UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

Commission file number: 1-11412

BRILLIANCE CHINA AUTOMOTIVE HOLDINGS LIMITED

(Exact name of Registrant as specified in its charter)

Suites 1602-05, Chater House, 8 Connaught Road Central, Hong Kong

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2004:

3,284,176 American Depositary Shares, each representing 100 Ordinary Shares

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 þ

Table of Contents

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FORWARD-LOOKING STATEMENTS

     Certain information contained in this annual report that does not relate to historical financial information may be deemed to constitute forward-looking statements. The words or phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, “believe” or similar expressions identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results and those presently anticipated or projected. Brilliance China Automotive wishes to caution readers not to place undue reliance on any these forward-looking statements, which speak only as of the date made. Among the factors that could cause Brilliance China Automotive’s actual results in the future to differ materially from any opinions or statements expressed with respect to future periods include:

     When considering these forward-looking statements, you should keep in mind the factors described in “Item 3 — Key Information — Risk Factors” and other cautionary statements appearing in “Item 5 — Operating and Financial Review and Prospects” of this annual report. These risk factors and statements describe circumstances that could cause actual results to differ materially from those contained in any forward-looking statement.

CURRENCY TRANSLATION

     Unless otherwise specified, all references in this annual report to “U.S. dollars” or “US$” are to United States dollars; all references to “Renminbi” or “Rmb” are to Renminbi, which is the legal tender currency of China; all references to “H.K. dollars” or “HK$” are to Hong Kong dollars, which is the legal tender currency of Hong Kong and all references to “Euro” and “Euros” are to the legal tender currency of the European Monetary Union. On December 31, 2004, the noon buying rates in New York City for cable transfers of Renminbi, Hong Kong dollars and Euros, as certified for customs purposes by the Federal Reserve Bank of New York was US$1.00 = Rmb 8.28, US$1.00 = HK$7.77 and Euro 1.00 = US$1.35. Translations of amounts from Renminbi, Hong Kong dollars and Euros to U.S. dollars for the convenience of the reader have been made at those rates. No representation is made that the Renminbi, Hong Kong dollar or Euro amounts could have been, or could be converted into U.S. dollars at those rates or at any other rates. In addition, all financial information presented herein has been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP.

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Data

Historical Financial Information of Brilliance China Automotive

     The following table presents the selected consolidated financial information of Brilliance China Automotive and its subsidiaries as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004, which have been derived from our audited consolidated financial statements. The selected financial information for the years ended December 31, 2002, 2003 and 2004 and as of December 31, 2003 and 2004 should be read in conjunction with, and is qualified in its entirety by reference to, the financial statements, prepared in accordance with U.S. GAAP, included elsewhere in this annual report, the accompanying notes thereto and “Item 5 — Operating and Financial Review and Prospects”. The financial statements and footnotes for the years ended December 31, 2000 and 2001 and as of December 31, 2000, 2001 and 2002 are not included in this annual report.

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Exchange Rate Information

     The following table sets forth certain information concerning exchange rates between Renminbi and U.S. dollars for the periods indicated:

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Risk Factors

     Brilliance China Automotive is subject to various changing competitive, economic, political and social conditions in China, as well as special concerns and significant risks not usually encountered by a United States company. These include the following:

Risks Relating to Brilliance China Automotive Minibus and Sedan Businesses

Brilliance China Automotive experienced a sharp drop in net income in 2004 and may not be profitable in 2005 or in subsequent years.

     Brilliance China Automotive’s net income decreased 99.8% to Rmb 1.2 million (US$0.14 million) in 2004 from Rmb 780.8 million in 2003. During the same period, total sales of Brilliance China Automotive were Rmb 6,542.0 million (US$790.4 million), representing a 35.3% decrease from Rmb 10,109.6 million in 2003. The decrease in total sales was primarily due to the decrease in the sales volumes of minibuses and the Zhonghua sedan. Total sales was also negatively impacted by the decrease in average unit selling prices due to the changes in product mix resulting from the significant slowdown in growth in the domestic demand for automobiles in China and the intensified price competition during 2004. As a result of these factors, Brilliance China Automotive experienced a sharp drop in net income in 2004, and may incur losses in 2005 and in subsequent years, which could impact Brilliance China Automotive’s ability to implement its business strategy and adversely affect its financial condition.

     In 2004, Brilliance China Automotive also recognized a provision for impairment of intangible assets of Rmb 50 million in respect of the design and development costs of the Zhonghua sedans, an impairment loss on goodwill of Rmb 47.3 million in relation to one of Brilliance China Automotive’s jointly controlled entities and a provision for impairment of the property, plant and equipment of Rmb 10.0 million in one of Brilliance China Automotive’s subsidiaries in 2004. There can be no assurance that Brilliance China Automotive will not be required to recognize a provisions impairment of intangible assets, an impairment loss on goodwill or a provision for impairment of the property, plant and equipment in 2005.

If demand for minibuses and sedans in China does not increase, and if Shenyang Automotive does not increase its market share, the ability of Shenyang Automotive to increase its sales volume will be adversely impacted.

     The success of Brilliance China Automotive’s business strategy will depend on the ability of its 51.0%-owned subsidiary, Shenyang Brilliance JinBei Automobile Co., Ltd., or Shenyang Automotive, to increase substantially its sales volume. Such an increase can only be achieved if Shenyang Automotive increases its market share or if there is an overall increase in the size of the minibus and sedan markets in China. Although the overall unit sales of minibuses and sedans in China increased between 2000 and 2003 and we have experienced increased sales of our minibuses and Zhonghua sedans in 2003, the implementation of macro-economic policies and austerity measures in China has resulted in a significant slowdown in growth in domestic demand for automobiles since the second half of 2004. Shenyang Automotive’s sales volume of minibuses decreased by 17.4% from 74,618 units in 2003 to 61,618 units in 2004. Sales volume of Zhonghua sedans decreased 57.1% from 25,600 units in 2003 to 10,982 units in 2004. The pace and strength of the recovery in the automotive industry in China remain difficult to predict. In light of this industry-wide decline in demand, as well as other factors, there can be no assurance that demand for Shenyang Automotive’s minibuses and sedans will return to previous levels. If overall demand for domestic minibuses and sedans does not increase in the future, the ability of Shenyang Automotive to increase its sales volume or market share could be adversely affected.

Delays in the development of new products, lack of consumer acceptance of new products and unforeseen shifts in consumer preferences may have a negative effect on Brilliance China Automotive’s financial results.

     Meeting consumer demand with new vehicles developed over increasingly shorter product development cycle times is critical to Brilliance China Automotive’s continued success. Brilliance China Automotive’s ability to strengthen its position within its traditional minibus segment while expanding into additional market segments with new products, such as sedans, will play a key role in determining its future success. In order to compete successfully within its traditional markets, as well as to enter new markets with new product offerings, Brilliance China Automotive must assess trends in consumer preferences, modify existing products or develop new products to match

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those trends and deliver to market these newly developed or modified products before such preferences change. Delays in the development of new products, lack of consumer acceptance of new products and unforeseen shifts in consumer preferences may have a negative effect on Brilliance China Automotive’s financial results.

Brilliance China Automotive has experienced significant management turnover and could continue to have problems retaining and recruiting key personnel in the future.

     Brilliance China Automotive had significant turnover of its directors and executive officers in 2004 and 2005 and could continue to have problems retaining and recruiting senior management in the future. Since June 2004, six of its nine then current directors have resigned. Of the six who resigned, one was the President and Chief Executive Officer, another was the Vice President and Chief Financial Officer, and a third was the Vice Chairman, Executive Vice President and Company Secretary. In addition, an independent non-executive director who was appointed in June 2004 to fill one of a vacant directorships resigned in September 2004. While Brilliance China Automotive has appointed a new President and Chief Executive Officer, a new Chief Financial Officer, and two other directors, there can be no assurance that this relatively new management team will be as effective in implementing Brilliance China Automotive’s business strategy or that any new strategy that the new management team may decide to implement will achieve its intended objectives.

     Brilliance China Automotive’s success depends to a significant degree upon the continued contributions of key management and other personnel, some of whom could be difficult to replace. Brilliance China Automotive does not maintain key man life insurance covering its senior management and competition for qualified management personnel can be intense. There can be no assurance that Brilliance China Automotive will be able to recruit suitable candidates and high turnover of senior management can adversely impact Brilliance China Automotive’s stock price and customer relationships as well as make recruiting for future management positions more difficult. In addition, Brilliance China Automotive must successfully integrate any new management personnel that they hire in order to achieve its operating objectives, and changes in other key management positions may temporarily affect its financial performance and results of operations as new management becomes familiar with its business. Accordingly, Brilliance China Automotive’s future financial performance will depend to a significant extent on its ability to motivate and retain key management personnel.

There are significant risks involved in Brilliance China Automotive’s joint venture with BMW to produce BMW sedans in China.

     On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, Shenyang JinBei Automotive Industry Holdings Company Limited, or SJAI, entered into a joint venture contract with BMW Holding BV, or BMW Holding, to assemble, produce and sell BMW designed and branded sedans in China. Production began in September 2003 and the 3-Series and 5-Series sedans were formally launched in China in October and November 2003, respectively. There are significant risks involved in this joint venture, including, but not limited to, the ability of the joint venture to obtain adequate financing as and when necessary, obtain timely delivery of imported components and parts, source necessary components at competitive prices, successfully develop, manufacture, market and sell BMW sedans in China, and obtain appropriate approvals for its new products from governmental authorities in China. Brilliance China Automotive currently has a 49.0% effective interest in the joint venture and provides guarantees for the performance of all obligations of SJAI, including required capital contributions.

The ownership of Brilliance China Automotive by its largest shareholder is currently the subject of litigation.

     On January 21, 2003, a writ brought by Broadsino Finance Company Limited, or Broadsino, as plaintiff was filed with the Supreme Court of Bermuda and an ex parte court order dated January 22, 2003 granted by the Supreme Court of Bermuda in favor of Broadsino was served on the registered office of Brilliance China Automotive in Bermuda. Brilliance China Automotive, one current director and three former directors of Brilliance China Automotive, among others, are defendants in these proceedings. The writ alleged that Brilliance China Automotive was aware that the interest of the Chinese Financial Education Development Foundation, a former significant shareholder, in 1,446,121,500 shares representing a 39.45% ownership interest of the then outstanding share capital of Brilliance China Automotive, was held in trust for Broadsino and was improperly transferred to Huachen Automotive Group Holdings Company Limited, or Huachen, a company wholly owned by the Liaoning

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Provincial Government. Upon application by Brilliance China Automotive, the court order was discharged by a judgment of the Supreme Court of Bermuda given on February 11, 2003.

     On March 10, 2003, Brilliance China Automotive filed a summons at the Supreme Court of Bermuda to have Broadsino’s writ and statement of claim struck out. The strikeout proceedings were duly heard before the Supreme Court of Bermuda on July 22 and 23, 2003. On December 31, 2003 the Supreme Court of Bermuda issued its judgment on the strike-out proceedings, and struck out the writ in respect of legal proceedings brought by Broadsino against Brilliance China Automotive. On March 4, 2004, Broadsino submitted an application for leave to appeal to the Supreme Court of Bermuda, but at the hearing of the application before the court on March 9, 2004, Broadsino’s application was refused. Broadsino subsequently issued a Notice of Appeal dated June 18, 2004 whereby it sought to appeal to the Court of Appeal of Bermuda, Civil Appellate Jurisdiction the decision of the Supreme Court of Bermuda dated December 31, 2003. The Court of Appeal of Bermuda ruled in its judgment of March 14, 2005 in the favor of Brilliance China Automotive and dismissed Broadsino’s appeal. On April 5, 2005, Broadsino submitted a notice of motion for leave to appeal to the Court of Appeal of Bermuda, which seeks leave to appeal to the Privy Council with respect to the Court of Appeal’s judgment. On June 9, 2005, the Court of Appeal directed Broadsino to amend Broadsino’s notice of motion for leave to appeal. On June 27, 2005, Broadsino was granted leave to appeal the judgment of the Court of Appeal to the Privy Council in the United Kingdom, which represents the highest court of appeal in the Bermuda judicial system. As at the date of this annual report, the order granting leave to the Privy Council setting out the issues to be determined was still to be issued.

     On August 7, 2003, a lawsuit was filed in U.S. federal court by the former Chairman of Brilliance China Automotive and others against the Liaoning Provincial Government relating to Huachen’s ownership of Brilliance China Automotive. On March 3, 2005, the claim was dismissed by the district court for lack of jurisdiction over the nature of the case and the type of relief sought and on March 16 the plaintiffs filed a notice of appeal. Brilliance China Automotive has never been named as a party to the lawsuit.

     The directors of Brilliance China Automotive do not believe the recent litigation in Bermuda or any other litigation in other jurisdictions have had or will have a significant impact on the financial position of Brilliance China Automotive. See “Item 8 — Financial Information — Legal Proceedings” for further details of these litigation proceedings.

Failure by Brilliance China Automotive to continue to form and maintain alliances with foreign automobile manufacturers could adversely affect its competitiveness.

     In order for Brilliance China Automotive to remain competitive and obtain additional technology and financing, it is crucial that it enters into and maintains alliances with foreign motor vehicle manufacturers. This is particularly true since China’s accession to the World Trade Organization, or the WTO, in November 2001. As a result of the reduction in import restrictions, more automobile manufacturers have been and will be entering China’s motor vehicle market. If Brilliance China Automotive cannot maintain its existing alliances with Toyota and BMW or form strategic alliances with other foreign automobile manufacturers regarding the establishment of joint ventures and the procurement of necessary components on commercially beneficial terms, its competitive position will be adversely affected.

The inability of Shenyang Automotive to access Toyota’s technical resources to upgrade its products, or Toyota’s provision of assistance to any of Shenyang Automotive’s competitors could negatively impact Shenyang Automotive’s sales and competitive position.

     Shenyang Automotive has historically relied to a significant extent on Toyota for technical assistance for its minibuses. On December 17, 2001, Shenyang Automotive entered into an agreement with Toyota for the technology transfer of the fifth generation of the Toyota minibus — the Granvia — for which production based upon semi-knockdown kits from Toyota commenced in 2002. In the first half of 2004, the Granvia, which is marketed under the brand name “Granse” (known as “Grace” before February 2004) when sold in China by Brilliance China Automotive, entered into commercial production, with more than 60% of its parts and components from domestic sources. Although Shenyang Automotive has introduced new products, including its successful mid-priced minibus, incorporating styling and engineering refinements and modifications without assistance from Toyota, lack of access to Toyota’s technical resources may limit Shenyang Automotive’s ability to upgrade significantly its existing Toyota-designed products. Failure to update its existing models could eventually result in Shenyang Automotive’s

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products becoming technologically inferior to its competitors’ products, which could have an adverse impact on Shenyang Automotive’s sales. Although Brilliance China Automotive has no knowledge of any intention of Toyota to produce, or assist a current or potential competitor in the production of, minibuses similar to those of Shenyang Automotive in China, neither Brilliance China Automotive nor Shenyang Automotive could prohibit Toyota from doing so.

Any delay or disruption in Shenyang Automotive’s ability to obtain engines from Toyota could limit Shenyang Automotive’s ability to produce its deluxe minibuses.

     While Shenyang Automotive is currently in the process of replacing the Toyota engines used in some of its minibus models with Mitsubishi and Mianyang Xinchen engines, currently most of the engines installed in Shenyang Automotive’s deluxe minibuses are purchased from Toyota on a commercial basis. Shenyang Automotive generally maintains an inventory of Toyota engines sufficient to sustain two months of planned production. To date, Shenyang Automotive has not experienced any material disruption to its supply of engines from Toyota. Changes in regulatory requirements, tariffs and other trade barriers and price or exchange controls could, however, hinder Shenyang Automotive’s ability to import engines. An extended disruption or reduction in Shenyang Automotive’s supply of Toyota engines would consequently limit Shenyang Automotive’s ability to produce deluxe minibuses.

Any delay or disruption in Shenyang Automotive’s ability to obtain Mitsubishi engines could limit Shenyang Automotive’s ability to produce its Zhonghua sedans.

     Currently all of the Mitsubishi engines installed in Brilliance China Automotive’s Zhonghua sedans are purchased from Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., or Shenyang Aerospace, on a commercial basis. Shenyang Aerospace is an associated company of Brilliance China Automotive, in which Brilliance China Automotive has a 12.8% equity interest. See “Item 4 — Information on the Company — Business Overview — Other Significant Subsidiaries, Jointly Controlled Entities and Associated Companies — Shenyang Aerospace.” Shenyang Automotive is currently in discussions with other domestic and overseas engine manufacturers, with a view to broadening its engine sourcing for the Zhonghua sedans, including using foreign designs to produce domestically engines for sedans and minibuses. Shenyang Automotive generally maintains an inventory of Mitsubishi engines sufficient to sustain two months of planned production. To date, Shenyang Automotive has not experienced any material disruption to its supply of Mitsubishi engines from Shenyang Aerospace. However, there can be no assurance that Shenyang Automotive will at all times be able to obtain a steady supply of Mitsubishi engines from Shenyang Aerospace. An extended disruption or reduction in Shenyang Aerospace’s supply of Mitsubishi engines to Shenyang Automotive would consequently limit Shenyang Automotive’s ability to produce its Zhonghua sedans.

If Brilliance China Automotive fails to upgrade its existing production facilities or build new facilities in a timely and cost-efficient manner, its businesses, financial condition and results of operation may be negatively affected.

     In order to maintain its competitive edge, Brilliance China Automotive’s strategy is to upgrade its production facilities, including molding, welding, painting and assembly facilities and build new facilities, for example, the construction of its new engine plant. Any failure or delay in implementing such upgrading or construction plans in a timely and cost-efficient manner could limit its future growth and have a material adverse effect upon Brilliance China Automotive’s businesses, financial condition and results of operations.

Shenyang Automotive’s competitors may have access to more advanced technology, greater financial resources and more substantial support from the Chinese government, which could negatively affect Shenyang Automotive’s competitive position.

     Some of Shenyang Automotive’s competitors have formed joint ventures with, or licensed technology from, foreign automobile manufacturers, and others may do so in the future. These competitors may have access to greater financial resources than Brilliance China Automotive or to technology and equipment that are more advanced than the technology and equipment utilized by Brilliance China Automotive. In addition, some of Shenyang Automotive’s potential competitors may receive substantial support from the Chinese government, including priority access to loans, favorable import quotas and tariffs, expedited approvals of proposed projects and

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products and preferential tax treatment. Such advantages may make it difficult for Shenyang Automotive to compete with these other automobile manufacturers.

Huachen, as Brilliance China Automotive’s substantial shareholder, may not always act in the best interest of other shareholders.

     Huachen, a wholly owned subsidiary of the Liaoning Provincial Government, currently owns 39.4% of the issued and outstanding shares of Brilliance China Automotive, which it acquired from the Chinese Financial Education Development Foundation in December 2002. Accordingly, Huachen is entitled to cast 39.4% of the votes on all matters voted on by the shareholders of Brilliance China Automotive (to the extent it is not required to abstain from exercising its voting rights under the Bye-laws of Brilliance China Automotive and applicable laws and regulations), and therefore is able to exert substantial influence over the election of Brilliance China Automotive’s directors, the outcome of actions requiring majority shareholder approval and the business in general of Brilliance China Automotive. Such influence could preclude the ability of minority shareholders to influence important business decisions of Brilliance China Automotive, and may result in actions or omissions by Brilliance China Automotive that are not in the best interest of the minority shareholders.

Significant changes in the cost or availability of raw materials or components may have a material adverse impact on Brilliance China Automotive’s results of operations.

     Brilliance China Automotive has relationships with over 250 suppliers in China and sources the majority of its important components and raw materials from at least two different suppliers to ensure availability and increase competition among suppliers. Brilliance China Automotive has also made significant progress in increasing the domestic component content of its products. However, certain principal components of Brilliance China Automotive’s products, including those used in sedans produced by our joint venture with BMW, Brilliance BMW Automotive Ltd., or BMW Brilliance, continue to be imported from Toyota, BMW and other overseas suppliers. Because certain components are imported from Toyota, BMW and other suppliers in Japan and Europe, the costs as well as availability of such components may be affected by foreign exchange, exchange rates, import restrictions, customs clearance, shipment schedules and import duties and consequently drive up Brilliance China Automotive’s costs of production. In addition, unexpected disruptions in the supply of certain components, particularly from foreign suppliers, may also require using alternative suppliers or cause delays in the production process. Furthermore, increases in the price of electricity or certain raw materials, such as steel, may result in increased costs of production. Significant changes in the cost or availability of raw materials or components may have an adverse impact on Brilliance China Automotive’s results of operations.

Product liabilities and recall claims may adversely affect Brilliance China Automotive’s results of operation.

     Manufacturers and sellers of defective products in China may be subject to liability for losses and injury caused by such defective products under China’s laws. However, there is currently no mandatory legal requirement for automobile manufacturer to maintain insurance coverage in respect of production interruption, product liability or damage to third party properties. Neither Brilliance China Automotive nor Shenyang Automotive carries product liability insurance or insurance against losses due to production insurance, product recalls or damage to third party properties. Brilliance China Automotive cannot guarantee that product liability claims will not be brought against Brilliance China Automotive or its subsidiaries and affiliates in the future, and, if such claims are successful, that such claims will not have a material adverse impact upon Brilliance China Automotive’s results of operations, or that the Chinese government will not impose new requirement for sufficient insurance to be maintained to cover the risks associated with Brilliance China Automotive’s China operations, including those of Shenyang Automotive and BMW Brilliance.

Brilliance China Automotive is required to comply with increasingly stringent environmental standards applicable to its vehicles and manufacturing facilities.

     Brilliance China Automotive’s production facilities are subject to government pollution regulations enforced by the relevant local government. In addition, the Chinese government has set vehicle safety, exhaust and performance standards with which Brilliance China Automotive must comply. Brilliance China Automotive’s operations are sensitive to changes in the Chinese government’s environmental policies relating to all aspects of the

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automobile manufacturing. There is no assurance that changes in such policies would not have an adverse effect on the revenue or results of operations of Brilliance China Automotive.

Risks Relating to the Minibus and Sedan Industries in China

Competition in China’s minibus and sedan industry could lead to further competitive pricing pressure.

     China’s minibus and sedan industry is highly competitive in terms of vehicle quality, pricing, choice of models, reliability, safety, fuel economy, customer service and financing terms. Many participants, particularly in the sedan industry, have announced plans to increase production capacity in China. Increasing capacity within the industry is likely to intensify further competitive pricing pressure. In addition, the significant slowdown in growth in the domestic demand for automobiles in China has intensified price competition among automobile manufacturers in 2004. Increased price competition may cause our sales volume and profit margin to decrease, and thus adversely affect our results of operations and financial condition.

Reduced tariffs and import restrictions on foreign-made motor vehicles and motor vehicle components as a result of China’s accession to the WTO may lead to increased competition for Brilliance China Automotive.

     The Chinese government imposes restrictions, quotas and tariffs on the import of foreign-made motor vehicles, as well as motor vehicle components. However, as a result of China’s accession to the WTO, which regulates trading and tariffs among its signatory states, in November 2001, China has committed to reducing its import restrictions on motor vehicles and motor vehicle components. In addition, China will be required to conform its import tariffs to the uniform tariffs under the WTO.

     Effective January 1, 2002, China reduced its import tariffs on motor vehicles and automotive components from between 80% to 100% and between 18% to 40%, respectively, to between 43.8% to 50.7% and between 14% to 31.4%, respectively. This range was lowered further to between 4.8% and 25% for automotive components in 2003. In 2004, the average import tariffs on automotive components for the deluxe minibuses (including Granse minibuses) and Zhonghua sedans were 13.8% and 10.5%, respectively. In addition, tariffs on vehicles with nine seats or less and engine sizes of three liters or below fell from 43.9% in 2002 to 38.2% in 2003, while tariffs on vehicles with more than nine seats and engines of more than three liters decreased from 50.7% in 2002 to 43.0% in 2003. In 2004, tariffs were 34.2% for vehicles with nine seats or less and engine sizes of three liters or less and 37.6% for vehicles with more than nine seats and engines of more than three liters. In 2005, tariffs have been fixed at 30% for all motor vehicles. These tariffs are scheduled to be further reduced in 2006.

     Although lower tariffs and reduced import restrictions may benefit Brilliance China Automotive in terms of lower cost of imported components, lower tariffs and reduced import restrictions could also lead to a substantial increase in the number of minibuses, sport utility vehicles, sedans and other motor vehicles imported into China, thereby significantly increasing competition in Brilliance China Automotive’s current and proposed markets.

Extensive governmental regulations on the automobile industry in China may limit the flexibility of Brilliance China Automotive to respond to market conditions and competition.

     The Chinese government has implemented extensive policies and regulations for the passenger automobile industry, including policies and regulations relating to market entry, vehicle safety and emissions standards, exhaust and performance standards, pollution levels of vehicle production facilities, pricing, vehicle and component import tariffs and foreign ownership of interests in vehicle and component manufacturers. In addition, every new product type must be approved by the Chinese government before it can be introduced into the market. This approval process can sometimes be lengthy, and can impact the ability of Brilliance China Automotive to introduce new products in a timely manner. This regulatory framework may limit the flexibility of Brilliance China Automotive to respond to market conditions or competition. The cost of complying with these policies and regulations can also be significant. Brilliance China Automotive’s operations are sensitive to changes in the Chinese government’s policies relating to all aspects of the automobile industry. There can be no assurance that changes in such policies would not have an adverse effect on the revenue or results of operations of Brilliance China Automotive.

China automobile industry is significantly dependent upon the economy of China.

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     The performance of the China automobile industry is highly dependent on general economic conditions and the purchasing power of consumers in China. Thus, the revenue and profits of Brilliance China Automotive are subject to cyclical fluctuations and may be adversely affected by any unfavorable changes in the economic conditions in China.

Risks Relating to China’s Economy and Regulatory System

Currency exchange risks could affect Brilliance China Automotive’s cross-border transactions.

     Brilliance China Automotive is subject to risks associated with cross-border transactions, including foreign currency exchange rate risks relating to its purchase of automotive components from Toyota in Japan and other overseas suppliers. During 2004, imported components comprised approximately 6.7% of the total costs of minibuses and approximately 18.0% of the total costs of the Zhonghua sedan. Changes in foreign currency exchange rates also affect the costs of foreign-manufactured components imported by Chinese manufacturers of larger components, such as engines, which we purchase domestically.

Budgetary constraints on China’s government entities and state enterprises could affect Shenyang Automotive’s sales and pricing of products.

     Brilliance China Automotive believes that approximately 30% and 35% of Shenyang Automotive’s 2004 revenues from minibuses and sedans, respectively, were derived from sales to governmental agencies and certain state-run enterprises. Because of Shenyang Automotive’s customer composition, sales and pricing of its products can be affected by budgetary constraints applicable to government entities and state enterprises.

Brilliance China Automotive’s results of operations and financial position are affected to a significant degree by economic, political and legal developments in China.

