Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no

responsibility for the contents of this announcement, make no representation as to its accuracy or completeness
and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the
whole or any part of the contents of this announcement.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy any securities in the
United States or any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such jurisdiction. The securities referred to herein
will not be registered under the United States Securities Act 1933, as amended. No securities may be offered or
sold in the United States absent registration or an exemption from the registration requirements. Any public
offering of securities to be made in the United States will be made by means of a prospectus that may be
obtained from the issuer or the selling security holder. Such prospectus will contain detailed information about
the company involved and its management and financial statements. The Company does not intend to make any
public offering of securities in the United States.

Fufeng Group Limited

阜豐集團有限公司
(incorporated in the Cayman Islands with limited liability)
(Stock Code: 546)

PROPOSED ISSUE OF SENIOR NOTES

The Company proposes to conduct an international offering of senior notes and will
commence a series of roadshow presentations and meetings with institutional investors
beginning on or around 29 March 2011. In connection with the offering, the Company will
provide certain institutional investors with recent corporate and financial information
regarding the Group, including but not limited to updated risk factors, management’s
discussion and analysis of the Group’s financial condition and results of operations,
description of projects undertaken by the Group, related party transactions and
indebtedness information, some of which has not previously been made public. An extract
of such information is attached hereto and can also be viewed at the Company’s website
www.fufeng-group.com at approximately the same time when such information is
released to the institutional investors.

–1–
 Completion of the Proposed Notes Issue is subject to market conditions and investor
interest. Citigroup and Deutsche Bank as the joint bookrunners and the joint lead
managers, are managing the Proposed Notes Issue. As at the date of this announcement,
the principal amount, the interest rates, the payment date and certain other terms and
conditions of the Proposed Notes Issue are yet to be finalized. Upon finalizing the terms
of the Notes, the Company, Citigroup, Deutsche Bank and certain subsidiaries of the
Company will enter into the Purchase Agreement. The Company currently intends to use
the proceeds from the Proposed Notes Issue to finance the construction of new production
facilities, and for general working capital purposes. The Company may adjust the
foregoing plans in response to changing market conditions and, thus, reallocate the use of
the proceeds in accordance with the requirements of the Company.

Approval in-principle has been received for the listing of the Notes on the SGX-ST.
Admission of the Notes to the Official List of the SGX-ST or quotation of any Notes on
the SGX-ST is not to be taken as an indication of the merits of the Company or the Notes.
The SGX-ST assumes no responsibility for the correctness of any of the statements made,
opinions expressed or reports contained in this announcement.

As no binding agreement in relation to the Proposed Notes Issue has been entered
into as at the date of this announcement, the Proposed Notes Issue may or may not
materialise. Investors and shareholders of the Company are urged to exercise
caution when dealing in the securities of the Company.

Further announcement in respect of the Proposed Notes Issue will be made by the
Company should the Purchase Agreement be signed.

THE PROPOSED NOTES ISSUE

Introduction

The Company proposes to conduct an international offering of senior notes and will
commence a series of roadshow presentations and meetings with institutional investors
beginning on or around 29 March 2011. In connection with the offering, the Company will
provide certain institutional investors with recent corporate and financial information
regarding the Group, including but not limited to updated risk factors, management’s
discussion and analysis of the Group’s financial condition and results of operations,
description of projects undertaken by the Group, related party transactions and indebtedness
information, some of which has not previously been made public. An extract of such
information is attached hereto and can also be viewed at the Company’s website
www. fufeng-group.com at approximately the same time when such information is released to
the institutional investors.

–2–
Completion of the Proposed Notes Issue is subject to market conditions and investor interest.
Citigroup and Deutsche Bank as the joint bookrunners and the joint lead managers, are
managing the Proposed Notes Issue. As at the date of this announcement, the principal
amount, the interest rates, the payment date and certain other terms and conditions of the
Proposed Notes Issue are yet to be finalized. Upon finalizing the terms of the Notes,
Citigroup, Deutsche Bank, certain subsidiaries of the Company and the Company, among
others, will enter into the Purchase Agreement.

The Notes will be offered only (i) in the United States, to qualified institutional buyers in
reliance on the exemption from, or in a transaction not subject to, the registration
requirements of the U.S. Securities Act provided by Rule 144A, or (ii) outside the United
States, in compliance with Regulation S under the U.S. Securities Act. None of the Notes will
be offered to the public in Hong Kong and none of the Notes will be placed to any connected
persons of the Company.

Reasons for the Proposed Notes Issue

The Company is a leading corn-based biochemical company. According to the China

Fermentation Industry Association, the Company is the largest manufacturer of MSG in the
PRC and the largest manufacturer of xanthan gum in the world based on production capacity
as of 31 December 2009.

The Company currently intends to use the proceeds from the Proposed Notes Issue to finance
the construction of new production facilities, and for general working capital purposes. The
Company may adjust the foregoing plans in response to changing market conditions and,
thus, reallocate the use of the proceeds in accordance with the requirements of the Company.
The Company believes that the Proposed Notes Issue will further extend the Company’s
international profile and improve its ability to access the international debt capital markets to
support the growth of the Group in the future.

Listing

Approval in-principle has been received for the listing of the Notes on the SGX-ST.
Admission of the Notes to the Official List of the SGX-ST or quotation of any Notes on the
SGX-ST is not to be taken as an indication of the merits of the Company or the Notes. No
listing of the Notes has been sought in Hong Kong.

GENERAL

As no binding agreement in relation to the Proposed Notes Issue has been entered into as
at the date of this announcement, the Proposed Notes Issue may or may not materialise.
Investors and shareholders of the Company are urged to exercise caution when dealing
in the securities of the Company.

The Company will make further announcement in respect of the Proposed Notes Issue upon
the execution of the Purchase Agreement.

–3–
DEFINITIONS

In this announcement, the following expressions shall have the meanings set out below unless
the context requires otherwise:-

“Board” the board of Directors;

“Citigroup” Citigroup Global Markets Inc., one of the joint bookrunners

and the joint lead managers in respect of the offer and sale of
the Notes;

“Company” Fufeng Group Limited (阜豐集團有限公司), an exempted

company incorporated under the laws of the Cayman Islands
with limited liability, whose Shares are listed on the main
board of the Stock Exchange;

“connected person” shall have the meaning as ascribed to it under the Listing
Rules;

“Deutsche Bank” Deutsche Bank AG, Singapore Branch, one of the joint
bookrunners and the joint lead managers in respect of the
offer and sale of the Notes;

“Director(s)” the director(s) of the Company;

“Group” the Company and its subsidiaries from time to time;

“HK$” Hong Kong dollar, the lawful currency of Hong Kong;

“Hong Kong” the Hong Kong Special Administrative Region of the PRC;

“Listing Rules” the Rules Governing the Listing of Securities on the Stock
Exchange;

“MSG” a salt of glutamic acid which is commonly used as a flavor

enhancer and additive in the food industry, the restaurant
sector and for domestic household use;

“Notes” the guaranteed senior notes to be issued by the Company;

“PRC” or “China” the People’s Republic of China (excluding, for the purposes
of this announcement, Hong Kong, Macau Special
Administrative Region of the PRC and Taiwan);

“Proposed Notes Issue” the proposed issue of the Notes by the Company;

–4–
“Purchase Agreement” the agreement proposed to be entered into among the
Company, Citigroup and Deutsche Bank and certain
subsidiaries of the Company in relation to the Proposed
Notes Issue;

“SGX-ST” Singapore Exchange Securities Trading Limited;

“Share(s)” ordinary share(s) of HK$0.1 each in the share capital of the

Company;

“Stock Exchange” The Stock Exchange of Hong Kong Limited; and

“U.S. Securities Act” the United States Securities Act of 1933, as amended.

By order of the Board

Fufeng Group Limited
Li Xuechun
Chairman

Shandong, the PRC

28 March 2011

As at the date of this announcement, the executive directors of the Company are Mr. Li
Xuechun, Mr. Wang Longxiang, Mr. Feng Zhenquan, Mr. Xu Guohua, Mr. Li Deheng, Mr.
Chen Yuan, Mr. Gong Qingli and Mr. Li Guangyu and the independent non-executive
directors of the Company are Mr. Choi Tze Kit, Sammy, Mr. Chen Ning and Mr. Liang Wenjun.

–5–
 RISK FACTORS

RISKS RELATING TO OUR BUSINESS

We may not be able to maintain our leading position.

We are the largest manufacturer of MSG in China and the largest manufacturer of xanthan
gum in the world based on production capacity as of December 31, 2009. In the year ended
December 31, 2010, we produced 495,895 tonnes of MSG and 31,619 tonnes of xanthan gum.
We have increased our share in China’s MSG market in recent years and have also increased our
market share in the xanthan gum market globally. We cannot assure you that we can maintain or
increase our competitiveness and market position and should we fail to maintain our leading
position in terms of production of MSG and/or xanthan gum relative to other manufacturers in
the industry, our financial condition and results of operations may be adversely affected.

Our leading market position has enabled us to benefit from comparatively stronger
bargaining power in procuring raw materials, determining product pricing and responding
effectively to changing market conditions and competition pressures, which in turn have
contributed to our significant growth and stable profit margin. We plan to further expand the
production capacity of our products through the construction of our Northeastern Plant as well
as expanding existing production plants. We cannot assure you that such planned expansion of
production capacity can be achieved or that such planned expansion will lead to an increase in
output, and we cannot assure you that we can maintain our position as a leading manufacturer of
our core products.

In addition, we face competition from companies offering similar products in China and
elsewhere and such competitive pressures could have an adverse impact on the supply and
pricing of our products, reduce our market share and have an adverse impact on our financial
performance.

Decreases in the prices of our products may have an adverse effect on our financial condition
and results of operations.

Our main products are MSG and xanthan gum. For the year ended December 31, 2008,
2009 and 2010, revenues from the sale of MSG accounted for 28.0%, 48.5% and 60.7% of our
total revenues, respectively. For the year ended December 31, 2008, 2009 and 2010, the average
selling price of our MSG was RMB6,865, RMB7,680 and RMB7,903 (US$1,197) per tonne,
respectively. We believe that fluctuations in the price of our MSG reflected changes in the
supply and demand dynamics in the market which is, in turn, subject to many factors relating to
the industry for corn-based biochemical products and the wider economy. We cannot assure you
that the price of MSG can remain at the selling prices achieved in the past and any reduction in
the market price of MSG in the future may have an adverse effect on our financial condition and
results of operations.

6
 For the year ended December 31, 2008, 2009 and 2010, revenues from the sale of xanthan
gum accounted for 12.6%, 8.8% and 10.6%, respectively, of our total revenues. The average
selling price of our xanthan gum for the year ended December 31, 2008, 2009 and 2010 was
RMB21,594, RMB20,989 and RMB19,579 (US$2,967) per tonne, respectively. We believe that
the decrease in the average selling price of our xanthan gum reflected the decrease in the market
price of xanthan gum, which was primarily due to improvements in production technologies,
increased competition, our increased supply to the market and the negative effect of the global
financial crisis on the dynamics of global supply and demand of xanthan gum. We cannot assure
you that the market price of xanthan gum will remain at its current level, and any further
decrease in the market price of xanthan gum may have an adverse effect on our financial
condition and results of operations.

We are subject to the volatility of prices of corn and rely heavily on a sufficient supply of corn
for our business.

Corn is one of the major raw materials for our products and accounted for 46.6%, 52.7%
and 54.3% of our total cost of production for the year ended December 31, 2008, 2009 and 2010,
respectively. For the same periods, our average unit cost of corn for the MSG segment was
RMB1,424, RMB1,413 and RMB1,741 (US$263.8) per tonne, respectively. Our average unit cost
of corn is closely related to the market price of corn in China, which is affected by factors
including market demand and supply, domestic government policy and the occurrence of
climatic and other natural disasters such as droughts, floods or earthquakes. We cannot assure
you that we will be able to adjust the prices of our products to pass on any increase in the price
of corn to our customers. Any failure to pass on any significant increase in the price of corn to
our customers, or any significant increase in the price of corn may have an adverse effect on our
financial condition and results of operations.

Our operations rely heavily on a sufficient supply of corn. Historically, we have purchased
corn directly from local farmers, and have not entered into any long term procurement
agreements with any of them. We cannot assure you that we will continue to be able to procure a
sufficient supply of corn from local farmers at a price acceptable to us in the future or at all. Any
interruption in the supply of corn may have an adverse effect on our financial condition and
results of operations.

Disruption in coal supply as well as increase in coal price may adversely affect our financial
condition and results of operations.

Coal is the primary energy source for our production process and represents the largest
component in our cost of sales in the manufacture of xanthan gum. For the year ended December
31, 2008, 2009 and 2010, the cost of coal accounted for 14.1%, 11.5% and 13.1% of our total
cost of production, respectively. For the same period, the cost of coal accounted for 42.3%,
30.7% and 35.4% of our total cost of production of xanthan gum, respectively. Our results of
operations are therefore sensitive to the fluctuation of the price of coal. Historically, we have
obtained coal through purchases in the open market, and have not experienced any interruption
in operations caused by inadequate coal supply. However, we cannot assure you that, in the event
of coal supply shortfalls, we will be able to procure a sufficient supply of coal and that our
financial condition and results of operations would not be adversely affected. In the event of
increases in the price of coal, we cannot assure you that we will be able to adjust the prices of
our products to pass on any increase in the price of coal to our customers. Any failure to pass on
any significant increase in the price of coal to our customers, or any significant increase in the
price of coal, may have an adverse effect on our financial condition and results of operations.

7
We rely on our major customers.

For the year ended December 31, 2008, 2009 and 2010, revenues from our five largest
customers accounted for an aggregate of 17.8%, 14.7% and 9.0% of our total revenues,
respectively. We have not entered into any long-term sales agreements with our major customers.
Should any of these major customers cease to purchase from us, or reduce their order size for
our products, our financial condition and results of operations may be adversely affected.

We have experienced significant growth in the past few years, and we may not be able to
maintain such growth in the future.

Since our incorporation in 1999, we have experienced significant growth in revenue and
profitability. For the year ended December 31, 2008, 2009 and 2010, our consolidated revenues
amounted to RMB3,585.3 million, RMB4,632.9 million and RMB6,416.4 million (US$972.2
million), respectively, representing a CAGR of 33.8%. We believe that our historical growth was
primarily attributable to business-specific factors such as our ability to expand production
capacity and effectively control raw material costs, as well as our highly vertically-integrated
production process, and market-related factors such as the increasing market price of our
products. We cannot assure you that we will be able to maintain a similar rate of growth in the
future.

We may not be able to successfully implement our product diversification strategy.

As part of our strategy, we intend to leverage our position and reputation as a leading
global manufacturer of MSG and xanthan gum and our vertically-integrated corn-based
biochemical production business model to capitalize on new market opportunities presented by
other biochemical and amino acid products. In 2008, we expanded our product offering to
include chicken powder and corn oil. We commercialized a series of new threonine products in
2010 which were developed in 2009 in response to market demand for higher value-added
corn-based biochemical products. In addition, we are developing a series of new amino acid
products and biomass-based polymer products in order to enhance our product mix and improve
our profitability. However, we cannot assure you that our product diversification strategy will be
successfully implemented or that the new products would effectively improve our profitability.
Failure to realize commercial benefits from the implementation of our product diversification
strategy into commercial benefits may adversely affect our business and financial position.

We may not successfully manage our growth

As the scale of our operations grows, we will have to continually improve our management,
operational and financial systems and strengthen our internal procedures and controls. The
expansion of our business operations may also require us to establish and develop new
relationships with our customers, suppliers, research partners and other third parties. Our
expansion plans may be affected by a number of factors which may not be within our control.
These factors include fluctuations in domestic and international demand for our products,
changes in consumer taste and preference, increasing competition in the industry, and our ability
to obtain sufficient financing for our expansion efforts. Any unfavorable change in any of these
factors may disrupt our expansion plans and have a material adverse effect on our business,
results of operations and financial position.

As we continue to expand, we will also need to improve our corporate governance

standards and increase transparency of our communication with our security holders and the
market. We cannot assure you that our existing or future management, operational and financial
systems, procedures and controls (including those relating to corporate governance) will be
adequate to support our expansion and future operations or that we will be able to establish or

8
develop business relationships beneficial to our future operations. Further, we may not be able to
obtain adequate financing to complete construction and commence commercial operations of
new production bases and processing facilities. Failure to scale our business appropriately and to
manage our growth effectively could have a material adverse effect on our business, results of
operations and financial position.

The discontinuation of or reduction in any preferential tax treatments currently available to

us in the PRC may have an adverse effect on our financial condition and results of operations.

Under the New EIT Law, both foreign-invested enterprises and domestic enterprises are
subject to a uniform 25.0% income tax rate. Furthermore, pursuant to the New EIT Law and
relevant regulations issued by the State Council of the PRC, certain enterprises established prior
to March 16, 2007 that were entitled to the lower tax rates in accordance with tax laws and
regulations prevailing at that time would be eligible for a five-year transition period beginning
from January 1, 2008. For the year ended December 31, 2008, the effective enterprise income
tax rate for Shandong Fufeng, Baoji Fufeng and Inner Mongolia Fufeng was 12.5%, 7.5% and
nil, respectively. For the year ended December 31, 2009, the effective enterprise income tax rate
for Shandong Fufeng, Baoji Fufeng and Inner Mongolia Fufeng was 15.0%, 7.5% and 7.5%,
respectively. For the year ended December 31, 2010, the effective enterprise income tax rate for
Shandong Fufeng, Baoji Fufeng and Inner Mongolia Fufeng was 15.0%, 15.0% and 7.5%,
respectively. For the year ended December 31, 2008, 2009 and 2010, our effective income tax
rate was 9.4%, 9.3% and 9.8%, respectively. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Taxation” for further details.

Any discontinuation or reduction in preferential tax treatments may have an adverse effect
on our financial condition and results of operations. In addition, we cannot assure you that any
of our PRC subsidiaries will be able to obtain any further preferential tax treatments when
existing preferential tax treatments expire.

The unavailability of government grants may affect our business adversely.

We have received government grants in the form of (i) a reduction in income tax applicable
to Baoji Fufeng in the year ended December 31, 2008 and 2010 and Inner Mongolia Fufeng in
the year ended December 31, 2009 and 2010, respectively, relating to the purchase of certain
qualified domestic manufactured equipment; and (ii) cash grants from the government relating to
the acquisition of certain raw materials, property, plant and equipment, environment protection
and technology improvement for our production plants. During the year ended December 31,
2008, 2009 and 2010, we received government grants in the amounts of approximately RMB20.1
million, RMB37.2 million and RMB74.8 million (US$11.3 million), respectively. Government
grants include grants which are to be applied towards operational costs and grants which are to
be applied towards capital investments on an amortized basis over a period of time depending on
the nature of the asset. The form and amount of such grants vary according to government
policies prevailing at that time with respect to the agricultural industry in China. The amounts of
and conditions attached to such grants are determined at the sole discretion of the relevant
government authorities. We cannot assure you that we will be eligible to continue to receive such
government grants or that the amount of any such grants will not be reduced in the future, and
even if we continue to be eligible, we cannot guarantee any conditions attached to the grants will
be as favorable to us as they have historically been. In the event we are not able to receive future
government grants, and are not able to arrange for alternative funding on similar terms, our
financial condition and results of operations may be adversely affected.

9
Changing tastes and preferences of MSG consumers may affect the sale of MSG

For the year ended December 31, 2008, 2009 and 2010, our revenues derived from the sale
of MSG accounted for approximately 28.0%, 48.5% and 60.7% of our total revenues,
respectively. We expect the sale of MSG to continue to be a significant contributor to our
revenues and profits in the future. Whether we can successfully maintain or expand our sale of
MSG, however, is subject to product price, the availability of substitute products, changes in
consumers’ tastes and cooking and dining preferences and many other factors which are beyond
our control. We note that some anecdotal reports expressed food safety concerns in connection
with the application of MSG as a food additive. Although we believe we have satisfied the
requirements of food safety and other relevant laws and regulation in both the PRC and the
overseas market where we export the MSG, some consumers may change their tastes or cooking
and dining preferences out of perceived food safety concerns and cease to use MSG as a food
additive. We cannot assure you that MSG consumers will not change their consumption or
cooking patterns under the influence of such reports regarding possible health effects of MSG or
more authoritative or influential reports will not be published in the future. We also cannot
assure you that the regulatory authorities in the PRC and the overseas market where we
distribute MSG will not change their attitude towards the regulation of MSG’s applications. If
any of the above uncertainties are substantiated, the sale of our MSG may be adversely affected
which may in turn adversely affect our financial condition and results of operations.

There may be substitute products for MSG and xanthan gum.

Substitute products which can provide similar or better qualities than MSG and xanthan
gum may be developed in the future. If any such substitute product gains wider application and
popularity than our products, our sales of MSG and/or xanthan gum may be adversely affected
and our financial condition and results of operations may be adversely affected.

A material disruption to our production lines could adversely affect our ability to generate
revenue.

Our production lines and facilities are all located in China. Our production facilities
typically operate 24 hours a day with three shifts, and we conduct annual inspections, repairs
and maintenance during which our facilities are closed temporarily for one to three weeks every
year. We cannot assure you that there will be no disruption to the operations of our production
lines. If operations at any of our facilities were to be materially disrupted as a result of
equipment failure, natural disasters, work stoppages, power outages, explosions, adverse weather
conditions or other factors, our financial condition and results of operations could be adversely
affected. The occurrence of any of these significant events could also require us to make
significant unanticipated capital expenditure. Interruptions in production could increase our
costs and delay our delivery of products. Production capacity limits caused by such disruptions
could cause a reduction or delay in sales efforts. Lost sales or increased costs that we may incur
due to such disruption of operations may not be recoverable under our existing insurance
policies, and prolonged business disruptions could result in a loss of customers. If any one or
more of the above risks were to materialize, our financial condition and results of operations
may be adversely affected.

10
Our research and development efforts may be unsuccessful.

We believe our ability to develop new products in response to the changing market demands
differentiates us from many of our competitors and is essential to the future development of our
business, and we are committed to continually strengthen our research and development
capability. We believe we have a strong research and development team, and we have made
continuous efforts to upgrade our technological know-how, improve our production processes
and expand our portfolio with new products. However, research and development activities
require considerable amounts of human resources and capital investments. In the event that our
research and development efforts fail to achieve the goals as planned, our financial condition and
results of operations may be adversely affected.

Our production capacity expansion plan may not be successfully achieved.

We plan to further expand our production capacity, through construction of new production
plants as well as expanding existing production plants, to increase the market share of our
products.

We expect production at our Northeastern Plant Phase I to commence in the second half of
2011. Northeastern Plant Phase I has a planned production capacity of 200,000 tonnes of MSG
and 250,000 tonnes of fertilizer. See “Business – Production Facilities – Future Expansion of
Production Capacity.” In addition, we also plan to commence the construction of Northeastern
Plant Phase II by the end of 2011, which we expect to have an annual production capacity of
250,000 tonnes of MSG and 30,000 tonnes of threonine, together with supporting facilities.

However, our expansion plan, including without limitation the planned construction of
Northeastern Plant Phase II, is subject to risks and uncertainties in a number of areas, including,
without limitation, capital requirements, the requirements of obtaining necessary governmental
approvals and operational risks. In addition, there are many factors, some of which are beyond
our control, that may adversely affect the construction of the additional facilities in a timely
manner and within budget. We cannot assure you that any or all of the planned expansion of
production capacity will be successfully achieved within the planned timeframe or at all. Should
there be any delay or failure in the implementation of our expansion plan, our financial position
and results of operations may be adversely affected.

Our products may be susceptible to product liability claims.

In line with industry practice, we do not currently maintain any third party liabilities or
product liabilities insurance to cover any claims in respect of personal injury or defects in, or
deterioration of, our products. We cannot assure you that we will not be subject to product
liability claims in the future. Any product liability claim and any legal proceedings, arbitration
or administrative sanctions or penalties arising therefrom could have an adverse effect on our
financial condition, results of operations and reputation. Even if we are able to defend
successfully any such claims, we cannot assure you that users will not lose confidence in our
products as a result of the claims, which may adversely affect our future business and reputation.
Furthermore, any product liability claim, even one without merit, could result in our
management expending significant time and resources and us incurring significant expenses in
defending such claim.

11
Our business requires significant and continuous capital investment.

Our business is capital intensive and we may be required to make significant capital
investment to develop our business in the future. Historically, our capital expenditures have been
primarily financed by bank borrowings, cash generated from our operations, as well as proceeds
raised from our IPO in 2007 and proceeds from the issue of the 2010 Convertible Bonds in April
2010. We cannot assure you that in the future we will be able to secure sufficient capital to fund
planned capital expenditures. In particular, the availability of external funding is subject to
various factors, some of which are beyond our control, including the obtaining of governmental
approvals, prevailing capital market conditions, credit availability, interest rates and the
performance of the businesses we operate. Our inability to arrange sufficient funding in a timely
manner on terms that are satisfactory to us could adversely affect our business, results of
financial condition and expansion plans.

We may not be able to successfully expand our marketing and distribution network.

As part of our strategy, we intend to expand our domestic and international marketing and
distribution network through expanding our geographical coverage, as well as deepening the
coverage of our existing markets. We are in the process of opening 12 new sales offices, together
with sales and logistics centers in China to cover those provinces where we do not currently
have sales offices. To enhance our overseas sales capabilities of xanthan gum, MSG and starch
sweeteners, we intend to establish overseas sales offices in the Middle East first and then
gradually expand our direct marketing footprint to North America and Europe. The expansion of
our marketing and distribution network and the exploration of new markets will require
significant capital expenditure as well as human resources. We cannot assure you that we can
successfully implement the market expansion strategy or that such market expansion can
successfully improve our profitability.

Our growth depends on our ability to continue to attract and retain qualified personnel,
including our senior management members.

We rely on our employees, which include skilled workers, equipment operators, engineers
and other technical personnel for daily operations and business expansion. We cannot assure you
that we will be able to continue to attract and retain sufficient skilled and experienced
employees in the future. If we fail to recruit, retain or train skilled employees, our growth and
business prospects could be adversely affected. Additionally, a significant increase in the wages
paid by competing employers could result in a reduction in our skilled labor force and/or
increases in our rates of wages.

In addition, the industry expertise and extensive contributions of our executive directors
and other members of our senior management are essential to our continuing success. As we
continue to grow our business, we will increasingly require more employees and executives who
have industry-related experience and expertise. We cannot assure you that we will not at any
time lose the services of any of our senior management members or directors. If this occurs, we
may not be able to recruit and retain replacement personnel with equivalent qualifications on a
timely basis, the growth of our business may be adversely affected.

12
We may not be able to renew certain licenses, certificates and permits for our operations.

Under PRC law, we are required to obtain appropriate licenses, certificates and permits
from relevant PRC governmental authorities. We believe we have obtained all necessary licenses,
certificates and permits for the production and sale of our products. However, we cannot assure
you that we will be able to renew such licenses, certificates and permits upon their expiration. In
addition, eligibility criteria for these licenses, certificates and permits may change from time to
time and additional licenses, certificates and permits may be required and higher compliance
standards may have to be observed. In the event of the introduction of any new law or regulation,
or change in the interpretation of any existing law or regulation that may increase compliance
costs for us or make it more expensive for us to continue with the operation of any part of our
business, our financial condition and results of operations may be adversely affected.

We may not be able to meet regulatory requirements imposed by the governments of our export
destinations.

Certain countries to which we export our products may impose technical, hygiene or
environmental requirements on our products, which may be higher than the standards imposed
by the PRC government. These countries may also require us to obtain various permits, licenses
and approvals for our exported products. We cannot assure you that we will be able to meet the
relevant standards or obtain the requisite permits, licenses and approvals. If we fail to reach the
relevant standards adopted by these countries or obtain the requisite permits, licenses and
approvals now or in the future, our ability to export to these markets could be materially and
adversely affected.

Our insurance coverage may be insufficient to cover all risks of loss associated with our
business operations.

We maintain insurance policies that cover our fixed assets (including our buildings and
machinery) and our current assets (including our inventory) against damage caused by, among
other things, fire, explosions, thunderstorms, typhoons and landslides. We cannot, however,
guarantee that our insurance polices will provide adequate compensation for all potential losses.
Consistent with established practice in China, we do not carry any insurance for business
interruption or loss of profit arising from accidents at any of our production facilities or other
disruptions of our operations. Accidents or natural disasters may also result in significant
property damage, disruption to our operations and personal injuries, and our insurance coverage
may be inadequate to cover such losses. In the case of an uninsured loss or a loss in excess of
insured limits, we could suffer from damage to our reputation or lose all or a portion of our
production capacity as well as future revenue contribution from the relevant facilities.

13
RISKS RELATING TO THE BIOCHEMICAL INDUSTRY IN THE PRC

Compliance with environmental, health and production safety regulations can be costly, while
non-compliance with such regulations may result in fines, other penalties or actions that
could adversely affect our reputation.

As we operate mainly in China, we are required to comply with a variety of PRC national
and local regulations on environmental protection, health and production safety, and in order to
maintain or renew our licenses, certificates and permits, we are subject to various periodic
inspections, examinations, inquiries and audits by PRC regulatory authorities in accordance with
applicable PRC laws and regulations. Any non-compliance or failure to obtain, maintain or
renew the necessary licenses, certificates, permits or approvals in a timely manner could have a
negative impact on our financial condition and results of operations.

As the PRC environmental, health and safety laws and regulations are continuously
evolving, we cannot assure you that we have always complied with such regulations on a
historical basis or will continue to be in compliance with the applicable laws, or that we will not
incur additional costs to comply with such laws and regulations. Failure to comply with any of
these laws and regulations could result in the untimely delivery of goods, loss of revenue and
income, the accrual of substantial costs and fines and the suspension or termination of our
contracts. Any limitation or cost incurred as a result of our non-compliance with environmental,
health and safety laws and regulations may have an adverse effect on our financial condition and
results of operations.

Disruptions in the global financial markets or any further downturn in the global economy
could have an adverse impact on our financial condition and results of operations.

The global financial crisis that began in 2008 has adversely affected the United States and
other world economies, including China. Although the PRC government has adopted flexible
macroeconomic policies, including an announced fiscal stimulus package, aimed at offsetting the
slowdown brought about by the financial crisis, the growth of China’s overall economy has been
negatively impacted. The financial crisis may adversely affect our business and operating results.

The global financial crisis also resulted in a tightening in credit markets and a lower level
of liquidity in many financial markets, and increased volatility in credit and equity markets.
Many financial institutions worldwide have tightened lines of credit and reduced the amount of
funding available to borrowers. If these conditions continue, worsen or recur, they may
adversely affect the availability, terms and cost of borrowing in the future, including any
financing necessary to fund our capital expenditures. Any disruption in our ability to renew
existing credit facilities or obtain new borrowings on acceptable terms may adversely affect our
financial condition and results of operations and cash flows as we rely on bank borrowings for a
portion of our working capital and capital expenditure requirements.

The timing and nature of any recovery in worldwide financial markets and the global
economy remain uncertain, and there can be no assurance that market conditions will improve in
the near future. Although there have been recent signs of a possible economic recovery, there
can be no assurance that market conditions will not deteriorate again.

14
RISKS RELATING TO THE PRC

Adverse changes in the economic and political policies of the PRC government could have an
adverse effect on overall economic growth in China, which may adversely affect our business.

We conduct the majority of our business operations in China. Accordingly, our financial
condition, results of operations and prospects depend to a significant extent on economic
developments in China. China’s economy differs from the economies of most other countries in
many respects, including the degree of government intervention in the economy such as
government control of foreign exchange and the allocation of resources, the general level of
economic development and growth rates. While the PRC economy has experienced significant
growth in the past 30 years, this growth has been uneven across different periods, regions and
amongst various economic sectors. The PRC government has implemented various measures to
encourage economic development and guide the allocation of resources. The PRC government
also exercises significant control over China’s economic growth through the allocation of
resources, controlling the payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies.
Since late 2003, the PRC government has, at times, implemented a number of measures, such as
increasing the People’s Bank of China’s (“PBOC”) statutory deposit reserve ratio and imposing
commercial bank lending guidelines, which had the effect of slowing the growth of credit
availability. In 2008 and 2009, in response to the global financial crisis, the PRC government
relaxed such requirements but, since early 2010, has begun to tighten such requirements again,
partly in response to the recovery in the growth of the PRC economy. Any future actions and
policies adopted by the PRC government could materially affect the Chinese economy, which
may adversely affect our business.

PRC regulation of loans to and direct investments in PRC entities by offshore holding
companies may delay or prevent us from making loans or additional capital contributions to
our PRC operating subsidiaries.

We may make loans to our PRC subsidiaries. Loans to or investments in our PRC
subsidiaries are subject to approval by or registration with relevant governmental authorities in
China. We may also decide to finance our subsidiaries by means of capital contributions.
According to the relevant PRC regulations on foreign-invested enterprises in China, depending
on the total amount of investment, capital contributions to our PRC operating subsidiaries may
be subject to the approval of the PRC Ministry of Commerce or its local branches. We may not
obtain these government approvals on a timely basis, if at all, with respect to future capital
contributions by us to our subsidiaries.

Governmental control over currency conversion may limit our ability to utilize our cash
effectively.

The PRC government imposes controls on the convertibility of the Renminbi into foreign
currencies and, in certain cases, the remittance of currency out of China. We receive the majority
of our revenues in Renminbi. As a Cayman Islands holding company, we may rely on dividend
payments from our PRC subsidiaries to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations, payments of current account items, including
profit distributions and trade and service-related foreign exchange transactions, can be made in
foreign currencies without prior approval from the SAFE by complying with certain procedural
requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to
us without prior approval from the SAFE. But approval from or registration with appropriate
government authorities is required where Renminbi is to be converted into foreign currency and
remitted out of China to pay capital expenses such as the repayment of loans denominated in
foreign currencies. This could affect the ability of our PRC subsidiaries to obtain foreign

15
exchange through debt or equity financing, including by means of loans or capital contributions
from us. The PRC government may also at its discretion restrict access in the future to foreign
currencies for current account transactions.

There are significant uncertainties under the New EIT Law relating to our PRC enterprise
income tax liabilities.

Under the New EIT Law, the profits of a foreign invested enterprise arising in 2008 and
which are later distributed to its immediate holding company outside the PRC will be subject to
a withholding tax rate of 10.0% if the immediate holding company is determined by the PRC tax
authority to be a non-resident enterprise for PRC tax purposes, unless there is an applicable tax
treaty with the PRC that provides for a different withholding arrangement. Pursuant to a special
arrangement between Hong Kong and the PRC, such rate is lowered to 5.0% if a Hong Kong
resident enterprise owns over 25.0% of a PRC company. Further, according to the Circular on
State Administration of Taxation on Printing and Issuing the Administrative Measures for
Non-resident Individuals and Enterprises to Enjoy the Treatment Under Taxation Treaties, which
became effective on October 1, 2009, the 5.0% tax rate does not automatically apply. Approvals
from competent local tax authorities are required before an enterprise can enjoy the relevant tax
treatments relating to dividends under relevant taxation treaties. However, according to a tax
circular issued by the State Administration of Taxation in February 2009, if the main purpose of
an offshore arrangement is to obtain a preferential tax treatment, the PRC tax authorities have
the discretion to adjust the preferential tax rate enjoyed by the relevant offshore entity. In
addition, under the New EIT Law, enterprises established under the laws of jurisdictions outside
of China with their “de facto management bodies” located within China may be considered to be
PRC resident enterprises for tax purposes.

Although we are a company incorporated in the Cayman Islands and the equity interests of
our PRC subsidiaries are directly held by our subsidiaries in Hong Kong, the PRC tax authorities
may regard the main purpose of our subsidiaries in Hong Kong as seeking to reduce tax liability
by obtaining a lower withholding tax rate of 5.0%. As a result, the PRC tax authorities could
levy a higher withholding tax rate on dividends received by our subsidiaries in Hong Kong from
our PRC subsidiaries. In addition, under current PRC laws and regulations, it is also uncertain
whether we would be deemed to be a PRC tax-resident enterprise as a substantial portion of the
members of our management team are located in China. If we are deemed to be a PRC
tax-resident enterprise, our global income will be subject to PRC enterprise income tax at the
rate of 25.0%, which could have an adverse effect on our financial condition and results of
operations.

Uncertainties with respect to the PRC legal system could have an adverse effect on our
operations.

The PRC legal system is based on written statutes. Unlike under common law systems,
decided legal cases have little value as precedents in subsequent legal proceedings. In 1979, the
PRC government began to promulgate a comprehensive system of laws and regulations
governing economic matters in general, and forms of foreign investment (including wholly
foreign-owned enterprises and joint ventures) in particular. These laws, regulations and legal
requirements are relatively new and are often changing, and their interpretation and enforcement
involve significant uncertainties that could limit the reliability of the legal protections available
to us. We cannot predict the effects of future developments in the PRC legal system. We may be
required in the future to procure additional permits, authorizations and approvals for our existing
and future operations, which may not be obtainable in a timely fashion or at all. An inability to
obtain such permits or authorizations may have an adverse effect on our financial condition and
results of operations.

16
It may be difficult to serve process within the PRC or to enforce any judgment obtained from
non-PRC courts against us or our directors.

Our operating subsidiaries are incorporated in the PRC, substantially all of our Directors
currently reside within the PRC, and all or substantially all of our assets are located within the
PRC. The PRC does not currently have treaties providing for the reciprocal recognition or
enforcement of civil and commercial judgments of courts located in the United States, the
United Kingdom, Singapore, Japan and most other western countries. An Arrangement between
China and Hong Kong on Reciprocal Recognition and Enforcement of Judgments of Civil and
Commercial Cases under the Jurisdictions as Agreed to by the Parties Concerned was signed on
July 14, 2006 and came into effect on August 1, 2008. However, there are many restrictions on
such arrangement. As a result, it may not be possible to effect service of process upon our
subsidiaries or our Directors resident in the PRC pursuant to the authority of non-PRC courts.
Further, the recognition and enforcement in the PRC of judgments of courts outside the PRC
might be difficult or impossible.

An occurrence of a widespread health epidemic or a natural disaster could have an adverse

effect on our financial condition and results of operations.

Our business could be adversely affected by the effects of Influenza A virus subtype H1N1,
or A (H1N1), Severe Acute Respiratory Syndrome, or SARS, avian influenza or other epidemics
or outbreaks, or the fear of epidemics or outbreaks. A prolonged outbreak of A (H1N1), any
recurrence of SARS, avian influenza or other adverse public health developments or an
occurrence of any natural disasters, such as floods, earthquakes, sandstorms, snowstorms, fires
and droughts in China or elsewhere in the world could have a material and adverse effect on our
business operations. Such outbreaks or natural disasters could significantly impact the China
market and could cause a temporary closure of our production or other facilities. Such closure
could severely disrupt our operations and adversely affect our financial condition and results of
operations. Our operations could be disrupted if any of our staff members were suspected of
having A (H1N1), SARS or avian influenza, since this could require us to quarantine some or all
of our sales professionals and staff or disinfect our facilities. In addition, our financial condition
and results of operations could be adversely affected to the extent that A (H1N1), SARS, avian
influenza or other outbreak or natural disasters harms the global or Chinese economy in general.

17
 CAPITALIZATION

The following table sets forth our indebtedness and capitalization as of December 31, 2010.
The following table should be read in conjunction with our consolidated financial information
and related notes included in this document.

As of December 31, 2010

Actual
(RMB’000) (US$’000)
Total borrowings – current portion
Short-term bank borrowings, guaranteed and secured . . . . . . . . 30,000 4,545
Short-term bank borrowings, secured . . . . . . . . . . . . . . . . . . . . 30,000 4,545
Short-term bank borrowings, unsecured . . . . . . . . . . . . . . . . . 495,000 75,001
Total borrowings – current portion . . . . . . . . . . . . . . . . . . . . . 555,000 84,091
Total borrowings – non-current portion
2010 Convertible Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 981,458 148,706
Total borrowings – non-current portion . . . . . . . . . . . . . ..... 981,458 148,706
Capital and reserves attributable to equity shareholders of the
Company
Issued capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 174,097 26,378
Share premium
Proposed final dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . 217,070 32,889
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,594 49,939
Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76,985) (11,664)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,501,489 379,013
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,145,265 476,555
(1)
Total Capitalization .............................. 4,126,723 625,261

Note:

(1) Total capitalization represents the sum of the non-current portion of long-term borrowings and total equity.

Except as otherwise disclosed in this document, there has been no material adverse change
in our indebtedness or capitalization since December 31, 2010.

18
 SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial information as of and for each of the years
ended December 31, 2008, 2009 and 2010 has been derived from our consolidated financial
statements, as audited by PricewaterhouseCoopers, our independent certified public accountants,
for those years and as of the dates indicated included elsewhere in this document. Our
consolidated financial information has been prepared in accordance with HKFRS issued by the
HKICPA.

Selected Consolidated Income Statements

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Revenue . . . . . . . . . . . . . . . . . . . . . . . 3,585,343 4,632,884 6,416,425 972,186
Cost of sales . . . . . . . . . . . . . . . . . . . . (2,941,011) (3,233,277) (4,851,371) (735,056)
Gross profit . . . . . . . . . . . . . . . . . . . . 644,332 1,399,607 1,565,054 237,130
Other income . . . . . . . . . . . . . . . . . . . 44,300 63,908 110,550 16,750
Selling and marketing expenses . . . . . . (166,407) (215,715) (272,008) (41,213)
Administrative expenses . . . . . . . . . . . (141,961) (194,910) (277,697) (42,075)
Other operating expenses . . . . . . . . . . (12,222) (4,042) (22,187) (3,362)
Operating profit . . . . . . . . . . . . . . . . 368,042 1,048,848 1,103,712 167,230
Finance costs . . . . . . . . . . . . . . . . . . . (42,662) (25,251) (32,383) (4,907)
Profit before income tax . . . . . . . . . . 325,380 1,023,597 1,071,329 162,323
Income tax expense . . . . . . . . . . . . . . . (30,674) (95,312) (105,278) (15,951)
Profit for the year attributable to
Shareholders . . . . . . . . . . . . . . . . . 294,706 928,285 966,051 146,372
Earnings per share for profit
attributable to Shareholders during
the year (expressed in RMB cents
per share) . . . . . . . . . . . . . . . . . . . .
– basic (1) . . . . . . . . . . . . . . . . . . . . . 17.75 55.92 57.75 8.75
– diluted (2) . . . . . . . . . . . . . . . . . . . 17.75 55.88 53.68 8.09
Dividends . . . . . . . . . . . . . . . . . . . . 146,293 219,240 217,070 32,889
Other Financial Data (unaudited)
EBITDA (3) . . . . . . . . . . . . . . . . . . 522,815 1,242,158 1,357,657 205,706
EBITDA margin (4) . . . . . . . . . . . . 14.6% 26.8% 21.2% 21.2%
EBITDA/Gross interest expense (5) . 12.3 49.2 20.2 20.2
Total debt (6) /EBITDA . . . . . . . . . . . 1.12 0.48 1.13 1.13

Notes:

(1) Basic earnings per share are calculated by dividing the profit attributable to the shareholders of our Company by
the weighted average number of ordinary shares in issue during the year.

(2) Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares
outstanding assuming the conversion of all dilutive potential ordinary shares. Our Company’s potentially dilutive
ordinary shares comprised share options and the 2010 Convertible Bonds. The share options for 2008 are
anti-dilutive and accordingly, the diluted earnings per share and basic earnings per share for 2008 are the same.

19
(3) We calculate EBITDA by adding depreciation and amortization expenses to operating profit. EBITDA is not a
standard measure under HKFRS. EBITDA is a widely used financial indicator of a company’s ability to service
and incur debt. EBITDA should not be considered in isolation or construed as an alternative to cash flows, profit
attributable to shareholders or any other measure of performance or as an indicator of our operating
performance, liquidity, profitability or cash flows generated by operating, investing or financing activities.
EBITDA does not account for taxes, net finance costs and depreciation and amortization. In evaluating EBITDA,
we believe that investors should consider, among other things, the components of EBITDA such as turnover and
operating expenses and the amount by which EBITDA exceeds capital expenditures and other charges. We have
included EBITDA herein because we believe it is a useful supplement to cash flow data as a measure of our
performance and our ability to generate cash from operations to cover debt service and taxes. EBITDA presented
herein may not be comparable to similarly titled measures presented by other companies.

