SUMMARY

** All monetary amounts in this report are quoted in Renminbi(RMB) unless otherwise stated.**

HISTORY

Subject history can be traced back to 1970 when Huaxia No. 1 Iron & Steel Plant was founded. Five years later (1975), Huaxia No. 2 Iron & Steel Plant was set up. Both plants were affiliates of Harbin Metallurgical Industry Bureau. In 1988, Huaxia Iron & Steel Group Corp. was established as a state-owned enterprise by merging the two plants according to the decision of Harbin Metallurgical Industry Bureau. In June of 1995, it was transformed into a state-owned limited liability company in accordance with the newly passed Company Law.
It was registered as a state-owned limited liability company with Harbin Municipal Administration for Industry & Commerce under file number 106752381-1. Its registered capital as of June, 1995 was 350,000,000.

Its registered business scope includes the processing and sales of iron and steel materials, import of equipment and raw materials required by its production and export of its own products, real estate development and technological development.

Since its establishment, there has been no big change in its main business line and ownership structure.
Please understand that although Subject is a state-owned company, the state is not liable for any of its debts beyond the registered capital according to the relevant laws and regulations.

OWNERSHIP

Subject is a state-owned limited liability company under the jurisdiction of Harbin Metallurgical Holding Corporation.
The predecessor of Harbin Metallurgical Holding Corporation was Harbin Metallurgical Industry Bureau, a governmental office responsible for metallurgical industry in Harbin City. Harbin Metallurgical Holding Corporation is authorized by Harbin State-owned Assets Administration to manage the state-owned metallurgical sector in Harbin City. Basic information on Harbin Metallurgical Holding Corporation is as follows:
Address: 56 Taiyuan Road, Harbin, Heilongjiang 163100
Phone: (0451) 3452345
Chief executive: Mr. DU Sang, Chairman of the Board

EXECUTIVES
KONG Dali, Chairman of the Board
Age: 56;
From 1958 to 1964,employed in Bank of China, Harbin Branch;
From 1964 to 1982,employed in Harbin Iron & Steel Manufacturing Plant, General manager;
From 1982 to 1991,active as deputy director(now vice president)in Harbin Metallurgical Holding Corporation;
From 1991 to present,active here as chairman of the board of directors .
MA Renyi, General Manager
Age: 43;
College education;
From 1984 to 1988, employed as a section chief in Harbin Municipal
Planning Committee;
From 1988 to 1993, active as Vice general manager of Harbin Metallurgical Holding Corporation
From 1993 to present, active here as general manager.

FINANCE

Balance Sheet (unit: 1,000RMB)

Income Statement (unit: 1,000)

The above financial information was acquired from official sources.It was confirmed by the subject company in interview with its management.
Important Ratios

12-31-95

BANKING RELATIONS

Banking relations are maintained principally with Bank of China Harbin Branch under A/C number 213-137-000-23.
In interview, the banker considers that the subject company has been maintaining normal relations although it is now experiencing fairly big amount of outstanding borrowing. However, it refuses to disclose the average balance of the subject company.

The address and phone number of Bank of China Harbin Branch is as follows:

Address: 2 Banshan Road, Harbin, Heilongjiang 163100
Phone: (0451) 5286528
Contact: Mr. ZHANG

OPERATIONS

Although registered as a comprehensive company, Subject is currently mainly engaged in processing and sales of steel pipes and other steel materials. Its major products include:
Seamless steel tubes
welded steel pipes
Chapped pipes Raw materials are mainly purchased in Northeast China. The usual terms of payment are COD and 30 day credit. Sales are made both domestically and abroad. Subject has the right to deal in direct export of its own products. In 1996, about 20% of its products were sold abroad in terms of L/C. Domestic selling terms are usually COD and 30-60 day credit.

STAFF

Subject has a staff of approximately 12,000, including about 1,500 managerial persons. 20% of its staff received college education or higher.

PREMISES /PROPERTY

Subject occupies an area of more than 100,000 sq. meters as its main factory site, 25 kilometers away from the downtown of Harbin.

AFFILIATES

Subject has 3 affiliates:
Huaxia Iron & Steel (Group) Co., Ltd. No. 1 Factory
Huaxia Iron & Steel (Group) Co., Ltd. No. 2 Factory
Huaxia Iron & Steel (Group) Co., Ltd. Import & Export Company

INDUSTRY POSITION /TREND

A verage financial indexes and ratios of Subject's industry for the fiscal year of 1996 can be seen from the following breakdown: Main Indexes & Ratios
The Whole Industry State-owned Sector
Average Turnover 263,500,000 56,340,000
Average Profit (before tax) 12,914,000 1,886,000
Average Assets 511,000,000 108,610,000
Average Fixed Assets 312,000,000 50,112,000
Average Number of Staff 6,800 7,100
Current Ratio 0.91 0.94
Liabilities/Assets Ratio 0.57 0.60
Turnover to Current Assets Ratio 1.44 1.55
Turnover to Total Assets 0.65 0.56
Profit Margin (%) 4.31 3.81
Profit to Total Assets (%) 2.20 1.95
Profit to Total Cost (%) 4.66 4.10

REMARKS

On the basis of analysis on the above information last amended on March 20, 1997, we would like to give our opinion as follows:

Trend of subject industry: Fairly steady
Size in its line: Large-sized
Subject business trend: Average
Strength of owners: Government
Short-term solvency: Average
Long-term solvency: Average
Assets efficiency: Under average
Profitability: Low
Comprehensive Appraisal: CR2, implying that normal business engagement within the limits of its operation is recommended.

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