Xinhua Far East Downgrades IMEC to BBB- Credit Rating, Rating Outlook Changes to Negative

Xinhua Far East Downgrades IMEC to BBB- Credit Rating, Rating Outlook Changes to Negative

March 29, 2006

    HONG KONG, March 29 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today downgraded the domestic currency
issuer credit rating of Inner Mongolia Eerduosi Cashmere
Products Co., Ltd. ("IMEC" or "the
Company", SH A 600295, B 900936) from A to BBB-. The
rating outlook has been changed to negative.

    The rating changes reflect increasing competition in
the cashmere industry, where processing capacity
significantly outweighs demand.  Xinhua Far East notes that
IMEC is still competing at the low-to-medium end of the
global value chain, making it vulnerable to price changes
and sensitive to RMB appreciation.  Xinhua Far East also
recognizes that IMEC's large-scale investments increase its
business risks and will require further capital expenditure
and a broadening of managerial expertise.

    On the other hand, the rating has taken into
consideration the Company's position as a global leader in
the cashmere industry, its sound relationship with local
government and its established relationship with suppliers.


    IMEC's profit margin has been squeezed by increased
competition from the numerous producers of like products,
as well as RMB appreciation.  The Company's strategy to
produce more fashionable garments and develop its brand
internationally could help offset competitive and cyclical
pressures. However, the Company still faces uncertainties,
as such a strategy will take time.

    In an effort to counter the trend of decreasing profit
margins, IMEC has decided to enter into the utility and
metallurgy businesses, exploring the natural resources of
Inner Mongolia. Its debt level has risen rapidly as a
result.  At the end of September 2005, the Company's gross
debt reached RMB3.8 billion, an increase of 32.4% from the
end of 2004. The Company's gross debt to total capital
ratio rose to 53.8% at the end of September 2005.

    The rating outlook for IMEC is negative. There is
limited potential for the Company to further expand its
cashmere business due to increasing competition,
constraints in the supply of raw materials and
environmental concerns. The success of IMEC's strategy to
move up the value chain depends on how well it develops its
brand value and competes in the international market. 
Furthermore, the Company's investments in power generation
and metallurgy projects require large amounts of capital
expenditure. The returns on the metallurgy investments are
uncertain, given the overcapacity in those markets in which
the Company has invested.

    IMEC is a leader in the global cashmere industry. 
During the first half of 2005, IMEC realized turnover of
RMB1.84 billion. As of the end of June 2005, Inner Mongolia
Eerduosi Cashmere Group Co., Ltd. was IMEC's largest
shareholder, with a 43.80% stake.

    IMEC is a mid-cap company constituting the Xinhua/FTSE
China 200 and B35 Indices. As of March 28, 2006, its total
A-share market cap equaled RMB2.2 billion, with investable
market cap of RMB661million. Its B-share market value
totaled USD133 million, of which all is investable.

    For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating .

    Note to Editors:

    About Xinhua FTSE China 200 and B35 Indices

    Xinhua FTSE China 200 Index is the large cap index in
the Xinhua FTSE China A Share Index Series and includes the
top 200 companies in China by market cap. It is designed as
a tradable index and is calculated in real-time every 15
seconds.  Xinhua FTSE China B 35 Index is the large cap
tradable index in the FTSE Xinhua China B Index Series,
covering `B' shares listed on the Shanghai and Shenzhen
stock exchanges. It provides international investors with
exposure to the mainland Chinese market.  For daily data
and further information, see http://www.xinhuaftse.com .

    About Xinhua Far East China Ratings

    Xinhua Far East China Ratings (Xinhua Far East) is a
pioneering venture in China that aims to rank credit risks
among corporations in China. It is a strategic alliance
between Xinhua Finance (TSE Mothers: 9399), and Shanghai
Far East Credit Rating Co., Ltd. Shanghai Far East became a
Xinhua Finance partner company in 2003 and the first China
member of The Association of Credit Rating Agencies in Asia
in December 2003. 

    Capitalizing on the synergy between Xinhua Finance and
Shanghai Far East, Xinhua Far East's rating methodology and
process blend unique local market knowledge with
international rating standards. Xinhua Far East is
committed to provide investors with independent, objective,
timely and forward-looking credit opinions on Chinese
companies. It aims to help investors differentiate the
credit risks among the corporations in China, thereby,
cultivating their awareness and promoting information
disclosures and transparency in China market. For more
information, see http://www.xfn.com/creditrating . 

    About Xinhua Finance Limited

    Xinhua Finance Limited is China's unchallenged leader
in financial information and media,  and is listed on the
Mothers board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY). Bridging China's financial markets and
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and
complementary service lines: Indices, Ratings, Financial
News and Investor Relations.  Founded in November 1999, the
Company is headquartered in Shanghai with 21 news bureaus
and offices in 18 locations across Asia, Australia, North
America and Europe. For more information, please visit
http://www.xinhuafinance.com . 
 
    About Shanghai Far East Credit Rating Co., Ltd

    Shanghai Far East Credit Rating Co., Ltd. is the first
and leading professional credit rating company with
comprehensive business coverage in China. It is an
independent agency established by the Shanghai Academy of
Social Sciences with the mission to develop internationally
accepted standards for capital market in China. The company
is a pioneer in conducting bond-rating business in China.
For years, it has been authorized by the Shanghai branch of
the PBOC to undertake loan certificate credit rating.

    Since establishment, it has rated over 1,000 corporate
long-term bonds and commercial papers, based on the
principles of objectivity, fairness and independence.  The
company has also maintained over 50% market share in the
loan certificate-rating sector in Shanghai for three
consecutive years.  With its strong local presence and
knowledge, it provides investors with unique and the most
insightful credit opinion. For more information, see
http://www.fareast-cr.com . 

    For more information, please contact:

    Hong Kong
     Joy Tsang, Corporate & Investor Communications
Director,
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US
     David Leeney, 
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings