UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

51job, Inc.

Title of Each Class		Name of Each Exchange on Which Registered
American Depositary Shares, each representing two common shares, par value US$0.0001 per share		The NASDAQ Stock Market LLC (The NASDAQ Global Select Market)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 56,378,139 common shares, par value US$0.0001 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes þ No

If this is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes þ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

o Large accelerated filer		þ Accelerated filer		o Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

þ U.S. GAAP		o International Financial Reporting Standards as issued by the International Accounting Standards Board		o Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

 

 

TABLE OF CONTENTS

		Page
INTRODUCTION			ii
FORWARD-LOOKING STATEMENTS			iii
PART I
Item 1. Identity of Directors, Senior Management and Advisers			1
Item 2. Offer Statistics and Expected Timetable			1
Item 3. Key Information			1
Item 4. Information on the Company			24
Item 4A. Unresolved Staff Comments			39
Item 5. Operating and Financial Review and Prospects			39
Item 6. Directors, Senior Management and Employees			57
Item 7. Major Shareholders and Related Party Transactions			64
Item 8. Financial Information			69
Item 9. The Offer and Listing			69
Item 10. Additional Information			70
Item 11. Quantitative and Qualitative Disclosures About Market Risk			76
Item 12. Description of Securities Other than Equity Securities			77
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			78
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			78
Item 15. Controls and Procedures			78
Item 16A. Audit Committee Financial Expert			79
Item 16B. Code of Ethics			79
Item 16C. Principal Accountant Fees and Services			79
Item 16D. Exemptions from the Listing Standards for Audit Committees			79
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			79
Item 16F. Change in Registrant’s Certifying Accountant			80
Item 16G. Corporate Governance			80
PART III
Item 17. Financial Statements			81
Item 18. Financial Statements			81
Item 19. Exhibits			81
Exhibit 4.17
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15.1
Exhibit 15.2
Exhibit 15.3

INTRODUCTION

Unless otherwise indicated, references in this annual report to:

	•		“ADRs” are to the American depositary receipts that evidence our ADSs;
	•		“ADSs” are to our American depositary shares, each of which represents two common shares;
	•		“China” or the “PRC” are to the People’s Republic of China, excluding for the purpose of this annual report Hong Kong, Macau and Taiwan;
	•		“Nasdaq” are to the Nasdaq Global Select Market;
	•		“RMB” are to Renminbi, the legal currency of the PRC;
	•		“shares” or “common shares” are to our common shares, with par value US$0.0001 per share;
	•		“U.S. GAAP” are to the generally accepted accounting principles in the United States of America; and
	•		“US$” are to U.S. dollars, the legal currency of the United States of America.

Unless the context indicates otherwise, “we,” “us,” “our company,” “our” and “51job” refer to 51job, Inc., its predecessor entities and subsidiaries, and, in the context of describing our operations, also include our affiliated entities.

In addition, unless otherwise indicated, references in this annual report to:

	•		“51net” are to 51net.com Inc.;
	•		“AdCo” are to Shanghai Qianjin Advertising Co., Ltd.;
	•		“AdCo Subsidiaries” are to the subsidiaries of AdCo that conduct advertising businesses;
	•		“Qian Cheng” are to Beijing Qian Cheng Si Jin Advertising Co., Ltd.;
	•		“RAL” are to Shanghai Run An Lian Information Consultancy Co., Ltd.;
	•		“Run An” are to Beijing Run An Information Consultancy Co., Ltd.;
	•		“Tech JV” are to Qianjin Network Information Technology (Shanghai) Co., Ltd.;
	•		“Wang Cai AdCo” are to Shanghai Wang Cai Advertising Co., Ltd.;
	•		“Wang Ju” are to Shanghai Wang Ju Human Resource Consulting Co., Ltd.;
	•		“WFOE” are to Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd.; and
	•		“Wuhan AdCo” are to Wuhan Mei Hao Qian Cheng Advertising Co., Ltd.

Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

Solely for your convenience, this annual report contains translations of certain Renminbi amounts into U.S. dollar amounts at specified rates. All translations from Renminbi to U.S. dollars were made at the noon buying rate in New York for cable transfers of Renminbi as certified for customs purposes on and prior to December 31, 2008, as reported by the Federal Reserve Bank of New York, and thereafter, as set forth in the H.10 weekly statistical release of the Federal Reserve Board. Unless otherwise stated, the translations of Renminbi into U.S. dollars have been made at the noon buying rate in effect on December 31, 2008, which was RMB6.8225 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. See “Item 3. — Key Information — Risk Factors — Risks Related to the People’s Republic of China — Governmental control of currency conversion may affect the value of your investment” and “— The fluctuation of the Renminbi may materially and adversely affect your investment” for discussions of the effects of currency control and fluctuating exchange rates on the value of our ADSs. On April 24, 2009, the noon buying rate was RMB6.8250 to US$1.00.

