Message from President, Saw Boo Guan

Dear Shareholders,

After a turbulent but profitable 2008, China Yuchai International Limited demonstrated robust and consistent organic growth in 2009. Our sales increased 26.9% to a record RMB 13.2 billion (US$ 1.9 billion) as our main operating subsidiary, Guangxi Yuchai Machinery Company Limited (“GYMCL”) sold a record 467,899 units of diesel engines representing a 25.7% rise compared with 2008 resulting in us maintaining our Number 1 ranking in unit sales in the diesel engine market in China.

Higher commercial vehicles sales in 2009 resulted from organic growth as the Chinese economy grew 8.7 percent, aided by the government’s stimulus measures, and the evolving emission standards for automotive vehicles which all contributed to demand for new vehicles. We are encouraged by the economic growth in China’s interior and smaller cities, which were noticeable contributors to resurging vehicle sales. Higher construction spending to improve China’s infrastructure and greater urbanization resulted in the purchase of more trucks and buses.

Our heavy-duty, medium-duty and light-duty engine sales volume rose by 16.0%, 18.2% and 32.4% respectively, compared to last year. Sales to the truck, bus, generators, off-the-road machines, tractor and marine markets all rose in 2009. In the second half of 2009, we successfully optimized our product mix by introducing larger engines for the heavy-duty market. After concentrating on small engines especially for agricultural use, we re-focused on the heavy-duty sector which significantly improved our overall gross margin in the second half of 2009.

In order to reduce air pollution, the Chinese government is gradually implementing increasingly stringent emission standards. As of July 2008, China has officially implemented the National III emission standards throughout the country. The stricter National IV emission standards which has already been implemented in Beijing in 2008 and Shanghai in 2009, is scheduled for adoption nationwide in late 2010. The Chinese government has offered subsidies to drive sales of new vehicles meeting the National IV emission standards.

We have secured the position of technology leader in China with various projects launched in 2009. We were the first to launch diesel engines compliant with National IV emission standards. We also have the ability to produce National V compliant diesel engines and our environmental-friendly ISG hybrid technology for diesel engines was launched in 2009 targeting urban buses. We are China’s leading domestic natural gas/diesel fuel hybrid engine manufacturer meeting the National IV emission standards. In October 2009, we began construction on our new Research & Development Institute located in the High Tech Development Zone of Nanning, the capital of Guangxi Province, to take advantage of our strong research and development team. Our new institute will continue our legacy of innovation as it is the first research institute in China focused on diesel engine technology. Upon its completion, the Institute will considerably improve our capacity for innovation and raise the overall standards of technology to develop new diesel engines designed to better compete in the global market.

During 2009, we expanded our capacity in several ways. New efficiency methods were implemented at our primary manufacturing facilities at Yulin City, Guangxi Province and our new foundry located near the primary manufacturing facility began partial operations in March, 2010. Phase one of our new diesel engine assembly factory strategically located at Xiamen in a major auto-parts, bus and construction equipment hub, was completed in September 2009 and a total of 10,500 engines were assembled in 2009. We have recently increased its engine assembly capacity by another 50,000 units and we continue to improve our operations to meet demand and achieve greater economies-of-scale.

New joint ventures have been entered into to enhance our product superiority and better penetrate the key passenger vehicle, heavy-duty truck and bus markets as well as remanufacturing services. We have been able to enter into joint ventures with market leaders in each of these market segments as our partnerships were fostered through our technical accomplishments and capabilities as well as our extensive service network.

Our joint venture with Caterpillar China will position us to become the market leader for remanufacturing services in China as our diesel engines and components, and select Caterpillar diesel engine components, will be remanufactured to provide a cost-effective alternative to the production of new engines while improving the environment and saving resources. Caterpillar’s remanufacturing expertise is being combined with our high-quality manufacturing facilities and extensive service network. The joint venture company will be located at Suzhou Industrial Park in Jiangsu Province.

The joint venture with CIMC-Chery enhances our presence in the higher-margin, heavy-duty diesel engine business as it focuses on the production of our new YC6K diesel engines for use in trucks of 12 metric tons and above and passenger coaches exceeding 12 meters in length. This partnership allows us to combine resources, develop new manufacturing capabilities and ensure continuous demand. The intended customers of all the manufactured units are CIMC-Chery and us. In addition, we will also license the joint venture company to manufacture the YC6M and YC6L heavy-duty diesel engines under the “Yuchai” logo and trademark and we will provide after-sales service for all products sold by the company as well as supply certain parts and components to it. Additionally, our joint venture with Geely to develop, manufacture and market light-duty diesel engines for the Chinese passenger vehicle and export markets is progressing well with phase one of engine development meeting the emission and performance requirements completed on schedule. Construction of the engine and component plants in both Jining, Shandong Province, and Sanli, Zhejiang Province, have commenced and the first generation prototype engine will be completed in the third quarter of 2010.

We have also pursued market expansion into international markets and we plan to develop a distribution network to further improve our sales and service capabilities internationally. Although export sales are a small percentage of the total sales, our target is to increase our presence in various key markets so that we can expand our sales revenue geographically in the next few years.

Our accumulated cash position as of December 31, 2009 reached RMB 3.7 billion (US$ 535.8 million) versus RMB 823.7 million last year, and our trade and bills receivable was RMB 2.5 billion (US$ 367.2 million), down from a year ago. Our improved receivables management and strengthened relationships with OEMs continued to enhance our balance sheet and we paid a cash dividend of US$0.25 per ordinary share for FY2009 in March 2010.

We continue to believe in the development potential of the Company as seen in the strategic alliances and developments announced in 2009. In 2010, we look forward to continued progress and further improvements in our operations and as always, aim to build value for all our shareholders.

Saw Boo Guan
President
China Yuchai International Limited
June 1, 2010