Jan.28th.2003

Yanmar Co., Ltd., has agreed with the Shandong Shifeng Group Co.,Ltd, the largest farm vehicle manufacturer in China, to establish a joint venture company to produce and market single cylinder diesel engines and tractors powered by these diesel engines.

The Chinese market for farm vehicles as an inexpensive and rugged mode of transport for farm villages has grown rapidly, especially in the latter half of the 1980's, with the growth of farming incomes. The market expansion has been so tremendous that it now rivals the markets for passenger cars, busses and trucks. (Approx. 3 million farm vehicles in 2001.)

Approx. 80% of these vehicles are powered by single cylinder diesel engines. The Chinese government, however, for which environmental preservation is one of the most important policy priorities today, is also concerned about the air pollution caused by the exhaust gas of such farm vehicles. The government has announced a policy of strengthening the emissions regulations for these vehicles from 2005 and the procurement of engines that comply with such regulations is now a pressing need for the manufacturers of farm vehicles in China.

The Shandong Shifeng group, which produced 1 million farm vehicles, 200,000 tractors and 1 million diesel engines in 2002, ranks first in the Chinese agricultural machinery industry. The objective of the new joint venture is to comply with the exhaust gas regulations through the introducion of Yanmar's combustion technologies to the single cylinder diesel engines produced by Shandong Shifeng and thereby to differentiate their products from the others in terms of durability, for the expanded production and sale of comparatively inexpensive diesel engines in China. These engines, besides being used in the farm vehicles made by Shandong Shifeng group, will also be sold widely for use in the farm vehicles, tractors and marine applications of other manufacturers.

In addition, the new joint venture company aims to produce and market multi-purpose tractors applicable for farm and light civil engineering uses based on the Shandong Shifeng tractors, which have mostly been used for transportation purposes so far. The new joint venture company will make the most of the mutual strengths of both partners in its business operations, namely the strong sales and service capabilities of Shandong Shifeng group in the farm markets and Yanmar's agricultural machinery development and engineering technologies.

I. Outline of the Joint Venture Company

1. Company Name: Shifeng Yanmar (Shandong) Co., Ltd.
2. Location: Gaotang District, Shandong Province, China (location of Shandong Shifeng group)
3. Scheduled Time of Establishment: March, 2003
4. Capital: US$5,000,000
5. Capital shares: Yanmar Co., Ltd. (51%), Shandong Shifeng Co., Ltd. (49%)
6. Executives: Liu Chengqiang
   Naoki Kobayashi

II. Businesses of Joint Venture Company

1. Businesses: Production and sales of single cylinder diesel engines that comply with the 2005 exhaust gas regulation to be applied to farm vehicles and tractors powered by such diesel engines.
2. Production Volume: Initial Year (2003) 10,000 engines 1,000 tractors
   Respective market shares of 7% for both engines and tractors targeted for 2007.
   (Gross Demand in 2001: 7 million engines & 800,000 tractors)
3. Brand: "時風-Yanmar" (in China)
   "Shifeng-Yanmar" (in countries outside China)

III. Outline of Shandong Shifeng Group

1. Company Name: Shandong Shifeng (Group) Co., Ltd.
2. Established: November 1993
3. Capital: Yuan 22.584 million (\3,400 million)
4. Location: No.1 Lu, Gaotang District, Shandong Province
5. Executives: Liu Yifa
6. Business Lines: Production and sales of farm vehicles, diesel engines, tractors, etc.
7. Turnover: Yuan 6,800 million (\102,000 million, 2002)
8. Employees: 28,000