This annual report on Form 20-F includes our audited consolidated statements of operations data for the years ended December 31, 2006, 2007 and 2008, and audited consolidated balance sheet data as of December 31, 2007 and 2008.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains statements of a forward-looking nature. These statements are made within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. The accuracy of these statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including the following risks:

	•		market acceptance of our services;
	•		our ability to expand into other recruitment and human resource services such as business process outsourcing;
	•		our ability to control our operating costs and expenses;
	•		our potential need for additional capital and the availability of such capital;
	•		behavioral and operational changes of our customers in meeting their human resource needs as they respond to evolving social, economic and political changes in China as well as stock market volatilities;
	•		changes in our management team and other key personnel;
	•		introduction by our competitors of new or enhanced products and services;
	•		price competition in the market for the various human resource services that we provide in China;
	•		seasonality of our business;
	•		fluctuations in the value of the Renminbi against the U.S. dollar and other currencies;
	•		our ability to develop or introduce new products and services outside of the human resources industry;
	•		fluctuations in general economic conditions; and
	•		other risks outlined in our filings with the Securities and Exchange Commission, including this annual report on Form 20-F and any amendments thereto.

These risks are not exhaustive. You should read these statements in conjunction with the risks disclosed in “Item 3. — Key Information — Risk Factors” of this annual report and other risks outlined in our other filings with the Securities and Exchange Commission. Moreover, we operate in an emerging and evolving environment. New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following tables present the selected consolidated financial information for our company. The selected consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008, and the selected consolidated balance sheet data as of December 31, 2007 and 2008, are derived from our audited consolidated financial statements, which are included in this annual report beginning on page F-1. The selected consolidated statement of operations data for the years ended December 31, 2004 and 2005, and the selected consolidated balance sheet data as of December 31, 2004, 2005 and 2006 have been derived from our audited consolidated financial statements, which are not included in this annual report. You should read the following information in conjunction with the consolidated financial statements and the related notes included elsewhere in this annual report and “Item 5. — Operating and Financial Review and Prospects.” Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. The historical results presented below do not necessarily indicate results expected for any future period.

		For the year ended December 31,
		2004				2005				2006				2007				2008				2008
(in thousands, except per share data)		RMB				RMB				RMB				RMB				RMB				US$
Selected Consolidated Statement of Operations Data:
Revenues:
Print advertising			300,652				356,285				389,535				430,621				359,234				52,654
Online recruitment services			111,509				159,495				219,794				282,688				312,121				45,749
Executive search			24,908				26,307				19,938				16,086				13,979				2,049
Other human resource related revenues			42,875				53,507				68,586				114,871				175,083				25,663
Total revenues			479,944				595,594				697,853				844,266				860,417				126,115
Net revenues			456,120				562,026				659,843				799,284				815,478				119,528
Cost of services(1)			(224,607	)			(269,328	)			(294,068	)			(349,022	)			(377,487	)			(55,330	)
Gross profit			231,513				292,698				365,775				450,262				437,991				64,198
Operating expenses(1):
Sales and marketing			(69,029	)			(115,095	)			(136,770	)			(181,230	)			(215,228	)			(31,547	)
General and administrative			(72,096	)			(100,614	)			(114,322	)			(128,347	)			(125,981	)			(18,465	)
Total operating expenses			(141,125	)			(215,709	)			(251,092	)			(309,577	)			(341,209	)			(50,012	)
Income from operations			90,388				76,989				114,683				140,685				96,782				14,186
Income before income tax provision			95,201				91,367				127,901				148,979				107,777				15,797
Income tax expense			(34,058	)			(29,945	)			(28,560	)			(45,402	)			(31,176	)			(4,570	)
Net income			61,143				61,422				99,341				103,577				76,601				11,227
Earnings per share:
Basic			1.32				1.10				1.79				1.84				1.35				0.20
Diluted			1.26				1.07				1.76				1.83				1.35				0.20
Earnings per ADS(2):
Basic			2.65				2.21				3.58				3.68				2.71				0.40
Diluted			2.52				2.15				3.52				3.66				2.70				0.40