(4) EBITDA margin is calculated by dividing EBITDA by revenue.

(5) Gross interest expense represents interest expense before capitalization. Gross interest expense is not a standard
measure under HKFRS. Gross interest expense presented herein may not be comparable to similarly titled
measures presented by other companies.

(6) Total debt represents the sum of borrowings included in non-current liabilities and borrowings included in current
liabilities.

20
Selected Consolidated Balance Sheet

As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
ASSETS
Non-current assets
Leasehold land payments . . . . . . . . . . 132,334 140,160 169,187 25,634
Property, plant and equipment . . . . . . . 1,954,845 2,507,897 4,087,675 619,345
Deferred income tax assets . . . . . . . . . 423 5,162 20,759 3,145
2,087,602 2,653,219 4,277,621 648,124
Current assets
Inventories . . . . . . . . . . . . . . . . . . . . . 356,288 551,028 710,695 107,681
Trade and other receivables . . . . . . . . . 548,355 687,782 816,773 123,754
Current income tax recoverable . . . . . . 2,654 – – –
Short-term bank deposits . . . . . . . . . . . 42,860 26,310 147,225 22,307
Cash and cash equivalents . . . . . . . . . . 224,706 342,682 767,951 116,356
1,174,863 1,607,802 2,442,644 370,098
Total assets . . . . . . . . . . . . . . . . . . . . 3,262,465 4,261,021 6,720,265 1,018,222
EQUITY
Capital and reserves attributable to
the Shareholders
Share capital . . . . . . . . . . . . . . . . . . . 169,034 169,034 174,097 26,378
Share premium . . . . . . . . . . . . . . . . . .
– Proposed final dividend . . . . . . . . . 146,293 219,240 217,070 32,889
– Others . . . . . . . . . . . . . . . . . . . . . 931,851 566,200 329,594 49,939
Other reserves . . . . . . . . . . . . . . . . . . (247,904) (171,080) (76,985) (11,664)
Retained earnings . . . . . . . . . . . . . . . . 742,240 1,610,317 2,501,489 379,013
Total equity . . . . . . . . . . . . . . . . . . . . 1,741,514 2,393,711 3,145,265 476,555
LIABILITIES
Non-current liabilities
Deferred income . . . . . . . . . . . . . . . . . 27,798 90,880 141,810 21,486
Borrowings . . . . . . . . . . . . . . . . . . . . 312,000 180,000 981,458 148,706
Deferred income tax liabilities . . . . . . . 10,928 24,221 27,033 4,096
350,726 295,101 1,150,301 174,288
Current liabilities
Trade, other payables and accruals . . . . 887,533 1,140,475 1,839,022 278,640
Current income tax liabilities . . . . . . . – 13,734 30,677 4,648
Current portion of deferred income . . . 6,692 – – –
Borrowings . . . . . . . . . . . . . . . . . . . . 276,000 418,000 555,000 84,091
1,170,225 1,572,209 2,424,699 367,379
Total liabilities . . . . . . . . . . . . . . . . . 1,520,951 1,867,310 3,575,000 541,667
Total equity and liabilities . . . . . . . . . 3,262,465 4,261,021 6,720,265 1,018,222
Net current assets . . . . . . . . . . . . . . . 4,638 35,593 17,945 2,719
Total assets less current liabilities . . . 2,092,240 2,688,812 4,295,566 650,843

21
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with “Selected Consolidated

Financial Data” and our consolidated financial information, including the notes thereto,
included elsewhere in this document. All significant intra-group transactions, balances and
unrealized gains on intra-group transactions have been eliminated.

Our historical results do not necessarily indicate our performance for any future periods.
The discussion and analysis of our financial condition and results of operations contain
forward-looking statements that involve risks and uncertainties. In evaluating our business, you
should carefully consider the information provided in the section headed “Risk Factors” in this
document.

OVERVIEW

We are a leading corn-based biochemical company. According to the China Fermentation

Industry Association, we are the largest manufacturer of MSG in China and the largest
manufacturer of xanthan gum in the world based on production capacity as of December 31,
2009. We have a highly vertically-integrated production process along the entire corn-based
biochemical product value chain, from wet milling and processing of corn into cornstarch and
other refined corn products, to the production of corn-based biochemical products. In addition to
MSG and xanthan gum, our products include corn refined products (including corn germ, corn
fiber and corn gluten meal), starch sweeteners (including maltose syrup, fructose syrup and
crystallized glucose), fertilizers, corn oil, chicken powder and threonine, all of which are
derived from different stages of corn processing. We believe our highly vertically-integrated
production process allows us to diversify our product offering, lower our production costs and
increase our competitiveness.

Our production facilities are strategically located in the major corn growing and/or coal
mining reserve regions in Shandong Province, Shaanxi Province and Inner Mongolia providing
us with easy access to our major raw materials at relatively low prices. As of December 31,
2010, our annual production capacity of MSG, xanthan gum, fertilizers, starch sweeteners, corn
oil, chicken powder and threonine was 540,000 tonnes, 44,000 tonnes, 560,000 tonnes, 140,000
tonnes, 35,000 tonnes, 10,000 tonnes and 10,000 tonnes, respectively. We plan to take advantage
of our leading market position to further expand our production capacity, through the
construction of new production facilities and the addition of new production lines at our existing
plants, to meet the anticipated growth in demand for our products and to further increase the
market share of our products.

We recognize the importance of using advanced technology to continually improve our

production efficiency and to develop new products. Our research and development capabilities
have played a key role in providing technical support facilitating our successful diversification
from a glutamic acid and MSG manufacturer to one of the leading corn-based biochemical
product manufacturers by broadening our product range to include products such as xanthan
gum, starch sweeteners, fertilizers and threonine.

For the year ended December 31, 2008, 2009 and 2010, our consolidated revenue was
RMB3,585.3 million, RMB4,632.9 million and RMB6,416.4 million (US$972.2 million),
respectively. As of December 31, 2008, 2009 and 2010, our consolidated total assets were
RMB3,262.5 million, RMB4,261.0 million and RMB6,720.3 million (US$1,018.2 million),
respectively.

22
SIGNIFICANT FACTORS THAT AFFECT OUR RESULTS OF OPERATIONS

Production Capacity

Our results of operations have depended and will continue to depend to a large extent on
our ability to fulfill customer orders, which in turn depends in part on our production capacity.
In order to accommodate the growing demand for our products, we have increased the
production capacity of our main products over the past three years. Our total production capacity
for MSG increased from 171,667 tonnes in 2008 to 540,000 tonnes in 2010. We expect to further
increase the production capacity of MSG to 750,000 tonnes by the end of 2011 with the
completion of Northeastern Plant Phase I, coupled with reengineering work at our existing
plants. To further expand our xanthan gum segment, we constructed a new production line
capable of producing 12,000 tonnes of xanthan gum per annum at our Inner Mongolia Plant in
2010. Our total production capacity for xanthan gum increased from 32,000 tonnes in 2008 to
44,000 tonnes in 2010. In addition, we have constructed an 80,000 tonnes per annum synthetic
ammonia production line and a 5,000 tonnes per annum fructose production line in 2010 at our
Inner Mongolia Plant. We are also reengineering our thermal power plant and plan to build new
railway facilities at our Inner Mongolia Plant beginning this year.

Furthermore, we are in the process of constructing our Northeastern Plant Phase I which is
expected to have an annual production capacity of 200,000 tonnes of MSG, 250,000 tonnes of
fertilizers and 100,000 tonnes of synthetic ammonia, together with supporting facilities
including a thermal power plant and self-owned railway facilities. Commercial production is
scheduled to commence in the second half of 2011. Given the significant growth of the PRC
threonine industry in the past few years and the expected continued growth in the near future, we
plan to construct additional production lines at our Inner Mongolia Plant and expect to increase
our production capacity of threonine from 10,000 tonnes to 40,000 tonnes by the end of 2012.

As a result of our production capacity expansion, we had capital expenditure commitment

amounting to RMB416.5 million as of December 31, 2010. We expect to continue to increase our
production capacity to accommodate the expected increase in demand for our products. As a
result, we anticipate that we will incur further capital expenditures, which we intend to finance
using cash generated from our operations and bank borrowings. Whether we can successfully
expand our production capacity will determine to a large extent our future results of operations.

Pricing of Our Products

Our revenue and results of operations are dependent on the average selling price of our
products. Our main products are MSG and xanthan gum. For the year ended December 31, 2008,
2009 and 2010, the average selling price of our MSG was RMB6,865, RMB7,680 and RMB7,903
(US$1,197) per tonne, respectively, and the average selling price of our xanthan gum was
RMB21,594, RMB20,989 and RMB19,579 (US$2,967) per tonne, respectively. We believe that
the increase in the average selling prices of our MSG segment reflected increased demand in
general and our ability to pass on a portion of our increased cost of sales to our customers
through higher average selling prices. We believe the decrease in the average selling price of our
xanthan gum in 2009 as compared to 2008 was primarily due to the decrease in the general
market price of xanthan gum, which we believe was a result of our production capacity
expansion which drove up the market supply of xanthan gum in 2009. We believe the decrease in
the average selling price of xanthan gum in 2010 as compared to 2009 was primarily due to our
increased production in order to expand market share, which increased the supply of xanthan
gum on the market. We cannot assure you that the average selling price of MSG will remain at
current levels or continue to rise, nor that the average selling price of xanthan gum will not
further decrease or fluctuate in the future. Any significant decrease in the average selling prices
of our main products may have a material and adverse effect on our revenue, profit margin and
results of operations.

23
Cost of Production

Corn is one of the major raw materials for our products and accounted for 46.6%, 52.7%
and 54.3% of our total cost of production for the year ended December 31, 2008, 2009 and 2010,
respectively. For the same periods, our average unit cost of corn was RMB1,424, RMB1,413 and
RMB1,741 (US$263.8) per tonne, respectively. Our average unit cost of corn is closely related to
the market price of corn in China, which is affected by factors including market demand and
supply, domestic government policy and the occurrence of climatic and other natural disasters
such as droughts, floods or earthquakes. We cannot assure you that we will be able to adjust the
prices of our products to pass on any increase in the price of corn to our customers. If we are
unable to pass on any increase in the price of corn to our customers, there may be an impact on
our cash flow position. Going forward, we believe our results of operations will continue to be
impacted by the price of corn.

We use coal as our primary source of energy in the manufacture of our main products,
particularly for the manufacture of xanthan gum. For the year ended December 31, 2008, 2009
and 2010, the cost of coal accounted for 14.1%, 11.5% and 13.1% of our total cost of
production, respectively, 10,9%, 9.4% and 11.2% of our total cost of production of MSG,
respectively and 42.3%, 30.7% and 35.4% of our total cost of production of xanthan gum,
respectively. Our results of operations are therefore sensitive to the fluctuation of the price of
coal. In 2009, the cost of coal as a proportion of our total cost of production decreased as
compared to 2008, primarily due to a general decrease in the market price of coal and an
increase in production efficiency at our Inner Mongolia Plant, as compared to our other
production plants. The increased production efficiency at our Inner Mongolia Plant was
attributable to its expanded production capacity. In 2010, the cost of coal as a proportion of our
total cost of production increased as compared to 2009 primarily due to the increased purchase
price of coal by approximately 22.8% in 2010 as compared to 2009, from an average unit cost of
RMB254 per tonne in 2009 to an average unit cost of RMB312 per tonne in 2010. We cannot
assure you that we can maintain the price of coal at an acceptably low level, or that there will
not be any further hikes in the price of coal in the future. If we are unable to pass on any
significant increase in the price of coal to our customers, our cash flow position, profit margin
and results of operations may be materially adversely affected.

Taxation

Our operating results depend in part on the tax concessions and preferential tax treatment
accorded by the PRC government to certain of our subsidiaries pursuant to favorable policies
aimed at encouraging investment in western China, as well as to Shandong Fufeng, Baoji Fufeng
and Inner Mongolia Fufeng, which have been designated as a new and high-tech enterprises (高
新技術企業).

Effective from January 1, 2008, subsidiaries incorporated in PRC are required to pay the
EIT in accordance with the Enterprise Income Tax Law of the People’s Republic of China (the
“New EIT Law”) as approved by the National People’s Congress on March 16, 2007 and
Detailed Implementation Regulations of the New EIT Law (the “DIR”) as approved by the State
Council on 6 December 2007. According to the new EIT Law and DIR, the income tax rate for
both domestic and foreign investment enterprises have been unified at 25% effective from
January 1, 2008. For enterprises which were established before the publication of the New EIT
Law and were entitled to the preferential treatment of reduced EIT rates granted by relevant tax
authorities, the applicable income tax rate will be gradually increased from the preferential rates
to 25% within five years after the effective date of the New EIT Law on January 1, 2008. For
regions that enjoy a reduced EIT rate of 15%, the tax rate would gradually increase to 18% for
2008, 20% for 2009, 22% for 2010, 24% for 2011 and 25% for 2012 according to the
grandfathering rules stipulated in the DIR and its related circular. Enterprises that are currently

24
entitled to exemptions or reductions from the standard income tax rate for a fixed term may
continue to enjoy such treatment until such fixed term expires.

Effective from December 5, 2008, Shandong Fufeng was approved to be a new and hi-tech
enterprise. In accordance with the relevant tax laws and regulations in the PRC and a local tax
authority approval dated December 5, 2004, Shandong Fufeng was entitled to a three-year 50%
tax reduction from the standard PRC state EIT rate of 30% and a full exemption from local EIT
of 3% during its approved operating period of 12 years. Accordingly, the effective tax rate for
Shandong Fufeng for the years ended December 31, 2008 and 2009 was 12.5% and 15%,
respectively, and its effective tax rate for the year ended December 31, 2010 was 15%. Going
forward, the effective tax rate for 2011 is expected to be 15%.

Baoji Fufeng was established on September 24, 2004 as a foreign-invested limited liability
company in Baoji, Shaanxi Province. Under applicable tax laws and regulations, Baoji Fufeng is
entitled to preferential tax treatment for establishing its glutamic acid and corn processing
facilities in Shaanxi Province, as part of the Western Development Plan (西部大開發). Its
applicable reduced preferential state EIT rate was 15% up to December 31, 2010 and its local
EIT rate was nil during its approved operating period of 12 years. Accordingly, the effective tax
rate for Baoji Fufeng for the years ended December 31, 2008 and 2009 was 7.5% in both years
and its effective tax rate for the year ended December 31, 2010 was 15%. We expect the effective
tax rate to be 15% for 2011.

Inner Mongolia Fufeng was set up as a foreign-invested limited liability company on March
31, 2006 in Hohhot, Inner Mongolia. Inner Mongolia Fufeng is entitled to enjoy the preferential
tax treatment under the Western Development Plan because it is situated in China’s western
development region and its business is encouraged by the PRC government. In accordance with
the relevant tax laws and regulations, the applicable income tax rate for Inner Mongolia Fufeng
is 15% from 2001 to 2010. In addition, according to a local tax authority approval dated April
16, 2007, Inner Mongolia Fufeng is entitled to a two-year full exemption followed by a
three-year 50% tax deduction from PRC state EIT, commencing from 2007. As a result, the
effective tax rate for Inner Mongolia Fufeng for the year ended December 31, 2009 was 7.5%
and it was fully exempted from income tax in 2008. Its effective tax rate for the year ended
December 31, 2010 was 7.5%. Going forward, we expect the effective tax rate to be 7.5% for
2011.

The preferential tax treatment enjoyed by some of our PRC subsidiaries are due to expire in
the next several years, at which time, they will be subject to the regular income tax rate of 25%.
Termination or revision of various types of PRC preferential tax treatments that our subsidiaries
currently enjoy will have a negative impact on our net profits and results of operations.

General Macroeconomic Conditions in China

We derive over 87% of our revenue from sales of products in China. We believe demand for
our products in China is closely linked to China’s general economic condition and disposable
household income. We have benefited from and expect to continue to benefit from the continuing
growth of the PRC economy and the increasing purchasing power of Chinese consumers, which
drives the demand for high quality biochemical products like ours. In addition, we believe we
have benefited from a shift in the PRC government’s economic policy in recent years, which
increasingly favors consumption driven economic growth rather than infrastructure investment
driven economic growth. However, our business could be susceptible to any slowdown in the
growth or recession of the PRC economy and we cannot assure you that we will continue to
benefit from favorable PRC government policies. Please also see “Industry Overview” in this
document for an introduction to relevant PRC government policies.

25
CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial information in conformity with HKFRS issued by the
HKICPA, which requires us to make estimates and assumptions that affect the reported amounts
of, among other things, assets, liabilities, revenue and expenses. We base our estimates on our
own historical experience and on various other factors that we believe to be relevant under the
circumstances. These estimates and assumptions are periodically re-evaluated by our
management and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions or conditions. Some of our accounting
policies require a higher degree of judgment than others in their application. We believe the
following accounting policies involve the most significant judgment and estimates used in the
preparation of our consolidated financial information and our consolidated financial statements.

Revenue Recognition

Our revenue comprises the fair value of the consideration received or receivable for the sale
of goods and services in the ordinary course of our activities. Revenue is shown net of
value-added tax, returns, rebates and discounts and after eliminating sales within the Group. We
recognize revenue when the amount of revenue can be reliably measured and it is probable that
future economic benefits will flow to the entity and specific criteria have been met for each of
our activities. We make this estimate based on our historical results, taking into consideration
the type of customer, the type of transaction and the specifics of each arrangement. Sales of
goods are recognized when we have delivered the products to the customers, the customers have
accepted the products and collectability of the related receivables is reasonably assured.

Property, Plant and Equipment

Property, plant and equipment, comprising plant, machinery, furniture and fixtures, and
vehicles, are stated at historical cost less depreciation and impairment losses. Historical cost
includes expenditure that is directly attributable to the acquisition of the items.

Construction in progress includes plant under construction and machinery under

installation and testing and which, upon completion, management intends to hold as property,
plant and equipment. It is carried at cost, which includes cost of construction, plant and
equipment and other direct cost plus borrowing costs used to finance these projects during the
construction period less accumulated impairment losses, if any. No depreciation is provided for
construction in progress. On completion, the relevant assets are transferred to property, plant and
equipment at cost less accumulated impairment losses.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to us and the cost of the item can be measured reliably. All other repairs and
maintenance are charged to the consolidated income statement during the financial period in
which they are incurred.

26
 Depreciation on property, plant and equipment, except for construction in progress, is
calculated using the straight-line method to allocate their costs to their residual values over their
estimated useful lives, as follows:

Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 to 20 years
Machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 to 10 years
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 8 years
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 8 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the
end of each reporting period. An asset’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than its estimated recoverable
amount. Gains and losses on disposals are determined by comparing the proceeds with carrying
amount. These are included in the income statement under “other income” and “other operating
expenses,” respectively.

Impairment of Assets

Assets that have an indefinite useful life, which are not subject to amortization, are tested
annually for impairment. Assets that are subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash flows
(cash-generating units). Non-financial assets other than goodwill that suffered an impairment are
reviewed for possible reversal of the impairment at each reporting date.

Inventories

Our inventories primarily consist of: (i) raw materials; (ii) work-in-progress; and (iii)
finished goods. We state our inventories at the lower of cost and net realizable value. Cost is
determined using the weighted average method. The cost of finished goods and work-in-progress
comprises raw materials, direct labor, other direct costs and related production overheads (based
on normal operating capacity). It excludes borrowing costs. Net realizable value is the estimated
selling price in the ordinary course of business, less applicable variable selling and marketing
expenses.

Trade and Other Receivables

Trade receivables are amounts due from customers for merchandise sold or services
performed in the ordinary course of business. If collection of trade and other receivables is
expected in one year or less (or in the normal operating cycle of the business, if longer), they are
classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision for impairment. A
provision for impairment of trade and other receivables is established when there is objective
evidence that we will not be able to collect all amounts due according to the original terms of
the receivables. Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganization, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. The amount of the provision is the
difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. The carrying amount of the assets is

27
reduced through the use of an allowance account, and the amount of the loss is recognized in the
consolidated income statement within “administrative expenses.” When a receivable is
uncollectible, it is written off against the allowance account for receivables. Subsequent
recoveries of amounts previously written off are credited against administrative expense in the
income statement.

Government Grants

Grants from the PRC local government are recognized at their fair value where there is a
reasonable assurance that the grant will be received and we will comply with all attached
conditions. Government grants relating to costs are deferred and recognized in the consolidated
income statement over the period necessary to match them with the costs that they are intended
to compensate. Government grants relating to the acquisition of property, plant and equipment
are included in liabilities as deferred income and are credited to the consolidated income
statement over the periods and in the proportions in which depreciation on these assets is
charged.

Taxation

The tax expense for a reporting period comprises current and deferred tax. Tax is
recognized in the income statement, except to the extent that it relates to items recognized in
other comprehensive income or directly in equity. The current income tax charge is calculated on
the basis of the tax laws enacted or substantively enacted at the balance sheet date in the
countries where we operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is
subject to interpretation. It establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or
loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realized or the deferred income tax liability is settled. Deferred
income tax assets are recognized only to the extent that it is probable that future taxable profit
will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in

subsidiaries, except where the timing of the reversal of the temporary difference is controlled by
us and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current income tax assets against current income tax liabilities and when the deferred
income taxes assets and liabilities relate to incomes taxes levied by the same taxation authority
on either the taxable entity or different taxable entities where there is an intention to settle the
balances on a net basis.

28
2010 Convertible Bonds

Compound financial instruments issued by the Group comprise convertible bonds that can
be converted to share capital at the option of the holder, and the number of shares to be issued
does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognized initially at the

fair value of a similar liability that does not have an equity conversion option. The equity
component is recognized initially at the difference between the fair value of the compound
financial instrument as a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and equity components in proportion
to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument

is measured at amortized cost using the effective interest method. The equity component of a
compound financial instrument is not re-measured subsequent to initial recognition except on
conversion or expiry.

SELECTED ITEMS OF INCOME STATEMENTS

Revenue

We derive all of our revenue from sales of two main segments of products, namely:

• MSG segment, which comprises MSG, glutamic acid, corn refined products,
fertilizers, starch sweeteners, threonine and others; and

• xanthan gum segment, which comprises xanthan gum.

