COSCO Sustainable Development Report 2005

I. Overview	VI. Social performance
II. Statements of the general manager	VII. Economic performance
III. Long-term prospects and strategies	VIII. Report of third-party auditing advices
IV. Framework and management system	IX. A comparison of terms used in report and GRI guidelines
V. Safety and environmental performances

Part C: Report of COSCON, a pilot unit of sustainable development of COSCO

Economy

Entironment

Society

IV. Framework and management system

Framework and management

Participation of the stakeholders

Main policies and management system

Participation of the stakeholders

Identification of stakeholders, negotiation and use of information

Stakeholders	Negotiation approach and frequency	Type of information		Use of information
Stakeholders	Negotiation approach and frequency	Problem concerned	Main indexes	Use of information
Shareholder	Annual report, meeting of shareholders, and written notice to shareholders	Information disclosure; equal participation opportunity; protection of shareholders' rights and interests	Market value; dividend; profit; return on equity; shareholders' equity	Set up effective information disclosure system; increase confidence of the investors
Customer	Customers' meeting and opinion collection, daily liaison of sales representatives and handling of customers' complaints	Response speed; service quality; special needs; handling of complaints	Comprehensive online-time rate; customer satisfaction index; complaint handling rate	Determine the needs of the customers; research the market, the trade and the competitors; formulate marketing plans and schemes; Identify and develop process/product improvement activities
Subsidiaries (fully-owned, joint-venture, joint-operated and cooperative subsidiaries)	Regular work meeting, opinions collection and daily liaising activities	Decision-making efficiency; management transparency; capital guarantee and turnover	Shipping volume and the volume of circular flow; Income and profit from sales; Return on equity; Debt ratio	Research the market, the trade and the competitors; Formulate the investment policies; Improve the management of investment
Staff	Rational advice, mails of the General Manager, collection of opinions and dialogues	Career development; welfare and remuneration; handling of complaints	Staff training cost; staff satisfaction index; staff post rotation rate; rate of complaints by letters or visits and rate of file closure	Identify the needs of the staff; set up effective communication procedures; improve the qualities of the staff; improve the welfare; improve the human resource management
Supplier	Negotiations on contracts and agreements; real-time communications; meeting of bid invitation	Products and prices; delivery and services; payment on time; long-term cooperation	Cost of fuel; shipbuilding cost; proportion of payment by contract	Identify the service requirements; Determine the norms for assessment/ selection of qualified suppliers
Financial and insurance institutions	Negotiation on contracts, regular visits and daily business communications	Punctual repayment; lower claim incidents	Rate of repayment by contract; claim rate	Study policies of finance and insurance; adjust the strategy of investment and improve management of investment
Trade Union	Collective negotiation, regular communications between the representative and the contact person, and staff representative meeting	Rights and interest of the staff; democratic management; business openness of the enterprise	Joining proportion of the staff; rate of collective contract signing; rate of launching openness of the business of the enterprise	Set up effective communication procedures; improve the democratic management
Business partners	Negotiations on contracts; regular meeting; meeting of the top management; correspondence; daily business communication	Apportionment of profits; shared information resources; good honesty and mutual benefit	Income from sales; return on equity; market share	Intensify the exchange of information; understand the trade and the competitors; Set up effective cooperative partnership
Government	Laws, release of policies, special reports, statements and visits	Safety, environment and compliance requirements	Sum of tax; number of employment opportunities; casualty rate caused by industrial accidents; social contribution rate	Determine the compliance requirements; study and adjust the development strategies; improve the internal management
Community	Sign agreements on public welfare, participate in voluntary activities and regular meetings	Environmental protection; building of harmonious community	Number of complaints about pollution; Contributions to the public welfare of the community	Set up mechanism of communication; improve contributions to public welfare
Non-governmental institutions & organizations	Payment of membership fees, regular participation in meetings or activities, and daily liaison	Encouragement of sustainable development; Contribution of resources to establishment of industrial standards/criteria	Number of groups and institutions; amount of annual membership fees	Enhance communication of information; understand the trade and the competitors; set up effective cooperative partnership

Investors

Investor relationships

What the Company believes is that good investor relationships can help us to establish beneficial financing channels, enable share prices to reflect the immanent value of an enterprise and create wealth for shareholders.

The matters in connection with investor relationships are managed by the parent company, China COSCO Holding Limited (Abbreviated as COSCO). Under the leadership of Capt. Wei Jiafu, President of COSCO, members of the top management participated in global tour exhibition on IPO of the company in June 2005. During this period, the company had communicated with nearly 1,000 investors and people involved in forms of one-to-one meeting, press releases and luncheon parties.