		As of December 31,
(in thousands)		RMB				RMB				RMB				RMB				RMB				US$
Selected Consolidated Balance Sheet Data:
Assets:
Cash			848,293				830,634				868,698				1,007,520				1,058,310				155,121
Total current assets			893,647				892,544				919,576				1,075,288				1,141,252				167,278
Total non-current assets			43,735				70,875				208,039				227,878				233,117				34,169
Total assets			937,382				963,420				1,127,615				1,303,166				1,374,369				201,447
Liabilities:
Total current liabilities			85,564				109,540				139,075				176,115				146,796				21,517
Total non-current liabilities			—				—				122				516				730				107
Total liabilities			85,564				109,540				139,197				176,631				147,527				21,624
Total shareholders’ equity			851,818				853,880				988,418				1,126,535				1,226,843				179,823
Total liabilities and shareholders’ equity			937,382				963,420				1,127,615				1,303,166				1,374,369				201,447

		For the year ended December 31,
		2004				2005				2006				2007				2008				2008
(in thousands)		RMB				RMB				RMB				RMB				RMB				US$
Cost of services			(1,811	)			(1,480	)			(4,621	)			(4,931	)			(4,564	)			(669	)
Operating expenses:
Sales and marketing			(1,758	)			(1,438	)			(3,972	)			(4,241	)			(3,923	)			(575	)
General and administrative			(16,921	)			(11,635	)			(19,926	)			(20,479	)			(18,947	)			(2,777	)

Exchange Rate Information

We publish our financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for your convenience. All translations from Renminbi to U.S. dollars were made at the noon buying rate in New York for cable transfers of Renminbi as certified for customs purposes on and prior to December 31, 2008, as reported by the Federal Reserve Bank of New York, and thereafter, as set forth in the H.10 weekly statistical release of the Federal Reserve Board. Unless otherwise stated, the translations of Renminbi into U.S. dollars have been made at the noon buying rate in effect on December 31, 2008, which was RMB6.8225 to US$1.00. The prevailing rate on April 24, 2009 was RMB6.8250 to US$1.00. We make no representation that the Renminbi or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The Chinese government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.

The following table sets forth information regarding the noon buying rates in New York for cable transfers as certified for customs purposes between the Renminbi and the U.S. dollar for the periods indicated.

		Noon buying rate of Renminbi per U.S. dollar
Period			Period-end				Average(1)			Low				High
2004			8.2765				8.2768				8.2771				8.2765
2005			8.0702				8.1826				8.2765				8.0702
2006			7.8041				7.9579				8.0702				7.8041
2007			7.2946				7.5806				7.8127				7.2946
2008			6.8225				6.9193				7.2946				6.7800
October			6.8388				6.8358				6.8521				6.8171
November			6.8254				6.8281				6.8373				6.8220
December			6.8225				6.8539				6.8842				6.8225
2009
January			6.8392				6.8360				6.8403				6.8225
February			6.8395				6.8363				6.8470				6.8241
March			6.8329				6.8360				6.8438				6.8240
April (through April 24)			6.8250				6.8318				6.8361				6.8250

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Related to Our Business

A slowdown in the PRC economy has had, and may continue to have, a material and adverse impact on our customers, demand for our services and our business.

The recent global economic and financial market crisis has caused on a global basis, among other things, a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and business spending, and lower consumer net worth. As a result, the Chinese economy has experienced a slower growth rate, which is compounded by other factors such as the appreciation of the Renminbi against other world currencies, which adversely affected China’s exports, and tightened macroeconomic measures and monetary policies adopted by the Chinese government prior to 2008 aimed at preventing the overheating of the Chinese economy and controlling inflation.

Substantially all of our operations are conducted in China and a significant majority of our revenues are generated from providing recruitment advertising services for PRC businesses or divisions of foreign firms operating in China. In an environment of slower economic growth, employers may take actions such as hiring fewer permanent employees, engaging in hiring freezes, reducing the number of employees and curtailing spending on print advertising, online recruitment services, executive search services and other human resource related services. As a result, demand for our recruitment related services in particular has been reduced, which has led to a decline in sales for our print advertising and executive search businesses. If the global economic and financial market crisis or the slowdown in China’s economic growth continues, we may experience a further reduction in demand and sales, which could have a material adverse effect on our business, financial condition, results of operations and cash flow.

Because we face significant competition, including intense competition in several of our markets, we may lose market share and our results of operations may be materially and adversely affected.

We face significant competition in our print advertising and online recruitment services businesses as well as in our executive search and other human resource related businesses. Our city-specific recruitment advertising publication, 51job Weekly, currently faces competition within all of our markets. Competitors of 51job Weekly are primarily comprised of local newspaper publishers and specialized recruitment advertising publications. 51job Weekly also faces competition from online job search websites and other online businesses seeking to expand into print recruitment advertising.

Our online recruitment services, conducted through www.51job.com, face intense competition from other dedicated job search websites such as ChinaHR.com, Cjol.com and Zhaopin.com, as well as from local job search websites. For example, according to public reports, ChinaHR.com and Zhaopin.com have significantly increased their sales and marketing activities in recent years. In addition, many executive search firms and other competitors currently engaged in print advertising or organizing job fairs have developed or acquired online capabilities.

Our executive search and other human resource related businesses face significant competition from a variety of Chinese and foreign firms in all of our markets, including certain firms that compete with us in the market for print and online recruitment advertising. In addition, some of the competitors we encounter in our business process outsourcing business are affiliated with local government agencies and have licenses to provide a wider range of services than we do.

Many of our competitors or potential competitors have long operating histories, have international strategic partners, have local government sponsorship, may have greater financial, management, technological development, sales, marketing and other resources than we do, and may be able to adopt our business model. As a result of competition, we may experience reduced margins, loss of market share or less use of our services by job seekers and employers. We cannot assure you that existing or future competitors will not develop or offer services and products which provide significant performance, price, creative or other advantages over our services. If we are unable to compete effectively with current or future competitors as a result of these or other factors, our market share and our results of operations may be materially and adversely affected.

New competitors face low entry barriers to our industries, and successful entry by new competitors may cause us to lose market share and materially and adversely affect our results of operations.

In the future, we may face competition from new entrants in the recruitment advertising industry and other human resource industries in which we operate. We may face greater competition from Internet portals, newspapers, dedicated recruitment advertising websites and publications, and other human resource services providers who may enter the market for any or all of our services. Our businesses are characterized by relatively low start-up and fixed costs, modest capital requirements, short start-up lead times and an absence of significant proprietary technology that would prevent or significantly inhibit new competitors. As a result, potential market entrants, both in China and from abroad, face relatively low barriers to entry to all of our businesses and in all of our markets. In addition, we believe that there are relatively low existing penetration rates in our markets, and that competitors could acquire significant numbers of customers and establish significant market share within a relatively short period of time. Furthermore, the newspaper and print media industry in China is highly regulated at present which may have the effect of limiting competition and keeping prices, including print advertising prices, at higher levels. Any deregulation of the print media industry may result in increased competition and a material decrease in advertising rates, including the prices we charge for our print advertising services. Increased competition could result in a loss of market share and revenues, and have a material adverse effect on our business, financial condition and results of operations.

If we are unable to achieve or maintain economies of scale with respect to our recruitment advertising businesses, our results of operations from these businesses may be materially and adversely affected.

We incur fixed costs such as printing, distribution, direct marketing, advertising, management, staff, office, infrastructure and utilities in each of our geographic markets in connection with operating our print advertising business. We also incur fixed costs relating to website connectivity, maintenance, design and operation in our online business. Our ability to achieve desired operating margins in our recruitment advertising businesses depends largely on our success in generating a sufficient amount of revenues from print and online recruitment advertisements to offset the associated fixed costs. In addition, to build and maintain employer and job seeker acceptance of 51job Weekly and www.51job.com as attractive media for posting and finding jobs, we need to reach and maintain a critical mass of recruitment advertisements.

In some markets, we believe that 51job Weekly has not achieved the necessary economies of scale primarily due to a decrease in market demand for print advertisement services in recent years as well as competition from rival print advertising publications. We may be unable to achieve and maintain sufficient economies of scale in any or all of our geographic markets in connection with our recruitment advertising businesses. Any failure to do so could materially and adversely affect our results of operations from these businesses.

If the use of advertising to conduct recruitment does not achieve broader acceptance in China, we may be unable to expand our recruitment advertising businesses.

The use of advertising services to recruit employees is relatively new in China. Due to the influence and regulation by the national and local governments, large job fairs and personal referrals continue to be popular recruitment channels for the private sector in China. We believe that the use of advertising by employers and job seekers remains relatively low. As a result, we face considerable challenges in promoting greater use of advertising, which involves, among other things, significant changes in the way that employers disseminate information about jobs, the way that prospective employees search and apply for jobs, and the way in which hiring decisions are made. We cannot assure you that recruitment advertising will achieve broader acceptance in China. Any significant failure of advertising to gain acceptance among employers and job seekers may substantially limit our ability to expand our recruitment advertising businesses.

If the Internet, and online advertising in particular, does not achieve broad acceptance in China as a medium for recruitment, our online recruitment services business may be adversely affected.