Our revenue was approximately RMB3,585.3 million, RMB4,632.9 million, and

RMB6,416.4 million (US$972.2 million) for the year ended December 31, 2008, 2009 and 2010,
respectively, representing a growth of 29.2% from 2008 to 2009 and 38.5% from 2009 to 2010.
Revenue from our MSG segment accounted for 87.4%, 91.2% and 89.4% of our revenue for the
three years ended December 31, 2008, 2009 and 2010, respectively, whereas revenue from our
xanthan gum segment accounted for 12.6%, 8.8% and 10.6% of our revenue for the same period,
respectively. Approximately 87% of our revenue was generated from the PRC in 2010.

29
 The following table sets forth our revenue generated from and the percentage of our overall
revenue contribution by each of our products for the periods indicated:

For the year ended December 31,

2008 2009 2010
(% of (% of (% of
Total Total Total
(RMB’000) Revenue) (RMB’000) Revenue) (RMB’000) (US$’000) Revenue)
MSG segment
MSG . . . . . . 1,004,381 28.0% 2,245,307 48.5% 3,892,506 589,774 60.7%
Glutamic acid 1,053,298 29.4% 720,631 15.6% 153,633 23,278 2.4%
Corn refined
products . . 509,849 14.2% 557,523 12.0% 773,563 117,207 12.1%
Fertilizers . . . 380,097 10.6% 361,468 7.8% 369,649 56,007 5.8%
Starch
sweeteners . 163,002 4.5% 245,168 5.3% 356,704 54,046 5.6%
Threonine . . . – – – – 28,145 4,264 0.4%
Others (1) . . . 22,977 0.7% 94,663 2.0% 160,500 24,318 2.4%
Xanthan gum
segment
Xanthan gum . 451,739 12.6% 408,124 8.8% 681,725 103,292 10.6%
Total . . . . . . . . 3,585,343 100.0% 4,632,884 100.0% 6,416,425 972,186 100%

Note:

(1) Others include pharmaceutical products, chicken powder, corn oil and bricks.

30
Cost of Sales

Our cost of sales primarily consists of cost of production and change in inventory of
finished goods and work in progress. Cost of production primarily includes raw materials,
energy, depreciation, employee benefits and others. The table below sets forth the major
components of our cost of production and reconciliation to cost of sales for the periods
indicated.

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Major raw materials . . . . . . . . . . . . . . 1,917,251 2,185,523 3,234,765 490,116
Energy . . . . . . . . . . . . . . . . . . . . . . . . 411,626 386,304 646,581 97,967
Depreciation . . . . . . . . . . . . . . . . . . . . 133,691 177,364 231,013 35,002
Employee benefits . . . . . . . . . . . . . . . . 105,516 156,395 198,135 30,020
Others. . . . . . . . . . . . . . . . . . . . . . . . . 342,337 452,169 611,207 92,607
Total cost of production . . . . . . . . . . . . 2,910,421 3,357,755 4,921,701 745,712
Change in inventory of finished goods
and work in progress . . . . . . . . . . . . 30,590 (122,924) (69,751) (10,568)
Reversal of write-down of inventories . . – (1,554) (579) (88)

Cost of Sales. . . . . . . . . . . . . . . . . . . . 2,941,011 3,233,277 4,851,371 735,056

The cost of production of our MSG segment consists primarily of costs of raw materials
such as corn and others, energy (coal), depreciation, employee benefits and others. The table
below sets forth the breakdown of the cost of production for the MSG segment.

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Major raw materials:
Corn . . . . . . . . . . . . . . . . . . . . . . . . 1,304,277 1,692,010 2,559,799 387,848
Others . . . . . . . . . . . . . . . . . . . . . . . 515,349 371,862 521,779 79,057
Energy (coal) . . . . . . . . . . . . . . . . . . . 284,266 282,358 509,158 77,145
Depreciation . . . . . . . . . . . . . . . . . . . . 108,550 144,205 192,333 29,141
Employee benefit . . . . . . . . . . . . . . . . . 87,412 129,119 166,914 25,290
Others. . . . . . . . . . . . . . . . . . . . . . . . . 309,555 400,056 583,779 88,451
Total cost of production . . . . . . . . . . . 2,609,409 3,019,610 4,533,762 686,932

The cost of production of our xanthan gum segment consists primarily of cost of raw
materials such as corn, starch and soybeans, energy, depreciation, employee benefits and others.
The table below sets forth the breakdown of the cost of production for our xanthan gum segment.

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Major raw materials:
Corn . . . . . . . . . . . ..... . . . . . . . . 51,033 76,680 112,451 17,038
Starch . . . . . . . . . . ..... . . . . . . . . 23,290 22,314 17,745 2,689
Soy beans /soy bean starch . . . . . . . . 23,302 22,657 22,991 3,483
Energy (coal) . . . . . . ..... . . . . . . . . 127,360 103,946 137,423 20,822
Depreciation . . . . . . . ..... . . . . . . . . 25,141 33,159 38,680 5,861
Employee benefit . . . . ..... . . . . . . . . 18,104 27,276 31,221 4,730
Others. . . . . . . . . . . . ..... . . . . . . . . 32,782 52,113 27,428 4,156
Total cost of production . . . . . . . . . . . 301,012 338,145 387,939 58,779

31
 Raw materials used in our MSG segment consist primarily of corn, liquid ammonia and
sulphuric acid. Raw materials used in our xanthan gum segment consist primarily of corn, starch
and soybeans. The cost of corn is one of our major raw material costs and accounted for 46.6%,
52.7% and 54.3% of our total cost of production for the year ended December 31, 2008, 2009
and 2010, respectively. Major raw material costs amounted to RMB1,917.3 million, RMB2,185.5
million and RMB3,234.8 million (US$490.1 million) for the three years ended December 31,
2008, 2009 and 2010, respectively. The increase in raw material costs was mainly due to the
increased purchase prices of our major raw materials and increased volume of raw materials
purchased.

Energy derived from coal accounts for the largest proportion of cost of production for our
xanthan gum segment. Energy costs accounted for 14.1%, 11.5% and 13.1% of our total cost of
production for the year ended December 31, 2008, 2009 and 2010, respectively and amounted to
RMB411.6 million, RMB386.3 million and RMB646.6 million (US$98.0 million) for the same
period, respectively. The cost of coal accounted for 42.3%, 30.7% and 35.4% of our cost of
production of xanthan gum for the years ended December 31, 2008, 2009 and 2010. The increase
in energy costs was mainly due to an increase in the purchase price of coal and increased volume
of coal purchased.

Depreciation represents depreciation of our production plants and equipment. Depreciation

amounted to RMB133.7 million, RMB177.4 million and RMB231.0 million (US$35.0 million)
for the year ended December 31, 2008, 2009 and 2010, respectively. The increase was due to our
expanded production capacity over the past three years.

Employee benefit includes payments to employees in our production plants in respect of

their wages, salaries and allowance. Employee benefit costs amounted to RMB105.5 million,
RMB156.4 million and RMB198.1 million (US$30.0 million) for the year ended December 31,
2008, 2009 and 2010, respectively. The increase in employee benefit was mainly due to the
increased employee headcount as a result of operation expansions, as well as increased wages.

Others, which mainly consists of repair and maintenance expenses and non-key raw
materials, amounted to RMB342.3 million, RMB452.2 million and RMB611.2 million (US$92.6
million) for the year ended December 31, 2008, 2009 and 2010, respectively. The increase in
others was primarily due to our increased production capacity.

Gross Profit and Gross Profit Margin

For the year ended December 31, 2008, 2009 and 2010, our gross profit was approximately
RMB644.3 million, RMB1,399.6 million and RMB1,565.1 million (US$237.1 million),
respectively. The table below sets forth the gross profit and gross profit margin of our MSG and
xanthan gum segments for the periods indicated.

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
MSG segment
Gross profit . . . . . . . . . .......... 488,936 1,250,764 1,300,291 197,014
Gross profit margin (%) .......... 15.6 29.6 22.7 22.7
Xanthan gum segment
Gross profit . . . . . . . . . .......... 155,396 148,843 264,763 40,116
Gross profit margin (%) .......... 34.4 36.5 38.8 38.8

Other Income

Our other income primarily consists of interest income, amortization of deferred

government grants related to the purchase of qualified domestic manufactured equipment and
acquisition of certain property, plant and equipment, environment protection and technology
improvement, as well as sales of waste products. For the year ended December 31, 2008, 2009
and 2010, our other income was approximately RMB44.3 million, RMB63.9 million and
RMB110.6 million (US$16.8 million), respectively.

32
 Government grants represent (i) a reduction in income tax granted to Shandong Fufeng in
the year ended December 31, 2003, Baoji Fufeng in the year ended December 31, 2008 and Inner
Mongolia Fufeng in the year ended December 31, 2009 and 2010, respectively, on purchase of
certain qualified domestic manufactured equipment; and (ii) cash grants from the local
government relating to the acquisition of certain property, plant and equipment, environment
protection and technology improvement.

Sales of waste materials represent the sales of cinder which were produced as by-products
during the burning of coal in electricity generation. Following the construction of additional
production lines at our Baoji Plant in 2009 and at our Inner Mongolia Plant in 2009 and 2010,
there was a significant increase in production output leading to an increase in consumption of
coal, and thus, an increase in the sales of cinder.

Selling and Marketing Expenses

Our selling and marketing expenses primarily consist of freight costs, staff costs and
advertisement fees. Freight costs consist of expenses related to our shipment of products to
customers. For the three years ended December 31, 2008, 2009 and 2010, our selling and
marketing expenses were approximately RMB166.4 million, RMB215.7 million and RMB272.0
million (US$41.2 million), respectively, representing 4.6%, 4.7% and 4.2% of our revenue,
respectively.

Administrative Expenses

Administrative expenses mainly composed of staff costs, research and development

expense, travelling expense, depreciation, entertainment fee, amortization of leasehold land and
payments, professional fees, environment protection fee, repair and maintenance and
pre-operating expenses. As the scale of our business increased during the three years ended
December 31, 2008, 2009 and 2010, we incurred more administrative expenses to support our
operation during the same periods. For the three years ended December 31, 2008, 2009 and
2010, administrative expenses were approximately RMB142.0 million, RMB194.9 million and
RMB277.7 million (US$42.1 million), respectively, and represented 4.0%, 4.2% and 4.3% of our
revenue, respectively.

Staff costs mainly include wages, salaries and allowances, retirement benefit costs, and
share options granted to our directors and employees under a pre-IPO and post-IPO share option
scheme which we adopted on January 10, 2007.

Environmental protection fee mainly includes payment to the local environmental

protection administration bureau for environment protection in western China in connection with
our Baoji Plant in 2009 and at our Inner Mongolia Plant in 2009 and 2010.

Professional fees mainly include auditing, legal and other advisory fees.

Other Operating Expenses

Our other operating expenses primarily include loss on disposal of property, plant and
equipment and foreign exchange loss. For the year ended December 31, 2008, 2009 and 2010,
our other operating expenses were approximately RMB12.2 million, RMB4.0 million and
RMB22.2 million (US$3.4 million), respectively.

Finance Costs

Our finance costs were approximately RMB42.7 million, RMB25.3 million and RMB32.4
million (US$4.9 million) for the years ended December 31, 2008, 2009 and 2010, respectively.

33
Finance costs consist of interest expense on bank borrowings and other borrowings, including
the 2010 convertible bonds, during the relevant periods.

Income Tax Expenses

Our income tax expense during the three years ended December 31, 2008, 2009 and 2010
represent PRC EIT. During the three years ended December 31, 2008, 2009 and 2010, our
effective tax rate was 9.4%, 9.3% and 9.8%, respectively. Our effective tax rate increased from
9.3% in 2009 to 9.8% in 2010 mainly because of increased taxable income attributable to Baoji
Fufeng, which was subject to an income tax rate of 15% in 2010, compared to an income tax rate
of 7.5% in 2009.

Effective on January 1, 2008, in accordance with relevant PRC tax laws, the EIT rate
applicable to our subsidiaries incorporated in the PRC was 25% for those with original
applicable EIT rates higher than 25%, or gradually increased to 25% in a five-year transition
period from 2008 to 2012 for those with original applicable EIT rates lower than 25%. However,
our subsidiaries will continue to enjoy any existing tax preferential treatment up to the end of
the tax concession period, after which the 25% standard rate will apply.

The following table summarizes the EIT rates applicable as of December 31, 2010 to our
three subsidiaries enjoying preferential tax treatment.

Inner Mongolia
Shandong Fufeng Baoji Fufeng Fufeng
(1) (2) (2)
Standard/preferential tax rate . . . . . . . . 15% 15% 15%
Tax holiday
Full exemption (year) . . . . . . . . . . . . Already expired Already expired Already expired
50% exemption (year) . . . . . . . . . . . . Already expired Already expired 2009 to 2011

Notes:

(1) Shandong Fufeng was approved as a high-tech enterprise, which was entitled to a preferential income tax rate of
15%, until December 31, 2010.

(2) Due to policies aimed at encouraging investment in western China, Baoji Fufeng and Inner Mongolia Fufeng were
entitled to a preferential enterprise income tax rates of 15% and 15%, respectively, in 2010.

Profit for the Year

For the year ended December 31, 2008, 2009 and 2010, our profit for the year was
RMB294.7 million, RMB928.3 million and RMB966.1 million (US$146.4 million), respectively.

34
RESULTS OF OPERATIONS

The following table sets forth our results of operations for the periods indicated:

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Revenue . . . . . . . . . . . . . . . . . . . . . . 3,585,343 4,632,884 6,416,425 972,186
Cost of sales . . . . . . . . . . . . . . . . . . . . (2,941,011) (3,233,277) (4,851,371) (735,056)
Gross profit . . . . . . . . . . . . . . . . . . . . 644,332 1,399,607 1,565,054 237,130
Other income . . . . . . . . . . . . . . . . . . . 44,300 63,908 110,550 16,750
Selling and marketing expenses . . . . . . (166,407) (215,715) (272,008) (41,213)
Administrative expenses . . . . . . . . . . . (141,961) (194,910) (277,697) (42,075)
Other operating expenses . . . . . . . . . . (12,222) (4,042) (22,187) (3,362)
Operating profit . . . . . . . . . . . . . . . . 368,042 1,048,848 1,103,712 167,230
Finance costs . . . . . . . . . . . . . . . . . . . (42,662) (25,251) (32,383) (4,907)
Profit before income tax . . . . . . . . . . 325,380 1,023,597 1,071,329 162,323
Income tax expenses . . . . . . . . . . . . . . (30,674) (95,312) (105,278) (15,951)
Profit for the year and attributable to
the Shareholders . . . . . . . . . . . . . . 294,706 928,285 966,051 146,372

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Revenue

Our revenue increased by approximately 38.5% from approximately RMB4,632.9 million

for 2009 to approximately RMB6,416.4 million (US$972.2 million) for 2010. This increase was
primarily due to increased sales volume as a result of the increase in our production capacity and
market shares for MSG and xanthan gum.

MSG segment

Revenue from our MSG segment increased by approximately 35.7% from approximately
RMB4,224.8 million in 2009 to approximately RMB5,734.7 million in 2010. This increase was
primarily due to an increase of approximately 68.5% in the sales volume of MSG, from
approximately 292,369 tonnes in 2009 to approximately 492,560 tonnes in 2010. This increase
was partially offset by a decrease in glutamic acid sales volume by approximately 81.3%, from
approximately 100,993 tonnes in 2009 to 18,936 tonnes in 2010, as part of our strategy to focus
on MSG production and use our glutamic acid for MSG production internally rather than for
external sales. Our average selling price for MSG increased by approximately 2.9% from
RMB7,680 per tonne in 2009 to RMB7,903 per tonne in 2010. This was partially offset by a
decrease in the average selling price of our fertilizer by approximately 4.7% from RMB727 per
tonne in 2009 to RMB693 per tonne in 2010.

Our MSG sales volume increased primarily because of continuing domestic demand and the
growth of the Chinese economy at large, particularly in its domestic consumption. Our sales
volume was supported by our increased annual production capacity of approximately 77.0%
from 305,000 tonnes in 2009 to 540,000 tonnes in 2010. The increase in the average selling price
of our MSG reflected an increase in the market cost of corn of approximately 23.2%, translating
into an increase in the average selling price of our MSG products.

35
Xanthan gum segment

Revenue from our xanthan gum segment increased by approximately 67.0% from
approximately RMB408.1 million in 2009 to approximately RMB681.7 million in 2010. This
increase was due to a significant growth in demand primarily driven by the recovery of the
global economy in 2010, as approximately 86.4% of our xanthan gum was exported in 2010.
While the average selling price of our xanthan gum decreased due to price competition, the sales
volume of our xanthan gum increased significantly by approximately 80.0% from approximately
19,344 tonnes in 2009 to approximately 34,819 tonnes in 2010.

Cost of Sales

Our cost of sales increased by approximately 50.0% from approximately RMB3,233.3

million for 2009 to approximately RMB4,851.4 million (US$735.1 million) for 2010. This
increase was primarily due to increases in major material costs and sales volume as we further
expanded our production capacity.

MSG segment

Our cost of production in the MSG segment increased by approximately 50.1% from
approximately RMB3,019.6 million in 2009 to approximately RMB4,533.8 million in 2010. The
increase in cost of production of the MSG segment in 2010 was primarily due to our increased
production volume and increased raw material costs. Corn accounted for 56.5% of our total
production cost for the MSG segment in 2010, largely in line with its proportion of the total
production cost for the MSG segment in 2009 of 56.0%, despite a significant increase in the
average unit cost of corn from RMB1,413 per tonne in 2009 to RMB1,741 per tonne in 2010.
The cost of coal also increased significantly in 2010, with our average unit cost increasing from
RMB254 per tonne in 2009 to RMB312 per tonne in 2010, representing an increase of 22.8%.
These increases were due to increased commodity prices in the PRC economy at large, resulting
from the growth of the PRC economy and its continued recovery from the financial crisis.

Xanthan gum segment

Our cost of production in the xanthan gum segment increased by approximately 14.7%
from approximately RMB338.1 million in 2009 to approximately RMB387.9 million in 2010.
Our cost of production from the xanthan gum segment increased more slowly than the increase
in revenue from sales of xanthan gum over the same period because we produced a higher
proportion of xanthan gum at our Inner Mongolia Plant, which has a lower coal cost compared to
our other plants. Our cost of corn as a percentage of cost of production of the xanthan gum
segment increased from 22.7% in 2009 to 29.0% in 2010 as a result of an increase in the unit
cost of corn from approximately RMB1,403 per tonne in 2009 to approximately RMB1,711 per
tonne in 2010, representing an increase of 22.0%. Our cost of coal as a percentage of the cost of
production of xanthan gum increased from 30.7% in 2009 to 35.4% in 2010, mainly due to an
increase in the cost of coal by 16.2%, from approximately RMB228 per tonne in 2009 to
RMB265 per tonne in 2010.

Gross Profit and Gross Profit Margin

As a result of the foregoing, our gross profit increased by approximately RMB165.5 million
(US$25.1 million), or approximately 11.8%, from approximately RMB1,399.6 million for 2009
to approximately RMB1,565.1 million (US$237.1 million) for 2010.

36
Other Income

Our other income increased by approximately 73.0% from approximately RMB63.9 million
for 2009 to approximately RMB110.6 million (US$16.8 million) for 2010. This increase was
primarily due to increased sales of waste products resulting from our overall increased
production, as well as amortization of deferred government grants related to the acquisition of
environmental protection equipment and improvements in technology.

Selling and Marketing Expenses

Our selling and marketing expenses increased by approximately 26.1% from approximately
RMB215.7 million for 2009 to approximately RMB272.0 million (US$41.2 million) for 2010.
This increase was primarily due to increased freight expenses which were in line with our
increased sales.

Administrative Expenses

Our administrative expenses increased by approximately 42.5% from approximately

RMB194.9 million for 2009 to approximately RMB277.7 million (US$42.1 million) for 2010.
This increase was primarily due to an increase in administrative personnel due to our increased
operation scale, as well as increased wages for these personnel. In addition, we incurred
increased research and development expenses related to more research projects. We also had an
impairment provision for intangible assets of RMB14.0 million in relation to patents owned by
Shenhua Pharmaceutical.

Other Operating Expenses

Our other operating expenses increased by approximately 448.9% from approximately

RMB4.0 million for 2009 to approximately RMB22.2 million (US$3.4 million) for 2010. This
increase was primarily due to an exchange loss of RMB18.0 million on our assets and liabilities
denominated in Hong Kong dollars and U.S. dollars.

Finance Costs

Our finance costs increased by approximately 28.2% from approximately RMB25.3 million
for 2009 to approximately RMB32.4 million (US$4.9 million) for 2010. This increase was
primarily due to our issuance of the 2010 Convertible Bonds, as well as an increase in interest
rates in 2010.

Profit Before Income Tax

As a result of the foregoing, our profit before income tax increased by approximately 4.7%
from approximately RMB1,023.6 million for 2009 to approximately RMB1,071.3 million
(US$162.3 million) for 2010.

Income Tax Expenses

Our income tax expenses increased by approximately 10.5% from approximately RMB95.3
million for 2009 to approximately RMB105.3 million (US$16.0 million) for 2010. This increase
was primarily due to an increased effective tax rate of 9.8% in 2010 compared to 9.3% in 2009,
as a result of increased taxable income attributable to Baoji Fufeng, which was subject to a tax
rate of 15% in 2010, compared to 7.5% in 2009.

37
Profit for the Year

Our profit for the year increased by approximately RMB37.8 million (US$5.7 million), or
approximately 4.1% from approximately RMB928.3 million for 2009 to approximately
RMB966.1 million (US$146.4 million) for 2010.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Revenue

Our revenue increased by approximately 29.2% from approximately RMB3,585.3 million in

2008 to approximately RMB4,632.9 million in 2009. This increase was primarily due to an
increase in both the sales volume and the average selling price of certain of our products
resulting from the improved economic environment in 2009 as compared to 2008.