     Substantially all of Brilliance China Automotive’s assets are located in China and substantially all of Brilliance China Automotive’s revenues are derived from China. Accordingly, the results of operations and financial position of Brilliance China Automotive are subject to a significant degree to economic, political and legal developments in China. Since 1978, the Chinese government has been reforming its economic system. Many of the reforms are unprecedented or experimental, and are expected to undergo future change. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, changes in foreign exchange rate policies, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to further adjustment of the reform measures. There can be no assurance that the reforms in the economic system in China will continue or that Brilliance China Automotive will not be adversely affected by changes in political, economic and social conditions in China, including changes in political leadership or by the adoption of additional or revised reform measures.

Any significant disruption of China’s banking system could materially and adversely affect Brilliance China Automotive’s ability to obtain credit.

     Most major banks in China are owned by the Chinese government. Most of these banks have historically extended significant amounts of loans according to governmental policy rather than for commercial reasons. As a result, these banks currently have significant loans outstanding to state-owned enterprises, many of which have incurred recurring and material losses. Consequently, many banks in China have substantial levels of loans that are not current with respect to payments of either interest or principal and may not have made adequate provisions to cover potential losses on these loans. Any significant disruption of China’s banking system could materially and adversely affect Brilliance China Automotive’s ability to obtain credit and the economic environment in which it conducts its business and may also affect its customers and distributors.

Shenyang Automotive’s and BMW Brilliance’s ability to obtain sufficient foreign exchange to satisfy their requirements is dependent on authorization of the State Administration of Foreign Exchange.

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     Substantially all of the revenues of Shenyang Automotive and BMW Brilliance are denominated in Renminbi, while some of their operating expenses, purchase costs of components and capital expenditures are denominated in foreign currencies. The Renminbi currently is not a freely convertible currency. The State Administration of Foreign Exchange, under the authority of the People’s Bank of China, regulates the conversion of Renminbi into foreign currency. There can be no assurance that the current authorizations for foreign-invested enterprises, such as Shenyang Automotive and BMW Brilliance, to retain their foreign exchange to satisfy foreign exchange liabilities or to pay dividends in the future will not be limited or eliminated or that Shenyang Automotive and BMW Brilliance will be able to obtain sufficient foreign exchange to pay dividends and to satisfy their other foreign exchange requirements.

     See also “Government Regulation” and “Environmental Matters” in “Item 4 — Information on the Company”, “Item 5 — Operating and Financial Review and Prospects,” “Item 8 — Financial Information — Legal Proceedings” and “Item 11 — Quantitative and Qualitative Disclosures About Market Risk”.

ITEM 4. INFORMATION ON THE COMPANY

History and Development of Brilliance China Automotive

     Brilliance China Automotive Holdings Limited was established as an exempted company with limited liability under the laws of Bermuda on June 9, 1992. Brilliance China Automotive’s principal place of business is Suites 1602-05, Chater House, 8 Connaught Road Central, Hong Kong, telephone number: (852) 2523-7227.

     Brilliance China Automotive was initially established to hold a 51.0% interest in Shenyang Brilliance JinBei Automobile Co., Ltd. (formerly known as Shenyang JinBei Passenger Vehicle Manufacturing Company, Ltd.), or Shenyang Automotive, a Sino-foreign equity joint venture enterprise established on July 22, 1991. The remaining 49.0% interest in Shenyang Automotive was owned by Shenyang JinBei Automotive Company Limited (formerly Shenyang Brilliance Automotive Company Limited and FAW-JinBei Automotive Company Limited), or JinBei. In February 2003, an amendment was made to Shenyang Automotive’s joint venture contract and as a result, the term of Shenyang Automotive became perpetual. Shenyang Automotive is currently the leading manufacturer and distributor of minibuses in China and also the manufacturer of Zhonghua sedans.

     On December 29, 2003, Brilliance China Automotive, through Shenyang Xinjinbei Investment and Development Co., Ltd., or SXID, and Shenyang JinBei Automotive Industry Holdings Co., Ltd., or SJAI, its 99.0% and 98.0% indirectly owned subsidiaries, respectively, entered into agreements to acquire the entire equity interests of Shenyang Automobile Industry Asset Management Company Limited, or SAIAM, and Shenyang Xinjinbei Investment Co., Ltd, or SXI. SAIAM and SXI own 29.9% and 11%, respectively, of the issued share capital of JinBei. Upon the completion of the acquisition and the receipt of government approvals for the transaction, which is expected by the end of 2005, Brilliance China Automotive will obtain an effective interest of approximately 40.1% of JinBei, thereby increasing its effective interest in Shenyang Automotive from 51.0% to approximately 70.7%.

     Prior to May 1998, Brilliance China Automotive’s sole operating asset was its interest in Shenyang Automotive. On May 18, 1998, Brilliance China Automotive acquired 50% and 51% equity interests, respectively, in Mianyang Xinchen Engine Co., Ltd., or Mianyang Xinchen, a manufacturer of gasoline engines for use in passenger vehicles and light duty trucks, and Ningbo Yuming Machinery Industrial Co., Ltd., or Ningbo Yuming, a producer of automobile windows and window molding and stripping. Mianyang Xinchen is a Sino-foreign joint venture whose 50-year term will expire in 2048. Ningbo Yuming is a wholly foreign-owned enterprise with a 50-year term that will expire in 2043. On October 19, 2004, Brilliance China Automotive, through its subsidiary Beston Asia Investment Limited, entered into an agreement with Madam Chen Qiuling for the acquisition of her 49% interest in Ningbo Yuming. Approvals of the acquisition were obtained from the relevant Chinese authorities on November 25, 2004 and Ningbo Yuming has thus become a wholly owned subsidiary of Brilliance China Automotive.

     In addition to the acquisition of interests in Mianyang Xinchen and Ningbo Yuming, Brilliance China Automotive has also acquired from Brilliance Holdings Limited, an affiliated company, a 50.0% equity interest in Shenyang Xinguang Brilliance Automobile Engine Co., Ltd., or Shenyang Xinguang Brilliance, on December 11,

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2000. Shenyang Xinguang Brilliance is a Sino-foreign equity joint venture manufacturer of gasoline engines for use in passenger vehicles and light duty trucks. Shenyang Automotive is a major customer of each of Mianyang Xinchen, Ningbo Yuming and Shenyang Xinguang Brilliance. Brilliance China Automotive believes that the acquisition of these components suppliers has enabled it to maintain the quality, and ensure a stable supply, of certain key components required for the production needs of Shenyang Automotive.

     On October 12, 1998, June 9, 2000 and July 3, 2000, Brilliance China Automotive established wholly owned subsidiaries (1) Shenyang XingYuanDong Automobile Component Co., Ltd., or Xing Yuan Dong, (2) Ningbo Brilliance Ruixing Auto Components Co., Ltd., or Ningbo Brilliance Ruixing, and (3) Mianyang Brilliance Ruian Automotive Components Co., Ltd., or Mianyang Brilliance Ruian, respectively, to centralize and consolidate the sourcing of automotive parts and components for Shenyang Automotive, Ningbo Yuming, and Mianyang Xinchen, respectively. In 2001, Xing Yuan Dong, Ningbo Brilliance Ruixing and Mianyang Brilliance Ruian all began manufacturing automotive components in order to maintain their preferential tax treatment from the Chinese government.

     Under an acquisition agreement dated April 25, 1998 between Shenyang Automotive and Shenyang State Assets Administration Bureau, Shenyang Automotive was to acquire a 21.0% indirect interest in Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co., Ltd., or Shenyang Aerospace, a Sino-foreign equity joint venture. A revised agreement was subsequently signed on August 15, 1999 among Shenyang Automotive, Shenyang State Assets Administration Bureau, Shanghai Brilliance Industrial Company Limited and Xing Yuan Dong, under which Shenyang Automotive’s effective interest in Shenyang Aerospace was reduced to 16.8% in exchange for cash consideration and the remaining 4.2% effective interest was transferred to Xing Yuan Dong at cost. At the completion of the transfer on May 25, 2000, Brilliance China Automotive’s indirect effective interest in Shenyang Aerospace was 12.8%. Upon completion of the acquisition of additional shares in JinBei and the receipt of approvals from relevant Chinese authorities, which is expected by the end of 2005, Brilliance China Automotive’s effective interest in Shenyang Aerospace will increase to approximately 16.1%.

     At the end of 1998, Shenyang Automotive began to construct new production lines for the manufacture of sedans and multi-purpose vehicles, or MPVs. These new production lines were completed in mid-2002 and reached a total annual production capacity of 100,000 sedans or MPVs as at the end of 2002. Beginning in 1999, Shenyang Automotive implemented an expansion of its minibus facilities that resulted in an increase in its annual production capacity for deluxe and mid-priced minibuses from 40,000 units to 70,000 units in 2002 (based on two shifts per day). The stamping and assembly workshops currently have annual production capacities of 80,000 and 90,000 units, respectively, based on two shifts of workers, and can be increased to 120,000 units based on three shifts. In 2003, Shenyang Automotive constructed a new painting facility with a capacity of 120,000 units per year and in 2004 began construction of a new engine plant with an initial planned capacity of 50,000 engines per year.

     On December 17, 2001, Shenyang Automotive entered into an agreement with Toyota Motor Corporation for the transfer of technology relating to the fifth generation of the Toyota minibus, the Granvia, which Shenyang Automotive markets under the brand name “Granse” (known as “Grace” before February 2004) in China. Production of this minibus model based on semi-knockdown kits from Toyota began in the second half of 2002 and commercial production using domestic parts and components commenced in the second half of 2004.

     The Zhonghua sedan, designed by the world-renowned Italdesign, was launched to the market in China in August 2002, after approval for production and sale of the Zhonghua sedan was obtained from the Chinese government in May 2002.

     On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, SJAI, entered into a joint venture contract with BMW Holding to produce and sell BMW sedans in China. On April 28, 2003, Brilliance China Automotive increased its effective interest in SJAI from 81% to 89.1% and thereby increased its effective interest in the joint venture with BMW Holding BV from 40.5% to 44.6%. On December 16, 2003, Brilliance China Automotive further increased its effective interest in the joint venture to 49.0% by further increasing its interest in SJAI from 89.1% to 98.0%. BMW Brilliance received its business license on May 22, 2003 and introduced the BMW designed and branded 3-Series and 5-Series sedans in China in October and November of 2003, respectively, based on knockdown kits supplied by BMW. BMW Brilliance is also planning to launch the new 3-Series sedans in China.

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     Brilliance China Automotive currently has no material acquisitions or divestitures planned or pending.

     For additional information see “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures”.

Business Overview

     Brilliance China Automotive’s core businesses are the manufacture and sale of minibuses and Zhonghua sedans in China through its subsidiary, Shenyang Automotive. We also have a joint venture with BMW to produce and sell 3-Series and 5-Series sedans in China. In 2004, Shenyang Automotive sold a total of 61,618 minibuses and 10,982 Zhonghua sedans. Due to the significant slowdown in growth in domestic demand for automobiles since the second half of 2004, our sales volume for minibus and sedan for the year ended December 31, 2004 decreased 17.4% and 57.1%, respectively, compared to sales volume in 2003. Brilliance China Automotive’s 49%-indirectly owned joint venture, BMW Brilliance, commenced production of the BMW-designed and branded sedans in 2003 and sold a total of 4,359 of the 3-Series and 5-Series sedans in the last quarter of 2003. In the year ended December 31, 2004, a total of 8,708 of the BMW sedans were sold. Currently, Shenyang Automotive has an annual production capacity of 80,000 units of deluxe and mid-priced minibuses (based on two shifts per day), 120,000 units of deluxe and mid-priced minibuses (based on three shifts per day), and 70,000 units of Zhonghua sedans (based on two shifts per day). BMW Brilliance currently has an annual production capacity of 30,000 units (based on 2 shifts per day).

     Shenyang Automotive’s production facilities are located in the industrial city of Shenyang, the capital of Liaoning Province in northeastern China. Shenyang Automotive’s principal products are the deluxe minibus, the mid-priced minibus and the Zhonghua sedan. The mid-priced minibuses accounted for approximately 58.1% of the total sales revenue of Brilliance China Automotive in 2004, compared with 49.1% of total sales revenue in 2003. The deluxe and mid-priced minibuses are 8 to 15-seat minibuses adapted from Toyota’s Hiace and Granvia minibuses (marketed under the name “Granse” in China).

     In 2001, Shenyang Automotive began to install multiple electronic fuel injection engines, which are currently used in all of Shenyang Automotive’s mid-priced minibuses. With the installation of this engine in the mid-priced minibus, currently all of Shenyang Automotive’s minibuses meet European II emission standards. Since 2004, the Chinese government has been encouraging its automobile manufacturers to meet the European III emission standards. Shenyang Automotive expects most of its minibuses and Zhonghua sedans to meet European III emission standards by the end of 2005.

     In 2003, Shenyang Automotive commenced production of the fifth generation Toyota minibus, the Granvia (marketed under the name “Granse” in China), based on semi-knockdown kits supplied by Toyota. Commercial production of the Granse model using domestic parts and components commenced in the first half of 2004.

     In 2004, Shenyang Automotive’s sales volume decreased 27.6% from 100,218 units in 2003 to 72,600 units in 2004. The 2004 sales figure comprises 61,618 minibuses and 10,982 Zhonghua sedans. The decrease in overall sales was primarily due to the decrease in the sales volume of minibuses and the significant decrease in the sales volume of the Zhonghua sedans due to the slowdown in growth of the Chinese automobile industry. Our joint venture, BMW Brilliance sold 8,708 BMW-branded sedans in 2004, compared to 4,359 in the last quarter of 2003. Shenyang Automotive’s sales in China has been supported by a substantial network of more than 800 minibus distributors, including approximately 240 exclusive minibus distributors, and approximately 130 sedan distributors, as well as over 340 after-sales service centers for minibuses and over 160 for sedans. Shenyang Automotive also continued to implement its “4S” sales center system, with sales, after-sales service, spare parts and surveys offered by the same dealership outlet. As of the end of 2004, Shenyang Automotive had over 90 4S dealership outlets for minibuses and over 80 4S dealership outlets for Zhonghua sedans nationwide.

