Subject: Huaxia Iron & Steel (Group) Co., Ltd.
File No.: 19960020010
Address: 66 Kaiyuan Road, Harbin, Heilongjiang 163100
Telephone: (0451)3214567
Facsimile: (0451)3217654

This report is furnished at your sole request for the use of making decisions in respect of credit,trade or investment and for no other purpose. You shall not release or disclose any of the information contained in the report to any other person or firm or company unless otherwise agreed upon by ECI. ECI shall not be liable for any loss or damage arising out of the use of any of the information contained herein

SUMMARY

Starting Year	1970
Legal Status	State-owned limited liability company
Chief Executive	KONG Dali, Chairman of the Board
Registered Capital	RMB 350,000,000 as of September, 1996
Business Line	Manufacturing of steel materials
Turnover	RMB 956,372,000 for the fiscal year of 1996
Net Worth	RMB 509,183,000 as of December 31, 1996
Employees	12,000
Business Trend	Average
Credit Status	CR2

ECI analysis applies a 7-point rating scale to the appraisal of a subject company's credit status.  CR1 refers to "strongly recommended" while CR7 implies "not recommended". The appraisal is mainly (80%) based on the financial performance of the subject company while other factors such as ownership background, operations, banking status, etc. are also considered.

** 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) 

12-31-95
Total current assets	568,690
Including: Cash in hand & bank	96,586
Inventory	305,776
Accounts receivable	166,328
Total fixed assets	625,867
Including: Fixed Assets, net	466,320
Construction in-progress	153,269
Other assets	6,278
	------------
Total assets	1,194,557
	=======

 

Total liabilities.	685,374
Including: Current liabilities	553,266
Long-term liabilities	132,108
Equities	509,183
	------------
Total liabilities & equities	1,194,557
	=======

Income Statement (unit: 1,000)

----	1996	1995	1994
Turnover	956,372	825,032	910,538
Profit before tax	35,325	28,116	46,256

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
Current ratio (cur. assets/cur. liabilities)	1.03
Quick ratio (quick assets/Current Liabilities)	0.48
Liabilities /Assets ratio	0.57
Turnover /current assets ratio	1.68
Turnover /total assets ratio	0.80
Profit margin (%)	3.69
Return on total assets ratio(%)	2.96

---

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
Average 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.