MSG segment

Revenue from our MSG segment increased by approximately 34.8% from approximately
RMB3,133.6 million in 2008 to approximately RMB4,224.8 million in 2009. This increase was
primarily due to an increase in the sales volume of MSG and the average selling price of MSG
and glutamic acid. Our MSG sales volume increased by approximately 99.9% from 146,185
tonnes in 2008 to 292,369 tonnes in 2009. This was partially offset by a decrease in glutamic
acid sales volume by approximately 37.9% from 162,708 tonnes in 2008 to 100,993 tonnes in
2009. Our average selling price for MSG increased by approximately 11.9% from RMB6,865 per
tonne in 2008 to RMB7,680 per tonne in 2009. Our average selling price for glutamic acid also
increased by approximately 10.2% from RMB6,474 per tonne in 2008 to RMB7,135 per tonne in
2009. This was partially offset by a decrease in the average selling price of our fertilizers by
approximately 29.1% from RMB1,026 per tonne in 2008 to RMB727 per tonne in 2009.

Our MSG sales volume increased primarily because of strong domestic demand, boosted by
a favorable macroeconomic environment and a shift in national policy from an infrastructure
investment-driven economy to a more consumption-driven economy, as well as our increased
marketing efforts to increase the sales of our MSG in 2009. MSG sales volume reflected the
increase in our MSG annual production capacity by approximately 77.7% from 171,667 tonnes
in 2008 to 305,000 tonnes in 2009. Although our annual glutamic acid production capacity
increased by approximately 27.3% from 275,000 tonnes to 350,000 tonnes in 2009, our glutamic
acid sales volume decreased in that year. This was because, in 2009, we increased our
consumption of glutamic acid in line with our strategy to produce more MSG and
correspondingly decreased our sales of glutamic acid to our customers. The average selling price
of our MSG and glutamic acid increased reflecting an increase in the market cost of corn, which
translated into an increase in the average selling price of our MSG and glutamic acid products.

Xanthan gum segment

Revenue from our xanthan gum segment decreased by approximately 9.7% from
approximately RMB451.7 million in 2008 to approximately RMB408.1 million in 2009. This
decrease was primarily due to a decrease in the average selling price of xanthan gum by
approximately 2.8% from RMB21,594 per tonne in 2008 to approximately RMB20,989 per tonne
in 2009, as well as a decrease in our sales volume of xanthan gum by approximately 6.1% from
20,590 tonnes in 2008 to 19,344 tonnes in 2009. The decrease in both average selling price and
sales volume of xanthan gum was caused by the global economic downturn and falling oil prices,
which adversely impacted the world demand for xanthan gum, as well an increased supply of
xathan gum on the market from our increased production.

38
Cost of Sales

Our cost of sales increased by approximately 9.9% from approximately RMB2,941.0

million in 2008 to approximately RMB3,233.3 million in 2009. The increase in cost of sales in
2009 was proportionally smaller than the increase in revenue in 2009, primarily due to our
improved production efficiency and a decrease in the costs of our main raw materials in that
year.

MSG segment

Our cost of production in the MSG segment increased by approximately 15.7% from
approximately RMB2,609.4 million in 2008 to approximately RMB3,019.6 million in 2009. The
increase in cost of production of the MSG segment in 2009 was proportionally smaller than the
increase in revenue in 2009, because the increase in the prices of raw materials used in
production was lower than the increase in average selling prices of products in this segment. Our
cost of corn as a percentage of cost of production of the MSG segment increased from
approximately 50.0% in 2008 to 56.0% in 2009, mainly due to the increase in the price of corn
relative to our other raw materials, such as liquid ammonia, sulphuric acid, as well as a decrease
in the cost of coal. Our average unit cost of corn decreased by approximately 0.8% from
RMB1,424 per tonne in 2008 to RMB1,413 per tonne in 2009. Our cost of coal as a percentage
of cost of production of the MSG segment decreased in 2009 as compared to 2008, mainly due to
a decrease in the average unit cost of coal resulting from the expansion of production capacity at
our Inner Mongolia Plant, which procured coal at relatively lower prices due to the local coal
market conditions. The average cost of coal used in our MSG segment decreased by
approximately 31.2% from RMB369 per tonne in 2008 to RMB254 per tonne in 2009.

Xanthan gum segment

Our cost of production in the xanthan gum segment increased by approximately 12.3%
from approximately RMB301.0 million in 2008 to approximately RMB338.1 million in 2009.
Our cost of production from the xanthan gum segment increased in 2009 as compared to 2008
while revenue decreased over the same period, because demand for xanthan gum from our
customers in the oil industry decreased as a result of the global economic downturn which
caused a decrease in the average selling price of xanthan gum in 2009. Our cost of corn as a
percentage of cost of production increased from approximately 17.0% in 2008 to 22.7% in 2009,
mainly due to the decrease in the cost of coal. Our cost of coal as a percentage of cost of
production of the xanthan gum segment decreased from 42.3% in 2008 to 30.7% in 2009, mainly
due to a decrease in the average unit cost of coal resulting from the expansion of production
capacity at our Inner Mongolia Plant. The average unit cost of coal in our xanthan gum segment
also decreased by approximately 37.5% from RMB365 per tonne in 2008 to RMB228 per tonne
in 2009.

Gross Profit and Gross Profit Margin

As a result of the foregoing, our gross profit increased by approximately RMB755.3

million, or approximately 117.2%, from approximately RMB644.3 million in 2008 to
approximately RMB1,399.6 million in 2009, and our gross profit margin increased from
approximately 18.0% in 2008 to 30.2% in 2009.

Other Income

Other income increased by approximately 44.3% from approximately RMB44.3 million in

2008 to approximately RMB63.9 million in 2009. This increase was primarily due to an increase
in the amortization of deferred government grants and sales of waste products.

39
Selling and Marketing Expenses

Our selling and marketing expenses increased by approximately 29.6% from approximately
RMB166.4 million in 2008 to approximately RMB215.7 million in 2009. This increase was
primarily due to a much higher advertisement fee in line with our increased sales.

Administrative Expenses

Our administrative expenses increased by approximately 37.3% from approximately

RMB142.0 million in 2008 to approximately RMB194.9 million in 2009. This increase was
primarily due to an increase in the number of our administrative staff, an increase in
management salaries, as well as amortization of share options as a result of an increase in our
share price in 2009. In addition, research and development related expenses also increased in
2009 as compared with 2008 as more research and development projects were initiated during
2009.

Other Operating Expenses

Other operating expenses decreased by approximately 66.9% from approximately RMB12.2

million for 2008 to approximately RMB4.0 million for 2009.

Finance Costs

Our finance costs decreased by approximately 40.8% from approximately RMB42.7 million
for 2008 to approximately RMB25.3 million for 2009. This decrease was primarily due to a
decrease in our average bank loan balance, as well as a decrease in interest rates on our bank
borrowings.

Profit Before Income Tax

As a result of the foregoing, our profit before income tax increased by approximately
214.6% from approximately RMB325.4 million in 2008 to approximately RMB1,023.6 million
in 2009.

Income Tax Expenses

Our income tax expenses increased by approximately 210.7% from approximately

RMB30.7 million in 2008 to approximately RMB95.3 million in 2009. This increase was in line
with the increase in our profit before tax.

Profit for the Year

Our profit for the year increased by approximately RMB633.6 million, or approximately
215.0% from approximately RMB294.7 million in 2008 to approximately RMB928.3 million in
2009.

40
LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

The following table sets forth a summary of our net cash flow for the periods indicated:

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Net cashflows generated from/(used in)
operating activities . . . . . . . . . . . . . . 448,943 586,174 1,119,950 169,689
Net cash used in investing activities . . . (399,296) (222,741) (1,394,679) (211,315)
Net cash/(used in) generated from
financing activities . . . . . . . . . . . . . (53,790) (245,457) 699,998 106,060
Net (decrease)/increase in cash and
cash equivalents . . . . . . . . . . . . . . . (4,143) 117,976 425,269 64,434
Cash and cash equivalents at beginning
of year . . . . . . . . . . . . . . . . . . . . . . 228,849 224,706 342,682 51,922
Cash and cash equivalents at the end
of year . . . . . . . . . . . . . . . . . . . . . . 224,706 342,682 767,951 116,356

Net cash generated from operating activities

The following table summarizes our cash flow from operating activities for the periods
indicated:

Year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Cash generated from operations before
changes in working capital . . . . . . . . 512,042 1,227,177 1,330,934 201,657
Change in working capital used . . . . . . (2,231) (590,655) (143,192) (21,696)
Cash generated from operations . . . . 509,811 636,522 1,187,742 179,961
Interest paid . . . . . . . . . . . . . . . . . . . . (42,662) (25,251) (24,517) (3,715)
Income tax paid . . . . . . . . . . . . . . . . . (18,206) (25,097) (43,275) (6,557)
Net cashflows generated from
operating activities . . . . . . . . . . . . 448,943 586,174 1,119,950 169,689

Our net cash generated from operating activities was approximately RMB1,120.0 million
(US$169.7 million) in the year December 31, 2010. This net cash inflow was primarily a result
of (i) profit before income tax of approximately RMB1,071.3 million and (ii) the adjustment for
depreciation in the amount of approximately RMB251.3 million, which was partially offset by
(i) an increase in inventories in the amount of approximately RMB159.1 million, (ii) an increase
in trade and other receivables in the amount of approximately RMB119.5 million and (iii) an
increase in restricted bank deposits in the amount of approximately RMB118.4 million.

41
 Our net cash generated from operating activities was approximately RMB586.2 million in
2009. This net cash inflow was primarily a result of (i) profit before income tax of
approximately RMB1,023.6 million and (ii) the adjustment for depreciation in the amount of
approximately RMB190.3 million, which was partially offset by (i) an increase in inventories in
the amount of approximately RMB193.2 million and (ii) an increase in trade and other
receivables in the amount of approximately RMB469.3 million.

Our net cash generated from operating activities was approximately RMB448.9 million in
2008. This net cash inflow was primarily a result of (i) profit before income tax of
approximately RMB325.4 million and (ii) the adjustment for depreciation in the amount of
approximately RMB152.5 million, which was partially offset by (i) an increase in inventories in
the amount of approximately RMB27.4 million and (ii) an increase in trade and other receivables
in the amount of approximately RMB18.2 million.

Net cash used in investing activities

Our net cash used in investing activities was approximately RMB1,394.7 million
(US$211.3 million) for the year ended December 31, 2010, primarily reflecting payments for the
acquisition of property, plant and equipment in the amount of approximately RMB1,416.3
million mainly with respect to the construction of our Northeastern Plant Phase I.

Our net cash used in investing activities was approximately RMB222.7 million for the year
ended December 31, 2009, primarily reflecting payments for the acquisition of property, plant
and equipment in the amount of approximately RMB217.8 million with respect to the
construction of our Inner Mongolia Plant and Baoji Plant.

Our net cash used in investing activities was approximately RMB399.3 million in 2008,
primarily reflecting (i) payments for the acquisition of property, plant and equipment in the
amount of approximately RM355.6 million with respect to the construction of production
facilities at our Inner Mongolia Plant; and (ii) purchase of leasehold land payments in the
amount of approximately RMB46.8 million with respect to the construction of our Baoji Plant.

Net cash generated from/used in financing activities

Our net cash generated from financing activities was approximately RMB700.0 million
(US$106.1 million) for the year ended December 31, 2010 primarily due to (i) net proceeds of
approximately RMB1,011.6 million from the issuance of the 2010 Convertible Bonds, (ii)
proceeds from bank borrowings in the amount of approximately RMB645.0 million, which were
partially offset by repayments of bank borrowings in the amount of RMB688.0 million and
dividends paid to our shareholders of RMB379.0 million.

Our net cash used in financing activities was approximately RMB245.5 million for the year
ended December 31, 2009, primarily reflecting (i) repayments of bank borrowings in the amount
of approximately RMB636.0 million and (ii) dividends paid to our shareholders in the amount of
approximately RMB292.7 million, which was partially offset by proceeds from bank borrowings
in the amount of approximately RMB646.0 million.

Our net cash used in financing activities was approximately RMB53.8 million in 2008,
primarily reflecting repayments of bank borrowings in the amount of approximately RMB810.3
million, which was partially offset by proceeds from bank borrowings in the amount of
approximately RMB750.0 million.

42
Capital Commitments and Contingent Liabilities

Capital commitments

We have entered into contracts to purchase property, plant and equipment. The following
table sets forth the total amount of our commitments as of the indicated dates.

As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Purchase of property, plant and
equipment
Contracted but not yet incurred . . . . . 12,958 175,522 416,489 63,104

Our capital commitments as of December 31, 2008 primarily related to purchases of

equipment and machinery for our Baoji and Inner Mongolia Plants. Our capital commitments as
of December 31, 2009 increased significantly compared to those as of December 31, 2008
because of further purchases of production equipment and machinery for our Baoji and Inner
Mongolia Plants. Our capital commitments as of December 31, 2010 increased substantially
compared to those as of December 31, 2009 because of the construction of, and the purchase of
production equipment for, our Northeastern Plant Phase I.

Operating lease commitments

We lease buildings under non-cancellable lease agreements. Our future aggregate minimum
lease payments under these non-cancellable operating leases are set forth as of the indicated
dates in the table below.

As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
No later than 1 year . . . . . . . . . . . . . . 166 679 451 68.3
Later than 1 year and no later than 5
years . . . . . . . . . . . . . . . . . . . . . . . – 713 263 39.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . 166 1,392 714 108.2

Contingent liabilities

We do not have contingent liabilities that will have an adverse effect on our liquidity,
results of operation, or financial positions.

Indebtedness

We have financed our operations primarily through cash flows from operations, short-term
and long-term loans from banks as well as proceeds from the issue of the 2010 Convertible
Bonds. The table below sets forth our short-term and long-term borrowings as of the dates
indicated.

43
 As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Non-current:
Long-term bank borrowings, secured 232,000 150,000 – –
Long-term bank borrowings,
unsecured . . . . . . . . . . . . . . . . . . 80,000 100,000 – –
2010 Convertible bonds . . . . . . . . . . – – 981,458 148,706
312,000 250,000 981,458 148,706
Less: Current portion of long-term
bank borrowings, secured . . . . . . . – (70,000) – –
312,000 180,000 981,458 148,706
Current:
Short-term bank borrowings,
guaranteed and secured . . . . . . . .. – – 30,000 4,545
Short-term bank borrowings,
secured. . . . . . . . . . . . . . . . . . . .. 30,000 – 30,000 4,545
Short-term bank borrowings,
unsecured . . . . . . . . . . . . . . . . .. 246,000 348,000 495,000 75,001
Current portion of long-term bank
borrowings, secured . . . . . . . . . .. – 70,000 – –
276,000 418,000 555,000 84,091
Total . . . . . . . . . . . . . . . . . . . . . . . 588,000 598,000 1,536,458 232,797

As of December 31, 2008, 2009 and 2010, our borrowings (including the 2010 Convertible
Bonds) were repayable as follows:

As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Within 1 year . . . . . . . . . . . . . . . . . . . 276,000 418,000 555,000 84,091
Between 1 and 2 years . . . . . . . . . . . . 312,000 180,000 – –
Between 2 and 5 years . . . . . . . . . . . . . – – 981,458 148,706
Total . . . . . . . . . . . . . . . . . . . . . . . . . 588,000 598,000 1,536,458 232,797

As of December 31, 2010, we had total borrowings of approximately RMB1,536.5 million

(US$232.8 million), of which approximately RMB555.0 million (US$84.1 million), were bank
borrowing. RMB30.0 million of our bank borrowings were guaranteed by Mr. Li and secured by
leasehold land and plant as of December 31, 2010. A further RMB30.0 million of our bank
borrowings were secured by restricted bank deposits of RMB2.5 million. Please also see
“Related Party Transactions” in this document. The average weighted interest rate of our bank
borrowing was 5.30% as of December 31, 2010. We expect to continue to obtain bank loans from
time to time to fund our working capital requirements. Our other borrowings as of December 31,
2010 of approximately RMB495.0 million (US$75.0 million) were unsecured. The remainder of
our other borrowing represented the 2010 Convertible Bonds. For details of our bank borrowings
and other borrowings, please refer to the section headed “Description of Other Material
Indebtedness.”

As of December 31, 2010, all of our borrowings were denominated in Renminbi.

44
 The weighted average effective interest rates of our bank borrowings are set forth in the
following table for the periods indicated:

As of December 31,
2008 2009 2010
RMB bank borrowings . . . . . . . . . . . . . . . . . . . . 6.59% 4.98% 5.30%

Since December 31, 2010, there has not been any material adverse change in our
indebtedness and contingent liabilities. For more information, see “Description of Other
Material Indebtedness.”

CAPITAL EXPENDITURES

Historical Capital Expenditures

Our capital expenditures include expenditures for property, plant and equipment and
leasehold land payments. The table below sets forth capital expenditures for the year or period
indicated.

As of December 31,
2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Acquisition of subsidiary, . . . . . . . . .. 52,873 - – –
Purchase of leasehold land payments .. 63,447 10,800 42,631 6,459
Purchase of property, plant and
equipment . . . . . . . . . . . . . . . . . . .. 462,566 744,774 1,855,705 281,167
Purchases of intangible assets (1) . . . . .. – – 14,002 2,122
Total . . . . . . . . . . . . . . . . . . . . . . . . . 578,886 755,574 1,912,338 289,748

Note:
(1) Purchases of intangible assets are related to purchases of patents by Shenhua Pharmaceutical for which an
impairment was subsequently recorded on our income statement.

Our capital expenditures during each year ended December 31, 2008, 2009 and 2010
primarily related to the expansion of our business operations.

Our capital expenditures in 2008 related primarily to (i) the migration of our MSG and
glutamic acid production lines from our Shandong Plant to our Baoji Plant and Inner Mongolia
Plant, which was completed in November 2008; (ii) the construction of 100,000 tonnes of MSG
production capacity at our Inner Mongolia Plant, which was completed in November 2008; and
(iii) the construction of corn oil and chicken powder production facilities at our Shandong Plant,
which were completed at the end of 2008.

Our capital expenditures in 2009 related primarily to (i) the construction of 150,000 tonnes
of MSG production capacity at our Inner Mongolia Plant, which was completed in November
2009; (ii) the construction of 70,000 tonnes of glutamic acid production capacity and 100,000
tonnes of fertilizer production capacity at our Baoji Plant, which was completed in December
2009; and (iii) the re-engineering of the production processes at our Baoji Plant and Inner
Mongolia Plant to increase our production capacity of glutamic acid and MSG by 40,000 tonnes
and 110,000 tonnes, respectively.

45
 Our capital expenditures in 2010 related primarily to (i) the construction of 12,000 tonnes
of xanthan gum production capacity at our Inner Mongolia Plant, which was completed during
the first half of 2010; (ii) the construction of 80,000 tonnes of synthetic ammonia production
capacity at our Inner Mongolia Plant, which was completed in late 2010; (iii) the construction of
5,000 tonnes of fructose production capacity at our Inner Mongolia Plant, which was completed
in mid-2010; (iv) the construction of additional capacity at our thermal power plant in Inner
Mongolia, which was completed in late 2010; and (v) the construction of railway facilities at our
Inner Mongolia Plant, which we expect to complete in 2011.

Leasehold land payments represent the prepaid operating lease payments for the medium
term leasehold land (10 to 50 years) in the PRC where the Shandong Plant and Baoji Plant are
located.

We have historically funded our capital expenditures from internally generated cash,
short-term and long-term bank borrowings, proceeds from share offerings and issuance of
equity-linked security products.

Planned Capital Expenditures

Our capital expenditures are expected to primarily consist of expenditures related to the
construction of our Northeastern Plant Phase I which is expected to have an annual production
capacity of 200,000 tonnes of MSG, 250,000 tonnes of fertilizer and 100,000 tonnes of synthetic
ammonia, together with supporting facilities including a thermal power plant and self-owned
railway facilities. Commercial production is scheduled to commence in the second half of 2011.

In addition, we also plan to commence construction of Northeastern Plant Phase II by the

end of 2011, which is expected to have an annual production capacity of 250,000 tonnes of MSG
and 30,000 tonnes of threonine together with supporting facilities including a thermal power
plant.

The majority of our capital expenditure plans are flexible and may be adjusted according to
market conditions.

Based on our current plan, we estimate that an aggregate of approximately RMB1,200.0

million (US$181.8 million) will be required to fund construction of our Northeastern Plant
Phase I. See “Use of Proceeds” for further information.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

We have not entered into any financial guarantees or other commitments to guarantee the
payment obligations of any third parties. We have not entered into any derivative contracts that
are indexed to our shares and classified as shareholder’s equity, or that are not reflected in an
unconsolidated entity that provides financing, liquidity, market risk or credit support to us or
engages in leasing or hedging or research and development services with us.

MARKET RISKS

Foreign Exchange Risk

We operate mainly in the PRC and most our transactions, assets and liabilities are
denominated in RMB. Our exposure to foreign exchange risk is principally due to our receipt of
foreign currencies, mainly U.S. dollars, from the sale of products to countries or areas outside
the PRC. Foreign currencies received from export sales represented approximately 16%, 10%
and 13% of our revenue for the three years ended December 31, 2008, 2009 and 2010,
respectively. We manage foreign exchange risk arising from export sales of our products by
asking overseas customers to pay in advance or by keeping the credit period available to
overseas customers as short as possible in order to reduce the effects of any fluctuation between
foreign currencies and the Renminbi.

46
 Since the listing of our shares on the Main Board of the Hong Kong Stock Exchange in
early 2007, we also received listing proceeds denominated in H.K. dollars. The listing proceeds
were mainly used for our expansion in the PRC. We manage foreign exchange risk arising from
listing proceeds by remitting the necessary funds into the PRC and converting them into
Renminbi as soon as practicable in order to reduce the effects of any fluctuation between the
H.K. dollar and the Renminbi.

We recognize foreign exchange gain or loss on our income statement due to changes in
value of assets denominated in foreign currencies during the relevant accounting period.
Appreciation of the Renminbi against the U.S. dollar generally results in loss arising from our
bank deposits in Hong Kong dollars, U.S. dollars and the Euro. A depreciation of the Renminbi
against the U.S. dollar would have the opposite effect. In addition, a depreciation of Renminbi
would negatively affect the value of dividends paid by our PRC subsidiaries, which may in turn
affect our ability to service foreign currency-denominated debts.

Fluctuations in the foreign exchange rate have had and will continue to have an impact on
our business, financial condition and results of operations. As of the date of this document, we
have not entered into any transaction to hedge against any fluctuation in foreign currency.

