China¡¯s GDP grew by 9.1% in 2003 to 11.4% in 2007.Despite the global economic recession, the Chinese government has expressed its intention and initiatives to maintain the country's GDP growth at 8% in 2009.It has significant impact on expansion of disposable income and an increase in demand of consumer electronics such as mobile phones and other wireless devices.

According to The Ministry of Industry and Information Technology of the People¡¯s Republic of China (MIIT), the income of China's telecom sector reached RMB679.79 billion in the first ten months of 2008, a year-over-year rise of 8.1%. In the same period, the business volume increased 22.5% from a year ago to RMB1.85 trillion, and the fixed investment of the telecom sector rose 9.9% year-over-year to RMB185.05 billion.

Earlier this year, China Telecom disclosed that it would invest RMB27.9 billion in the first phase of CDMA network construction, while committing to a total investment of RMB80 billion in the next three years. Around the same time, China Unicom announced that it will make a significant investment with the proceeds from the sale of its CDMA network to build a high-quality GPRS network and committed to spend RMB100 billion in 2009 and 2010. China Mobile has not only invested RMB12.7 billion in the 2G network construction, but also has plans to invest an additional RMB30 billion in TD-SCDMA phase II network constructions.

A recent article in the Wall Street Journal on December 06, 2008 indicated that "Beijing could hand out 3G licenses to telecom operators as soon as mid-December.¡± The article cites the potential to spend at least US$44 billion on 3G technology over the next three years. A similar Bloomberg article on December 3, 2008 also indicated that the China National Radio reported that 3G licenses could be issued by the end of 2008 and US$117 billion could be spent on the 3G network build-outs and associated services. The minister of MIIT has denoted that 3G licenses should be issued in the end of 2008 or the beginning of 2009. Based on MIIT¡¯s estimation, the three operators¡¯ combined investments in the 3G network constructions should be at least RMB200 billion in 2009.

Thus, the anticipated roll-out of licenses to operate 3G wireless networks and the shift in focus on competing business from strategic initiatives to improving 2G coverage and service in China is expected to be major catalysts for wireless telecommunications spending in the medium term.

The CDMA network operation was officially transferred to China Telecom from China Unicom on October 1, 2008, and the actual transfer process was estimated to be completed within three months. On October 15, 2008, New Unicom was established, signifying the official merge of China Unicom and China Netcom. To date, integration is still underway in terms of staff, organizational structure and departmental responsibilities.

The completion of China Unicom and China Telecom¡¯s restructuring will also conclude the whole restructuring plan, as they are seen as the most complex processes.

Demand for our product and services remains strong as the three telecom operators in China complete their respective integration processes one after another.

In the fourth quarter, China Mobile is expected to accelerate its GSM network construction and initiate its TD Phase II network construction in 28 cities, and China Telecom is expected to commence large-scale construction of its CDMA network, with indoor coverage being one of the most heavily invested projects.

Despite the uncertainties surrounding China Unicom¡¯s personnel integration and organizational restructuring, it is expected that its network construction projects will only be delayed throughout the fourth quarter of 2008, and will resume to normal in the first quarter of 2009.

Following our centralized bidding wins for wireless coverage equipment from both China Mobile and China Unicom in the second quarter of 2008, once again we have won China Telecom¡¯s wireless coverage equipment centralized bid in the third quarter of 2008. In addition, we have become the qualified integration services provider for 19 China Mobile, 26 China Unicom and 23 of China Telecom¡¯s provincial subsidiaries in the third quarter of 2008. Therefore, we believe we are well prepared and well positioned for the upcoming wireless coverage construction projects.

There is a growing demand from overseas manufacturers for our base station RF modules in addition to the enormous opportunities raised from China¡¯s construction of TD Phase II and CDMA network expansion, which are expected to launch shortly. Moreover, the growth in Huawei and ZTE's businesses will subsequently increase the demand for our RF modules. In fact, we have already received large orders for RF modules from the major domestic base station manufacturers and entered into the trial production stage for two overseas manufacturers.

While we are confident that upcoming large-scale network construction will present GrenTech with tremendous opportunities in both the wireless coverage and base station RF businesses in China, we are also prepared for the potential impact resulting from the global financial crisis. To this end, we have committed to a few key business initiatives, such as selecting quality orders, strengthening our balance sheet and improving our operational efficiency. Some of these measures may potentially slow down our revenue growth or profitability in the short term, however, we believe that they are essential elements for achieving profitable and sustainable long-term growth.