Since its IPO, COSCO has insisted on the information disclosure system and engaged in publishing immediately significant information on the Company to the public and the investing industry through various channels so as to with all industries keep sound bilateral communication that helps increase the management level of the Company by boosting the contributors and people involved to learn about the immanent value of the Company and to know about the key problems concerned by the contributors.

In conformity with pragmatic and efficient principles, COSCO wildly gets in touch and communicates with all walks of life such as fund managers, analysts and medias of finance and economics. During the period of retrospection, meetings and teleconferences at the top management level were held successfully for many times, analysts and contributors were organized to visit the Company and our staff actively attended the conference of contributors held by the investment bank to promote and recommend the Company. Meanwhile, the column on the contributor relationship was started on the website of COSCO so that enquiries posed by contributors could be answered at any time. In the second half of 2005, the meetings between COSCO and her contributors and people involved amounted to 198 person-times, among which 64% were investment fund managers, 21% were analysts and 15% were medias of finance and economics.

y the principles of openness, honesty, impartially and publicity, COSCO will continue keeping smooth and clear communication channels with all walks of life, creating better value for the Company and shareholders.

Related parties of the society

Appraisal on “Harmony and Honesty” among related parties of the society

With an aim to fulfill the guidelines of “Building a Harmonious Society”, the Company has entrusted Shanghai CSI Assessment Center as a third party to carry out investigations and appraisals among related parties on “harmony and honesty”, which is the main index that reflects the social performance and efficiency measurement system. In mid September 2005, 160 questionnaires were released, covering the headquarters of the Company, China International Freight and Forwarding Co., Ltd (Abbreviated as COSFRE) and related parties (ports, customs, banks, insurance companies, tax bureaus, inspection and quarantine bureau and commodity inspection and testing bureau, justice, vessel inspection, neighborhood offices and others).

he survey adopted 5-class grading (Very satisfied 1.0, Satisfied 0.8, Common 0.6, Unsatisfied 0.3 and Very unsatisfied 0) and the “Harmony and Honesty” was expressed in six aspects as listed in Table 1 and these six aspects were not differentiated by “importance”. As a result, in accordance with the 44 valid questionnaires, the statistics on “Harmony and Honesty” of the Company is as follows:

the statistics on “Harmony and Honesty” of the Company is as follows:

	The Headquarters	COSFRE	Subtotal
Compliance to laws and regulations	0.906	0.905	0.906
Compliance to commercial morals	0.918	0.916	0.917
Support to and cooperation with the related parties	0.918	0.874	0.896
Harmonious relationship with the related parties	0.906	0.926	0.916
Honesty degree	0.941	0.947	0.944
Obligation contributed to the communities	0.871	0.900	0.886
Evaluation on overall image	0.918	0.884	0.901

Comments from related parties are as follows:

Related parties	The Headquarters	COSFRE	Subtotal
Tax Bureaus	(2)0.900		(2)0.900
Banks	(5)0.960		(5)0.960
Departments of justice	(1)0.800		(1)0.800
Insurance companies	(3)0.870		(3)0.870
Others (Including streets)	(5)0.960		(5)0.960
Ports	(1)0.800	(15)0.880	(16)0.875
Customs		(4)0.900	(4)0.900
Inspection and quarantine and commodity inspection departments	(1)1.000		(1)1.000
Vessel inspection institutes and classification societies	(5)1.000		(5)1.000
Subtotal	(23)0.939	(19)0.884	(42)0.914

(Remarks: the figures in the above table are the number of callback samples, followed by the value after calculation.)

The development of the Company actually depends on supports provided by the related parties while the enterprise shall care for the interest of the related parties for the sake of mutual development. It was for the first time that the Company tested and appraised “Harmony and Honesty” within the related parties. The result of 0.939 was far higher than the requirement of the first indicator plan, ≥ 0.80 (between “Satisfied” and “Very satisfied”), which indicated the high comments on the integrated image of the Company made by the related parties, in conformity with the “State Civilized Company” awarded in 2005. Judging from the detailed contents, the assessment of “Degree of Honesty” was as high as 0.944, “Conformity to Laws and Regulations” and “Conformity to Operation Virtues” as high as 0.906 and 0.917 respectively, which embodied good comments on virtue, honesty and law-observation of the Company. The results of “Obligations contributed to communities” (0.886) and “Support to the related parties” (0.896) were relatively lower than average, indicating that improvement was necessary in these 2 aspects.