Interest Rate Risk

Our business is sensitive to fluctuations in interest rate. Our exposure to changes in interest
rates is mainly attributable to our borrowings. Borrowings at variable rates expose us to cash
flow interest rate risk. Borrowings at fixed rate expose us to fair value interest rate risk. A
portion of current borrowings bear variable rates and expose us to cash flow interest rate risk. In
addition, we are exposed to fair value interest rate risk, which arises from long-term borrowings
that bear fixed interest rates. As of December 31, 2010, we had floating rate borrowings of
RMB130.0 million (US$19.7 million) and fixed rate borrowings of RMB1,406.5 million
(US$213.1 million). As of the date of this document, we have not used any interest rate swap to
hedge our exposure to interest rate risk.

Higher interest rates may lead to higher borrowing costs and thus adversely affect our
revenue and profits. The PBOC benchmark one-year lending rates in China as of December 31,
2008, 2009 and 2010 were 5.31%, 5.31% and 5.81%, respectively. On February 8, 2011, the
PBOC announced an increase in its benchmark one year lending rate to 6.06% from 5.81%,
effective as of February 9, 2011. We cannot assure you that the PBOC will not further raise
lending rates in the future or that our business, financial condition and results of operations will
not be adversely affected as a result of these adjustments.

Inflation and Deflation Risk

For the three years ended December 31, 2008, 2009 and 2010, the inflation rate in China as
measured by the consumer price index was 5.9%, -0.7% and 3.3%, respectively, according to the
National Bureau of Statistics of China. We have not been materially and adversely affected by
these inflationary pressures. However, if the consumer price index continues to rise and if we are
not able to increase the prices of our services in China, our financial condition will be materially
adversely affected. As of the date of this document, we had not been materially affected by any
inflation or deflation.

Credit Risk

Our credit risk is primarily attributable to our trade receivables. We have adopted a policy
of only dealing with what we believe to be creditworthy counterparties and customers with
long-term relationships. We believe the credit risk relating to trade receivables is low. Our
customers’ default rate has been low in the past. Our credit risk exposure is spread among a
large number of customers. As such, we believe we have no significant concentration of credit
risk. Ongoing credit evaluation is performed on the financial condition of accounts receivable.
We do not hold any collateral for trade and other receivables.

47
Liquidity Risk

Our management aims to maintain sufficient cash and cash equivalents or have available
funding through an adequate amount of available financial resources, including short-term and
long-term bank loans and issuance of new ordinary shares. Due to the dynamic nature of our
business, our finance department strives to maintain flexibility in funding by maintaining an
adequate amount of cash and cash equivalents and having available sources of financing.

The table below sets forth an analysis of our financial liabilities based on remaining
maturity period as of December 31, 2008, 2009 and 2010, respectively:

Less than Between 1 Between 2 Over

1 year and 2 years and 5 years 5 years Total
(RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000)
As of December 31, 2008
Borrowings . . . . . . . . . . . . . . . 276,000 312,000 – – 588,000
Interest payments on bank
borrowings (1) . . . . . . . . . . . 8,711 34,873 – – 43,584
Trade, other payables and
accruals . . . . . . . . . . . . . . . . 776,688 – – – 776,688
Total . . . . . . . . . . . . . . . . . . . . 1,061,399 346,873 – – 1,408,272
As of December 31, 2009
Borrowings . . . . . . . . . . . . . . . 418,000 180,000 – – 598,000
Interest payments on bank
borrowings (1) . . . . . . . . . . . 22,873 6,040 – – 28,913
Trade, other payables and
accruals . . . . . . . . . . . . . . . . 1,000,387 – – – 1,000,387
Total . . . . . . . . . . . . . . . . . . . . 1,441,260 186,040 – – 1,627,300
As of December 31, 2010
Borrowings . . . . . . . . . . . . . . . 555,000 – 1,025,000 – 1,580,000
Interest payments on bank
borrowings and 2010
Convertible Bonds (1) . . . . . . 69,318 46,125 115,313 – 230,756
Trade, other payables and
accruals . . . . . . . . . . . . . . . . 1,625,678 – – – 1,625,678
Total . . . . . . . . . . . . . . . . . . . . 2,249,996 46,125 1,140,313 – 3,436,434

Note:

(1) The interests on borrowings are calculated based on bank borrowings and the 2010 Convertible Bonds held as of
December 31, 2008, 2009 and 2010 without taking into account of future issues. Floating-rate interests are
estimated using current interest rate as at December 31, 2008, 2009 and 2010, respectively.

NON-GAAP FINANCIAL MEASURES

We use certain non-GAAP data, such as EBITDA, to provide additional information about
our operating performance as we believe that it is a useful measure for certain investors to assess
our operating performance, operating cash flow and historical ability to meet debt service and
capital expenditure requirement. We calculate EBITDA by adding depreciation and amortization
expenses to operating profit.

48
 EBITDA is not a standard measure under HKFRS and should not be considered as an
alternative to cash flows from operating activities, a measure of liquidity or an alternative to net
income as indicators of our operating performance or any other measures of liquidity,
profitability or cash flows derived in accordance with HKFRS.

As a measure of our operating performance, we believe that the most directly comparable
HKFRS measure to EBITDA is profit for the year. We operate in a capital intensive industry. We
use EBITDA in addition to profit for the year because profit for the year includes many
accounting items associated with capital expenditures, such as depreciation and amortization.
These accounting items may vary between companies depending on the method of accounting
adopted by a company. Funds depicted by this measure may not be available for debt service due
to covenant restrictions, capital expenditure requirements and other commitments.

The following table reconciles our operating profit under HKFRS to our definition of
EBITDA for the periods indicated.

For the year ended December 31,

2008 2009 2010 2010
(RMB’000) (RMB’000) (RMB’000) (US$’000)
Operating profit . . . . . . . . . . . . . . . . . . 368,042 1,048,848 1,103,712 167,229
Depreciation and amortization . . . . . . . 154,773 193,310 253,945 38,477
EBITDA . . . . . . . . . . . . . . . . . . . . . . . 522,815 1,242,158 1,357,657 205,706

You should not consider our definition of EBITDA in isolation or construe it as an

alternative to profit for the periods indicated or as an indicator of operating performance or any
other standard measure under HKFRS. Our EBITDA measures may not be comparable to
similarly titled measures used by other companies. Interest expense excludes amounts
capitalized.

49
 BUSINESS

OVERVIEW

We are a leading corn-based biochemical company. According to the China Fermentation

Industry Association, we are the largest manufacturer of MSG in China and the largest
manufacturer of xanthan gum in the world based on production capacity as of December 31,
2009. We have a highly vertically-integrated production process along the entire corn-based
biochemical product value chain, from wet milling and processing of corn into cornstarch and
other refined corn products, to the production of corn-based biochemical products. In addition to
MSG and xanthan gum, our products include corn refined products (including corn germ, corn
fiber and corn gluten meal), starch sweeteners (including maltose syrup, fructose syrup and
crystallized glucose), fertilizers, corn oil, chicken powder and threonine, all of which are
derived from different stages of corn processing. We believe our highly vertically-integrated
production process allows us to diversify our product offering, lower our production costs and
increase our competitiveness.

Our production facilities are strategically located in the major corn growing and/or coal
mining reserve regions in Shandong Province, Shaanxi Province and Inner Mongolia providing
us with easy access to our major raw materials at relatively low prices. As of December 31,
2010, our annual production capacity of MSG, xanthan gum, fertilizers, starch sweeteners, corn
oil, chicken powder and threonine was 540,000 tonnes, 44,000 tonnes, 560,000 tonnes, 140,000
tonnes, 35,000 tonnes, 10,000 tonnes and 10,000 tonnes, respectively. We plan to take advantage
of our leading market position to further expand our production capacity, through the
construction of new production facilities and the addition of new production lines at our existing
plants, to meet the anticipated growth in demand for our products and to further increase the
market share of our products.

We recognize the importance of using advanced technology to continually improve our

production efficiency and to develop new products. As of December 31, 2010, we had a
well-qualified and strong research and development team, comprising 36 members. Our research
and development capabilities have played a key role in providing technical support facilitating
our successful diversification from a glutamic acid and MSG manufacturer to one of the leading
corn-based biochemical product manufacturers by broadening our product range to include
products such as xanthan gum, starch sweeteners, fertilizers and threonine.

The majority of the products in our MSG segment are sold domestically in China, primarily
to industrial manufacturers, trading companies and food additive distributors, and we export the
majority of our xanthan gum. As of December 31,2010, our sales and marketing team comprised
approximately 460 personnel, serving more than 4,000 domestic customers spanning all
municipalities, provinces and autonomous regions in China as well as overseas customers in over
73 countries and regions.

We have been listed on the Hong Kong Stock Exchange since February 8, 2007. As of
December 31, 2010, our market capitalization was approximately HK$11.4 billion (US$1.5
billion) based on the closing price of HK$6.81 per share as quoted on the Hong Kong Stock
Exchange. We have been included as a constituent of the Morgan Stanley Capital International
Global Small Cap Index since May 29, 2009 and the Hang Seng Composite Index since March 8,
2010. We have established a sponsored, unlisted ADR facility, which became effective on June
19, 2009. The ADRs are tradable in the United States in an over-the-counter market.

For the year ended December 31, 2008, 2009 and 2010, our consolidated revenue was
RMB3,585.3 million, RMB4,632.9 million and RMB6,416.4 million (US$972.2 million),
respectively. As of December 31, 2008, 2009 and 2010, our consolidated total assets were
RMB3,262.5 million, RMB4,261.0 million and RMB6,720.3 million (US$1,018.2 million),
respectively.

50
OUR STRENGTHS

We believe our rapid growth and strong market position are largely attributable to the
following principal competitive strengths, which distinguish us from our competitors:

Largest manufacturer of MSG in China and the largest manufacturer of xanthan gum in the
world

We are a leading corn-based biochemical company. According to the China Fermentation

Association, we are the largest manufacturer of MSG in China and the largest manufacturer of
xanthan gum in the world based on production capacity as of December 31, 2009. In 2009, we
had a 25% share in the MSG market according to the China Fermentation Industry Association.
In the year ended December 31, 2010, we produced 495,895 tonnes of MSG and 31,619 tonnes
of xanthan gum.

We believe that our leading market position has enhanced our ability to:

• withstand industry cycles and increase our market share. For example, we enhanced
our market share during the consolidation of China’s glutamic acid and MSG industry
from 2007 to early 2008 which took place as a result of a combination of
industry-wide pricing pressure from an oversupply of products and rising raw material
costs, leading to the closure of a number of small and medium-sized manufacturers;

• benefit from increasing economies of scale with stronger purchasing power and a
lower overall cost base, thereby maintaining a competitive cost structure to achieve
sustainable growth and profitability;

• further enhance our brand reputation and customer loyalty, as well as our ability to
quickly diversify into new products and new geographic markets; and

• offset fluctuations in raw material costs by making corresponding adjustments to our

selling prices.

High degree of vertical integration

We have a highly vertically-integrated production process along the entire corn-based

biochemical product value chain. We produce a variety of products along different stages of the
corn-processing process, ranging from corn-refined products, such as corn germ, corn fibers and
corn gluten meal, to corn-based biochemical products. In addition, we produce our own corn
starch for use in the production of our products and we own and operate power plants at each of
our production facilities to generate steam and power needed for our production process. We
believe our vertically-integrated business model brings us significant advantages over our
competitors who are less vertically-integrated, including:

• Stable supply. Due to our internal production of glutamic acid, we reduce our reliance
on external suppliers of this key ingredient, thereby helping to maintain a steady
production stream of MSG.

• Competitive cost structure. As we produce the cornstarch that is used internally at our
Baoji Plant and Inner Mongolia Plant, we are able to lower our raw material costs and
achieve savings on corresponding transportation costs. We are also using more
internally produced glutamic acid to manufacture MSG which helps to further lower
raw material costs. In addition, with power supplied by our own power plants, we are
able to minimize our utility costs. As a result, we believe that our vertically-integrated
model has improved our profit margins;

51
 • Sustainable development. We endeavor to fully utilize the by-products and waste
products from our manufacturing process. For example, we have developed, through
our research and development efforts, a process to produce fertilizer using waste
residue and excess heat generated from our production processes. This technology, for
which we have applied for patent protection in the PRC, enables us to recycle waste
products in compliance with environmental laws and regulations and maintain
sustainable development throughout our production process. In addition, we
successfully installed flue gas desulphurization facilities at our Baoji Plant in April
2009 which we believe have alleviated the impact of flue gas released during our
production process, a key problem that is encountered by MSG manufacturers in their
production process;

• Incremental revenues. We are able to sell other corn-refined products such as corn
germ, corn fibers and corn gluten meal, which are by-products in our production of
cornstarch, to maximize efficiency of our corn usage and enhance our revenues and
profits. We also produce chicken powder from MSG, and corn oil from corn germ, to
increase our profit margins. In addition, we sell the fertilizer produced from waste
residue and excess heat to generate additional revenues; and

• Flexible production planning. Our integrated production facilities allow us to produce

a broad range of corn-refined products and corn-based biochemical products across
the production chain. Through effective controls, we are able to closely monitor and
efficiently manage production volumes and product mix as well as optimize the
efficiency of the overall production process.

Strategic locations of our production plants

Our production plants are located at Junan in Shandong Province, Baoji in Shaanxi
Province and Hohhot in Inner Mongolia. We started our production in Junan in 1999, a region
with an abundant supply of corn and coal. In an effort to further lower our cost and improve our
profit margins, we strategically expanded our production to Baoji in 2004 and to Hohhot in
2006, regions that have relatively larger supply and lower prices of corn and coal than Junan.
The strategic locations of our plants in eastern China, northern China and western China also
allow us to more effectively market our products in different regions throughout China. We
believe that the strategic locations of our production plants provide us with a stable supply of
raw materials at relatively low cost.

Strong research and development capabilities

We believe that our ability to develop new products in response to changing market
demands differentiates us from many of our competitors and is essential to the future
development of our business, and we are committed to continually strengthening our research
and development capabilities. We have a well qualified and strong research and development
team which as of December 31, 2010 comprised 36 members. Our 9,000 square meter research
and development center in Junan, which has been accredited with a national-grade laboratory
qualification, houses an amino acid fermentation technology research center and a testing plant
with modern equipment. Our research and development team is responsible for developing new
products as well as improving our production processes, and collaborates regularly with
universities and research institutes to advance our research and development projects. Since
2008, our research and development center has been approved as a national post-doctoral
research center.

52
 Our strong research and development capabilities allow us to expand and improve our
product offering in response to market demand. For example, we successfully developed and
commenced commercial production of xanthan gum in 2003 with our proprietary production
technology and have now become the largest manufacturers of xanthan gum in the world. In
addition, we commercialized a series of threonine products in 2010, which was developed in
2009 in response to market demand for higher value-added biochemical products. We currently
have a number of new products under research and development which we expect to be able to
commercialize within the next few years, such as citric acid. In addition to generating additional
revenues, our research and development capabilities also allows us to improve the environmental
standards of our production processes which typically results in cost savings. We have received a
total of 22 patents in the PRC, with 44 patent applications pending approval.

Extensive distribution network and well-recognized brand name allowing us to achieve a

diversified customer base

We have established a nationwide marketing and distribution network comprised of

approximately 460 full-time sales and marketing personnel as of December 31, 2010 that serves
our domestic customers spanning across China, as well as our overseas customers in over 73
countries. To ensure timely and efficient delivery of customers’ orders, we have also set up 25
sales and logistics centers across China to coordinate our nationwide distribution operations.
Through regular meetings and calls with existing and potential customers, our sales teams have
not only built strong relationships with our customers, but have also collected valuable market
information for our management to formulate our product development, marketing and pricing
strategies.

We have a proven track record and strong brand recognition in China. We believe our
brands are associated with high-quality food products and trusted by consumers. We use the
brands “Furui” (“阜瑞”), “Uo Fresh” (“Uo 鮮”) and “Xuemei” (“雪梅”) to market our MSG
products. Our Furui MSG was recognized as a “Well-known Brand of Shandong Province” in
2007 by the Top Trademark Evaluation Committee of Shandong Province. It has also maintained,
since 2007, “Product Quality Exempted from State-level Inspection” status, which was awarded
by the PRC General Administration of Quality Supervision, Inspection and Quarantine
(“AQSIQ”).

Most of our MSG customers are regional and local distributors, food additive
manufacturers and food processors. Our industrial-grade xanthan gum is mostly sold to
international petroleum exploration companies and our food-grade xanthan gum is mostly sold to
multinational food processors. We believe that by tailoring our marketing and branding
approaches according to customer segment, we have been able to more effectively reach
different customer groups and establish a diversified customer base.

We serve over 4,000 domestic customers, and during the three years ended December 31,
2010, sales to our five largest customers in the MSG segments represented 20.2%, 16.1% and
10.1% of our total revenue, respectively, and sales to our five largest customers in the xanthan
gum segment represented 38.4%, 24.7% and 32.9% of our total revenue, respectively.

Visionary and experienced management team

We have a visionary and experienced management team with extensive industry and
operational expertise in China and an in-depth understanding of the production process of
corn-based biochemical products and the corn-based biochemical industry. We believe our
management team possesses vision surpassing that of our competitors, which has enabled us to
rapidly develop from a local producer in 1999 to the largest MSG manufacturer in China and the
largest manufacturer of xanthan gum in the world based on production capacity as of December

53
31, 2009. Mr. Li Xuechun, our principal founder and Chairman, has approximately 30 years of
experience in the fermentation industry. The majority of our executive Directors and senior
management have been with us since our establishment in 1999 and have over 15 years of
experience in the fermentation industry. We believe our experienced and stable management
team has been a significant factor that has contributed to our past success.

OUR BUSINESS STRATEGIES

Our goal is to become the leading corn-based biochemical manufacturer in the world. To
achieve our goal, we intend to pursue the following strategies:

Continue to expand our production capacity and consolidate our leading market position

We plan to further expand our production capacity and consolidate our leading market
position through the construction of new production plants and new production lines at our
existing plants, to meet anticipated growth in demand for our products.

China’s economy was relatively less affected by the global economic downturn than other
major economies, and achieved a GDP growth rate of 10.3% in 2010. We expect demand for our
MSG to continue to rise as a result of the continued growth of China’s economy in general and
the food industry in particular. We also believe that the PRC government’s current focus on
restructuring the PRC economy towards domestic consumption will further increase demand for
our MSG. In addition, we also expect demand for our xanthan gum, which are mostly exported
to the international market, to increase with the gradual recovery of the global economy and as
more applications for xanthan gum are developed.

We believe that we are well-positioned to meet the increased demand for our products
through our increased production capacity. Our annual production capacity for MSG increased
from 171,667 tonnes as of the end of 2008 to 540,000 tonnes as of the end of 2010. We expect to
further increase the production capacity of MSG to 750,000 tonnes by the end of 2011 with the
completion of Northeastern Plant Phase I, coupled with reengineering work at our existing
plants. To further expand our xanthan gum segment, we constructed a new production line
capable of producing 12,000 tonnes of xanthan gum per annum at our Inner Mongolia Plant in
2010. Our total production capacity for xanthan gum increased from 21,000 tonnes as of the end
of 2008 to 44,000 tonnes as of the end of 2010. In addition, we have constructed an 80,000
tonnes per annum synthetic ammonia production line and a 5,000 tonnes per annum fructose
production line in 2010 at our Inner Mongolia Plant. We are also reengineering our thermal
power plant and plan to build new railway facilities at our Inner Mongolia Plant beginning this
year. We expect our thermal power plant and the new railway facilities to be completed by the
end of 2011. Furthermore, we are in the process of constructing our Northeastern Plant Phase I
which is expected to have an annual production capacity of 200,000 tonnes of MSG, 250,000
tonnes of fertilizers and 100,000 tonnes of synthetic ammonia, together with supporting
facilities including a thermal power plant and self-owned railway facilities. Commercial
production is scheduled to commence in the second half of 2011. Given the significant growth of
the PRC threonine industry in the past few years and the expected continued growth in the near
future, we are constructing additional production lines at our Inner Mongolia Plant to increase
our production capacity of threonine from 10,000 tonnes as of the end of 2010 to 40,000 tonnes
by the end of 2012. We expect that we will be able to further increase our market share and
strengthen our leading position in the MSG and xanthan gum markets. See “– Production
Facilities – Future Expansion of Production Capacity.”

54
Further enhance the degree of vertical integration of our production process

We believe that a highly vertically-integrated production process will enable us to increase

our profitability and strengthen our leading position in the industry. In recent years, we have
taken a number of measures to enhance vertical integration of our production process, including
increasing consumption of internally produced glutamic acid to produce MSG in order to capture
the higher profit margin of MSG, utilizing waste residue and excess heat generated from our
production processes to produce fertilizers and bricks, and building production capacities of
chicken powder and corn oil. We also built production capacity of 80,000 tonnes of synthetic
ammonia, which is an important raw material for the fermentation of glutamic acid, at our Inner
Mongolia Plant and are constructing further production capacity of 100,000 tonnes of synthetic
ammonia at our Northeastern Plant Phase I. Going forward, with the increased vertical
integration of our production process, we intend to develop a series of food flavor enhancers
using our internally produced MSG as the primary raw material, in order to further improve our
operational efficiency and reduce our production costs. Given suitable opportunities, we may
also consider further vertically integrating our production process upstream, including, among
others, obtaining access to coal and other raw materials used in our production process.

Diversify our product offering

We intend to leverage our position as a leading manufacturer of MSG and xanthan gum, our
vertically-integrated corn-based biochemical production chain and our strong research and
development capabilities to capitalize on new market opportunities presented by other
biochemical and amino acid products. In 2008, we expanded our product offering to include
chicken powder and corn oil. We commercialized a series of threonine products in 2010, which
was developed in 2009 in response to market demand for higher value-added biochemical
products. We are also developing a series of additional amino acid and biomass-based polymer
products in order to enhance our product mix and improve our profitability. Going forward, we
expect to develop and commercialize a series of retail-market food flavor enhancers using our
internally produced MSG.

