Excerpts:

Event:

Central bank announced all of a sudden on Sep 15 2008 that:

1) From Sep 16 2008, it will decrease benchmark interest rate of one-year RMB loan by 0.27ppt; rates with other different term limits will accordingly adjust with large modification on short-term ones and smaller changes for long-term. Meantime, deposit benchmark interest rate remains unchanged.

2) From Sep 25 2008, reserve requirement ratio decreased 1ppt except for Commercial Bank of China, the Agricultural Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications and the Postal Savings Bank of China, besides, reserve requirement ratio down 2ppt in Wenchuan earthquake area.

Our analysis and estimation:

1) This indicates significant turnaround in macro-regulation policies, which will bring weighty positive influence on A-share market. This is the first interest rate decline since 2004 and the initial for reserve requirement ratio since 1999. We believe it is a start for new round of monetary policy cycle to prevent sharp economic decline and maintain rapid growth from over-heated economy.

2) Policy is in line with our anticipation. We have predicted huge changes in macro-regulation policy since Apr 2008, which is a necessary condition for investment in stock market. September is a good opportunity to loose tightened policy since the Olympics closed in mid-Sep, investment strategies may accordingly adjust.

3) Turnaround in policies indicates huge changes in macro-economic situation. Inflation is no longer major problem while growth decline prevention and steady growth maintenance become the most urgent. As shown in Aug economic statistics, inflation pressure apparently relieved and decline speed exceeded former anticipation. CPI increased 4.9% yoy in Aug, lower than forecast; PPI surged 10.1% yoy, we believe this is the summit in 2008 and PPI will likely decline gradually.

4) Capital supply and demand as well as overseas anxieties still exists in the market. As posted in Sep strategy report, market rebound needs two outside forces: loose tightened macro policies, which has been realized; and improved market capital supply and demand status. The current market meets serious insufficiency in capital supply and demand while future large amount of restricted shares will bring huge pressure. Hence, future market depends on capital supply and demand to large degree.

In addition, international financial market is influenced by US sub-prime loan crisis even further, the crisis has been the most serious within a century; it may adversely influence global economic growth prospect and China economy and stock market as well.

Earnings forecast and rating:

1) We insist on investment evolving path put forward in Sep strategies report: turnaround in macro-regulation policy will help develop economy, however, considering time-consuming actual effect and to-be-improved capital pattern, investment strategies should adjust from caution to proper positive attitude, asset collocation focus from development shares to value shares, changing from small-cap to blue-chip stocks.