CRITICISM in respect of Hengan International Group Company Limited (the "Company") and Mr Sze Man Bok (Chairman), Mr Hui Chi Lin (Deputy Chairman and Chief Executive Officer), Mr Yeung Wing Chun, Mr Hung Ching Shan, Mr Zhang Shi Pao, Mr Xu Da Zuo, Mr Xu Chun Man and Mr Yue Wai Leung Stan (Resigned effective 24th March 2000) (collectively, the "Relevant Directors")

Regulatory

11 Oct 2001

CRITICISM

in respect of
Hengan International Group Company Limited
(the "Company")
and
Mr Sze Man Bok (Chairman)
Mr Hui Chi Lin (Deputy Chairman and Chief Executive Officer)
Mr Yeung Wing Chun
Mr Hung Ching Shan
Mr Zhang Shi Pao
Mr Xu Da Zuo
Mr Xu Chun Man
Mr Yue Wai Leung Stan (Resigned effective 24th March 2000)
(collectively, the "Relevant Directors")

The Stock Exchange of Hong Kong Limited (the "Exchange") hereby publicly criticises the Company and each of the Relevant Directors for their respective breaches of the Exchange Listing Rules and the Director's Undertaking.

At a disciplinary hearing held on 28th August 2001 (the "Disciplinary Hearing"), the Listing Committee of the Exchange (the "Listing Committee") conducted a hearing into the conduct of, among others, the Company, Mr. Sze Man Bok (executive director of the Company), Mr. Hui Chi Lin (executive director of the Company), Mr. Yeung Wing Chun (executive director of the Company), Mr. Hung Ching Shan (executive director of the Company), Mr. Zhang Shi Pao (executive director of the Company), Mr. Xu Da Zuo (executive director of the Company), Mr. Xu Chun Man (executive director of the Company) and Mr. Yue Wai Leung Stan (former executive director of the Company, who resigned effective 24th March 2000), in respect of certain connected transactions as disclosed in the Companys announcement dated 22nd March 2000 (the "Connected Transactions").

During the period from September 1999 to December 1999, the Company and its subsidiaries (the "Group") had made temporary advances of HK$46,425,000 to United Wealth International (Holdings) Limited ("United Wealth") and Changde Hengan Paper Products Co., Limited ("Changde Paper") for its purchase of production equipment and raw materials (the "Temporary Advances"). The Temporary Advances, representing approximately 3.02% of the Groups consolidated net tangible assets as at 31st December 1999, were fully repaid with interest and handling fee between early January 2000 and February 2000.

United Wealth was wholly owned by four executive directors of the Company, namely, Mr. Sze Man Bok, Mr. Hui Chi Lin, Mr. Hung Ching Shan and Mr. Yeung Wing Chun. They, in aggregate, owned approximately 47% of the issued share capital of the Company. Changde Paper was a 94% owned subsidiary of United Wealth. United Wealth and Changde Paper were therefore associates of a connected person as defined by the Exchange Listing Rules, hence, the Temporary Advances constituted connected transactions of the Company.

The Disciplinary Hearing was conducted into, among other things, the following issues:

Possible breaches by the Company of its obligations under: Rule 14.25(1) of the Exchange Listing Rules in failing to disclose the Connected Transactions by way of a press notice as soon as possible after they were entered into; Rule 14.26(6)(a) of the Exchange Listing Rules in failing to obtain independent shareholders approval for the Connected Transactions at the relevant time; and Rule 14.29 of the Exchange Listing Rules in failing to notify the Exchange of the existence of the Connected Transactions as soon as they were entered into or as reasonably practicable thereafter; and
Possible breaches by the Relevant Directors (among others) of their obligations under the Declaration and Undertaking with regard to Directors given by them to the Exchange in the form set out in Appendix 5B of the Exchange Listing Rules (the "Directors Undertaking").

The Company acknowledged breaching Rules 14.25(1) and 14.26(6)(a) of the Exchange Listing Rules.

The Listing Committee has concluded, among other things:

the Company breached Rules 14.25(1), 14.26(6)(a) and 14.29 of the Exchange Listing Rules; and
the Relevant Directors breached their Directors Undertaking to comply to the best of their ability with the Exchange Listing Rules from time to time in force, and to use their best endeavours to procure that the Company of which they are/were directors would so comply.

Accordingly, the Listing Committee hereby publicly criticises the Company and each of the Relevant Directors for their respective breaches mentioned in (i) and (ii) above.

For the avoidance of doubt the Exchange confirms that this public statement which involves criticism applies only to the Company, the directors and the former director named herein and not to any other past or present member of the Board of Directors of the Company.

Updated 11 Oct 2001