Expand our marketing and distribution network

We intend to broaden our domestic and international marketing and distribution network
through expanding our geographical coverage, as well as enhancing the coverage of our existing
markets. We expect to continue to open new sales offices together with sales and logistics
centers across China to cover those provinces where we do not currently have sales offices. Our
sales and marketing headcount is expected to continue to grow along with the opening of our
new sales offices. To enhance our overseas sales capabilities in relation to xanthan gum, which is
mostly exported, and to a lesser extent, MSG and starch sweeteners, we intend to establish a
total of six overseas sales offices in the Middle East, North America, Europe and Africa in 2011.

Continue to strengthen our brand recognition and consolidate our market position

We believe successful branding is key to our business development and that our core brands
have gained wide recognition and popularity in the biochemical products industry in recent years
as a result of our successful marketing and promotional strategies. To further strengthen and
capitalize on the established reputation and recognition of our brands, we have established a
branding team to help devise strategies to further market and promote our brand in order to
consolidate our market share. We intend to strategically target our advertising and marketing
efforts on selected cities or regions where there is higher average consumer spending and
potential for growth. In addition, we expect to increase our advertising and promotional
expenses to approximately RMB20.0 million in 2011 from approximately RMB15.0 million in
2010 to accommodate the increased advertising and marketing activities.

55
Continue to strengthen our research and development capabilities

We believe technological advancement is one of the key factors to our continued success in
the market place. In addition to improving production efficiency, we plan to actively pursue and
enhance our research and development capabilities to develop new production techniques and
products, such as the development of new amino acid products and new applications for xanthan
gum. We intend to invest additional resources to further strengthen our existing research and
development capabilities as well as to increase research collaboration with established research
institutes in China.

OUR PRODUCTS

Our products are broadly categorized into two business segments: (i) the MSG segment and
(ii) the xanthan gum segment. The MSG segment represents the production and sale of MSG,
glutamic acid, corn refined products, fertilizers, starch sweeteners, threonine and others,
including chicken powder, corn oil, pharmaceutical products and bricks. Our xanthan gum
segment represents the production and sale of xanthan gum.

The following table sets forth our revenues generated from and the percentage of our
overall revenue contributed by each of our products for the periods indicated.

For the year ended December 31,

2008 2009 2010
(% of (% of (% of
Total Total Total
(RMB’000) Revenue) (RMB’000) Revenue) (RMB’000) (US$’000) Revenue)
MSG segment
MSG . . . . . . 1,004,381 28.0% 2,245,307 48.5% 3,892,506 589,774 60.7%
Glutamic acid 1,053,298 29.4% 720,631 15.6% 153,633 23,278 2.4%
Corn refined
products . . 509,849 14.2% 557,523 12.0% 773,563 117,207 12.1%
Fertilizers . . . 380,097 10.6% 361,468 7.8% 369,649 56,007 5.8%
Starch
sweeteners . 163,002 4.5% 245,168 5.3% 356,704 54,046 5.6%
Threonine . . . – – – – 28,145 4,264 0.4%
Others (1) . . . 22,977 0.7% 94,663 2.0% 160,500 24,318 2.4%
Xanthan gum
segment
Xanthan gum . 451,739 12.6% 408,124 8.8% 681,725 103,292 10.6%
Total . . . . . . . . 3,585,343 100.0% 4,632,884 100.0% 6,416,425 972,186 100%

Note:

(1) Others include pharmaceutical products, chicken powder, corn oil and bricks.

56
 As one of the leading corn-based biochemical products manufacturers in China, we have a
highly vertically-integrated production process along the entire corn-based biochemical product
value chain, from wet milling and processing of corn into cornstarch and other refined corn
products, to the production of corn-based biochemical products, such as MSG, glutamic acid and
xanthan gum through fermentation. The following chart sets forth our products in the context of
our production process.

Corn oil

Maltose crystallised Crystallised

glucose Corn protein Corn bran Corn germ
syrup syrup glucose

Starch Starch Corn refinery

Sweeteners by-products

Cornstarch
syrup

Waste Synthetic
Cornstarch Corn
residue Ammonia

Glutamic Xanthan
Threonine Pharmaceuticals
acid Gum

Fermentationn
MSG Technologyy
Segment
Xanthan Gum
MSG
Segment
Electricity

Chicken
Fertilisers Bricks
Powder Power
Plant

Steam

Raw material Products Coal

In 2010, we commercialized a series of threonine products, and we are also in the process
of developing a series of additional amino acid products and biomass-based polymer products in
order to enhance our product mix and improve our profitability.

57
MSG Segment

MSG and glutamic acid

MSG is created by converting glutamic acid through a simple chemical reaction. MSG is
commonly used as a flavor enhancer in the food industry, the restaurant sector and for domestic
household use and can be found in many food and beverage products to enhance flavor and can
also be found in dietary supplements, healthcare products and pharmaceutical products. Most of
our MSG is sold to MSG distributors and traders, food manufacturers and food seasoning
manufacturers.

For each of the years ended December 31, 2008, 2009 and 2010, our annual production
volume of MSG was 150,353 tonnes, 302,572 tonnes and 495,895 tonnes, respectively, and our
annual sales volume of MSG was 146,185 tonnes, 292,369 tonnes and 492,560 tonnes,
respectively.

Glutamic acid is a type of amino acid produced from corn through a bio-fermentation
process, and is the main precursor for the production of MSG. The glutamic acid produced by us
is mainly used internally as a raw material for our MSG production. In recent years, as a result
of our strategy of shifting our focus away from the sale of glutamic acid to third parties, we have
increased the internal utilization of our glutamic acid to produce MSG in order to capture the
higher profit margin of MSG.

For each of the years ended December 31, 2008, 2009 and 2010, our annual production
volume of glutamic acid was 275,212 tonnes, 354,638 tonnes and 434,333 tonnes, respectively,
and our annual sales volume of glutamic acid was 162,708 tonnes, 100,993 tonnes and 18,936
tonnes, respectively.

Fertilizer

Fertilizer is used to improve soil fertility. We produce our fertilizer from waste residue and
excess heat generated from our production processes. The technology was developed by us with
an aim to improve the environmental standards of our production process, and a PRC patent
application was made in 2005 relating to such technology. In addition, our fertilizer contains a
rich amount of amino acids which help the microorganisms in the soil to produce a significant
amount of bio-enzymes that can raise the utilization rate of the fertilizer and as a result, can
improve the soil structure and enhance the soil’s ability to preserve fertility and nutrients. We
produce both organic fertilizer and organic-inorganic compound fertilizer, with the production of
organic fertilizer accounting for the majority of our total production of fertilizer as of December
31, 2010. Our fertilizer is mainly sold to fertilizer distributors and manufacturers for the
production of other types of fertilizers.

For each of the years ended December 31, 2008, 2009 and 2010, our annual production
volume of fertilizer was 380,531 tonnes, 457,978 tonnes and 517,303 tonnes, respectively, and
our annual sales volume was 339,060 tonnes, 460,421 tonnes and 487,537 tonnes, respectively.

58
Starch sweeteners

Starch sweeteners are the hydrolyzed form of starch, which can be obtained from corn.
Starch sweeteners are widely used as raw materials in the pharmaceutical, food and beverage
industries. Our starch sweeteners are mainly sold to starch sweetener distributors and traders, as
well as food and beverage manufacturers in China.

For each of the years ended December 31, 2008, 2009 and 2010, our annual production
volume of starch sweeteners was 67,819 tonnes, 106,194 tonnes and 130,268 tonnes,
respectively, and our annual sales volume was 74,016 tonnes, 107,431 tonnes and 121,186
tonnes, respectively.

Corn refined products

Our corn refined products include corn germ, corn fiber and corn gluten meal, which are
by-products in our production of cornstarch. Corn germ refers to the nucleus or embryo of corn,
which is commonly used for extraction of corn oil. Corn fiber is the remaining mixture of the
endosperm and the hull of a corn which has passed through a series of grinding and screen
processing and can be used in producing animal feed products. Corn gluten meal is typically
characterized by its high protein and high energy content which results from the corn wet
milling process. All of our corn refined products are sold to animal feed and corn oil
manufacturers in China.

Threonine

Threonine is a colorless crystalline essential amino acid and is primarily used as a dietary
supplement. We commercialized a series of threonine products in 2010, which was developed in
2009 in response to market demand for higher value-added biochemical products.

Other Products

Chicken powder

Chicken powder is a compound flavor enhancer principally made of MSG. We launched our
chicken powder product in 2008.

Corn oil

Corn oil is extracted from corn germ, a by-product in our production of cornstarch. Its main
use is in cooking, where its high smoke point makes refined corn oil a valuable frying oil and is
perceived to be a relatively healthy edible oil. We launched our corn oil product in 2008.

Pharmaceutical products

Our wholly-owned subsidiary, Shenhua Pharmaceutical, is principally engaged in the

manufacture and sales of eubacteria material medicine, preparations and food additives and other
related products.

Bricks

We produce bricks using the waste residue and excess heat generated from our production
processes. Bricks are used as building and paving material.

59
Xanthan Gum Segment

Xanthan gum

Xanthan gum is a polysaccharide which is made from the fermentation and processing of
cornstarch and can be used either as a food additive or theology modifier. The unique properties
of xanthan gum render it a very effective thickener, stabilizer or suspension agent, which can be
tailored to the needs of petroleum drilling and exploration, fine chemicals, and the production of
food, personal care and pharmaceutical products. Xanthan gum is soluble in both hot and cold
water and in solutions with a wide range of acidity levels but is insoluble in most inorganic
solutions.

The principal customers for our xanthan gum are petroleum exploration companies, as well
as food additive traders, manufacturers and distributors. The majority of our xanthan gum is
exported and sold in over 70 countries around the world. The following table sets forth the
approximate percentage of sales volume of xanthan gum in overseas and domestic markets for
the periods indicated.

Year ended December 31,

2008 2009 2010
Overseas sales . . . . . . . . . . . . . . . . . . . . . . . . . . 85.2% 84.5% 86.4%
Domestic sales . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8% 15.5% 13.6%
100.0% 100.0% 100%

For each of the years ended December 31, 2008, 2009 and 2010, our annual production
volume of xanthan gum was 21,277 tonnes, 28,232 tonnes and 31,619 tonnes, respectively, and
our annual sales volume of xanthan gum was 20,590 tonnes, 19,344 tonnes and 34,819 tonnes,
respectively.

RAW MATERIALS

We prefer to maintain flexibility in sourcing our raw materials. Our annual procurement of
raw materials is based on an annual production plan. The annual production plan is prepared at
the beginning of every year based on our annual budget and sales forecast. The production plan
is further adjusted on a monthly and weekly basis at the end of the previous month or week
based on our production capacity and monthly or weekly sales plans taking into account the
actual production requirements and current inventory levels. We do not have long-term contracts
with any of our suppliers. We believe that the relationship between our suppliers and us has been
and will continue to be stable. All of our raw materials are sourced in China.

During the years ended December 31, 2008, 2009 and 2010, we did not encounter any
difficulty in sourcing any of our raw materials. We believe that, in terms of quantity and quality,
there are sufficient raw materials suppliers within the areas surrounding our production facilities
to meet the ongoing needs of our production.

Corn

Corn is one of the principal raw materials used in our production processes. For each of the
years ended December 31, 2008, 2009 and 2010, the cost of corn represented 46.6%, 52.7% and
54.3% of our total cost of production, respectively. For the same periods, our average unit cost
of corn was RMB1,424, RMB1,413 and RMB1,741 (US$263.8) per tonne, respectively. Our
average unit cost of corn is closely related to the market price of corn, which may be affected by

60
market demand and supply, domestic government policy, climate and other natural disasters such
as droughts, floods or earthquakes. All of our corn is purchased domestically directly from local
farmers, and we have not entered into any long term procurement agreements with any of them.

All our plants are located in areas with an abundant supply of corn at comparatively low
prices. Our production plants are strategically located in Shaanxi Province and Inner Mongolia,
which rank among provinces with the highest corn production volumes in China. We believe that
the close proximity of an ample supply of corn to our production facilities allows us to source
our corn requirements at relatively low prices and effectively minimize transportation costs.

Cornstarch

Cornstarch is the principal product from the processing of corn and is one of the key raw
materials for the manufacture of corn-based biochemical products. During the production of
cornstarch, other corn refined products, including corn gluten meal, corn germ, corn fibers and
corn oil, are produced. All cornstarch currently used in the production of glutamic acid at our
Baoji Plant and Inner Mongolia Plant are supplied internally while cornstarch used at our
Shandong Plant is sourced from third parties domestically.

Our production plants in Baoji City, Shaanxi Province and Hohhot, Inner Mongolia are
strategically located in provinces with abundant coal reserves at prices lower than China’s
national average. This has allowed us to source our coal requirements at relatively low prices
and effectively minimize transportation costs.

Other Chemical Ingredients

Liquid ammonia and sulphuric acid are the major chemical raw materials used in the
production of our products. For each of the years ended December 31, 2008, 2009 and 2010, the
cost of liquid ammonia accounted for 11.4%, 9.9% and 9.4% of our total cost of production,
respectively, and the cost of sulphuric acid accounted for 6.3%, 1.1% and 1.2% of our total cost
of production, respectively. For the same periods, our average unit cost of liquid ammonia was
RMB2,700, RMB2,209 and RMB2,481 (US$375.9) per tonne, respectively, and our average unit
cost of sulphuric acid was RMB923, RMB212 and RMB279 (US$42.3) per tonne, respectively.

We built production capacity of 80,000 tonnes of synthetic ammonia at our Inner Mongolia
production plant in 2010 and are constructing further production capacity of 100,000 tonnes of
synthetic ammonia at our Northeastern Plant Phase I. We plan to use the ammonia produced for
our internal consumption, which we expect will reduce our cost of sales. See “– Production
Facilities – Future Expansion of Production Capacity.”

INVENTORY CONTROL

We maintain overall inventory records to ensure proper procurement, usage and storage. To
ensure the proper recording of our inventory, random physical stocktakes are performed from
time to time and a full stocktake is performed every year. Our centralized inventory control
system provides us with real-time inventory information to better manage our product delivery
requirements among our sales and logistics centres.

Controls Over Raw Materials

Our annual procurement of raw materials is based on an annual production plan. The
annual production plan is prepared at the beginning of every year based on our annual budget
and sales forecast. The production plan is further adjusted on a monthly and weekly basis at the
end of the previous month or week based on our production capacity and monthly or weekly
sales plans, taking into account actual production requirements and current inventory levels.

61
 An optimal storage level is set for the inventory of each type of raw material. If the storage
level falls below the set minimum level, the our procurement department sources additional raw
materials from suppliers, as necessary.

Controls Over Finished Goods

The majority of our inventories are stored in separate warehouses located at our production
sites. Records of finished goods inventories are kept at these warehouses and conformed with the
records of our finance department at the end of each month. We maintain a centralized inventory
control system that provides us with real-time inventory information to better manage our
product delivery among our sales and logistics centers.

PRODUCTION FACILITIES

Production facilities

Since the commencement of our business, we have increased our production capacity by
building new production plants and upgrading production facilities in order to satisfy the
increasing demand for our products. We currently have three production plants, namely the
Shandong Plant, the Baoji Plant and the Inner Mongolia Plant.

Our production sites are easily accessed through waterways, railways or roads. The
Shandong Plant is located 50 kilometers away from Port Rizhao, 200 kilometers away from Port
Qingdao and 90 kilometers away from Port Lianyungang, which are the principal water transfer
ports for shipment. The Baoji Plant is located approximately 10 kilometers away from the
railway transport system. The Inner Mongolia Plant is located five kilometers away from the
railway transport system.

The following table sets forth the annual designed production capacity of our key products
in 2010.

2010
(tonnes)
Annual production capacity of:
MSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,000
Corn oil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Xanthan gum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,000
Fertilizers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,000
Chicken powder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Threonine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Starch sweeteners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000

Shandong Plant

We established the Shandong Plant in June 1999. The total site area of Shandong Plant is
268,862 square meters, on which various buildings and structures are erected which are mainly
used for factory, office, warehouse and supplementary uses with a total gross floor area of
21,922 square meters. In 2008, we moved part of all of our glutamic acid and part of our MSG
production facilities in our Shandong Plant to our Baoji Plant and Inner Mongolia Plant. The
Shandong Plant produces MSG and xanthan gum.

62
Baoji Plant

We established the Baoji Plant Phase I and Baoji Plant Phase II in November 2004 and
November 2005, respectively, with a total site area of 271,280 square meters. in Baoji, Shaanxi
Province, which is used for our factory, office, warehouse and supplementary uses with a total
gross floor area of 35,916 square meters Baoji Plant Phase I and Baoji Plant Phase II comprise
five factories, producing glutamic acid, MSG and fertilizer.

Inner Mongolia Plant

We completed Inner Mongolia Plant Phase I in December 2006 with a total site area of
658,235 square meters in Hohhot, Inner Mongolia, which is used for our factory, office and
warehouse uses with a total gross area of 94,506 square meters We completed Inner Mongolia
Plant Phase II and Inner Mongolia Plant Phase III in the last quarter of 2008 and 2009,
respectively. The Inner Mongolia Plant produces glutamic acid, MSG, xanthan gum, starch
sweetener, fertilizer and bricks.

We built an additional production capacity of 12,000 tonnes of xanthan gum at our Inner
Mongolia Plant, which was completed during the first half of 2010. We also built additional
production capacity of 80,000 tonnes of synthetic ammonia and 5,000 tonnes of fructose
together with an expanded thermal power plant at our Inner Mongolia Plant in 2010. We are
currently building a self-owned railway facility at our Inner Mongolia, which are expected to be
completed in 2011.

Future Expansion of Production Capacity

We expect to begin production at our Northeastern Plant Phase I in the second half of 2011,
which will include supporting facilities including a thermal power plant and self-owned railway
facilities. Northeastern Plant Phase I has a planned annual production capacity of 200,000
tonnes of MSG and 250,000 tonnes of fertilizer. Northeastern Plant Phase II is expected to
commence construction by the end of 2011. The production plant is strategically located to take
advantage of the abundant supply of corn and coal in the surrounding areas.

63
PRODUCTION PROCESS

The production processes of our principal products are illustrated in the diagram below.

Threonine

The major production processes are described as follows.

Steeping. Steeping is a process of turning dry corn comprising 14% of water into wet corn
comprising 42% of water.

Separation. After steeping, the soaked corn are separated from the steepwater. The corn are
ground coarsely to separate the corn germ from other components. Separators are then used to
spin the corn germ out of the slurry. The corn germ is then screened and washed to remove any
remaining starch. The corn germ is further dried and sold in the market. The residue steepwater
is used in the production of fertilizer.

64
 Grinding. The remaining liquid enters the corn germ separator for a second time, but it is
ground by a finer grinder to separate the fiber of the kernel from the starch and gluten
suspension. The fiber of the kernel is then removed from the starch and gluten suspension by
pouring the suspension through screens. The corn germs are finally washed and re-screened.

Starch separation. Starch separation is a process of separating the main product and the
by-product through special washing and screening equipment after the process of grinding is
completed.

Saccharification. Saccharification is a process of breaking a complex carbohydrate (as

starch slurry) into its monosaccharide components, and preparing for syrup refining.

Syrup refining. Syrup refining is a process of refining starch syrup to enhance its purity.

Filtration. Filtration is a process of straining out contained substances. Such a process,

when used in the production of MSG, is used to help to purify the glutamic acid and prepare for
crystallization.

Fermentation. Fermentation is a process where complex sugars are fermented as a result of

the inclusion of additives such as microbial enzymes, oxygen and other chemicals.

Extraction. Extraction is a process where fermented mixture is processed with sulphuric

acid or alcohol so as to extract glutamic acid or xanthan gum, respectively.

Separation. Separation is a process where the extracted products are further separated.

Neutralization. A certain amount of alkaline is added to the glutamic acid to adjust the pH
value of the liquid to around 3.0 in preparation for the filtration of glutamic acid.

Crystallization and glucose separation. Crystallization is a process of crystallizing MSG

from glutamic acid mixture.

Evaporation and concentration. Evaporation is a process of transforming water to water

vapor, through which glucose syrup will be condensed.

Concentration. Concentration is a process used to enhance purity.

Isomerization. Isomerization is a process where glucose syrup is transformed into fructose

syrup.

Alcoholic extraction. Alcoholic extraction is a process where a product is extracted from

the fermented mixture after adding alcohol, making use of its alcohol-insoluble property.

Pressing. Pressing is a process where water is squeezed out through special equipment.

Drying. Drying is a process where water is removed by way of direct or indirect heating.

Pelletizing. Pelletizing is a process where concentrated waste water and excess stream is
compressed into a pellet.

65
SALES AND MARKETING

Sales and Marketing

We have established a nationwide marketing and distribution network, which as of

December 31, 2010 comprised approximately 460 full-time sales and marketing personnel.
These personnel are responsible for the sales and marketing of our principal products, serving
both the domestic and international markets. Furthermore, our plants are strategically located in
eastern China, northern China and western China which enables us to access our customers more
easily and market our products more effectively in different regions in China. In addition, to
ensure timely delivery of customers’ orders, we have also set up 25 sales and logistics centers to
manage our sales and logistics operations. Our centralized inventory control system provides us
with real-time inventory information to better manage our product delivery requirements and
inventory allocation among our sales and logistics centers. We intend to broaden our domestic
and international marketing and distribution network through expanding our geographical
coverage, as well as enhancing the coverage of our existing markets.

We expect to continue to open new sales offices together with sales and logistics centers
across China to cover those provinces where we do not currently have sales offices. Our sales
and marketing headcount is expected to continue to grow along with the opening of our new
sales offices. To enhance our overseas sales capabilities in relation to xanthan gum, which is
mostly exported, and to a lesser extent, MSG and starch sweeteners, we intend to establish a
total of six overseas sales offices in the Middle East, North America, Europe and Africa in 2011.

We have a diversified customer base and the majority of our MSG is sold domestically in
China, primarily to industrial manufacturers, trading companies, food additive distributors and
local distributors. We also sell our MSG directly to food additive manufacturers and food
processors. With respect to xanthan gum, our industrial-grade xanthan gum are mostly sold to
international petroleum exploration companies and our food-grade xanthan gum are mostly sold
to multinational food processors. Sales of xanthan gum are sometimes conducted through the
tenders of auction bids in an open auction by customers in the food and oil industries. Such
customers usually make a bulk order to fulfill the whole year’s production requirement, and
thus, enable us to secure orders for the coming 12 months. We are able to access information on
auction bids through our agents in target markets.