We generate a significant portion of our revenues from online recruitment services, which are targeted toward employers and job seekers who use the Internet. As part of our online recruitment services, we offer general online advertising on our website, which is an important element in our ability to sell online recruitment advertisements to employers and which generates a material portion of our revenues. China has only recently begun to develop the Internet as a commercial medium and has a relatively low Internet penetration rate compared to most developed countries. Our future results of operations from online recruitment services will depend substantially upon an increase in Internet penetration and an increase in acceptance and use of the Internet for the distribution of services and for the facilitation of commerce in China. In addition, as Internet penetration rates vary widely across the different cities and regions of China, the level of acceptance of online recruitment services may be low in certain geographies for an extended period of time, which may negatively impact our operations in those markets. Moreover, unless they are resolved, telecommunication capacity constraints may impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. Any negative perceptions as to the effectiveness of online recruitment services, or online advertising generally, or any significant failure of the Internet to gain acceptance as a medium for recruitment may adversely affect our online recruitment services business and our ability to further integrate our online and print recruitment advertising businesses.

The market for other human resource related services, including business process outsourcing, remains in the development stage in China and we may be unable to expand such existing services or successfully develop new services in this area.

We believe the market for other human resource related services, including business process outsourcing, is at an early stage of development in China. Many employers are unfamiliar with these services and may not accept the value proposition of these service offerings. Processing, tracking, collecting and remitting funds to the applicable regulatory agencies, employees and other third parties are complex operations, and many employers may not trust us with employee data or to make representations and cash payments on their behalf. As such, companies may not be willing to use our services for significant administrative functions and may instead choose to continue to perform such operations in-house.

If we are unable to establish a nationwide capability, effectively monitor ongoing changes in PRC laws and regulations, acquire, develop and use up-to-date business and management technology and software, including advanced computer and technology systems that could require significant capital expenditures, and maintain the integrity and security of our systems and process flow, we may be unable to expand our business process outsourcing operations or gain wider customer acceptance for these services. In addition, we rely on a number of third party service providers, including couriers, agents and banks. Failure by these providers, for any reason, to deliver their services in a timely and accurate manner could result in significant disruptions to our business process outsourcing operations, impact our client relationships, harm our brand and result in significant penalties or liabilities to us.

In addition, as part of our strategy to be a “one-stop” human resource services provider, we may decide to develop new services in the area of other human resource related services. We cannot assure you that we will be able to deliver new products or services on a commercially viable basis or in a timely manner, or at all. If any of our efforts to develop or operate new human resource related services are unsuccessful, our financial condition and results of operations may be materially and adversely affected.

We are dependent on local newspaper contractors in each of our geographic markets to publish and distribute 51job Weekly.

In the PRC, entities engaged in publishing activities are required by the government to have a publishing license. We do not have any publishing licenses. We are, and will continue to be, dependent on contractual arrangements with local newspapers in each of our geographic markets in order to publish and distribute 51job Weekly. Our arrangements with our local newspaper contractors require them to print, publish and distribute 51job Weekly as an insert in their newspaper, and in some cases to contribute marketing support. The successful execution of our print advertising business model is highly dependent on establishing and maintaining relationships with newspapers in all of our existing markets as well as any new markets in which we intend to offer print advertising services.

The term of our agreements with local newspaper contractors is generally two years, and seven of these agreements will expire between the date of this annual report and December 31, 2009. In addition, certain of these agreements are subject to early termination by either party on various grounds. We cannot assure you that our local newspaper contractors will conduct their activities in full compliance with applicable laws and regulations governing the publishing, distribution and sale of newspapers. In addition, we cannot assure you that:

	•		our local newspaper contractors will fulfill their obligations under our agreements;
	•		the agreements will be renewed on terms acceptable to us or at all;
	•		our current contractors will not, upon termination of our agreements, seek to compete directly against us or establish relationships with one or more of our competitors; or
	•		in the event that we wish to do so or it is necessary to do so, we will be able to locate and enter into an agreement with a suitable alternative local newspaper on a timely basis or at all.

In addition, we may experience lower levels of readership and circulation if we lose the marketing support of a local newspaper contractor or change the newspaper contractor in one of our markets. Any adverse developments involving our local newspaper contractors could significantly disrupt or impair the publication, promotion and distribution of 51job Weekly, which in turn could damage our 51job Weekly brand name and materially and adversely affect our recruitment advertising business and our results of operations.

We are dependent on our Internet service providers, and we are vulnerable to failures of the Internet, fixed line telecommunications networks in China and our technology platform.

