Dear shareholders,

On behalf of the board of directors (the “Board”) of China Shineway Pharmaceutical Group Limited (the “Company” or “China Shineway”) together with its subsidiaries (the “Group”), I am pleased to present the annual report of the Group for the year ended 31 December 2010.

The year of 2010 was a special year for the pharmaceutical industry. With the implementation of the health care reform in China, policies related to “Essential Drug List”, “National Catalogues of Medical Insurance”, “Public Hospital Reform”, “Drug Price Regulation” were released. Their impact on the pharmaceutical industry is increasingly clear. With the provincial implementation of the “National Catalogues of Medical Insurance”, the “Essential Drug List” and the “New Rural Cooperation Drug Lists”, centralized procurement and bidding system started at the provincial level. Competition was very fierce in 2010. Large pharmaceutical companies consolidated and expanded rapidly, especially the distribution sector. Quality pharmaceutical manufacturers increased their pace of consolidation and their market position further strengthened.

Confronted with such complexities and challenges, the Group, with the support of our staff, achieved remarkable results. We recorded sales revenue of RMB2.04 billion with a year-on-year growth of 24.8%. The sales of injection products recorded a 36.9% increase over the previous year, of which the sales of Qing Kai Ling Injection increased more than 50%; the sales of soft capsules decreased by 1.1% and the sales of granule products increased by approximately 17.1% compared with the previous year.

Our Shineway Modern Chinese Medicine Park located in Luancheng, Shijiazhuang, Hebei has commenced construction as scheduled. The granule and tablets workshop and water recycle plant were completed in year 2010. The new Chinese medicine extraction workshop, injection workshop and the new administrative building of the headquarter will be completed in year 2011. Our new research and development center in Yanjiao, Langfang, Beijing is already completed. Sichuan Kalituo Pharmaceutical Limited (“Kalituo Pharmaceutical”) and its Qionglai project have now started with technological transformation and infrastructure, providing the foundation for the Group’s future business and capacity expansion in western China. The successive completion and commencement of production of different projects place the Group in a much better position to meet the new demands in the coming five to ten years.

Both Shineway Pharmaceutical Company Limited and Hebei Shineway Pharmaceutical Company Limited were granted as “Provincial Hi-Tech Enterprises of Hebei Province” in 2009. The Group has 10 new product research projects undergoing pharmaceutical and clinical trial. Among them, 3 are related to the treatment of cardiovascular diseases, 2 are for the treatment of genitourinary diseases, 1 is for the treatment of digestive system illnesses, 1 is for gynecological treatment, 1 is for the treatment of orthopedics, 1 is for cancer adjuvant illnesses and a joint research project with a university in Australia to develop new medicines for the treatment of Alzheimer’s disease. All research projects are progressing as planned.

In the first half of 2010, the group successfully acquired Zhangjiakou Changcheng Pharmaceutical Limited, subsequently changed name to Shineway Pharmaceutical (Zhangjiakou) Co. Ltd. (“Shineway Zhangjiakou”) and Kalituo Pharmaceutial. In order to upgrade their production technology and product quality, both companies have been undergoing technical and management reform as well as staff training straight after their acquisitions, and resumed production in July 2010. In addition, the Group established a wholly-owned subsidiary, Shineway (Shijiazhuang) Chinese Medicine Prepared Herbs Limited, by the end of 2010. The main business of the new subsidiary will involve the production, sales and cultivation of prepared Chinese herbal medicine.

With reform, efficiency, perfection and transcendence the Group will grow further in 2011. Reform means the Group will evolve and innovate in response to the changes in the business environment and the industry. Efficiency means the Group will maximize our profitability and efficiency by exploring new income sources and managing its costs effectively. Perfection means the Group will spend more effort on academic and customer education to perfect its sales and distribution network. Finally, the Group will seek transcendence of operating performance and management capability.

China Shineway’s accomplishments are inseparable from our staff’s hard work. On behalf of the Board, I would like to extend my sincere greetings and high respect to our diligent staff for their dedication and effort.

The year of 2011 will be a year of substantial investment, development and achievement for China Shineway.

Li Zhenjiang
Chairman of the Board

Hong Kong, 23 March 2011