     For the year ended December 31, 2004, Brilliance China Automotive reported sales of Rmb 6,542.0 million (US$790.4 million) and net income of Rmb 1.2 million (US$0.1 million), representing a decrease of approximately 35.3% and 99.8%, respectively, compared to 2003. The decrease in sales and net income was primarily due to the decrease in sales volume of Shenyang Automotive, especially for the Zhonghua sedans, and the decrease in average

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unit selling prices due to the changes in product mix, resulting from significant reduction in domestic demand for automobiles and the intensified price competition faced by Chinese automobile manufacturers in 2004.

Principal Products

     Shenyang Automotive’s principal products are minibuses and the Zhonghua sedans. Our joint venture with BMW, BMW Brilliance, also produces 3 and 5 Series sedans.

     Shenyang Automotive’s principal minibus products are the deluxe minibus and the mid-priced minibus, which constituted approximately 14.7% and 58.1% of total 2004 sales revenue, respectively. These vehicles are used primarily for passenger transportation but can also be modified for use as police vans, ambulances or other specialty vehicles. Shenyang Automotive sells all of its minibuses under the JinBei brand name in a variety of models designed to meet the requirements of particular market segments. Brilliance China Automotive believes that Shenyang Automotive’s minibuses have established a reputation in China for high quality and reliability that has enabled Shenyang Automotive to maintain its market-leading position in recent years. Shenyang Automotive commenced production of the high-end Granse model in 2002 based on semi-knockdown kits from Toyota and started production of the domestic version of the Granse model using domestic parts and components in the first half of 2004.

     Shenyang Automotive’s Zhonghua sedan was introduced to the commercial market in China in August 2002 and constituted approximately 33.1% and 20.2% of total sales revenue in 2003 and 2004, respectively. The initial model was a five-seat manual transmission sedan with a 4-cylinder, 2.0-liter Mitsubishi engine. Shenyang Automotive now also produces manual transmission Zhonghua sedans with 2.4-liter engines and automatic transmission versions with both 2.0-liter and 2.4-liter engines. In December 2004, the “facelift” version of the Zhonghua model, known as “Grandeur”(“Zunchi” in Chinese), was launched.

     The following table sets forth certain information with respect to Shenyang Automotive’s principal products as of the date of this annual report.

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     The following table sets forth certain information with respect to BMW Brilliance’s principal products as of the date of this annual report.

     Deluxe minibus. The deluxe minibus has historically been Shenyang Automotive’s flagship product and is among the highest quality, most technologically advanced minibuses currently produced in China. The deluxe minibus is used primarily as a passenger vehicle and features air conditioning, and optional power steering, power windows, automatic locks, a rear window wiper, full interior carpeting and alternative interior configurations.

     Shenyang Automotive’s high-end products have been further improved to incorporate more user-friendly features to meet diversified customer demands. In the deluxe line, Shenyang Automotive has introduced a locally developed model, based on the Toyota 441N, which is equipped with an anti-lock braking system, improved helix rear suspension and refined interior trim. It has the highest technical content among Shenyang Automotive’s product lines.

     On December 17, 2001, Shenyang Automotive entered into an agreement with Toyota for the technology transfer of the fifth generation of the Toyota minibus — the Granvia — for which production based upon semi-knockdown kits from Toyota commenced in 2002. Shenyang Automotive began producing the Granvia using domestic parts in the first half of 2004. The Granvia is marketed under the brand name Granse (known as “Grace” before February 2004) when sold in China by Shenyang Automotive. The Granse minibus exhibits several improvements over the fourth generation minibus, including more responsive performance when carrying heavy loads, better handling, better maneuverability, 360-degree interior moveable seats, and a more luxurious and comfortable interior.

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     Mid-priced minibus. The mid-priced minibus was developed by Shenyang Automotive and was commercially introduced in the second half of 1996. Shenyang Automotive produces two principal mid-priced minibus models, both of which are based on the deluxe minibus and share the same styling and body of the deluxe minibus, with the principal difference being the engine. By equipping the majority of these models with a domestically manufactured Mianyang Xinchen or Shenyang Xinguang engine, Shenyang Automotive is able to sell them for significantly less than the deluxe minibus, yet still maintain function and quality standards for these models that are only slightly lower than the deluxe minibus. This has allowed the mid-priced minibus models to compete more effectively in terms of price with other domestically produced products. See “— Competition” below. These mid-priced models include the Aurora, a version derived from a similar model from the deluxe line but with more local content, and the Shuttler, which features a multi-point injection (MPI) system, improved air conditioning and flexible seating that allows it to be used as both a passenger and goods vehicle.

     In 2002, Shenyang Automotive introduced three new minibus models to the market, including mid-priced minibuses that utilize Mitsubishi engines and in 2003 Shenyang Automotive launched the updated versions of these minibus models. In 2004, Shenyang Automotive launched lower-priced models with more limited features in response to market demand and in the first half of 2005, a lower-priced domestic version of the Granse was launched.

     Since the end of 2003, Shenyang Automotive’s minibus capacity has been 80,000 units per year (based on two shifts) and 120,000 units per year (based on three shifts). Brilliance China Automotive believes that its long-term interests require that Shenyang Automotive continue to expand its production capacity. Any increase in Shenyang Automotive’s future revenue will depend on its ability to continue to expand in a similar manner. Realization of its production and sales goals is also contingent upon other factors, including the development of new vehicle models, the ability to continue to achieve overall cost reductions, ongoing access to high-quality raw materials and domestic component manufacturers and maintenance of a large well-trained labor force, an effective distribution network and after-sales service capabilities.

     Zhonghua sedan. The Zhonghua sedan was designed by Italdesign and was commercially introduced by Shenyang Automotive in August 2002 after receiving approval from the Chinese government in May 2002. This sedan is designed to target the mid-priced sedan market segment, including governmental institutions, businesses and individual users in China. This sedan model was specifically designed for the Chinese market and utilizes a high degree of domestic component content, thereby offering cost advantages to consumers. In 2003, Shenyang Automotive spent approximately Rmb 200.0 million on upgrading the Zhonghua production facilities and related dies and tools.

     On March 27, 2001, Brilliance China Automotive entered into a three-year technical assistance agreement with BMW under which BMW engineers provide consulting services to help in the initial stages of production of Zhonghua sedans at Shenyang Automotive’s sedan production facilities in Shenyang, including assistance in achieving and maintaining the desired level of production quality. This agreement expired in March 2004 and Brilliance China Automotive and BMW are currently in discussions regarding a similar agreement to be entered into directly between Shenyang Automotive and BMW to replace the original agreement.

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     The following table sets forth Brilliance China Automotive’s revenues by category, for the years 2002 through 2004:

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     The following table sets forth the geographic breakdown of Shenyang Automotive’s minibus and Zhonghua sedan sales revenue throughout China for the years 2002 through 2004:

BMW Brilliance

     On March 14, 2003, Brilliance China Automotive received formal approval from the Chinese government with respect to the feasibility study for the establishment of a joint venture between BMW Holding, a wholly owned subsidiary of BMW AG, and SJAI, an indirect subsidiary of Brilliance China Automotive. On March 27, 2003, SJAI entered into a joint venture contract with BMW Holding in relation to the establishment of the joint venture in China. On April 28, 2003, Brilliance China Automotive, through its indirectly 90%-owned subsidiary, SXID, entered into an agreement with the 10% shareholder of SJAI to acquire an additional 9% interest in SJAI, thereby increasing its effective interest from 40.5% to 44.6%. On December 16, 2003, by increasing its indirect interest in SJAI from 89.1% to 98.0%, Brilliance China Automotive effectively further increased its interest in BMW Brilliance to 49.0%.

     The registered capital and total investment cost of the joint venture is Euro 150 million and Euro 450 million, respectively (equivalent to approximately Rmb 1,564 million and Rmb 4,692 million, respectively). As of

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December 31, 2004, Brilliance China Automotive had injected approximately Rmb 688.5 million into the joint venture. The joint venture is 50%-owned by each of SJAI and BMW Holding and has a term of 15 years starting from May 22, 2003, the date of issuance of the joint venture’s business license, which may be extended by mutual consent of the parties to the joint venture. The business scope of the joint venture is to produce and sell BMW-designed and branded passenger cars, engines, parts and components and to provide after-sales services (including repair, maintenance and spare parts) relating to its products. Profits of the joint venture are shared equally by SJAI and BMW Holding, in proportion to their respective contributions to the registered capital of the joint venture. This joint venture contract prohibits Brilliance China Automotive from entering into similar ventures with other automobile manufacturers for the manufacture and sale of premium sedans in China.

     Brilliance China Automotive has agreed to provide a guarantee to BMW Holding in relation to the performance by SJAI of its obligations under the joint venture contract. A reciprocal guarantee has been provided by BMW AG to SJAI in respect of the obligations of BMW Holding under the joint venture contract. In addition, Brilliance China Automotive has been indemnified by SAIAM and Shenyang JinBei Automobile Industry Company Limited with respect to its liabilities under this guarantee to BMW Holding.

     On May 22, 2003, the business license for the joint venture was issued by the Shenyang City Administration for Industry and Commerce. Commercial production of BMW-designed and branded sedans commenced in September 2003 based on knockdown kits supplied by BMW. The 3-Series BMW sedans were launched in the market in October 2003 and the 5-Series were launched in November 2003. BMW Brilliance also plans to launch new versions of the 3-Series in the fourth quarter of 2005. Since the first half of 2004, BMW Brilliance had begun to incorporate domestically produced components in its 3-Series sedans and 5-Series sedans. However, a large portion of the production of these vehicles (especially the newly introduced sedans, for example, the new 3-Series) is still primarily based upon complete knockdown parts supplied by BMW.

Production Process

Minibus Production Process and Equipment

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Zhonghua Sedan Production Process and Equipment

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BMW Sedan Production Process

     The automotive production process employed by BMW Brilliance is generally divided into four stages: welding, painting, assembly and testing. In each stage, BMW Brilliance utilizes equipment primarily imported from Germany. Each stage of the manufacturing process is also carefully monitored both by quality control engineers and through specialized testing equipment to ensure that the final product achieves the specified BMW Group quality standards.

Raw Materials and Components

     Raw Materials. To ensure its supply of high-quality domestic raw materials, components and spare parts, Shenyang Automotive has relationships with over 250 suppliers in China as of December 2004. Shenyang Automotive sources the majority of its important components and raw materials from at least two different suppliers to ensure availability and increase competition among suppliers. In 2004, approximately 65.6% of Shenyang Automotive’s components sourcing was handled through Brilliance China Automotive’s subsidiaries and associated companies.

     Steel is our principal raw material. Shenyang Automotive purchases steel predominantly through the use of supply contracts. Since steel represented only approximately 6.0% of the total cost of goods sold for the minibus (including Granse) and 3.5% of the total cost of goods sold for the Zhonghua sedan in 2004, the impact of rising steel prices on Shenyang Automotive’s overall production costs was not significant. Furthermore, this increase in the costs for steel was offset by decreases in the costs of components due to a decrease in prices of the minibus components used in the minibuses and an increase in the ratio of domestically produced components used in the Zhonghua sedans.

     Components. Shenyang Automotive has adopted a system that regularly evaluates its existing suppliers. These suppliers range from well-known international suppliers to domestic suppliers with special technology and know-how. Shenyang Automotive has conducted a comprehensive survey of its suppliers against an array of criteria, such as quality problem feedback ratio, production capacity, quality assurance systems and after-sales services. Implementing this process has enabled Shenyang Automotive to build a stronger supplier network as the foundation for future growth.

     The domestic component content of the deluxe minibuses is currently 80% for the Hiace model and 60% for the Granse model. The principal components of the Hiace deluxe model that we continue to import from Toyota are the engine and the rear axle. Shenyang Automotive has developed deluxe minibuses that would utilize

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Mitsubishi engines made by Shenyang Aerospace in order to offer a greater variety of products to its customers. These new models have a higher domestic component ratio. Mitsubishi engines have already been installed in some of the deluxe minibus (Hiace model) units.

     The mid-priced minibus uses 100% domestic parts and the domestic component content of the Zhonghua sedan is over 80%. Brilliance China Automotive calculates domestic component content by “looking through” larger components, such as engines, produced by domestic Chinese entities to determine the percentage of such component’s own components that were manufactured outside China.

     Because certain components are imported from Toyota and other suppliers in Japan and Europe, the availability of foreign exchange, exchange rates, import restrictions and the level of import duties may affect the availability of certain components and Shenyang Automotive’s costs of production. See “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources”.

     Shenyang Automotive is required to pay import duties on imported automobile components. Shenyang Automotive was subject to an average tariff rate of 13.8% to 10.5% on imported components used in its deluxe minibuses (including Granse minibuses) and Zhonghua sedans, respectively, in 2004. During 2004, imported components comprised approximately 6.7% of the total costs of all minibuses. In addition, imported components comprised 18.0% of the total costs of the Zhonghua sedan during 2004. Changes in foreign currency exchange rates also affect the cost of foreign-manufactured components imported by China’s domestic manufacturers to make larger components, such as engines, which we purchase domestically. The total aggregate import tariffs paid by Shenyang Automotive for 2004 were approximately Rmb 56.9 million (US$6.9 million). However, as a result of China’s accession to the WTO, import tariffs on motor vehicle components decreased to between 4.8% and 25% effective January 1, 2003. In 2004, the import tariff on motor vehicle components ranged between 5.0% and 22.9% and in 2005, between 5.0% and 18.6%. A decrease in import tariffs will result in a decrease in the percentage of the total cost of minibuses and sedans that imported components comprise.

