All Shareholders:

The Board of Directors of China Southern Airlines Company Limited (the "Company") is pleased to present the unaudited operating results of the Company and its subsidiaries (collectively, the "Group") for the six months ended 30 June, 2000.

Introduction

The Group is one of the largest Chinese airlines in terms of the number of passengers carried, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet. The Group operates the most extensive route network among all Chinese airlines. As of 30 June, 2000, the Group operated a total of 322 routes, including 267 domestic, 22 Hong Kong regional, and 33 international routes. During the six months ended 30 June, 2000, there was an average of 2,907 scheduled flights in operation per week serving 83 cities. As at 30 June, 2000, the Group had a fleet of 102 aircraft, including 82 Boeing aircraft and 20 Airbus aircraft. The average age of the fleet was 6.38 years as at that date.

Review of Operating Results

During the first half of 2000, the economy of Southeast Asian countries and the Hong Kong region continued to revive, resulting in an increase in demand for aviation services in the region. As the PRC government implemented a series of positive financial and monetary policies, the PRC economy rebounded with a growth rate of above 8%. Benefiting from the growth of domestic consumer demand and the recovery of the PRC aviation market under satisfactory economic conditions, the Group experienced increases in passenger load factor and aircraft utilisation rate during the period.

During the first half of 2000, the Civil Aviation Administration of China (the "CAAC") continued its stringent policies against domestic airfares discounting and kept strengthening regulations on the agency market. Under the promotion of the CAAC, domestic airlines participated in revenue-sharing scheme for over 100 domestic routes since April this year. Currently, the Group has 87 domestic routes participated in the revenue-sharing scheme. The Group believes that the above measures help to regulate competition within the PRC aviation industry and stabilise the domestic airfares.

On the other hand, the high fuel prices during the period in the international market had led to increased fuel prices for the PRC aviation industry. Such increase had to a certain extent, reduced the growth of profit of the Group.

To adapt to market trends and to expand the Group's international cargo operation, in April 2000, the Group opened a new cargo route serving between Shenzhen and Chicago, the United States of America, using a Boeing 747-400 freighter. Currently, there are three scheduled cargo flights per week on the new route and the operation has been stable.

In order to enhance management efficiency, various new operating systems of the Group, including computerized financial management system, aircraft technical data management system and aircraft engine performance control system have been put into service. The aircraft engine performance control system was awarded a prize in State Technology Improvement.

The Group believes that application of these systems will enhance the Group's management standard as well as lower overhead and maintenance costs.

One of the recent development milestones of the Group is the introduction of e-business into the traditional aviation industry. Following the launch of online flight enquiry, seat booking, ticket sales, cargo reservation and frequent-flyer application services, the Company launched online passenger ticketing services for the Guangzhou-Beijing route and Guangzhou-Changsha route in April of this year.

In addition, the Group continued to enhance its two frequent-flyer award programs, "SKY PEARL CLUB" and "EGRET MILEAGE PLUS". For the first half of the year, membership of the two programs reached approximately 539,000 persons, with accumulated mileage amounted to 1,305,088,000 km in total.

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