Our online businesses are heavily dependent on the performance and reliability of China’s Internet infrastructure, the continual accessibility of bandwidth and servers to our service providers’ networks, and the continuing performance, reliability and availability of our technology platform.

We rely on China Telecommunications Corporation, or China Telecom, and China United Network Communications Group Company Limited, or China Unicom, to provide us with bandwidth and server custody service for our services. We are unlikely to have any access to alternative networks or services in the event of disruptions, failures or other problems with China’s Internet infrastructure or the fixed telecommunications networks of China Telecom or China Unicom, or if China Telecom or China Unicom otherwise fail to provide such services. In addition, we have no control over the costs of the services provided by China Telecom or China Unicom. If China Telecom or China Unicom fails to provide these services, we would be required to seek other providers, and there is no assurance that we will be able to find alternative providers willing or able to provide high quality services and there is no assurance that such providers will not charge us higher prices for their services. If the prices that we are required to pay for Internet services rise significantly, our results of operations could be adversely affected.

If we are unable to protect or promote our brand names and reputation, our business may be materially and adversely affected.

If we fail to generate a high volume of recruitment advertisements, maintain our relationships with local newspaper contractors, successfully promote and develop the perception of www.51job.com as a “destination site,” undertake effective marketing and promotional activities, and generally provide high quality services, we may not be successful in protecting or promoting our brand names and reputation in a cost-effective manner or at all. We may dedicate significantly greater resources in the future to advertising, marketing and other promotional efforts aimed at building awareness of our brands. According to public reports, our competitors, particularly those that provide online recruitment services, have significantly increased their expenditures on sales and marketing activities in recent years. Any significant damage to our reputation, the perceived quality or awareness of our brand names or services, or any significant failure on our part to promote and protect our brand names and reputation could make it more difficult for us to successfully attract job seekers, compete for customers or retain qualified personnel, which may have a material adverse effect on our business.

If we are unable to prevent others from using our intellectual property, our business may be materially and adversely affected.

Our intellectual property has been, and will continue to be, subject to various forms of theft and misappropriation. Competitors copy and distribute content from our www.51job.com website, from 51job Weekly and from the training materials that we use, and utilize misleadingly similar Internet domain names and URLs in an effort to divert Internet traffic away from our website. We are also susceptible to others copying our business model and methods. The legal protection of trademarks, trade names, copyrighted material, domain names, trade secrets, know-how and other forms of intellectual property in the PRC is significantly more limited than in the United States and many other countries and may afford us little or no effective protection. Preventing unauthorized use of our intellectual property is difficult, time consuming and expensive, and may divert significant management and staff resources from our business operations, and yield limited and uncertain results. Misappropriation of our content, trademarks and other intellectual property could divert significant business to our competitors, damage our brand name and reputation, and require us to initiate litigation that could be expensive and require us to divert management resources from the operation of our businesses.

We rely heavily on our senior management team and key personnel, and the loss of any of their services could severely disrupt our business.

Our future success is highly dependent on the ongoing efforts of the members of our senior management and key personnel, in particular on Rick Yan, our chief executive officer. We rely heavily on his management skills, his expertise in consumer products, marketing and technology, and his relationships with many of our clients and local contractors. We do not maintain key man life insurance on any of our senior management or key personnel, other than Mr. Yan and Kathleen Chien, our chief operating officer. The loss of the services of one or more of our senior executives or key personnel, Mr. Yan in particular, may have a material adverse effect on our business, financial condition and results of operations. Competition for senior management and key personnel is intense, and the pool of suitable candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain senior executives or key personnel in the future.

In addition, if Mr. Yan, any other members of our senior management or any of our other key personnel joins a competitor or forms a competing company, we may not be able to replace them easily and we may lose customers, business partners, key professionals and staff members. Each of our senior executives and key personnel has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. In the event of a dispute between any of our senior executives or key personnel and us, we cannot assure you as to the extent, if any, that these provisions may be enforceable in the PRC due to uncertainties involving the PRC legal system.

Our business may suffer if we do not successfully manage our current and potential future growth.

We have grown significantly since we commenced operations in 1998 and we intend to continue to expand in size and increase the number of services we provide. Our anticipated future growth will place significant demands on our management and operations. Our success in managing this growth will depend to a significant degree on the ability of our executive officers and other members of senior management to operate effectively both independently and as a group, and on our ability to improve and develop our financial and management information systems, controls and procedures. In addition, we will have to successfully adapt our existing systems and introduce new systems, expand, train and manage our workforce, and improve and expand our sales and marketing capabilities. If we are unable to properly manage our services in new or existing markets or the quality of our services deteriorates due to mismanagement, we could significantly damage our brand name and reputation, which would adversely affect our ability to expand our customer base.

If we are unable to successfully detect and prevent criminal actions or fraud perpetrated on us, we may be subject to liability and financial loss.

The management of our business involves the collection of cash payments by our employees and agents from our customers, which constitute a significant portion of our total revenues. As a result, we are exposed to theft, embezzlement and other criminal and fraudulent activity by our employees, our agents and third parties. For example, we identified some irregularities and non-compliance to contract terms by a third party in connection with our human resource outsourcing operations in Beijing, which resulted in a loss provision of RMB9.7 million in 2007. If we are unable to successfully detect and prevent criminal or fraudulent activity, our results of operations and financial condition may be materially and adversely affected.

Our operating history may not serve as an adequate basis to judge our future prospects and results of operations.

We began operations in 1998 and incurred net losses prior to 2002. We cannot assure you that we will maintain our profitability or that we will not incur net losses in the future. We expect that our operating expenses will increase as we expand. Any significant failure to realize anticipated revenue growth could result in significant operating losses. We may encounter risks and difficulties including our potential failure to:

	•		implement our business model and strategy and adapt and modify them as needed;
	•		increase awareness of our brands, protect our reputation and develop customer loyalty;
	•		anticipate with any degree of certainty the behavioral and operational changes of our customers that have a significant impact on our business from time to time as they respond to evolving social, economic and political changes in China;
	•		manage our expanding operations and service offerings, including the integration of any future acquisitions;
	•		maintain adequate control of our expenses;
	•		adequately and efficiently operate, maintain, upgrade and develop our website and the other systems and equipment we utilize in providing our services;
	•		attract, retain and motivate qualified personnel;
	•		maintain our current, and develop new, contractual arrangements with local newspapers and other important operational relationships; and
	•		anticipate and adapt to changing conditions in the print, online and other markets in which we operate as well as the impact of any changes in government regulation, mergers and acquisitions involving our competitors, technological developments and other significant competitive and market dynamics.

If we are not successful in addressing any or all of these risks, our business may be materially and adversely affected.

We rely on our print advertising business to provide a large portion of our revenues and any adverse development in this business could materially and adversely affect our overall results of operations.

We generate a large portion of our revenues from our print advertising business, which accounted for 55.8% of our revenues in 2006, 51.0% of our revenues in 2007 and 41.8% of our revenues in 2008. Growth in our print advertising business has slowed in 2008 as compared to 2007 due to a decline in market demand resulting from the recent global economic and financial market crisis and the slower economic growth in China. In addition, we believe that the greater acceptance and adoption of online advertisement may cause print media such as 51job Weekly to become less desirable as a form of advertising. We have observed that in some of our markets where Internet penetration rates are relatively high, a significant percentage of new, first-time customers may choose an online service as their initial recruitment advertising purchase with us. In addition, we believe that the percentage of customers allocating a greater portion of their total recruitment advertising budgets from print to online is increasing. To the extent this continues to occur and if we are not able to generate sufficient revenues from our online recruitment services or other businesses to offset any loss of revenues from our print advertisement business, our overall results of operations could be materially and adversely affected.

Our print advertising business is subject to weekly fluctuations which hamper our ability to predict when revenue will ultimately be recognized, if at all.

Due to the transactional nature of print advertising, we are unable to predict future revenue streams with any high degree of certainty. A large portion of our revenues is derived from print advertising and we do not recognize revenue until an advertisement is printed in 51job Weekly. Orders for print advertisements are generally placed week-to-week and advertisers may cancel or postpone their print advertisements within days of publication. Delays or cancellations by advertisers hamper our ability to predict when revenue will ultimately be recognized, if at all. Such uncertainty makes it difficult for us to accurately forecast revenues for a particular quarter. Therefore, actual results may differ significantly from our targets or estimated quarterly results, which could cause the price of our ADSs to fall.

Due to seasonal variations in demand for human resource services, we experience significant fluctuations in our revenue streams which affect our ability to predict our quarterly results and which may also cause quarterly results to vary from period to period.