     Brilliance China Automotive intends to continue its efforts to increase domestic component content for both deluxe minibuses and sedans, while at the same time emphasizing quality. See “Item 5 — Operating and Financial Review and Prospects”.

Other Significant Subsidiaries, Jointly Controlled Entities and Associated Companies

     Brilliance China Automotive believes that the acquisition of interests in strategic components suppliers has and will continue to broaden its revenue base, increase the reliability of the supply of certain core components of Shenyang Automotive’s and BMW Brilliance’s minibuses and sedans, enhance their ability to monitor component quality and facilitate greater coordination among the management and engineering personnel and their respective principal suppliers.

Mianyang Xinchen

     Mianyang Xinchen, directly and indirectly through Xing Yuan Dong (described below), accounted for 7.3% of Shenyang Automotive’s purchases of parts and components in 2004. Mianyang Xinchen’s principal product is the 2.2 liter 491Q gasoline engine. In 2000, Mianyang Xinchen also began producing the 491QE electronic fuel injection engine on a mass production basis to satisfy the market’s demand for products that can meet new higher emission standards. In 2001, Mianyang Xinchen developed three additional passenger vehicle gasoline engines. As a result, Shenyang Automotive has access to engines suited to a full range of light-duty passenger vehicles. Mianyang Xinchen had annual sales of Rmb 766.4 million (US$92.6 million) in 2004. Shenyang Automotive, which installs Mianyang Xinchen’s 491Q engine in most of its mid-priced minibuses, accounted for 50.5% of Mianyang Xinchen’s sales in 2004. Mianyang Xinchen’s overall annual sales of gasoline engines in 2004 decreased by 7.4 % from 2003. In 2004, the after-sales repair ratio for Mianyang Xinchen’s products decreased to 6.3% from 6.5% in 2003. Mianyang Xinchen’s current annual production capacity is 100,000 to 120,000 gasoline engines (depending on number of shifts).

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     In March 2004, the technology center of Mianyang Xinchen was designated by Chinese governmental authorities as a State-class enterprise technology center, becoming only the second State-class enterprise technology center in the China automotive gasoline engine industry.

Ningbo Yuming

     Ningbo Yuming, directly and indirectly through Xing Yuan Dong and Ningbo Brilliance Ruixing (described below), accounted for 3.9% of Shenyang Automotive’s purchases of parts and components in 2004. Ningbo Yuming’s principal products are automobile window molding and stripping, as well as a front independent suspension system (including a high performance front axle) for use in light passenger vehicles. Ningbo Yuming had annual sales of Rmb 205.5 million (US$24.8 million) in 2004. Ningbo Yuming intends to further develop front axles for use in different types of light goods vehicles to enlarge its market share in the safety components market. Ningbo Yuming received ISO-9002 accreditation in December 1999. Shenyang Automotive, which uses Ningbo Yuming’s products in all of its deluxe minibuses, mid-priced minibuses and Zhonghua sedans, accounted for approximately 99.5% of Ningbo Yuming’s sales in 2004. Shenyang Automotive also granted Ningbo Yuming the status of Class A Supplier in 1999, which it continues to hold.

Shenyang Xinguang

     Shenyang Xinguang is principally engaged in the manufacture and sale of gasoline engines for use in passenger vehicles and light duty trucks. In 2004, engine purchases by Shenyang Automotive for use in mid-priced minibuses accounted for 46.0% of Shenyang Xinguang’s total sales, which amounted to Rmb 171.3 million (US$20.7 million). Shenyang Xinguang currently produces 491Q engines and has a production capacity of 50,000 engines per year. It manufactured 39,883 and sold 39,362 491Q engines in 2004.

     Shenyang Xinguang intends to further develop upgraded versions of the 491Q engine in 2004. These new 16-valve engines have greater power and are designed to satisfy European III emission standards. They are suitable for use in JinBei minibuses (models SY6480A) and Zhonghua sedans. Shenyang Xinguang produces this new engine by using part of its existing 491Q facilities, together with a new production line. Capacity for this new engine is 50,000 units per year, based on two daily shifts.

Xing Yuan Dong, Ningbo Brilliance Ruixing and Mianyang Brilliance Ruian

     Xing Yuan Dong assists Shenyang Automotive in obtaining and developing a reliable supply of domestically produced parts and components. Xing Yuan Dong also facilitates development of locally produced automotive parts and components and acts to improve the quality of these components. When a customized component is needed, Xing Yuan Dong provides potential suppliers with designs and specifications for the customized parts and components required by Shenyang Automotive. These potential suppliers liaise with Xing Yuan Dong and discuss details of production. Xing Yuan Dong then selects appropriate suppliers and offers technical assistance and cost evaluations. Xing Yuan Dong continuously strives to reduce the number of Shenyang Automotive’s suppliers, lower costs, increase the efficiency and commitment of the remaining suppliers, streamline the component purchasing process and ensure a steady supply of high quality components. In 2001, Xing Yuan Dong, in order to maintain its preferential tax treatment from the Chinese government, also began manufacturing automotive components for Shenyang Automotive. In 2004, all of Xing Yuan Dong’s sales were to Shenyang Automotive.

     Ningbo Brilliance Ruixing was established on June 9, 2000 as a wholly owned subsidiary of Brilliance China Automotive to facilitate the trading and development of automotive components between Ningbo Yuming and Shenyang Automotive. In 2004, all of Ningbo Brilliance Ruixing’s sales were made to Shenyang Automotive and 59.0% of Ningbo Brilliance Ruixing’s purchases were from Ningbo Yuming. Beginning in 2001, Ningbo Brilliance Ruixing also began manufacturing automotive components for Shenyang Automotive.

     Mianyang Brilliance Ruian was established on July 3, 2000 as a wholly owned subsidiary of Brilliance China Automotive to facilitate the trading and development of automotive components for Mianyang Xinchen. In 2004, 20.3% of Mianyang Brilliance Ruian’s sales were made to Mianyang Xinchen and all of Mianyang Brilliance

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Ruian’s sales of its manufactured automotive components were made to Shenyang Automotive. In 2001, Mianyang Brilliance Ruian also began manufacturing automotive components for Shenyang Automotive.

Shenyang Aerospace

     Shenyang Aerospace was formed for the purpose of manufacturing 2.0-liter, 122 horsepower and 2.4-liter, 130 horsepower Mitsubishi gasoline engines. Shenyang Aerospace commenced trial operation in March 1999. Shenyang Automotive uses these engines in its deluxe minibuses and in the Zhonghua sedans. In addition, Shenyang Aerospace’s engines are also sold domestically to other passenger vehicle producers. Mitsubishi Motors Corporation, Mitsubishi Corporation, China Aerospace Automotive Industry Group Co., MCIC Holdings Sdn. Bhd. and Shenyang Jianhua Motors Engine Co. Ltd., or Shenyang Jianhua, own equity interests of 25.0%, 9.3%, 30.0%, 14.7% and 21.0%, respectively, in Shenyang Aerospace. Upon completion of the acquisition of additional shares of JinBei and the receipt of approvals from relevant Chinese authorities which is expected by the end of 2005, Brilliance China Automotive’s effective interest in Shenyang Jianhua will increase to 76.6% and consequently Brilliance China Automotive’s effective interest in Shenyang Aerospace will increase to approximately 16.1%.

Dongxing Automotive and Xingchen Automotive Seats

     In December 2001, Brilliance China Automotive entered into an agreement with Brilliance Holdings Limited for the acquisition of the entire issued share capital of Key Choices Group Limited at a consideration of approximately Rmb 278.0 million. Key Choices is an investment holding company and its principal assets are the 100% equity interest in the registered capital of Dongxing Automotive and a 90% equity interest in the registered capital of Shenyang Xingchen Automotive Seats Co., Ltd., or Xingchen Automotive Seats. Dongxing Automotive is a foreign-invested enterprise established in China whose principal products are automotive components for use in passenger vehicles. In 2004, Dongxing Automotive’s sales were made to Shenyang Automotive. Xingchen Automotive Seats is a Sino-foreign equity joint venture established in China in December 2001 that formerly was principally engaged in the manufacturing of automotive seats. However, Xingchen Automotive Seats ceased its operations in the second half of 2002.

Brilliance JinBei Engine Plant

     In 2004, Shenyang Brilliance Jinbei Automobile Co., Ltd. invested in a new engine plant located in the Shenyang Economic and Trade Development Zone. Construction on this plant is expected to be completed in the first half of 2005 and the plant will occupy 280,000 square meters of land, with building size of approximately 64,000 square meters and a main workshop area of 52,000 square meters. FEV Motorentechnik GmbH provided certain technologies relating to engine production and most of the required equipment was imported from Germany.

     The first product currently under development at this plant is a four-cylinder, 16-valve multiple injection 1.8TCI turbo-charged engine for sedans. This engine will form the core of the new Brilliance China Automotive family of engine products and serve as the basis for expanding the size of engines used in Shenyang Automotive sedans from 1.6 liters to 2.0 liters. The development of 1.8 liter engines began in the first quarter of 2005, and these engines are expected to be offered to the market by the end of 2005 or early 2006, with trial production scheduled to commence in the fourth quarter of 2005.

     The engines mainly will be manufactured for use in Zhonghua sedans and the minibues, but will also be open for sale to third party automotive manufacturers both domestically and abroad. The targeted capacity for the first phase of development is 50,000 engines per year, with two subsequent phases having targeted capacity of 100,000 and 200,000 engines per year, respectively. The first phase will require Rmb 1.13 billion (US$136.1 million) in investment for completion. The intellectual property rights over the engines developed are owned by Brilliance China Automotive.

Shenyang Brilliance Power Train Machinery Co., Ltd.

     Shenyang Brilliance Power Train Machinery Co., Ltd. is a PRC joint venture that was established in December 2004 by Shenyang Brilliance Jinbei Automobile Co., Ltd. and Brilliance China Automotive with registered capital of US$22.9 million. Shenyang Brilliance Jinbei Automobile Co., Ltd holds a 51% equity interest

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and Brilliance China Automotive holds a 49% equity interest. The company is established to purchase engines, manual and automatic transmissions and other components from various suppliers, including the Brilliance JinBei Engine Plant, to assemble completed powertrains for the engines made by Brilliance JinBei Engine Plant that can be used in automobiles, in particular Zhonghua sedans. The plant is expected to be completed and in operation by the end of 2005. In addition to use in Zhonghua sedans, the powertrain products are also planned for sale to the external market. The target customers are automobile makers that have no powertrain manufacturing capacity of their own.

Shenyang Chenfa Automobile Component Co., Ltd.

     Shenyang Chenfa Automobile Component Co., Ltd. is a PRC wholly foreign-owned enterprise held by Brilliance China Automotive, with a registered capital of US$8.0 million and a total investment of US$8.4 million. Its scope of business is the production and sale of powertrains and automotive components. Shenyang Chenfa Auto Components Co., Ltd. was established in June 2003 and currently has 52 employees. The main product of Shenyang Chenfa is powertrains for Mitsubishi engines used in the Zhonghua sedan, of which it is capable of producing 40,000 units per year. This line has been in operation for more than one year. It also has an engine manifold production line and a cam bearing frame production line with a capacity of 50,000 units per year. Shenyang Chenfa is also responsible for purchasing engine management systems and other automotive components for Brilliance China Automotive.

Sales and Marketing

     The following tables set forth by vehicle model for the years 2002 through 2004 the number of Shenyang Automotive minibuses and sedans sold and BMW Brilliance sedans sold and the percentage of unit sales represented by each model:

Shenyang Automotive

     Shenyang Automotive’s marketing efforts are supervised by its General Manager and are conducted primarily through a regionalized sales program under which Shenyang Automotive has divided China into six major sales regions and three “sales belts”, each headed by an experienced senior executive. These regions are further subdivided into 30 provincial sales regions for minibuses and 26 provincial sales regions for sedans. Each of these sales regions corresponds to a separate province in China. These units are responsible for meeting defined sales targets, with the executives’ compensation linked to performance. In addition, Shenyang Automotive implements a commission compensation package for its sales personnel and rewards with bonuses its non-sales personnel who develop customer leads that result in minibus sales. The retail prices and commission scales are both nationally unified by Shenyang Automotive, thereby preventing cross-regional sales and counter-productive price wars. Shenyang Automotive’s minibuses and Zhonghua sedans are marketed through a sales network of approximately

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240 exclusive and over 500 non-exclusive minibus distributors and approximately 130 exclusive sedan distributors nationwide, as well as through annual automobile industry trade shows and at special sales shows sponsored by JinBei and Shenyang Automotive. Approximately 95% of Shenyang Automotive’s 2004 unit sales of minibuses and sedans were made to its distributors and approximately 5% were made directly to customers.

     Shenyang Automotive’s sales in China has been supported by a substantial network of approximately 240 exclusive minibus distributors and approximately 130 sedan distributors, as well as over 340 after-sales service centers for minibuses and over 160 for sedans. Shenyang Automotive also continued to implement its 4S sales center system, with sales, service, spare parts and surveys offered by the same dealership outlet. As of December 31, 2004, Shenyang Automotive had over 90 and over 80 dealership outlets for minibuses and sedans, respectively, which had achieved the 4S dealership standard.

     Shenyang Automotive’s minibus and sedan sales were generally made on a cash basis in 2004. However, credit is offered to a few large customers following a financial assessment and an established payment record. Credit terms are generally between 30 to 90 days and security in the form of guarantees or bank notes is obtained from major customers. Designated staff monitors accounts receivable and follow up collection with the customers. Customers considered to be of high credit risk are traded on a cash basis. In addition, in order to incentivize customers and facilitate sales, Shenyang Automotive also accepts three-month to six-month bank-endorsed notes as payment for its minibuses and sedans.

     Shenyang Automotive has 5 regional distribution centers in order to shorten delivery lead-times and to increase cost efficiencies. Also, by utilizing transportation methods such as trucking, rail and shipping, Shenyang Automotive ensures that most vehicles are not driven until they reach the end users. In 2004, all finished products were delivered to customers with zero mileage.

     The following table sets forth the geographic breakdown of Shenyang Automotive’s minibus and sedan unit sales throughout China for the years 2002 through 2004:

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     Generally, Shenyang Automotive’s sales are the highest in the second and fourth quarters of the year. In 2004, however, Shenyang Automotive recorded its highest levels of sales in the first and second quarters , partly due to the significant downturn in the demand of automobiles since the second half of 2004.

     The Chinese government continues to encourage the development of the relatively underdeveloped, resource-rich western provinces of China and significant government resources have been allocated in the past to develop the infrastructure of the western provinces. Brilliance China Automotive believes the government’s policy regarding western China will be conducive to the development of the local automotive markets. Although Brilliance China Automotive’s largest market today remains in the eastern coastal provinces, Brilliance China Automotive believes that the market in the western provinces of China represent substantial upward growth potential in the future. Brilliance China Automotive will continue to expand its dealership system in that region to tap into this potential growth.

     Approximately 29.0% of consolidated revenues in 2004 were generated from Shanghai Shenhua Holdings Co., Ltd. (formerly known as Shanghai Brilliance Group Co., Ltd. and Shanghai Shenhua Industrial Co., Ltd.) or Shanghai Shenhua. Shanghai Shenhua is an affiliate of Brilliance China Automotive that serves as the principal distributor of Shenyang Automotive’s products. Shanghai Shenhua operates under substantially the same commercial terms and arrangements with Shenyang Automotive as its other third party distribution agents. However, in southern China, where it sells solely to distributors on an exclusive basis, Shanghai Shenhua receives additional compensation for operating after-sales service centers, which was a 1% commission on sales until January 2003. Since January 2003, this compensation has been paid in the form of a commission of Rmb 100 to Rmb 150 per vehicle sold.

     Shenyang Automotive uses a computerized sales monitoring system to accurately identify customer demographics, determine which products and options are most in demand and improve inventory control. As Shenyang Automotive brings more product options to market, Brilliance China Automotive believes that this computer system will provide Shenyang Automotive with the ability to track customer preferences in various regions and adjust its production and distribution efforts accordingly.

     In 2004, Shenyang Automotive spent approximately Rmb 206.9 million (US$25.0 million) on overall advertising, consisting primarily of Internet, television and print advertising.

Competition

     The Chinese minibus manufacturing industry is highly fragmented and competitive. According to the China Automotive Technology & Research Center, in 2004, approximately 58 manufacturers sold an aggregate of 397,722 minibuses. The top five manufacturers sold an aggregate of 207,474 minibuses during the same period. Significant competitive factors in the industry include price, quality, reliability and customer service. Brilliance China

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Automotive believes that Shenyang Automotive is competitive in all of these respects, and particularly in terms of quality, although Shenyang Automotive has experienced competition in recent years from other manufacturers producing lower priced, mid-range minibuses.

     The Chinese sedan manufacturing industry is also very competitive and fragmented. The top five brands account for 53.9% of the overall market based on unit sales volume. The market shares of the three leading manufacturers have been decreasing over the past several years. New models are being introduced on an increasingly rapid basis as the number of new entrants into the market has also increased. Unit sales of domestically produced sedans totaled 2,326,492 units in 2004, making sedans the largest segment of the Chinese automotive market, accounting for 45.9% of the overall market. Due to the implementation of macro-economic polices and austerity measures, the domestic demand for automobiles in China has declined significantly since the second half of 2004. Nevertheless, sedans are widely expected to continue to be the fastest growing segment of the Chinese automobile market over the next few years. However, while vehicle ownership is expected to continue to increase steadily in China as a result of increasing individual disposable income, there is also expected to be increasing pricing pressure as tariff rates decline and competition continues to grow from domestic, foreign and foreign-invested sedan manufacturers.

     Historically, Chinese motor vehicle producers have been exposed to little competition from non-Chinese enterprises, partly as a result of import restrictions on foreign-made components and motor vehicles. However, as a result of China’s accession to the WTO, which regulates trading and tariffs among its signatory states, in November 2001, China committed to reducing its import restrictions on motor vehicles and motor vehicle components. In addition, China will be required to conform its import tariffs to the uniform tariffs under the WTO.

     Effective January 1, 2002, China reduced its import tariffs on motor vehicles and automotive components from between 80% to 100% and between 18% to 40%, respectively, to between 43.8% to 50.7% and between 14.0% to 31.4%, respectively. This range was lowered further to between 4.8% and 25% for automotive components effective January 1, 2003. Tariffs on vehicles with nine seats or less and engine sizes of three liters or below fell from 43.9% in 2002 to 38.2% in 2003, while tariffs on vehicles with more than nine seats and engines of more than three liters decreased from 50.7% in 2002 to 43.0% in 2003. In 2004, tariffs were 34.2% for vehicles with nine seats or less and engine sizes of three liters or less and 37.6% for vehicles with more than nine seats and engines of more than three liters, and in 2005 tariffs have been fixed at 30% of all motor vehicles. These tariffs levels are scheduled to be further reduced in 2006. Such reductions in tariffs and import restrictions could potentially increase the competition Brilliance China Automotive will face from foreign manufacturers.

     Listed below are Shenyang Automotive’s current main competitors in the Chinese minibus and sedan market. The data listed for each is based on information published by the Chinese government in December 2004 regarding the Chinese automotive industry:

Minibus

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Zhonghua Sedan

     Brilliance China Automotive considers the following companies to be its main competitors in the market for sedans priced between Rmb 130,000 and Rmb 200,000, which includes the Zhonghua sedan:

BMW Sedans

     Brilliance China Automotive currently does not consider there to be any direct competitor to its BMW sedans in the domestic market for high-end luxury cars produced in China in terms of quality, craftsmanship, price, performance and technology but does consider Audi sedans, which are produced by FAW Volkswagen, as its closest competitor in China in this regard. FAW Volkswagon is 10% owned by Audi AG, 30% by Volkswagen AG and 60% by First Auto Works of China. FAW Volkswagon produces and sells the Audi A4 and A6 sedans and the Volkswagen Jetta and Bora sedans in China. FAW Volkswagon’s Audi sedans have a dominant share of China’s premium sedan market. In 2003 and 2004, FAW Volkswagon sold 53,108 and 46,177 units of Audi A6 sedans, respectively. The Audi A4 sedan was formally launched in China’s market in 2003 and had a total sales volume of 8,173 in 2003 and 15,841 in 2004, respectively. A new Audi A6 was launched in June 2005. The Audi A4 sedan sells for between Rmb 308,500 to Rmb 507,500, and the new Audi A6 sedan sells for between Rmb 462,200 to Rmb 649,600.

     In May 2003, DaimlerChrysler AG signed a project proposal with Beijing Automotive Industry Holding Company Ltd., or BAIC, to manufacture Mercedes-Benz C-Class and E-Class sedans in China. According to announcements by DaimlerChrysler, the joint venture has been approved by the relevant authorities on June 13,

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2005 and production of C-Class and E-Class is expected to commence within one year. The vehicles will be produced in a new facility in Beijing with an initial production capacity of 25,000 units per year.

     Brilliance China Automotive does not consider current foreign importers of luxury cars with similar quality, craftsmanship, performance and technology (such as the Mercedes C-Class and E-Class sedans) to be direct competitors for the BMW sedans as they are subject to import tariffs and restrictions and cannot be priced competitively with BMW Brilliance’s locally produced BMW sedans.

The NDRC and the Ministry of Commerce

     The automobile industry in China is controlled at the central government level by the National Development and Reform Commission, or NDRC, and the Ministry of Commerce. These entities were created as a result of the governmental restructuring that commenced in March 2003. The NDRC generally oversees and regulates the automobile industry in China and any new product or new automobile production facility must obtain the prior approval of this body before entering the market. Similarly, approval from the Ministry of Commerce must be obtained prior to any changes to existing products or the expansion of existing facilities. Both of these entities must also approve any Sino-foreign joint venture for the production of automobiles.

     On June 1, 2004, the NDRC issued a new automobile policy to replace the one that had been in place since 1994. Two of the policy’s stated goals are industry consolidation and enhancement of corporate capacity for research and development. To further these goals, the new policy sets minimum levels of investment for new plants and research and development. Engine plant investments are required to be over Rmb 1.5 billion and new automobile manufacturing projects must be over Rmb 2.0 billion. New automobile projects must also include a product research and development investment of at least Rmb 500 million.

     The new policy will treat semi-knocked down imports as complete vehicle imports and therefore impose vehicle import tariffs instead of component tariffs on them. Current vehicle import tariff levels are between 34.2% and 37.6% (scheduled to fall to 25% by July 2006) whereas current component tariff levels are between 15% and 18% (scheduled to fall to 10% by July 2006).

     In contrast to the old regulations, foreign investors in the automobile and motorcycle market will now be allowed to control more than 50% of a joint venture with Chinese partners if the joint venture is located in an export processing zone and plans to sell its products in overseas markets. The new policy will also allow foreign investors to establish more than two joint venture plants in China to produce the same categories of vehicles if they do so with their existing Chinese partners through acquisitions of other companies in China.

     The new policy acknowledges the success of China’s automobile industry and seeks to encourage this “pillar industry” to foster further growth, particularly of domestically produced and branded products and research and development, through consolidation of smaller, less-efficient manufacturers and increased foreign and domestic investment. In addition, the policy aims to centralize or reorganize certain automobile-related sectors, such as consumer loan services, to reduce overhead and administrative burdens on the industry and allowing industry participants to focus on their core businesses.

     By encouraging industry consolidation and establishing clearer guidelines for foreign investment, the policy, in the opinion of Brilliance China Automotive, encourages existing players in the industry to grow and provides incentives for targeted investment from both domestic and foreign sources. However, the ultimate impact of the new policy on Brilliance China Automotive and other industry participants remains uncertain and subject to more detailed guidance and implementing regulations that are expected to be promulgated by the NDRC in the future.

     On February 28, 2005, the General Administration of Customs, the NDRC, the Ministry of Finance and the Ministry of Commerce jointly issued the Administrative Measures on the Import of Automobile Parts with Complete Vehicle Characteristics. This measure sets up detailed standards and procedures of the identification of automobile parts with complete vehicle characteristics and treats automobile parts with complete vehicle characteristics, which include semi-knocked down kits, as complete vehicle imports and imposes vehicle import tariffs instead of component tariffs on them. Current vehicle import tariff levels are between 34.2% and 37.6% (scheduled to fall to

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25% by July 2006) whereas current component tariff levels are between 15% and 18% (scheduled to fall to 10% by July 2006).

Quality Control

     As a result of technical and managerial training from Toyota and technical assistance from BMW, Shenyang Automotive has adopted a highly regimented production quality management system for its minibuses and sedans. This two-fold system concentrates both on the quality of the raw materials and other production inputs and on the production process itself. In the production process, the focal point of quality control is the production line worker, who undergoes extensive training and testing to ensure that he or she performs the assigned task to the highest quality standards and is qualified and able to determine on his or her own whether or not the product meets the required specifications. In addition, Shenyang Automotive’s specialized quality control engineers are present at each step of the production process, with 36, 39 and 22 separate quality inspection points for minibus, Granse minibus and Zhonghua Sedans, respectively.

     In addition, Shenyang Automotive has established a quality improvement unit to supervise and monitor after-sales service centers in major regional sales bases, such as Guangzhou, Shanghai and Beijing, which also serve as channels for information feedback on product quality. Designated personnel are assigned to follow-up on finding remedies for recurring quality issues in a timely manner.

     Shenyang Automotive was granted the internationally recognized ISO-9001-94 quality system certificate in October 1995, making it the first major automobile manufacturer in China to be awarded such certificate. Shenyang Automotive has successfully obtained recertification in each subsequent year by demonstrating a continued commitment to upholding among the highest quality standards in China’s automobile industry. To date, approximately 130, 70 and 10 of Shenyang Automotive’s over 250 component suppliers achieved TS16949, QS-9000 and VDA 6.1 quality system certification, respectively, and approximately 50 are accredited by ISO-9000.

After-Sales Service

     Shenyang Automotive’s minibuses are sold with a 24-month or 50,000 kilometers (18-month or 30,000 kilometers for minibuses sold in 2002 and 2001) first-to-occur limited warranty. The Zhonghua sedans were sold with a 36-month or 60,000 kilometers (24-month or 40,000 kilometers for sedans sold in 2002) first-to-occur limited warranty. In addition to these basic limited warranties, during 2003 Shenyang Automotive also offered customers a broader warranty for its Zhonghua sedans. During the warranty period, Shenyang Automotive pays service stations for parts and labor covered by the warranty; thereafter, customers must pay for all parts and labor. In December 2004, the “Grandeur” (“Zunchi” in Chinese) were sold with a 10-year or 200,000 kilometers first-to-occur limited warranty on key components. In 2004, total warranty costs for minibuses and sedans sold during the year were approximately Rmb 38.2 million (US$4.6 million) and Rmb 6.9 million (US$0.8 million), respectively, or an average of Rmb 512.8 (US$61.9) per minibus sold and Rmb 628.3 (US$75.9) per Zhonghua sedan sold.