Our sales and marketing strategies are developed by our senior sales management team.
The senior sales management team is responsible for formulating strategies and coordinating
sales personnel. The senior sales management team is based at our headquarters so as to enhance
operational efficiency, especially with regard to internal communication with the production
team. The sales personnel are assigned to designated regions, liaising with regional and local
customers on a regular basis, who are also responsible for collecting local market information to
facilitate our marketing and pricing strategies.

In line with our tailored approach to branding by customer segment, we market our
products under several different brands. The table below sets forth our various consumer product
brands.

Brand Products Logos

Fufeng (阜豐) . . . . . . . . . . . Threonine

Uo Fresh (Uo 鮮) . . . . . . . . . MSG, chicken powder

66
Brand Products Logos
Furui (福瑞) . . . . . . . . . . . . MSG

Xuemei (雪梅) . . . . . . . . . . . MSG

Uo Fragrant (Uo 香) . . . . . . Corn oil

Fufeng (阜豐). . . . . . . . . . . . Xanthan gum

Golden Fufeng (金阜豐) . . . . Fertilizer

Friend Year (福瑞年). . . . . . . Fertilizer

Ka Fei Dou (卡非豆) . . . . . . Fertilizer

Fufeng (阜豐). . . . . . . . . . . . Starch sweeteners

Pricing Policy

The prices of our products are determined based on their respective prevailing market
prices. There are currently no legal or regulatory controls which regulate the prices of our
products. In general, we set prices for our products on the basis of market demand for such
products in both domestic and overseas markets.

As corn and coal are the key raw materials for our production processes and account for a
substantial portion of our cost of production, fluctuations in the supply or price of either would
have an impact on our pricing determinations. We generally aim to mitigate any adverse effect of
fluctuations in the prices of our raw materials by adjusting our sales prices, and we aim to
maintain our gross margins at a consistent level.

Our management convenes for monthly meetings at which pricing is discussed. The
Chairman and senior personnel from the sales department, the raw material procurement
department and the financial department participate in the meeting and the price of any of our
products will be adjusted if considered necessary.

QUALITY CONTROL

We recognize the importance of stringent quality control in the production of our products
and have established departments responsible for implementing and monitoring quality-control
measures and procedures. As of December 31, 2010, the quality control department had
approximately 138 staff, stationed at the microbiological laboratory at each of our production
facilities.

All of our production facilities have been accredited with IS09001:2000 (quality
management systems), ISO22000 (food safety management systems), ISO14001 (environment
management systems) and ISO18001 (occupational health and safety management systems)
certifications. These recognitions confirm that our quality control management systems are
consistent with national standards.

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Quality Control of Raw Materials

Each of our quality-control departments conduct on-site inspections when raw materials are
delivered to the production plants to ensure that the raw materials meet the required standards.
Any raw materials which are identified as defective are returned immediately to the suppliers.

Production Quality Control

Quality-control measures are in place throughout the production process to ensure that the
finished products meet the standards of quality expected from our customers. Quality-control
staff monitor and inspect the products during the production process. We adopt a cross-check
quality assurance system. This includes the testing of raw materials and half-finished products at
the factory sites as well as by the quality control department at the laboratories. We also send
product samples to independent testing institutions such as the Shandong Provincial Institute of
Product Quality Supervision and Inspection if so requested by our customers. The local
environmental protection bureau has real-time access to our environmental records to monitor
emissions.

REPAIR AND MAINTENANCE

We have a regular repair and maintenance program and will periodically review whether
our production plants need to be shut down temporarily (for approximately 20 days) for annual
maintenance work. The repair and maintenance department is responsible for overseeing the
progress of the maintenance projects in order to ensure that day-to-day maintenance and repairs
of the machinery are carried out properly.

COMPETITION

MSG

We are the largest manufacturer of MSG in China. We compete primarily with a few
manufacturers with similar or lower capacities. China’s MSG industry experienced
industry-wide consolidation from 2007 to early 2008 due to a combination of industry-wide
pricing pressure from an oversupply of products and rising raw material costs. Such market
conditions led to a number of small- and medium-sized manufacturers becoming unprofitable
and being forced to shut down operations. As a leading manufacturer of MSG with low
production cost, quality products and a stable customer base, we were able to take advantage of
the industry consolidation and enlarge our market share through increase in production capacity
and sales. We believe that our large scale of production has enabled us to take advantage of
economies of scale.

We consider our major competitors in the production of MSG to be Hebei Meihua

Monosodium Glutamate Group Co., Ltd. and Henan Lianhua Monosodium Glutamate Co., Ltd.

Xanthan Gum

We are one of the largest manufacturers of xanthan gum in the world. The overall market
for xanthan gum has been growing strongly in volume over the years and is expected to continue
to grow in the near future. We believe there are only a limited number of global players in the
xanthan gum industry in China and in the international market, and we are one of the largest
manufacturer of xanthan gum in the world. As supply of xanthan gum exceeds demand in the
PRC market, we believe that xanthan gum manufacturers in China have to establish overseas
markets for their products and accordingly, we also face competition from overseas
manufacturers. However, with the improving quality of our xanthan gum, coupled with our price
advantage, we expect to be able to maintain and increase our competitiveness in the future.

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 We consider our major competitors in the production of xanthan gum to be CP Kelco and
Deosen Corporation Ltd.

RESEARCH AND DEVELOPMENT

We recognize the importance of using advanced technology to continuously improve our

production efficiency and to develop new products. As of December 31, 2010, our well-qualified
and strong research and development team comprised 36 members. Our 9,000 sq.m. research and
development center in Junan, which has been accredited with national-grade laboratory
qualification, houses an amino acid fermentation technology research center consisting of over
10 laboratories and a testing plant with modern equipment. Since 2008, our research and
development center has been approved as a national post-doctorate research center. In addition,
we were named a Model Sustainable and Environmental Enterprise (全國發酵行業循環經濟示範
企業) by the China Fermentation Industry Association in 2008.

Our research and development team also collaborates regularly with universities and
research institutes in China to advance our research and development projects. We have
established long-term and stable cooperation programs with a number of universities and
institutions in China to jointly conduct research and develop technologies. We have also
undertaken three projects among the 863 China National Programs, one relating to technology
improvement, one relating to development of new technology and new techniques and one
relating to advanced fermentation techniques. In addition, a number of our research and
development results reports have been accredited by the provincial government.

Our research and development capability allows us to expand and improve our product
offering in response to market demand. For example, we successfully developed and commenced
commercial production of xanthan gum in 2003 with our proprietary production technology and
have now become one of the largest manufacturers of xanthan gum in the world. In 2010, we
commercialized a series threonine products, which was developed in 2009 in response to market
demand for higher value-added biochemical products. Our research and development capability
also enables us to improve the environmental standards of our production processes. For
example, we successfully developed a technology that utilizes waste residue and excess heat
generated from our production processes to produce fertilizer and a PRC patent application was
made in 2005 with regard to such technology. In addition, we successfully installed flue gas
desulphurization facilities at our Baoji Plant in April 2009 which has alleviated the impact of
flue gas released during our production process, a key problem that is encountered by MSG
manufacturers in their production process. In recent years, we have also improved our
production technology for MSG to further reduce consumption of electricity and steam in the
production process which has led to increased unit productivity and decreased production costs.
Waste residue and excess heat generated from our production processes are also recycled for the
production of bricks. Our current research and development initiatives include the development
of citric acid, which is colorless crystalline and is an important organic acid used in food and
beverage additives, and a series of additional amino acid products and biomass based polymer
products in order to enhance our product mix and improve our profitability.

SAFETY MATTERS

Our business and operations are subject to the Production Safety Law of the PRC, which
sets out the legal standard for safety measures in relation to the establishment, modification and
expansion of production facilities. In case of any non-compliance, the relevant governmental
body has the right to order any company to remedy such non-compliance within a given period
of time, failing which it may be subject to an order for cessation of production and penalty
charges, and if it amounts to a criminal offense, such company will be prosecuted under criminal
laws.

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 We have implemented comprehensive occupational health and safety procedures and
measures for our operations. Our management examined and scrutinized the internal industrial
safety control measures and safety awareness of the workforce and supervisors in all plants and
within all workstations.

Safety-related training and education were provided periodically to promote safety

awareness among our management and employees. Examinations on safety related matters were
conducted to reinforce the safety awareness of the management and the staff in the workplace.
Workers were sent in different groups to the Local Quality and Technology Supervision Bureau
for training and for certification of Specialized Equipment Operator Qualification, and to the
Local Safety Production Supervision and Management Bureau for training and for certification
of Specialized Operation Qualification.

We were accredited with OHSAS 18001:1999 and GB/T28001-2001 certification by the

CQC Center on May 31, 2005. OHSAS 18001 is an internationally recognized certification
which demonstrates that a safety-oriented approach has been integrated into a company’s
processes, and further demonstrates a company’s commitment to a safe working environment and
to protecting employees against injury at work. GB/T28001-2001 is a nationally recognized
certification which demonstrates a company’s commitment to industrial health and safety
management pursuant to nationally recognized occupational health and safety management
standards. To maintain such accreditation, we are required to conduct safety reviews
semi-annually to ensure that safety measures are in place and are observed by our employees. In
addition, we are required to engage an independent qualified safety assessment company to
conduct annual reviews of our safety measures.

We have also rewritten the internal safety operating manual and risk approval procedures to
ensure strict compliance with internal rules and regulations by our employees and have taken
various proactive measures to strengthen our production safety in the workplace. Our
management and employees are trained under continued reassessment so as to comply with all
the required procedures and the relevant operating guidelines.

ENVIRONMENTAL MATTERS

Our business and operations are governed by relevant environmental laws and regulations,
including the Environmental Protection Law of the PRC, the Law on Prevention of Air Pollution
of the PRC, the Law on Prevention of Water Pollution of the PRC and the Law on Prevention
Solid Waste Pollution of the PRC.

We have adopted a number of environment protection and safety measures and pollution
controls throughout our production process, brief details of which are set out below:

• as part of our production process, we discharge pollutants such as waste residue,

excess heat and dust. The waste discharge is subject to applicable state or local
discharge limits. We have installed a range of waste management systems to cater for
the proper management of pollutants throughout the production process;

• we have developed a technology that utilizes waste residue and excess heat generated
from our production processes to produce fertilizers and a PRC patent application was
made in 2005 with regard to such technology. Furthermore, solid waste from coal
burning is in the form of cinders, and such cinders are sold by us as by-products and
therefore minimizes pollution;

• environmental control is carried out by our production department. We have pollution

control systems in relation to our waste water discharge installed in all of our

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 production plants. These systems are connected directly to the local environmental
bureaus so that the local environmental bureaus can monitor whether our waste water
discharges are in compliance with the relevant environmental standards; and

• we also provide training to our staff regarding environmental protection rules and
regulations. We also invite qualified advisers to visit our plants from time to time to
assess whether environmental protection measures are up to standard and to make
recommendations for further improvements.

We believe we comply with applicable laws and regulations on environmental protection in

all material respects.

INTELLECTUAL PROPERTY

We have registered, or have applied for registration of, our material patents and trademarks
in the PRC. We have been granted 22 patents and have an additional 44 patent applications
pending approval in the PRC. We have registered a number of trademarks and brand names
which are widely used to market our products in China and overseas. In addition, technology is
protected through strict internal controls such as requiring employees involved in the production
technology development and production processes to sign confidentiality agreements with us and
restricting personnel that can enter our research and development and restricted production
areas. We are entitled to initiate civil proceedings to seek compensation for loss and damages
arising from any third parties’ unauthorized disclosure or misappropriation of our proprietary
technology and processes under applicable PRC laws and regulations.

During the three years ended December 31, 2010, we were not exposed to any infringement
claims and have not experienced any third party infringement of our intellectual property rights.

INSURANCE

We maintain insurance policies that cover our fixed assets (including our buildings and
machinery) and our current assets (including our inventory) against damage caused by, among
other things, fire, explosions, thunderstorms, typhoons and landslides. In accordance with
established practice in China, the insurance policies maintained by us do not cover any indirect
losses such as loss of profits caused by any suspension or termination of business. According to
statutory requirements, we have maintained insurance schemes which cover accident,
unemployment, retirement and medical expenses. During the three years ended December 31,
2010, we did not make any claim under any of our insurance policies.

We do not have any product liability insurance to cover any liability arising from any
defect in our products. PRC laws do not require us to maintain insurance covering any such
liability. We also believe that all our products meet the quality standards set by the PRC
supervision authorities and are therefore of the view that insurance coverage for product liability
is not necessary. During the three years ended December 31, 2010, no legal claim or complaint
has been made against us by any of our customers in relation to any products provided by us.

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EMPLOYEES

As of December 31, 2010, we employed a total of approximately 2,600 staff in China and
Hong Kong. A breakdown of our employees by function is shown below:

Number of
Employee Function Employees
Quality inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,804
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600

Our employees’ remuneration is paid in accordance with the relevant PRC policies, and the
benefits of our employees include salary, bonus, pension, unemployment insurance and housing
allowance. We believe our relationship with our employees has been cordial. There has not been
any material dispute between us or any of our subsidiaries and any of our respective employees
during the three years ended December 31, 2010.

COMPLIANCE

During the three years ended December 31, 2010, we were in possession of all of the
necessary approvals and qualification certificates required under PRC laws and regulations in
order to conduct our businesses.

We have implemented comprehensive internal control and corporate governance systems.

The internal control and corporate governance systems aim to achieve operational, financial
reporting and compliance targets as defined in the framework of the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. Each of our subsidiaries has adopted
such systems for internal control purposes. We have a designated management team assigned to
oversee the systems. In accordance with the COSO framework, we have performed an annual
self-assessment of our internal controls, identified corrective actions after such assessment and
implemented new controls.

LEGAL PROCEEDINGS

We are not aware of any material legal proceedings, claims or disputes currently existing or
pending against us. We believe that there were no material legal proceedings or disputes which
were of material importance or which have adversely affected us during the three years ended
December 31, 2010.

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 RELATED PARTY TRANSACTIONS

On December 16, 2010, Mr. Li, the Chairman and one of our executive directors, granted a
personal guarantee in favor of China Construction Bank for a credit facility that our PRC
subsidiary Shandong Fufeng entered into with China Construction Bank. The credit facility has a
limit of RMB110.0 million and as of December 31, 2010, Shandong Fufeng had drawn down a
total of RMB30.0 million. The guarantee was entered into in the ordinary course of business, on
fair and reasonable commercial terms.

Other than the personal guarantee as described, there was no other related party transaction
between us, our consolidated subsidiaries and our directors, executive officers and principal
shareholders nor, in each case, the companies with whom they are affiliated, as of December 31,
2010.

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 DESCRIPTION OF OTHER MATERIAL INDEBTEDNESS

To fund our existing business operations and to finance our working capital requirements,
we have borrowed money or incurred indebtedness from various banks. As of December 31,
2010, our total borrowings amounted to RMB1,536.5 million (US$232.8 million). Since
December 31, 2010, the Company has from time to time incurred additional indebtedness in the
ordinary course of business. We set forth below a summary of the material terms and conditions
of these loans and other indebtedness.

PRC LOAN AGREEMENTS

Bilateral Bank Loan Agreements

Our PRC operating subsidiaries Shandong Fufeng, Baoji Fufeng and Inner Mongolia
Fufeng have entered into loan arguments with a number of PRC banks including China
Construction Bank, Agricultural Bank of China, Bank of China, China Merchants Bank,
Agricultural Development Bank of China, SPD Bank, Huaxia Bank, Chang’an Bank, China
Minsheng Bank and Bank of Communications. These loans are typically used to satisfy our
working capital requirements and are repayable within one to two years.

Interest

The principal amounts outstanding under the majority of the PRC bank loans bear interest
at fixed rates ranging between 4.9383% and 5.81% per annum. A few bank loans, such as certain
loans from China Merchants Bank and Bank of Communications, are subject to floating interest
rates calculated by reference to the PBOC’s benchmark interest rate per annum. Floating interest
rates generally are subject to review monthly.

Any overdue amount under the bank loans will be subject to a penalty interest accruing
from the due date up to the date of actual payment at a rate of between 30% and 50% above the
benchmark interest rate per annum. Any portion of the Loan which is not used for the present
bid purpose will be subject to a penalty interest at a rate of between 50% and 100% above the
benchmark interest rate per annum.

Covenants

Under this PRC bank loans, our subsidiary borrowers have agreed, among other things, not
to take the following actions without first notifying the lender and/or obtaining the lenders’ prior
consent:

• create encumbrances on any part of properties or assets or deal with assets in a way
that may adversely affect its ability to repay its loans;

• grant guarantees to any third parties that may adversely affect its ability to repay its
loans;

• application for bankruptcy, liquidation and dissolution proceedings;

• transfer part or all of the liabilities under the loans to a third party; and

• prepay the loan.

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 Pursuant to a number of PRC bank loans, our subsidiary borrowers also agreed to keep
their debt ratio at no higher than 70%. In addition, under its loan agreement with Bank of China,
Baoji Fufeng agreed not to provide security to third parties such that the total value of the
security exceeds 50% of Baoji Fufeng’s total net assets.

Guarantee and security

Certain of our PRC subsidiaries have entered into guarantee and security agreements with
the lenders in connection with the bank loan agreements, pursuant to which such PRC
subsidiaries have provided guarantees and security including land use rights and property of
such PRC subsidiaries. Mr. Li, our Chairman and an executive director, granted a personal
guarantee to our subsidiary Shandong Fufeng in relation to its credit facility of up to RMB110.0
million from China Construction Bank.

OFFSHORE FINANCING AGREEMENT

2010 Convertible Bonds

On April 1, 2010 and April 22, 2010, we issued U.S. dollar settled 4.5% convertible bonds
due 2015 in the aggregate principal amount of RMB1,025,000,000 on the 2010 Convertible
Bonds. The 2010 Convertible Bonds are unsecured and will mature on April 1, 2015. As of the
date of this document, RMB1,025.0 million of the 2010 Convertible Bonds are outstanding.

Conversion

The 2010 Convertible Bonds are, at the option of the holders, convertible at any time until
into our fully paid ordinary shares with a par value of HK$0.10 each at an initial conversion
price of HK$7.03 per share with a fixed exchange rate of RMB0.8797 to HK$1.00. The
conversion price is subject to customary adjustment for, among other things, consolidation,
subdivision or reclassification of shares, capitalization of profits or reserves, capital
distributions, rights issues of shares or options over shares, rights issues of other securities,
issues or other issues at less than current market price, modification of rights of conversion or
other offers to shareholders. As of the date of this document, the conversion price is HK$7.03
per share.

Redemption at the option of holders

On April 1, 2013, the holder of each 2010 Convertible Bond has the right, at such holder’s
option, to require us to redeem all or some only of the 2010 Convertible Bonds at an amount
equal to the U.S. dollar equivalent of their Renminbi principal amount, together with accrued but
unpaid interest to the date fixed for redemption. A holder shall also have the right, at such
holder’s option, to require us to redeem all but not some only of that holder’s 2010 Convertible
Bonds at a redemption price equal to the U.S. dollar equivalent of their Renminbi principal
amount, together with interest accrued, upon the shares ceasing to be listed or admitted to
trading or are suspended for trading for a period equal to or exceeding 90 consecutive days on
the Hong Kong Stock Exchange.

Redemption at our option

At any time after April 1, 2013 and prior to April 1, 2015, we may redeem all but not some
only of the 2010 Convertible Bonds outstanding at a redemption price equal to the U.S. dollar
equivalent of their Renminbi principal amount, together with interest accrued, if the closing
price of our shares translated into Renminbi (at the prevailing exchange rate for Hong Kong
dollars and Renminbi applicable to the relevant trading day for any 20 out of 30 consecutive

75
trading days prior to the date upon which notice of the redemption is given) was at least 130% of
the prevailing conversion price translated into Renminbi at the fixed exchange rate of
RMB0.8797 to HK$1.00. We may also at any time redeem in whole but not in part, the 2010
Convertible Bonds outstanding at a redemption price equal to the U.S. dollar equivalent of their
Renminbi principal amount, together with accrued but unpaid interest to the date fixed for
redemption, if prior to the date of notice at least 90% in Renminbi principal amount of the 2010
Convertible Bonds originally issued has already been converted, redeemed or purchased and
cancelled.

Redemption upon change of control

Upon the occurrence of certain events of change of control of our Company, the holder of
each 2010 Convertible Bond will have the right to require us to redeem all but not some only of
that holder’s 2010 Convertible Bonds at a redemption price equal to the U.S. dollar equivalent of
their Renminbi principal amount, together with interest accrued. A change of control of our
Company that would grant a 2010 Convertible Bond holder the right to require us to redeem
includes (i) any entity (other than Li Xuechun, Shi Guilin, Wu Xindong, Yan Ruliang, Feng
Zhenquan, Xu Guohua, Li Deheng and Cheah Cheng Hye or any of their affiliates) acquiring
control of our Company or (ii) our Company consolidating or merging with another entity or
selling all or substantially all of our assets to another entity, unless the consolidation, merger,
sale or transfer will not result in the other entity acquiring control of our Company or our
Company’s successor. “Control” under this provision the acquisition or control of more than
50% of the voting rights of our issued share capital or the right to appoint and/or removal all or
the majority of the members of our board of directors or other governing body, whether obtained
directly or indirectly and whether obtained by ownership of share capital, the possession of
voting rights, contract or otherwise.

Negative pledge

So long as any 2010 Convertible Bond remains outstanding, we will not, and we will ensure
that none of our subsidiaries will, create or have outstanding any encumbrance, upon the whole
or any part of our present or future undertaking, assets, or revenues (including any uncalled
capital) to secure certain forms of indebtedness unless, at the same time or prior thereto, our
obligations under the 2010 Convertible Bonds are secured equally and rateably (a) by the same
encumbrance or (b) at our option, by such other security, guarantee, indemnity or other
arrangement as either (i) the 2010 Convertible Bonds trustee may in its absolute discretion deem
not materially less beneficial to the interests of the holders of the 2010 Convertible Bonds or (ii)
shall be approved by an extraordinary resolution (as defined in the 2010 Convertible Bonds trust
deed) of the holders.

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