Customers

1) Customer satisfaction degree

To further improve the service quality of the Company and to forge the brand of COSCON, the activity of Year of Service Quality was launched in 2005 and the first survey on CSI (Customer Satisfaction Index) was carried out nationwide. It took three months, from August 2005 to November 2005, for the CSI project to lay the scheme, draft the questionnaires, deploy and implement the survey. A total of 2,618 customers were involved in the survey and 1,473 questionnaires were collected. The targeted customers of the survey were divided into three areas of Huabei, Huadong and Huanan; samples of customers were selected by annual container carrying volume and contribution; the way of the survey was determined as face-to-face interviews aimed at the VIP customers and correspondence interviews aimed at the common customers; the hierarchical pattern was taken when higher management, medium management and operators were interviewed, accurately reflecting the position of the Company in the public opinion and the satisfaction degree of the customers. The subjects of the survey were mainly the customers and some of the shipping companies in the nine service areas of the Company such as Guangzhou , Dalian , Shanghai , Qingdao , Tianjin , Xiamen , Shenzhen, Wuhan and Beijing . The number of valid samples of the survey was 1,445. The result of the survey was: CSI (Customer Satisfaction Index) 70.33, tested and appraised by the international CSI test and appraisal pattern (“Index method”).

Six main structural variable indexes of CSI:

1. “Expectation of Quality”: 70.68

Which reflected the satisfaction degree of what all the surveyed customers expected from the service quality and specialty of the Company, thereamong including the estimate of the ability to meet the requirements of the future customers which was concluded on the basis the previous understanding of the services provided by the Company.

2. “Perception of Quality”: 72.31

Which reflected the satisfaction degree of the service quality and specialty, which was experienced by the customers after the services of the Company, was accepted. The fact that the value of Perception of Quality was higher than that of Expectation of Quality illustrated the sound satisfaction degree of the service quality and specialty. And the value of Perception of Quality was higher than predicted.

3. Perception of Value: 62.18

Which reflected the satisfaction degree, experienced by the customers, of the value of the service provided by the Company judging from the ratio of Quality to Price (Quality under the fixed price) and the ratio of Price to Quality (Price under the fixed quality). Meanwhile, the ratios also reflected the motivation and inclination of the present customers served by the Company, i.e. price-inclined or quality-inclined.

4. “Satisfaction Degree of the Customers”: 70.33

Which reflected the satisfaction degree of the service quality and service level experienced by the customers after they accepted the service of the Company, judging from “General assessment” and “Comparison to the previous expectation”. “Satisfaction Degree of the Customers” is the CSI calculated by consequence pattern.

5. “Complaints of the Customers”: 64.76

Which reflected the satisfaction degree of the service quality and level experienced by the customers, judging from the degree of complaints and the course and results of handling performed by the Company.

6. “Loyalty of the Customers”: 79.45

Which reflected the general cognition of the service quality and level provided by the Company, judging from “possibility of re-accepting the service” and “possibility of recommendation”. This plays a role in predicting the development tendency of the operation performance of the Company in a certain period of the future.

The survey supported the first CSI (Customer Satisfaction Index) analysis with impelling data. The advantages and disadvantages in customer management were found through the survey, which provided key information on exploring new thoughts of customer maintenance and improving the customer management. The survey interviewed the customers directly and enhanced communication and mutual understanding between the Company and the customers; provided the basic preparation for “Customers and Market” of the norms that assess the excellent performance and efficiency of the Company and supported with essential data.

2) Customer exchange conferences

A customer exchange conference is the main approach to exchange ideas face to face with the customers of the Company. The Company communicates with the customers on needs, vista of cooperation and improved services.

On February 24, 2005, COSCO New Zealand Subsidiary, one of the subsidiaries of the Company, held the annual reception in Auckland . More than 200 representatives including Chinese consul stationed in Auckland , commercial counselor stationed in New Zealand , relative consuls of the Commercial Department and the Embassy, and main customers of COSCO in New Zealand attended the reception on invitation. At the reception, many thanks were given to the support provided in 2004 by the customers in New Zealand . Both the guests and the host looked forward to the future of trade between New Zealand and China and the vista of shipping. It was believed that the volume of trade between the two countries will rise significantly with the progress of Sino-New Zealand Free Trade Agreement, from which export from New Zealand to China will benefit. The participants were satisfied with cooperation, communication and exchange with COSCO and were willing to contribute more to the development of the trade relationship between New Zealand and China .

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COSCO Group, October 2006