LENDING OPERATIONS

Support the Construction of Infrastructure, both Basic and Pillar Industries, and Promote Balanced Development of Regional Economy

As of the end of 2007, the Bank's total outstanding loans of the lending operations amounted to RMB 2,261.68 billion, an increase of 12.27% over the previous year. RMB 2,230.16 billion of loans were granted to construction of infrastructure, basic and pillar industries, accounting for 98.61% of the Bank's total outstanding loans. Loans to the middle and western regions of China amounted to RMB 1,077.70 billion, and to the north-east industrial base amounted to RMB 216.79 billion, accounting for 47.65% and 9.59% of the total loans respectively.

Increased Efforts in Promoting People's Living Standards and the Overall Social Development

As of the end of 2007,

*  SMEs and micro loans: the Bank's lending to SMEs amounted to RMB 34.31 billion, an increase of 48%from the previous year. These loanssupported 917,000 SMEs, individualbusinesses and farmers, and created 1.277 million new jobs. Through amicro loan project in collaboration with the World Bank, 22,700 micro loans were disbursed, totaling RMB 1.5 billion.

*  Low-income housing: the Bank's balance of these loans amounted to RMB 30.17 billion, an increase of 148.5% over the previous year. A total of 3.3 million people in the "lowincome" category received benefits from this program.

*  Education: the Bank's continued support for education is evidenced through the RMB 2.8 billion loans made to 600,000 financially disadvantaged university students in 430 universities, as well as the RMB 599 million loans made to 110,000 financially disadvantaged students from 416 counties (regions) in the five pilot provinces (cities) of Jiangsu Province, Hubei Province, Chongqing Municipality, Shaanxi Province and Gansu Province.

*  Environmental protection, energy conservation and emissions reduction: the Bank's loans for environmental protection projects amounted to RMB 89.0 billion and loans to energy conservation and emissions reduction projects amounted to RMB 29.6 billion.

*  Medical and health care: the Bank's outstanding loans in this category amounted to RMB 5.79 billion.

Support the Development of New Rural Communities by Driving Economic Development at County Levels

The Bank has proactively provided support to new rural communities through construction and business development at the county level. As of the end of 2007, the Bank's outstanding loans to support new rural construction and county level development reached RMB 310.6 billion. 80% of the loans were provided to infrastructure construction including rural road networks, power networks, and drinking water systems. A further 14% of the loans were provided to support industrialization in rural areas, commodity distribution, and county-level projects to assist the development of SMEs. Lending for other community initiatives including rural education, rural medical and health care, the training and development of migrant rural workers, accounted for the remaining 6% of the Bank's loans in this category.

Promote International Cooperation

The Bank has continued its efforts in promoting international cooperation. Taking advantage of CDB's reputation in the international market, the Bank has established cooperative relationships with governments and financial institutions around the globe, assisted appropriately qualified enterprises to expand their international businesses, and developed cooperation in the areas of infrastructure and livelihood. As of the end of 2007, total foreign currency loans outstanding reached USD 30.49 billion. The NPL ratio in foreign currency denominated lending has remained zero for the past 22 consecutive quarters.

FUNDING OPERATIONS

The Bank continues to mainly raise funds through the issuance of debt securities denominated in both RMB and foreign currencies. Currently, the outstanding debt securities of the Bank represent 28.9% of the total outstanding debt securities in the inter-bank securities market (excluding central bank bills and special T-bonds). In 2007, the Bank managed to issue RMB denominated debt securities amounting to RMB 685.07 billion, and to issue foreign currency denominated securities amounting to USD 12.9 billion. The combination of the domestic and international funding has provided sufficient funding for the Bank's business development.

In the RMB debt markets, CDB has maintained its position as one of the three largest issuers and continues with a reputation built up over a number of years as the issuer with the most innovative types of funding in China's securities market. The market-oriented issuing mechanisms and diversified product innovations have made the Bank a major contributor in the development of a maturing Chinese securities market.

In 2007, the Bank undertook the first issuance in the inter-bank debt market of a RMB 10.0 billion, 5-year floating rate bond with SHIBOR as the benchmark rate. This innovative activity had remarkable significance in driving forward the development of the domestic securities market, currency markets, and speeding up the process of developments in the interest rate markets. The Bank successfully undertook an initial public offering of RMB 5.0 billion worth of RMB-denominated paper in the Hong Kong market. With this issue, the Bank became the first domestic financial institution to issue RMB denominated paper in that market, and also represented the first time that individual investors could access its bonds.

TREASURY OPERATIONS

In 2007, with the prerequisite that risk was effectively controlled, the Bank strategically expanded the scope of its existing treasury operation to pursue opportunities involving new products and new markets. Total Treasury related transactions undertaken in 2007 amounted to RMB 5,180 billion, up by 175% from the previous year.

In 2007, the Bank further consolidated its market position by developing both its RMB bond market-making business and its RMB foreign exchange market-making business. The Bank was ranked number one in the RMB-denominated interest rate swap market on the back of market-making transactions. The Bank made breakthroughs in its client-driven RMB debt hedging business while continuing to maintain the vitality of its existing client-driven foreign exchange hedging business. The Bank is one of the first financial institutions to obtain qualifications as an authorized commodity derivatives trader.

INVESTMENT AND INVESTMENT BANKING OPERATIONS

Investment Funds

CDB actively leads the development of domestic industrial funds. At present, CDB has invested in the Sino-Swiss Partnership Fund, ASEAN China Investment Fund L.P., China-Belgium Direct Equity Investment Fund and Bohai Industrial Development Fund. These funds are all operating effectively.

CDB invested in another two funds in 2007. The China-Africa Development Fund was established as the first domestic fund focusing on investing in Africa. The fund aimed at raising a total of USD 5.0 billion, out of which USD 1.0 billion was invested by CDB in phase one. The China-Italy Mandarin Fund represents the first private equity fund that is fully government supported, commercially operated, and bilaterally invested. It focuses on Chinese and Italian SME opportunities, and aims to raise total funds of EUR 320 million. CDB has committed to invest EUR 75.00 million.

Supporting the development of venture capital funds represents a major business focus for the Bank's investment funds business. It promotes innovation at the national level, and plays an important role in accelerating the development of high-end technologies, and the application and industrialization of these technologies. In 2007, CDB established three venture capital funds: Jilin Fund, Dalian Fund and Ningbo Fund. In addition, the Bank established the China-Israel Huayi Venture Capital Fund, which represents the first venture capital fund established overseas by CDB. As of the end of 2007, the Bank had undertaken investments in six venture capital funds with aggregate investments amounting to RMB 3.3 billion.

Equity Investment and Management

CDB set up its first overseas joint venture investment company - The China-Pakistan Investment Company, which aims to raise funds and facilitate Chinese companies' investments in infrastructure and manufacturing industries based in Pakistan.

In 2007, the Bank continued to enhance its return from its use of innovative debt-to-equity swaps and direct investment management, from which it obtained significant capital appreciation and received considerable dividends. The after-tax return from its debt-to-equity investments was approximately 6.86%, which is higher than the average return on straight lending activities over the same period. Certain outperforming projects have generated returns in excess of 10%.

CDB obtained approval for the restructuring of Shenzhen Financial Leasing Co., Ltd., which will provide a platform for conducting a leasing business focused on planes, ships and large equipment.

Industry Sector Consolidation

The Bank continued to adopt its innovative and flexible financing arrangements to support initiatives promoting the integration of industrial businesses across China. In total, sixteen key integration plans were completed, covering fifteen industries including equipment manufacturing, modern logistics, TD-SCDMA, liquid crystal display and other high-end manufacturing. Notable achievements in this regard are represented by the RMB 55.0 billion financing and cooperation agreements with Datang Telecom Technology & Industry Group, Xuji Group, Huaxi Group and others. The Bank also contributed to the establishment of regional industrial integration platforms through the completion of the planning for the construction of five industrial integration platforms for Liaoning Yingkou, Dalian Changxing Island, Hainan Yangpu, Guangxi Specialized Industry and Ningbo SMEs.

Bond Underwriting

The Bank continued to act as a successful lead underwriter. During 2007, it successfully completed the underwriting of 16 corporate bond issues. Both the amounts underwritten as the leading book-runner in 2007 and the income generated by the Bank have reached historic highs. Again, CDB was ranked as the premier lead underwriter in the market with the largest volume of bonds underwritten. The Bank was the lead underwriter in the first issue of corporate bonds priced using SHIBOR as the benchmark rate. For the first time, the Bank underwrote a railway construction bond issued with its interest rate determined through a formal bidding process. The Bank successfully arranged the first SME pool bond in the domestic market, which incorporated innovations in terms of issuer, pattern of issuance, legal relationships and guarantees.

FINANCIAL COOPERATION

Through enhanced cooperation with institutions including policy banks, the big four commercial banks, other joint-stock banks, foreign banks, the Postal Savings Bank of China, and insurance companies, CDB has been strongly supportive of the construction of key state projects. In 2007, the Bank arranged the first structured loan with the ING Group, formalized its strategic cooperation with the Postal Savings Bank of China to launch structured syndicated loans and successfully promoted the establishment of a market-oriented operation mechanism under which postal savings will benefit agriculture, rural communities and farmers. The Bank has also been involved in the restructuring of corporate governance, improvements in risk control and business development in small and medium-sized financial institutions such as city commercial banks. With these endeavors, CDB has significantly contributed to improving the local financial services operating environment.

For rural areas, there are significant limitations in the banking sector, which include the relatively low levels of coverage by financial institution networks, insufficient provision of financial assistance and inherent logistical difficulties that make it hard for farmers and rural workers to apply for financing. In an effort to overcome these limitations, CDB has participated in the establishment of six village banks in the five provinces of Gansu, Sichuan, Qinghai, Hubei and Jilin during 2007. All of the six banks have now been formally established and are operational. These village banks will strive to meet the needs of agriculture, rural communities and farmers, providing financial support to local farmers, agricultural and rural economic development. This initiative represents a significant and important measure through which the Bank supports rural economic development and balances the supply and demand in financial sector in the rural regions of China.

OTHER SUPPORT FUNCTIONS

IT Governance and Development

CDB has implemented an overall and comprehensive plan, covering the development of information technology across all of its business areas. The past year witnessed significant improvement in IT governance, outsourcing management, and information security control. Consistent with the requirements of supporting the overall planning of information technology, the Bank set up an IT implementation office, together with external experts, to manage and coordinate the implementation process, and to ensure effective execution. The Bank's IT development capabilities have been greatly enhanced.

During 2007, major progress was made in developing, integrating and enhancing the functionality of the key application systems. The core business systems have been successfully upgraded and updated. The Bank has also successfully integrated many of its key business systems, such as the credit business system, streamlining the whole process of data transmission by each business line. The Bank has also started to build an integrated treasury management system, which is now scheduled to be operational before the end of 2008. Once operational, there will be straight-through processing supporting front, middle and back offices, resulting in improved working efficiency and more effective management of market risk. The Bank has also completed the construction of disaster recovery centers, both intra-city and regionally, and its business continuity capabilities are ranked as leading practices within China.

Organization Structure and Human Resources

The Bank has continued to identify and implement improvements in its organizational structure. The Banking Department was renamed as Beijing Branch, and the Ningbo Representative Office was upgraded to Branch status. The Bank established a Financial Research Development Center and continued the upgrading of its expert teams and enhancing its R&D capabilities. The Bank established the Key Project Coordination Office and Financial Co-operation Coordination Office. These were aimed at better coordination and management of key bank-wide projects and financial cooperation. In addition, 86 international cooperation teams were established to facilitate and carry on international cooperation businesses.

The Bank continued to strengthen its human resources management in support of the deployment of its strategic business development and support plans. Job rotation, talent acquisition and reward mechanism initiatives were further enhanced. City and county level working teams were established to ensure that appropriately skilled experts and volunteers worked full-time in counties to facilitate local financial cooperation and business development.

Training and Exchanges

The Bank is committed to provide training and professional development for its entire staff. During 2007, the Bank organized business training for 5,530 staff members, representing an average of 14 days per person. As a result, the Bank staff's capabilities in exploiting international business opportunities and instituting management reforms, as well as their concept of overall risk management, have been largely improved. The reinforced cooperation with internationally renowned universities has also enabled the Bank to make full use of those institutions' varied disciplines and geographic advantages, to ensure that trainings are increasingly more specialized and internationalized.

The Bank actively supports international exchanges for its staff members. In 2007, the Bank invited 517 government officers and senior management personnel in financial institutions from 64 countries to participate in seminars and training held by the Bank. Through these opportunities, the progress and the current situation of China's economic reforms, the business approach and objectives of the Bank were studied and more readily appreciated by participants from foreign countries throughout the globe. In addition, the Bank has also established a CDB scholarship to finance 11 international students from developing countries to take postgraduate courses in China.