Light Duty Engines
Yuchai's light-duty diesel engines are called the "4 cylinder series" which are used mainly for light vans, mini-buses and small trucks. In 2003, Yuchai sold approximately 40,300 light-duty diesel engines with a growth of 108% over the previous year. The gross margins for this segment are generally lower that the medium-duty and heavy-duty diesel engines due to the competitive environment.

Medium-duty Engines
Yuchai's principal products are its medium-duty 6105 and 6108 diesel engines, used primarily in medium-duty vehicles weighing between five to seven tons. It sold about 86,000 units of 6105 and 6108 diesel engines in 2003, which was an increase of approximately 2% over 2002. There is a general trend for customers to buy bigger trucks which require heavy-duty engines with greater engine capacity due to increased long distance travel.

Heavy-Duty Engines
In 2003, Yuchai sold about 20,400 units of the 6112 diesel engines which were 34% higher than the 15,200 units achieved in 2002. It will continue to commit substantial resources in research and technology to improve engine efficiency. There is a higher level of acceptance by customers for heavy-duty engines. There is also a strong market demand for bigger heavy-duty diesel engines in China due to the country's construction of better roads and highways. Accordingly, Yuchai will increase marketing efforts to achieve more sales in its 6112 heavy-duty engines. Initial sales of the new 6113 model (6-cylinder series, 300-350Hp) were closed in November 2003, confirming our conclusions that the sales of this new engine is expected to be strong over the next few years. The new 6113 model is slated to be a significant contributor to Yuchai's growing profits.

Economic Outlook
China's GDP growth of approximately 8% in 2003 is expected to continue into 2004. The official target of 7% to 8% growth rate in the next few years is expected to be achievable due to higher amounts of Foreign Directed Investments (FDI) and increased level of personal wealth and consumer spending.

According to Chinese Government industry statistics, there was an increase in the ales of trucks and buses in China of approximately 16% in 2003 as compared to 2002. Yuchai was able to achieve an increase of 32% in total unit sales due to successful marketing programs for its engines, with much of the increase coming from 6112 heavy-duty engines, 4-cylinder light-duty and industrial engines.

The Company expects that the market demand for diesel engines in China to increase with the continued expansion of highways and toll roads in China leading to increasing demand for new trucks and buses.