     There are over 340 and over 160 service centers for Shenyang Automotive minibuses and sedans, respectively, throughout China, with centers clustered in areas that match distribution patterns of the vehicles. Such centers have been granted authority by Shenyang Automotive to service its minibuses and sedans, including the provision of repair services and the sale of spare parts. This extensive service network has enabled Shenyang Automotive to adopt its current policy of resolving routine customer complaints in all provincial capitals and major cities within 24 hours and major problems within three days.

     To improve customer service, Shenyang Automotive continually reevaluates its existing distributors based on certain criteria, including financial soundness, customer service capabilities and customer complaint record. Shenyang Automotive has also implemented a more advanced “4S” sales center system, with sales, service, spare parts and survey offered by the same dealership outlet. As of the end of 2004, Shenyang Automotive had over 90 and over 80 4S dealership outlets for its minibuses and sedans, respectively.

     BMW Brilliance currently has approximately 40 distributors, which are mainly located in first tier cities in China. The number of distributors is expected to increase to over 60 by the end of 2005. Like Shenyang Automotive, BMW Brilliance implemented the more advanced 4S sales center system.

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Environmental Matters

     The Chinese government has set vehicle safety, exhaust and performance standards with which Shenyang Automotive and BMW Brilliance must comply. Brilliance China Automotive believes that Shenyang Automotive’s and BMW Brilliance’s minibuses and sedans currently meet the standards imposed by the government. Their respective facilities are subject to government pollution regulations enforced by the Shenyang municipal government. If operations are found to be in violation, the government will allow a period of time to remedy the problem. If it should fail to do so, the government can force a shut-down of Shenyang Automotive’s or BMW Brilliance’s operations until such time as the violator complies with the regulations. To date, neither Shenyang Automotive nor BMW Brilliance has been cited as violating a government pollution regulation.

     On January 1, 2000, the cities of Beijing and Tianjin, as well as Yunnan Province, put into effect emission standards that were significantly stricter than the then prevailing gasoline vehicle emission standards. Since then, these emission standards have been adopted nationwide. Shenyang Automotive’s electronic fuel injection minibus, introduced in 1999, passed the emission standards tests at the China National Automobile Testing Center in Tianjin in October 1999. This engine not only produces cleaner emissions, but also achieved up to an 8% increase in fuel economy and a 3% increase in horsepower. In 2001, Shenyang Automotive began to install multiple electronic fuel injection engines, which are currently used in all of Shenyang Automotive’s mid-priced minibuses. With the installation of this new engine in the mid-priced minibus, currently all of Shenyang Automotives minibuses meet European II emission standards. All Zhonghua and BMW sedans also meet these emission standards. In 2004, the Chinese government began to encourage its vehicle manufacturers to meet the European III standards. Most of the vehicles of Shenyang Automotive and BMW Brilliance are expected to meet the European III emission standards by the end of 2005 or early 2006.

Insurance

     Shenyang Automotive and BMW Brilliance currently hold insurance policies that Brilliance China Automotive believes are customary and standard for companies of comparable size in comparable industries in China. Shenyang Automotive does not carry product liability insurance, and Brilliance China Automotive believes it is customary and standard in the Chinese automobile industry for manufacturers not to carry product liability insurance. BMW Brilliance has elected to purchase product liability insurance, in order to conform with BMW’s worldwide standards.

Organizational Structure

     The following table lists information concerning the subsidiaries, jointly controlled entities and associated companies of Brilliance China Automotive as of December 31, 2004:

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Property, Production Facilities and Equipment

     The Shenyang municipal government granted to Shenyang Automotive the right to use three parcels of land situated in the northern, eastern and western sectors of Shenyang with a total area of approximately 890,000 square meters, approximately 50% of which is currently utilized by Shenyang Automotive and BMW Brilliance. These land use rights will expire in 2021.

     The western parcel consists of 70,000 square meters, 40,000 square meters of which is occupied by a mid-priced minibus production facility that is capable of producing 12,000 vehicles per year. This facility is currently utilized to produce a small number of special purpose minibuses and can also be used to produce components as well.

     The northern parcel covers 40,000 square meters and is used by Shenyang Automotive primarily as a technical training facility.

     The eastern parcel covers 780,000 square meters, including Shenyang Automotive’s and BMW Brilliance’s production facilities. Shenyang Automotive’s minibus facility currently has a production capacity of 80,000 minibuses per year, using two shifts of workers. This facility is specially designed for the manufacture and assembly of deluxe minibuses and mid-priced minibuses and consists of four workshops. The stamping and assembly workshops currently have annual production capacities of 80,000 and 90,000 units, respectively, based on two shifts of workers, and can be increased to 120,000 units based on three shifts. The painting workshop currently has an annual production capacity of 120,000, based on two shifts of workers.

     In 2003, Shenyang Automotive completed the construction of new manufacturing facilities for sedans (including the Zhonghua sedan), which has a production capacity of 100,000 units, based on two shifts per day. The new manufacturing facilities are located adjacent to Shenyang Automotive’s previously existing minibus production facilities in the eastern parcel and include new pressing, welding, painting and final assembly lines. Dies and other key production equipment were purchased from leading European equipment manufacturers for the Zhonghua sedan. The total costs for completion of this expansion project were approximately US$350.0 million, including new equipment, construction costs and other expenditures, but excluding the design costs for the sedans. See “Item 5 — Operating and Financial Review and Prospects — Liquidity and Capital Resources”.

     Certain workshops in these new sedan manufacturing facilities are currently shared with BMW Brilliance, including part of a welding workshop for the 3-Series sedan, all of the painting facilities, and part of the Zhonghua sedan assembly shop, which is currently used by BMW Brilliance to test BMW sedans.

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     Shenyang Automotive transferred legal titles and ownership of certain buildings in its eastern parcel to BMW Brilliance for use in the production of BMW sedans. The agreement also states that BMW Brilliance will lease back a substantial portion of those buildings to Shenyang Automotive. BMW Brilliance also has the option to require Shenyang Automotive to purchase back such buildings at the purchase price less depreciation upon the occurrence of certain events, including the passing of a valid resolution pursuant to the joint venture contract by the board of directors of BMW Brilliance. For financial reporting purposes, the buildings were retained as fixed assets on the balance sheet of Brilliance China Automotive and the portion of consideration received from BMW Brilliance is treated as a financing and will be partially offset against the lease rental payable in future years.

     In December 2003, BMW Brilliance purchased certain machinery and equipment from Shenyang Automotive for use in the production of BMW sedans. The agreement of sale includes an option for BMW Brilliance to require Shenyang Automotive to purchase back such machinery and equipment at the purchase price less depreciation upon the occurrence of certain events, including the passing of a valid resolution pursuant to the joint venture contract by the board of directors of BMW Brilliance. This machinery and equipment is maintained by BMW Brilliance for the manufacturing of its products, as well as to provide certain services to Shenyang Automotive upon the payment of a service fee, which is a predetermined fixed charge per unit based on the number of Zhonghua sedans produced by Shenyang Automotive using this machinery and equipment.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     The following discussion should be read in conjunction with the rest of this annual report, including the consolidated financial statements and notes thereto contained elsewhere in this annual report. The results discussed below are not necessarily indicative of the results to be expected in any future periods.

Overview

     Brilliance China Automotive is a holding company. Prior to 2002, Brilliance China Automotive’s operating segment consisted solely of the manufacture and sale of minibuses and automotive components through its subsidiaries and associated companies within China. No separate financial information and segment information was disclosed. In 2002 and 2003, Brilliance China Automotive began manufacturing and selling Zhonghua sedans and BMW sedans through Shenyang Automotive and BMW Brilliance, respectively, which are managed separately because each of them represents a strategic business unit that serves a different market in the automobile industry. Therefore, Brilliance China Automotive’s reportable operating segments consist of (1) the manufacture and sale of minibuses and automotive components, (2) the manufacture and sale of Zhonghua sedans and (3) the manufacture and sale of BMW sedans. The accounting policies of each operating segment are the same. Brilliance China Automotive evaluates performance based on stand-alone operating segment net income and generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Brilliance China Automotive’s activities are conducted predominantly in China. Accordingly, no geographical segmentation analysis is provided.

     Prior to May 1998, Brilliance China Automotive’s sole operating asset was its interest in Shenyang Automotive. As a result, Brilliance China Automotive’s historical results of operations had been primarily driven by the sales price, sales volume and cost of production of Shenyang Automotive’s minibuses. With a view to maintaining quality, ensuring a stable supply of certain key components and developing new businesses and products, Brilliance China Automotive acquired interests in various suppliers of components and established joint ventures in China since May 1998. As a result of these additional investments and joint ventures, Brilliance China Automotive’s income base has been broadened and its future financial performance will differ from that of Shenyang Automotive.

     In May 1998, Brilliance China Automotive acquired indirect interests in two components suppliers: (1) a 51% equity interest in Ningbo Yuming Machinery Industrial Co., Ltd., a wholly foreign-owned Chinese enterprise primarily engaged in the production of automobile window molding, stripping and other auto components; and (2) a 50% equity interest in Mianyang Xinchen Engine Co., Ltd., a Sino-foreign joint venture manufacturer of gasoline engines for use in passenger vehicles and light duty trucks. On October 19, 2004, Brilliance China Automotive,

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through a subsidiary, entered into an agreement to acquire the remaining 49% interest in Ningbo Yuming. Upon the approval of the acquisition by the government on 25 November 2004, Ningbo Yuming became a wholly owned subsidiary of Brilliance China Automotive.

     In October 1998, June 2000 and July 2000, Brilliance China Automotive established Shenyang XingYuanDong Automobile Component Co., Ltd., Ningbo Brilliance Ruixing Auto Components Co., Ltd. and Mianyang Brilliance Ruian Automotive Components Co., Ltd., respectively, as its wholly owned subsidiaries to centralize and consolidate the sourcing of auto parts and components for Shenyang Automotive. In 2001, all three companies, in order to maintain their preferential tax treatment from the Chinese government, began manufacturing automotive components as well.

     In December 2000, Brilliance China Automotive acquired a 50% equity interest in Shenyang Xinguang Brilliance Automobile Engine Co., Ltd., a Sino-foreign equity joint venture manufacturer of gasoline engines for use in passenger vehicles. In December 2001, Brilliance China Automotive acquired a 100% equity interest in Shenyang Brilliance Dongxing Automotive Component Co., Ltd., a foreign-invested manufacturer of automotive components in China.

     In May 2002, Shenyang Automotive obtained the approval from the Chinese government to produce and sell its Zhonghua sedans in China. The Zhonghua sedans were launched in the market in August 2002.

     On March 27, 2003, Brilliance China Automotive, through its indirect subsidiary, Shenyang JinBei Automotive Industry Holdings Co., Ltd., or SJAI, entered into a joint venture contract with BMW Holding to produce and sell BMW-designed and branded sedans in China. The registered capital and total investment cost of the joint venture was Euro 150 million and Euro 450 million, respectively. At that time, Brilliance China Automotive’s effective interests in SJAI and the joint venture with BMW were 81% and 40.5%, respectively. On April 28, 2003, Brilliance China Automotive increased its effective interest in SJAI from 81% to 89.1% and thereby increased its effective interest in the joint venture with BMW from 40.5% to 44.6%. On December 16, 2003, Brilliance China Automotive further increased its effective interest in SJAI from 89.1% to 98.0% and thereby increased its effective interest in the joint venture with BMW from 44.55% to 49.0%.

     On December 29, 2003, Brilliance China Automotive entered into agreements in relation to the proposed acquisition of an indirect 40.1% interest in Shenyang JinBei Automotive Company Limited, the joint venture partner of Shenyang Automotive and a supplier of automotive components for Brilliance China Automotive’s minibuses and sedans. Upon receipt of the necessary governmental approvals for this transaction, which is expected by the end of 2005, Brilliance China Automotive’s effective interest in Shenyang Automotive will increase from 51% to approximately 70.7%.

     On November 28, 2003, Brilliance China Automotive, through its wholly owned subsidiary, Brilliance China Automotive Finance Ltd., issued an aggregate principal amount of US$200.0 million zero coupon convertible bonds due 2008. These bonds are guaranteed by Brilliance China Automotive and are convertible into fully paid ordinary shares par value US$0.01 of Brilliance China Automotive at an initial conversion price of HK$4.60 per share at any time from January 8, 2004 to November 14, 2008, unless the bonds have previously been redeemed or matured. Brilliance China Automotive Finance Ltd. may redeem a portion of the convertible bonds in certain circumstances at 100% of their outstanding principal amount during the period from November 28, 2005 to November 14, 2008. In addition, all or some of the bonds may be redeemed at the option of the holder at 102.27% of their principal amount on November 28, 2006 and upon certain events, such as the change of control of Brilliance China Automotive or the shares of Brilliance China Automotive ceasing to be listed on The Stock Exchange of Hong Kong Limited, the bonds may be redeemed at the option of the holder at 100% of their outstanding principal amount. These bonds rank equally with all of Brilliance China Automotive’s senior, unsecured and unsubordinated obligations. As of December 31, 2004, none of the bonds had been converted into the ordinary shares of Brilliance China Automotive. The net proceeds of the convertible bond offering were advanced to Brilliance China Automotive and were then loaned to certain subsidiaries of Brilliance China Automotive for their operating use.

Production Volumes and Sales

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     Brilliance China Automotive derives its revenues from the sale of minibuses, sedans and automotive components in China. Consolidated net sales of Brilliance China Automotive for the years ended December 31, 2004, 2003 and 2002 were Rmb 6,542.0 million (US$790.4 million), Rmb 10,109.6 million and Rmb 7,319.5 million, respectively. The principal factor behind the overall increase in sales in 2002 and 2003 was the launch of the Zhonghua sedans and the offering of more minibus models and features by Shenyang Automotive at competitive prices. However, due to the significant downturn of the domestic demand of automobiles in China since the second quarter of 2004, consolidated net sales for the year ended 2004 declined substantially compared to the same period in 2003.

     The mid-priced minibus has proven to be Brilliance China Automotive’s most popular and competitive product. Despite the general slowdown of automobile industry, Brilliance China was able to maintain its position as the market leader in the minibus market in 2004. Sales of deluxe minibuses, mid-priced minibuses, Zhonghua sedans and components represented 14.7%, 58.1%, 20.2% and 7.0%, respectively, of Brilliance China Automotive’s total sales revenue in 2004. Brilliance China Automotive expects that the mid-priced minibuses, together with the Zhonghua sedans, will continue to represent a significant proportion of its total revenue.

Costs and Expenses

     The major elements of Shenyang Automotive’s production costs in recent years have been the purchase of automotive components, labor and depreciation and amortization. Shenyang Automotive has significantly lowered its per unit production costs by improving operating efficiency, increasing production volume and increasing the domestic component content ratios of its deluxe and mid-priced models. As a result, average per unit production costs (including depreciation and amortization) for the deluxe model have been steadily decreasing over the past several years. The domestic component ratio of the Zhonghua sedan also increased from 60% in August 2002 to its current level of over 80%.

     In 2004, per unit production costs for minibuses remained relatively stable. The per unit production costs for the Zhonghua sedans increased by approximately 19.1% mainly due to the increase in per unit fixed costs resulting from low sales volume in 2004. Due to the intensified price competition brought about by the significantly weakened market and the change in product mix, prices of minibuses and Zhonghua sedans decreased by an average of 7.8% and 7.7% respectively, compared to those in 2003. Gross margin decreased significantly from Rmb 2,382.4 million (US$287.7 million) in 2003 to Rmb 1,050.7 million (US$126.9 million) in 2004 as a result of intensified price competition resulting from overcapacity, continued rising prices of raw materials and weakened market sentiments.

     Imported components are generally more expensive than domestically produced components and were subject to import duties that have ranged as high as 120% since January 1992. However, as a result of China’s accession to the WTO in November 2001, import duties on automotive components decreased to between 14% and 31.4% effective January 1, 2002, and to between 5% and 25% effective January 1, 2003. Currently, the import duties are between 5.0% and 22.9%. In 2004, Shenyang Automotive paid an average tariff of 13.8% and 10.5% on its minibus (including Granse minibus) and sedan components, respectively. Shenyang Automotive intends to continue its efforts to increase the domestic component content of its products, while at the same time maintaining quality. However, Brilliance China Automotive expects that future improvements in domestic component content for its existing mid-priced and deluxe minibuses (other than the Granse model) will be at a rate slower than in prior years due to an already high domestic component content ratio, and the extent and rate of any corresponding price reductions are expected to be lower than in prior years. Brilliance China Automotive expects to increase the ratio of domestic components in the Granse minibus and the Zhonghua sedan. Brilliance China Automotive also expects BMW Brilliance to increase the domestic components ratio in its BMW sedans.

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Results of Operations

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

     Total sales of Brilliance China Automotive in the year ended December 31, 2004 were Rmb 6,542.0 million (US$790.4 million), representing a 35.3% decrease from Rmb 10,109.6 million in 2003. The decrease in total sales from 2003 to 2004 was primarily due to the decrease in the sales volume of minibuses and, especially, the Zhonghua sedans and the decrease in average unit selling prices due to the changes in product mix, resulting from the significant slowdown in growth in the domestic demand for automobiles in China and the intensified price competition during 2004.

     Total sales of the minibuses and automotive components segment were Rmb 5,217.4 million (US$630.4 million) in the year ended December 31, 2004, representing a 22.9% decrease from Rmb 6,764.2 million in 2003. Sales of the Zhonghua sedans were more significantly affected by the weakened Chinese automobile industry in 2004, with total sales amounting to Rmb 1,324.6 million (US$160.0 million) in the year ended December 31, 2004, representing a 60.4% decrease from Rmb 3,345.3 million in 2003.

     Shenyang Automotive sold a total of 61,618 minibuses in 2004, representing a 17.4% decrease over the 74,618 minibuses sold in 2003. Of these vehicles sold, 54,992 were mid-priced minibuses, representing a 16.2% decrease over the 65,614 mid-priced minibuses sold in 2003. Unit sales of the deluxe minibuses decreased 26.4% from 9,004 units in 2003 to 6,626 units in 2004. Shenyang Automotive also sold 10,982 Zhonghua sedans in 2004, compared to 25,600 sedans sold in 2003. In addition to these sales, Brilliance China Automotive’s 49% indirectly owned BMW Brilliance also sold a total of 8,708 BMW sedans in 2004.

     Cost of sales decreased 28.9% from Rmb 7,727.1 million in 2003 to Rmb 5,491.3 million (US$663.5 million) in 2004. The decrease was primarily due to the decrease in the unit sales of minibuses and Zhonghua sedans in 2004. Cost of sales as a percentage of sales was 83.9% in 2004, compared to 76.4% in 2003. The overall gross profit margin of Brilliance China Automotive decreased from 23.6% in 2003 to 16.1% in 2004, as a result of lower gross profit margin in respect of minibuses and Zhonghua sedans. The decrease in gross margin of the minibuses was mainly due to the decrease in sales volume and the decrease in average selling prices resulting from the changes in product mix. The decrease in gross margin of the Zhonghua sedans and the loss-making position of this product segment was mainly due to the significant decrease in sales volume of these sedans compared to 2003 that prevented

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Brilliance China Automotive from benefiting from economies of scale in production and caused the per unit costs of Zhonghua sedans to rise above the breakeven level.

     Selling, general and administrative expenses increased 7.1% from Rmb 1,410.1 million, representing 13.9% of sales in 2003, to Rmb 1,510.4 million (US$182.5 million), representing 23.1% of sales in 2004. The decrease in selling expenses primarily due to the decrease in warranty costs and sales volume of the Zhonghua sedans and the decrease in marketing staff costs, was offset by the increase in general and administrative expenses resulting from the increase in research and development expenses incurred with respect to the Granse minibus and the Zhonghua sedans, the increase in provision for inventories and provision for and write-off of bad and doubtful debts in 2004.

     Interest expense net of interest income increased by 8.1% from Rmb 114.4 million in 2003 to Rmb 123.7 million (US$14.9 million) in 2004 due to the increase in interest income from notes payable and the convertible bonds issued in November 2003.

     Net equity in earnings of associated companies and jointly controlled entities increased by 15.3% from Rmb 109.5 million in 2003 to Rmb 126.3 million (US$15.3 million) in 2004. The increase was mainly due to the contribution of profit from BMW Brilliance in 2004.

     Subsidy income decreased 96.3% from Rmb 48.5 million in 2003 to Rmb 1.8 million in 2004. The decrease was mainly due to a tax refund of Rmb 48.5 million in 2003 in relation to Brilliance China Automotive’s reinvestment of the dividends from certain subsidiaries as additional capital contribution. There was no such tax refund in 2004.

     Other income net of expenses decreased from Rmb 78.3 million in 2003 to Rmb 25.7 million (US$3.1 million) in 2004. The decrease was primarily due to the decrease in income from the sale of scrap metals in 2004 and a provision for impairment of the property, plant and equipment of Rmb 10 million in one of Brilliance China Automotive’s subsidiaries in 2004.

     In 2004, Brilliance China Automotive also recognized a provision for impairment of intangible assets of Rmb 50.0 million in respect of the design and development costs of the Zhonghua sedans and impairment loss on goodwill of Rmb 47.3 million in relation to one of Brilliance China Automotive’s jointly controlled entities.

     Brilliance China Automotive recorded a loss before taxation and minority interests of Rmb 526.9 million in 2004 as compared to an income before taxation and minority interests of Rmb 1,094.2 million in 2003. Brilliance China Automotive recorded net tax credit of Rmb 63.1 million in 2004 as compared to the tax expenses of Rmb 144.1 million in 2003, resulting from the decrease in the taxable income of Brilliance China Automotive and the effect of deferred taxation in 2004.

     As a result, net income decreased 99.8% to Rmb 1.2 million (US$0.14 million) in 2004 from Rmb 780.8 million in 2003. Basic earnings per ADS were Rmb 0.03 (US$0.0036) in 2004, representing a 99.9% decrease from Rmb 21.30 in 2003. Diluted earnings per ADS were Rmb 0.03 (US$0.0036) in 2004, representing a 99.9% decrease from Rmb 21.16 in 2003.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

     Total sales of Brilliance China Automotive in the year ended December 31, 2003 were Rmb 10,109.6 million, representing a 38.1% increase from Rmb 7,319.5 million in 2002. The increase in total sales was primarily due to the increase in the unit sales of Shenyang Automotive’s minibuses and the Zhonghua sedans in 2003. As the Zhonghua sedans were not launched until August 2002, the total sales for 2003 are not directly comparable to those of 2002.

     Shenyang Automotive sold a total of 74,618 minibuses in 2003, representing a 14.6% increase over the 65,138 minibuses sold in 2002. Of these vehicles sold, 65,614 were mid-priced minibuses, representing a 16.9% increase over the 56,121 mid-priced minibuses sold in 2002. Unit sales of the deluxe minibuses decreased 0.1% from 9,017 units in 2002 to 9,004 units in 2003. Shenyang Automotive also sold 25,600 Zhonghua sedans in 2003,

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compared to 8,816 sedans sold during the last five months of 2002. BMW Brilliance commenced production of the BMW-designed and branded 3-Series and 5-Series sedans based on knockdown kits supplied by the BMW Group and sold 4,359 sedans in the fourth quarter of 2003.

     Cost of sales increased 42.8% from Rmb 5,411.3 million in 2002 to Rmb 7,727.1 million in 2003. This increase was primarily due to the increase in the unit sales of minibuses and sales of the Zhonghua sedans in 2003. Cost of sales as a percentage of sales was 76.4% in 2003, compared to 73.9% in 2002. Gross profit margin for minibuses remained relatively stable compared to 2002, while the overall gross profit margin of Brilliance China Automotive decreased from 26.1% in 2002 to 23.6% in 2003, as a result of the relatively lower start-up gross margin of the Zhonghua sedans.

     Selling, general and administrative expenses increased 32.1% from Rmb 1,067.2 million, representing 14.6% of sales in 2002, to Rmb 1,410.1 million, representing 13.9% of sales in 2003. The increase was primarily due to the increase in staff costs, selling and other expenses in relation to the full year production of the Zhonghua sedans and the increase in stock-based compensation expense of Rmb 162.9 million in 2003. As a result of call option agreements entered into in 2002, compensation expense associated with the call options is being recognized by Brilliance China Automotive on a straight-line basis from December 18, 2002 to August 6, 2003, the date that the call options became fully vested. Accordingly, compensation expenses of approximately Rmb 173.2 million and Rmb 10.3 million were charged to the income statements for the years ended December 31, 2003 and 2002, respectively.

     Interest expense net of interest income decreased by 10.4% from Rmb 127.7 million in 2002 to Rmb 114.4 million in 2003 due to the increase in interest income from bank deposits. Net equity in earnings of associated companies and jointly controlled entities decreased by 20.7% from Rmb 138.1 million in 2002 to Rmb 109.5 million in 2003. The decrease was mainly due to the initial start-up loss of BMW Brilliance of Rmb 124.9 million in 2003. Excluding the net loss effects from BMW Brilliance, the net equity in earnings of associated companies and jointly controlled entities increased 69.7% from Rmb 138.1 million in 2002 to Rmb 234.4 million in 2003. The increase was due to the strong performance of Brilliance China Automotive’s associated companies and jointly controlled entities engaged in engine manufacturing in 2003.

     In 2003, Brilliance China Automotive was granted subsidies in form of “tax refunds on reinvestments” of Rmb 48.5 million in relation to Brilliance China Automotive’s reinvestment of dividends from certain subsidiaries as additional capital contributions in 2003.

     Other income net of expenses increased from Rmb 1.0 million in 2002 to Rmb 78.3 million in 2003. The increase was primarily due to the increase in sales of scrap metals, moulds, and machineries in 2003.

     Income before taxation and minority interests increased 28.4% to Rmb 1,094.2 million in 2003 from Rmb 852.5 million in 2002. Income taxes decreased 1.7% to Rmb 144.1 million in 2003 from Rmb 146.6 million in 2002.

     As a result, net income increased 27.9% to Rmb 780.8 million in 2003 from Rmb 610.5 million in 2002. Basic earnings per ADS were Rmb 21.30 in 2003, representing a 27.9% increase from Rmb 16.65 in 2002. Diluted earnings per ADS were Rmb 21.16 in 2003.

Contingent Liabilities and Outstanding Guarantees

     Brilliance China Automotive and its subsidiaries had endorsed or discounted bank notes which were not yet honored by the issuers as of December 31, 2004 and 2003 of approximately Rmb 6,118 million (US$739.2 million) and Rmb 1,492 million, respectively. These bank notes were used as a financing tool primarily by Shenyang Automotive for the purchase of components from affiliated companies and third parties and for other capital expenditures.

     As of December 31, 2004, Brilliance China Automotive and its subsidiaries had provided the following guarantees:

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     As of December 31, 2004, subsidiaries of Brilliance China Automotive had issued letters of credit amounting to Rmb 11 million (US$1.3 million), compared to Rmb 32 million in 2003. None of the issued letters of credit were secured by any pledged bank accounts.

     See also “Item 8 — Financial Information — Legal Proceedings” for a discussion of potential contingent liabilities relating to legal proceedings.

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Liquidity and Capital Resources

     The following table set forth our outstanding contractual and commercial commitments as of December 31, 2004: