In the May of 1998, the State Development Planning Commission approve the stage one engineering of Beijing the 9th Water Factory delivering the management rights to the Beijing Holding Co. Ltd. at 15 hundred million Yuan RMB. The earnings of delivery should be used to the constructions of the stage 3 of Beijing The 9th Water Factory. The main conditions are as follows:

I The Management Rights Will Be Transferred To The Relative Parties
1. The Transferer of Management Rights: The Running Water General Co. of Beijing

Registered Capital: 1.2 hundred million Yuan RMB

Registered Location: the No. 19 of Xisi Yangrou Bystreet, Xicheng District of Beijing

The Running Water General Co. of Beijing is a larger stateowned enterprise responsible for supplying water to our Capital. At present, the supplying water per day is 256 ten thousand cubic meters, covers 549 esq. and the numbers of beneficiary reach up to 5.48 million persons. At present, the company has 5916 staffs and the fixed assets values 48 hundred million Yuan.

2.The Assignee of Management Rights: Beijing Holding Co. Ltd.

Registered Location: Hong Kong

On the 29th of May of 1997, Beijing Holding Co. Ltd. was listed in Hong Kong Securities Market, with 6 hundred million stocks. At present, the total capital stocks of the company are 6.2250 hundred million stocks, and 26 hundred million HKD have been raised.

II The Purpose and Significance of Transferring The Management Rights of Stage One Engineering Of Beijing The 9th Water Factory

The Stage One Project Of Beijing The 9th Water Factory locates the North Suburbs of Beijing, and was completed and enter into production on the 30th of June of 1990, with 50 ten thousands of cubic meters of supplying water. The total investment for this project is 7.47 hundred million Yuan RMB. The stage one project of the 9th water factory takes water from the reservoir of Huanrou district of Beijing, and the original water will be delivered to pure and distribution water factories through conduit pipes. After have been coagulated, deposited filtered and treated with active carbon, the water will be delivered to the distribution networks.

With better operations, the equipments of the stage one project of the 9th water factory play major roles in supplying water to the downtown areas. But with the increasing development of city construction, the water requirements of downtown areas have a trend of increasing day by day. Depending on the evaluations, the water requirements of downtown area of Beijing will increase with the increasing ratio of 0.15 million cubic meters per day, and it was estimated that this figure will reach up to 3.08 million cubic maters per day in 2000. In order to meets this increasing water requirement, Beijing city government decided to start the stage 3 project of the 9th water factory, which has been approved by the relative national departments.

The total investment of the stage 3 project of the 9th water factory were 25.1 hundred million Yuan RMB, of which there are 147 hundred million Yen rose from OECF (converting into 12.2 hundred million Yuan RMB). With the achievement of loans in Yen, total 12.9 hundred million Yuan RMB have not been achieved, which resulted this project could not start on schedule. In order to resolve the conflicts of lack of counterpart funding and ensure the process of project on schedule, after have talks with many relative parties, and with the approval of the people's government of Beijing and the State Development Planning Commission, the management rights of stage one of the 9th water factory project for 20 years was transferred to Beijing Holding Co. Ltd. at the price of 15 hundred million Yuan RMB, and the earnings of this transfer will be used to the constructions of the stage 3 of the 9th water factory project.

III The Modes of Management Transfer of the stage one of Beijing The 9th Water Factory
The running water company will transfer the management rights of stage one of the 9th water factory to Beijing Holding Co. Ltd. based on agreements. Having achieved the management rights, the Beijing Holding Co. Ltd. will be responsible for it's operations and management, and sell the manufactured pure water to the running water company with the agreements between the two parties, and then the running water company will sell the pure water again to the end users.

During the transferring management rights, the manufacturing process will comply with the running water company, and the water quality of must comply with the stipulated standards. When the period of transferring expires, Beijing Holding Company will return the management rights to the running water company.

IV The Influence on The Sale Price of Water of The Running Water Company Resulted with The Completion of Transferring the Management Rights of Stage One of Beijing the 9th Water Factory
With the transition of The stage one project of Beijing the 9th Water Factory, the 9th Water Factory will become a independent operating entity, and the factory price of pure water will be higher than the original price, but the Running Water Co. still sells pure water at the unchanged price, the price difference will be compensated with allowances of Beijing city government. From now on, with the price having been smoothed, the allowances also will be reduced step by step.

V Assuming The Foreign Exchanges Risks Rising From The Transferring of The Stage One of The 9th Water Factory

Due to the products of the Water Factory are completely sold at home, there is no earnings in foreign exchanges, and the resulting foreign exchanges should be assumed by Beijing Holding Co. Ltd.

At present, Beijing Holding Company has established a subsidiary of sole investment----Beijing Holding Manufacturing Water Co. Ltd. in Beijing, which is engaged in the businesses involved in the process of transferring management rights of Beijing The 9th Water Factory.