statutory rate of 10%. As such, the Company is required to pay an income tax of Rmb79,485 on the disposal of HZ, and a provision of Rmb15,640 was charged as current income tax expenses for the year ended December 31, 2011.

The Company adopted the provisions of ASC Topic 740 effective January 1, 2007. The Group has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits, and has measured the unrecognized tax benefits associated with the tax positions. Based on the evaluation by the Company, it is concluded that there are no significant uncertain tax positions requiring recognition in the financial statements.

The Company has no material unrecognized tax benefit which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. The Company classifies interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2010 and 2011, there is no interest and penalties related to uncertain tax positions.

The tax positions for the years 2004 to 2011 may be subject to examination by the Hong Kong tax authorities.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion.

FF - 24

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

9. INCOME TAXES - continued

The tax impact of temporary differences gives rise to the following deferred tax asset and liability:

	2010			2011			2011
	Rmb			Rmb			US$
Current deferred tax asset:
Tax losses		7,183			12,441			1,977
Valuation allowances		(7,183	)		(12,441	)		(1,977	)
		—			—			—
Non-current deferred tax liability:
Withholding income tax on dividend		(48,074	)		—			—

Movement in valuation allowance:

	2010		2011		2011
	Rmb		Rmb		US$
At the beginning of the year		6,679		7,183		1,141
Current year movement		504		5,258		836
At the end of the year		7,183		12,441		1,977

The Group has total tax operating loss carry forwards of RMB43,534 and RMB75,400 as of December 31, 2010 and 2011, respectively, which is available for offset against future profits that may be carried forward indefinitely. The valuation allowance refers to the estimated portion of the deferred tax assets that are not “more likely than not” to be realized.

The reconciliation of the effective income tax rate based on profit (loss) from operations before income taxes to the statutory income tax rates in Hong Kong is as follows:

	Year ended December 31,
	2009			2010			2011
Profits tax rate in Hong Kong		16.5	%		16.5	%		16.5	%
Permanent differences relating to non-taxable income and non-deductible expenses		(16.2	%)		(17.4	%)		(13.8	%)
Effect on withholding income tax on dividends		9.4	%		10.4	%		(6.5	%)
Tax on disposal of HZ		—			—			(6.4	%)
Change in valuation allowance		(0.3	%)		0.9	%		(2.7	%)
Change in estimate		—			(2.1	%)		—
Effective tax rate		9.4	%		8.3	%		(12.9	%)

FF - 25

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

10. CAPITAL STOCK

Share Capital

The Company was incorporated with an initial share capital of 1,200,000 shares of Common Stock with a par value of US$0.01 each which was later reclassified to Supervoting Common Stock. On May 14, 1993, the authorized share capital of the Company was further increased from US$12 to US$700 by the creation of 50,000,000 shares of Common Stock of par value US$0.01 each and 18,800,000 shares of Supervoting Common Stock of par value US$0.01 each. As a result, the total number of authorized Supervoting Common Stock is 20,000,000 shares. 6,000,000 shares of Supervoting Common Stock (including the 1,200,000 shares of Common Stock reclassified to Supervoting Common Stock) were issued to the then ultimate parent company of the Company as consideration for the transfer of two PRC entities to the Company and on June 23, 1993, the Company redeemed 3,000,000 shares of its outstanding Supervoting Common Stock at their par value of US$0.01 per share.

In September 2006, the Company converted the entire outstanding 3,000,000 shares of Supervoting Common Stock into the same number of shares of Common Stock with a par value of US$0.01 each pursuant to the by-laws of the Company upon receipt of a written notification from the sole holder of Supervoting Common Stock. There was no outstanding Supervoting Common Stock as of December 31, 2010 and 2011.

Capital Stock

Each share of Supervoting Common Stock is entitled to 10 votes whereas each share of Common Stock is entitled to one vote. The Common Stock is identical to the Supervoting Common Stock as to the payment of dividends. Except for the difference in voting rights described above, the Supervoting Common Stock and the Common Stock rank pari passu in all respects.

11. FAIR VALUE MEASUREMENTS

Effective from January 1, 2008, the Company adopted ASC Topic 820 “Fair Value Measurement and Disclosures” for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). ASC Topic 820 defines fair value as the price that would be received to sell the asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing the asset or liability.

FF - 26

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

11. FAIR VALUE MEASUREMENTS - continued

Fair Value Hierarchy

ASC Topic 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC Topic 820 establishes three levels of inputs that may be used to measure fair value:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2011:

	Quoted prices In Active Market for Identical Assets (Level 1) Rmb		Significant Other Observable Inputs (Level 2) Rmb		Significant Unobservable Inputs (Level 3) Rmb		Balance as of December 31, 2010 Rmb
Current Assets:
Trading securities
- Equity securities listed in Hong Kong		38,846		—		—		38,846
- Equity securities listed in Singapore		15,975		—		—		15,975
		54,821		—		—		54,821
Available-for-sale securities
- Equity securities listed in Hong Kong		31,511		—		—		31,511
Total		86,332		—		—		86,332

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CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

	Quoted prices In Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
	Rmb		Rmb		Rmb		Rmb		US$
Current Assets:
Trading securities
- Equity securities listed in Hong Kong		16,557		—		—		16,557		2,631
- Equity securities listed in Singapore		9,077		—		—		9,077		1,442
		25,634		—		—		25,634		4,073
Available-for-sale securities
- Equity securities listed in Hong Kong		14,213		—		—		14,213		2,258
Total		39,847		—		—		39,847		6,331

The Company entered into a subscription agreement with Rosedale in relation to the subscription of the Convertible Notes (note 7). The fair value of the conversion option was estimated using the Black-Scholes option pricing model and recorded as derivative instruments in the consolidated balance sheets. Since significant observable inputs such as risk free rates, volatility and dividend yield are used in the valuation model, the conversion option was considered a level 2 item in the fair value hierarchy.

12. COMMITMENTS AND CONTINGENCIES

As of December 31, 2010, the Company has outstanding capital commitments for acquisition of an investment amounting to approximately Rmb75,000 (note 8). There were no outstanding capital commitments as of December 31, 2011.

FF - 28

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

13. DISTRIBUTION OF PROFIT

(a) Dividends

Dividends from the PRC entities will be declared based on the profits as reported in their statutory financial statements. Such profits will be different from the amounts reported under U.S. GAAP. As of December 31, 2010, the Company’s affiliates in the PRC had accumulated profits of Rmb2,379,278, as reported in their statutory financial statements. The Company had no affiliates as of December 31, 2011.

The Company did not propose or pay any dividends on the outstanding Common Stock for the years ended December 31, 2009, 2010 and 2011.

(b) Profit appropriation

In accordance with the relevant laws and regulations for Sino-foreign equity joint venture enterprises, the PRC entities are required to make appropriation of 5% of after tax profit as prepared in accordance with accounting principles generally accepted in the PRC to non-distributable reserve funds as determined by the Board of Director of the PRC entities. These reserves include a general reserve fund, an enterprise expansion fund, and a staff welfare and incentive bonus fund. The general reserve fund is used to offset future extraordinary losses. The PRC entities may, upon resolution passed by the shareholders, convert the general reserve fund into capital. The enterprises expansion fund is used for the expansion of the PRC entities’ operation and can be converted to capital subject to approval by the relevant authorities. In addition, certain of the PRC entities were granted a special reserve fund by the government for specific projects carried out by the relevant PRC entities. All other reserve funds are included in retained earnings of the PRC entities but can only be used for a specific purpose and are not distributable as a cash dividend.

Included in the accumulated deficit of the Company as of December 31, 2010 and 2011 was non-distributable reserves of Rmb2,171 and Nil, respectively.

14. RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

FF - 29

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

14. RELATED PARTY BALANCES, TRANSACTIONS AND ARRANGEMENTS - continued

Other than those disclosed elsewhere in the consolidated financial statements, the Company had the following related party balances:

(a) During the year ended December 31, 2011, the Company wrote off long outstanding balances from related parties of Rmb744. There were no such write off during the years ended December 31, 2009 and 2010.

(b) Due from/to Related Parties

	2010			2011		2011
	Rmb			Rmb		US$
Due from:
CSH1 and its subsidiaries		95			90		14
GDI and its subsidiaries (“GDI Group”)		2			2		1
Hanny and its subsidiaries (except GDI Group) (note 1)		1,217			1,207		192
Rosedale1 and its subsidiaries (note 6)		22,779	3		13,399		2,129
		24,093			14,698		2,336
Due to:
CSH1 and its subsidiaries		382			295		47
GDI and its subsidiaries		1,737			1,737		276
Hanny and its subsidiaries (except GDI Group) (note 1)		90,835			70,641		11,224
Rosedale1 and its subsidiaries (note 6)		258			—		—
Paul Y. Finance Limited2		544			—		—
		93,756			72,673		11,547

¹  Ms Eva Chan Ling is the deputy chairman and a director of the Company. She is also an executive director of CSH and the managing director of Rosedale, an equity method affiliate of the Company until June 30, 2007 and accounted for as investments of the Company thereafter.

²  Paul Y. Finance Limited is a subsidiary of PYI Corporation Limited, an affiliate of ITC and a company listed on the HKSE.

^3.  Included in the amount was accrued interest of RMB8,665 on the Convertible Notes (note 7). On June 7, 2011, the maturity date of the Convertible Notes, Convertible Notes in the amount of HK$63,000 remained outstanding. All such Convertible Notes, together with accrued interest of HK$10,800, totaled Rmb59,778, were subsequently fully settled (note 8).

As of December 31, 2010 and 2011, the amounts due from/to related parties were unsecured, non-interest bearing and had no fixed repayment terms.

FF - 30

CHINA ENTERPRISES LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except number of shares,

per share data and unless otherwise stated)

15. AMOUNTS DUE TO SECURITIES BROKERS

As of December 31, 2010 and 2011, the amounts due to securities brokers were bearing interest at 7.25% to 11.25% per annum, repayable on demand, and secured by trading and available-for-sale securities (note 17).

16. STAFF RETIREMENT PLANS

All of the Chinese employees of the PRC entities are entitled to an annual pension on retirement, which is equal to their ending basic salaries at their retirement dates. The Chinese government is responsible for the pension liabilities to these retired employees. The PRC entities are only required to make specified contributions to the state-sponsored retirement plan calculated at rates ranging from 12% to 20% of average monthly salaries for the years ended December 31, 2009 and 2010 and eleven months ended November 30, 2011.

17. PLEDGE OF ASSETS

As of December 31, 2010 and 2011, trading and available-for-sale securities amounting to Rmb84,304 and Rmb38,172 (US$6,065) are collateralized to secure the security trading margin facilities of the Company.

18. SUBSEQUENT EVENTS

The Company has evaluated all events or transactions that occurred through the date the consolidated financial statements were issued, and has determined that there were no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the consolidated financial statements other than those disclosed elsewhere in the consolidated financial statements.

FF - 31

ITEM 19. EXHIBITS

The following exhibits are filed as part of this Annual Report:

Exhibit Number	Description
1	Memorandum and Articles of Association (incorporated by reference to Exhibit 1 to the Company’s Form 20-F for the fiscal year ended December 31, 2001, Document Control Number: 02048962)
4(a)1	Contract dated November 21, 2011 between CZ Tire Holdings Limited and the Company for the sale of the Company’s ownership interest in Hangzhou Zhongce Rubber Company Limited (incorporated by reference to Exhibit 4(a)1 to the Company’s Form 20-F for the fiscal year ended December 31, 2010)
4(a)2	Contract dated September 28, 2012 between Fortuneasy Limited and Wealth Faith Limited, a wholly owned subsidiary of the Company, for the purchase of shares of Million Cube Limited by Wealth Faith Limited (incorporated by reference to Exhibit 4(a)2 to the Company’s Form 20-F for the fiscal year ended December 31, 2010)
8	Subsidiaries of the Company
12(1)	Certification of the CEO of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
12(2)	Certification of the CFO of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
13(1)	Certification of the CEO of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13(2)	Certification of the CFO of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14(1)	Code of Ethics for Chief Executive and Senior Financial Officers

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

China Enterprises Limited

(Registrant)

/s/ Ken Lau

KEN LAU

Chief Financial Officer

Date: October 29, 2014

EXHIBITS INDEX

Exhibit Number	Description
1	Memorandum and Articles of Association (incorporated by reference to Exhibit 1 to the Company’s Form 20-F for the fiscal year ended December 31, 2001, Document Control Number: 02048962)
4(a)1	Contract dated November 21, 2011 between CZ Tire Holdings Limited and the Company for the sale of the Company’s ownership interest in Hangzhou Zhongce Rubber Company Limited (incorporated by reference to Exhibit 4(a)1 to the Company’s Form 20-F for the fiscal year ended December 31, 2010)
4(a)2	Contract dated September 28, 2012 between Fortuneasy Limited and Wealth Faith Limited, a wholly owned subsidiary of the Company, for the purchase of shares of Million Cube Limited by Wealth Faith Limited (incorporated by reference to Exhibit 4(a)2 to the Company’s Form 20-F for the fiscal year ended December 31, 2010)
8	Subsidiaries of the Company
12(1)	Certification of the CEO of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
12(2)	Certification of the CFO of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
13(1)	Certification of the CEO of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13(2)	Certification of the CFO of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14(1)	Code of Ethics for Chief Executive and Senior Financial Officers