China New Energy Completes First Installment Payment of $17.6 Million for Dadi Gas Acquisition and Assumes Management Control over Dadi Gas Operations

TIANJIN, China, Jan. 18, 2011 /PRNewswire-Asia-FirstCall/ -- China New Energy Group Company (OTC Bulletin Board: CNER) ("China New Energy" or the "Company"), a natural gas network developer and distributor of natural gas to residential, industrial, and commercial users in small and medium sized cities in China, today announced that on January 11, 2011, the Company completed the first installment payment of $17.6 million for the acquisition of Tianjin Dadi Friendship Co. Ltd. which is the parent company of Beijing Century Dadi Gas Engineering Co., Ltd. and Zhuolu Dadi Gas Co. Ltd. (collectively, "Dadi Gas"). The Company also announced that, pursuant to this payment, CNER has assumed management control of Dadi Gas's operations. Through this transaction, China New Energy has acquired a 70% equity interest in Tianjin Dadi Friendship Co. Ltd., which holds 100% of Beijing Century Dadi Gas Engineering Co., Ltd. and Zhuolu Dadi Gas Co. Ltd. Dadi Gas operates 15 gas supply projects located in 5 provincial areas and owns and operates two gas stations. As of the end of 2010, Dadi Gas owned approximately 199 miles of main pipeline and sub pipeline, and 273 miles of household pipelines. The firm also served approximately 115,200 households, 488 commercial customers and sold approximately 92 million cubic meters of gas in 2010.

China New Energy will begin to consolidate Dadi Gas's operations into its financial results effective January 11, 2011. The Company has installed its own operational and financial teams to manage Dadi Gas, including the General Manager and Financial Controller. The Company plans to raise additional capital from third party investors to fund the remainder of the transaction, which is scheduled to close by June 6, 2011.

"We are excited to complete this important milestone as we work towards concluding our acquisition of Dadi Gas," said Mr. Yangkan Chong, Chief Executive Officer. "Dadi Gas is a key component of our growth strategy and complements our existing business. We plan to increase our presence in the fast growing second and third tier cities in China that are located in close proximity to economically developed areas with sufficient natural gas resources. With a well-established brand name, a vertically integrated business model, a seasoned technical and engineering team, and its state-of-the-art technologies, we believe Dadi Gas will significantly enhance our position as a recognized player in China's natural gas industry. We anticipate that the acquisition will create meaningful revenue growth opportunities, yield substantial synergies with our current operations, while significantly improving our cash flow and financial position, and ultimately enhancing shareholder value. We are excited about the growth in overall demand for natural gas from both commercial and residential users in China, and our ability to capitalize on it."

About Dadi Gas

Dadi Gas is a vertically integrated natural gas distribution company and one of the top four private city gas companies in China. It currently operates in northern and central China and holds long term exclusive franchise agreements with local municipalities. Dadi Gas generates revenues from selling natural gas products and services to residential, commercial and industrial customers in these municipalities and from the transportation of natural gas. Beyond its city gas operations and industrial gas supply business, Dadi Gas engages in the sale and leasing of gas equipment and operates gas filling stations. Dadi Gas is the only private gas enterprise in China which owns a gas transportation unit.  Dadi Gas holds several national patents and is recognized nationally as a High-Tech Enterprise by the PRC government. As such, it enjoys preferential tax treatment and receives other benefits.

About China New Energy Group Company

China New Energy Group Company ("China New Energy" or the "Company") is a vertically integrated natural gas company engaged in the development of natural gas distribution networks, and the distribution of natural gas to residential, industrial, and commercial users in small and medium sized cities in China. The Company generates revenues primarily from the connection fees it charges its customers for interconnecting to pipelines in its natural gas distribution networks, and fees for natural gas usage. For more information, please visit http://www.cnegc.com.

Safe Harbor Statement

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors include, but are not limited to, the Company's ability to access natural gas for distribution, and ability to identify and develop operational locations under favorable terms, changes in natural gas pricing mechanism imposed by the Chinese government, changes in the regulatory environment and future national or regional economic and competitive conditions, and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE China New Energy Group Company