President's Statement

I am pleased to report that China Yuchai International Limited (“CYI”) continued to achieve good performance in 2004. Guangxi Yuchai Machinery Company Limited (“Yuchai”), the principal operating subsidiary of CYI achieved net sales of Rmb5,582.0 million (US$674.4 million) in 2004. This was an increase of approximately 22% compared to 2003 of Rmb4,569.9 million (US$552.1 million). Total unit sales of 206,628 diesel engines in 2004 was 20% higher than 2003.

Yuchai’s net income of Rmb491.4 million (US$59.4 million) in 2004 increased 12% as compared to the net income of Rmb438.2 million (US$52.9 million) in 2003. The good profi t performance for 2004 was achieved mainly because of the strong unit sales for the heavy-duty, light-duty diesel engines and industrial engines.

The overall gross margin of 28.2% for 2004 was 1.9% lower than the previous year due mainly to higher raw material costs and product sales mix.

In 2004, selling, general and administrative expenses increased by approximately 17% due mainly to higher staff costs, transport charges and operating expenses, arising from higher unit sales volume.

Research and development expenses have increased to Rmb136.9 million (US$16.6 million) in 2004 from Rmb94.6 million (US$11.4 million) in 2003 due to higher development expenses on the new super heavyduty 6L and 6M diesel engines.

Interest expenses increased to Rmb31.8 million (US$3.8 million) in 2004 as compared to Rmb23.6 million (US$2.9 million) in 2003 due to an increase of Yuchai’s bank loans during the year.

Government industry statistics show that, in 2004, there was an increase of approximately 16% in the sales of trucks and buses in China compared to 2003. CYI believes that demand for new trucks and buses would have been higher if not for the stricter enforcement of the PRC Road Traffi c legislation which commenced on May 1, 2004. This new legislation brought in heavy fi nes for overloading and noncompliance with vehicle standard specifi cations, such as vehicle weight and length. The market demand for diesel engines in China is expected to remain strong especially for heavy-duty trucks and buses as a result of the continuing development of highways and improvements in logistical effi ciency, in China, notwithstanding the Chinese government’s continued efforts to cool its economy. We believe that CYI, as one of the top three manufacturers of diesel engines in China, should be able to take advantage of this growth demand.

In June 2004, Yuchai commissioned its new super heavy-duty 6L and 6M diesel production line with a capacity of 20,000 units per annum. Initial sales performance indicates gradual customer acceptance of this new 350 Hp diesel engine which is expected to see improved sales in 2005.

A breakdown of sales according to size and horsepower range highlights how Yuchai has successfully adjusted its strategy to meet market demand and grow market share.

(A) Sales of light-duty (4-cylinder series) engines for minibuses and small trucks continue to experience high growth in China.

Yuchai’s sales of the light-duty engines grew 58%, benefi ting from the additional light-duty engine production capacity (40,000 units per year) commissioned in April 2003.

In 2004, the gross margin from light-duty engines had improved due to higher production level and cost reductions.

(B) Sales of medium-duty (6-cylinder series, 140 – 200 Hp) engines for 5 to 7-tonne trucks and buses continued to decline in China. With the improvement in the highway system, transportation companies now fi nd that vehicles of this engine capacity are less economical than the newer larger units.

Yuchai’s sales of medium-duty engines decreased by 2% in 2004, in line with this trend.

(C) Sales of heavy-duty (6-cylinder series, 250 – 400 Hp) engines for 10 to 15-tonne trucks, large buses, coaches and large construction equipment continued to experience high growth.

Yuchai’s sales of 6112 (6-cylinder series, 285 Hp) engines grew by 16% in 2004.

The new super heavy-duty 6L and 6M engines (6-cylinder series, 300 – 390 Hp) has seen increasing customer demand since its introduction in 2004. Sales of this new product are expected to be strong over the next few years and it should become a signifi cant contributor to profit growth for Yuchai.

CYI believes that Yuchai has a strong brand name in China with an extensive sales and marketing network. With the new additional production capacity, Yuchai is expected to be well-positioned as a major manufacturer of diesel engines in China with a signifi cant market share.

On behalf of the Board of Directors, I would like to thank all the shareholders, management and staff for their strong support and cooperation, and look forward to a better 2005 and beyond.

Teo Tong Kooi
President

28 February 2005