Long Term Incentive Plan

On February 5, 2004, the Company's board of directors approved a scheme of share appreciation rights for the senior executives and certain key employees of the Group. No shares will be issued under this scheme. The rights are granted in units with each unit representing one H share of the Company. The rights to the units will be issued in the next five years. Upon exercise of the said rights, the participants will receive a cash payment, subject to the restrictions that the annual amount of aggregate benefit to all participants shall not exceed a percentage of the estimated net profits in the year in which the rights are exercised, which is equal to the product of the number of units exercised and the difference between the exercise price and market price of an H share at the time of exercise.

The expense recognized for employee services received during the year is RMB1,019 million (2005: RMB61 million).

The following table illustrates the number of units in share appreciation rights during the year.

	2006	2005
(in million)	Number of units	Number of units
As at January 1	58	42
Granted during the year	16	16
As at December 31,	74	58

The weighted average remaining contractual life for the share appreciation rights outstanding as at December 31, 2006 is 1.7 years (2005: 2.5 years).

The fair value of share appreciation rights is initially measured at the grant date using the Black-Scholes option pricing model taking into account the terms and conditions upon which the share appreciation rights were granted. The following table lists the inputs to the model used for the year.

	2006	2005
Risk-free interest rate (%)	1.5%	1.5%
Expected dividend yield (%)	1.0%	1.0%
Expected volatility (%)	31%	29.0%
Expected life (in years)	3-5	3-5

The services received and liabilities to pay for those services are recognized over the expected vesting period. Until the liability is settled, it is remeasured at each reporting date with changes in fair value recognized in the income statement. The carrying amount of the liability relating to the share appreciation rights as at December 31, 2006 is RMB1,109 million (2005: RMB90 million).