Significant fluctuations in our revenue streams, particularly during the seasonal peak hiring periods around the Chinese New Year holidays and the beginning of May and October, affect our ability to predict quarterly results. During these peak periods, demand for recruitment advertising and other human resource related services may or may not rise significantly depending on the needs of employers as well as their perceptions of the job market. Beginning in 2008, the Chinese government has instituted changes to the schedule of public holidays by eliminating the week-long holiday at the beginning of May and recognizing new observances, which may result in new seasonality patterns for our business. In addition, the dates of the Chinese New Year holidays and the new observances are based on the lunar calendar, which varies from year to year and affects our quarterly results and the comparability of financial results to corresponding periods in prior years. We have also experienced a trend of lower fourth quarter revenues as compared to revenues from the immediately preceding third quarter in recent years. As a result of these factors, our revenues may vary from quarter to quarter and quarterly results may not be comparable to the corresponding periods of prior years. Such uncertainty makes it difficult for us to predict revenues for a particular quarter. Therefore, actual results may differ significantly from our targets or estimated quarterly results, which could cause the price of our ADSs to fall.

We may not be able to successfully execute future acquisitions or efficiently manage any acquired business.

We may decide to expand, in part, by acquiring certain complementary or new businesses in the future. The success of any material acquisition will depend upon several factors, including:

	•		our ability to identify and acquire businesses on a cost-effective basis;
	•		our ability to integrate acquired personnel, operations, products and technologies into our organization effectively; and
	•		our ability to retain and motivate key personnel and to retain the clients of acquired firms.

Any such acquisition may require a significant commitment of management time, capital investment and other resources. There is a possibility that we will not be successful in identifying and negotiating acquisitions on terms favorable to us. In addition, we cannot be certain that any acquisition, if completed, will be successfully integrated into our existing operations. If we are unable to effectively integrate an acquired business or are required to incur restructuring and other charges to complete an acquisition, our business, financial condition and results of operations may be materially and adversely affected. In addition, if we use our equity securities as consideration for acquisitions, we may dilute the value of your common shares or ADSs. We have not engaged in any material acquisitions in our history.

If we are unable to attract and retain qualified personnel, our executive search, training and business process outsourcing businesses may be materially and adversely affected.

The success of our executive search, training and business process outsourcing services depends heavily on our ability to attract and retain skilled personnel. Our ability to provide high quality executive search services depends on a dedicated team of consultants with expertise and relationships in the geographic markets and industries in which our clients seek candidates. Similarly, the success of our training business depends on personnel with the necessary skills to conduct and support our training seminars and other activities and services in this business. Our business of performing traditional human resource department functions such as payroll, benefits and compliance management and related services for customers on an outsourced basis depends on having personnel with expertise in local and national PRC government employment regulations, payroll management and other human resource department functions. If we are unable to attract and retain critical skilled personnel, our executive search, training and business process outsourcing businesses may be materially and adversely affected.

The implementation of the PRC Labor Contract Law may significantly increase the number of labor disputes, which may result in higher operating costs for our business process outsourcing business.

On June 29, 2007, the Standing Committee of the National People’s Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. The Labor Contract Law establishes restrictions and increases costs for employers, including specific provisions related to fixed-term employment contracts, temporary employment, probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work, and collective bargaining. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for an employer are entitled to a paid

vacation ranging from 5 to 15 days, depending on their length of service. Employees who waive such vacation time at the request of employers shall be compensated for three times their regular salaries for each waived vacation day. The Labor Contract Law only recently went into effect and there are uncertainties whether its future implementation may be consistent with its current interpretation. As a result, the implementation of the Labor Contract Law may impact the recruitment behavior and human resource budgets of companies in China. In addition, we have observed an increase in the number of labor disputes between employers and workers relating to the interpretation and application of the Labor Contract Law. Through our business processing outsourcing business, we provide professional services to manage human resource administrative functions for employers on an outsourced basis. The resolution of such labor disputes may require significant costs and resources, including the time our personnel spend dealing with increased human resource administration and legal issues for which we may not be compensated. If we incur higher operating costs for our business process outsourcing business, our results of operations could be materially and adversely affected.

If we choose to develop or introduce new products and services outside of the human resource services industry in China, these efforts may not be successful, which could materially and adversely affect our financial condition and results of operations.

In August 2007, we entered into an agreement with Recruit Co., Ltd., or Recruit, a privately held human resource and information services company in Japan, to form a new company under Area Link Co., Ltd., or Area Link, which is a holding company affiliated with Recruit, to provide coupon advertising services in China. Under the agreement, we have agreed to provide up to RMB32.8 million in financing to Area Link for the coupon company and have the ability to acquire up to 40% of Area Link’s share capital. The amount of financing we have provided to Area Link for the coupon company totaled RMB15.9 million (US$2.3 million) as of December 31, 2008. Because we lack experience and expertise in operating coupon advertising services, we rely on Recruit to manage this business and we cannot assure you that it will be successful. We cannot assure you that we will be able to deliver other new products or services outside of the human resource services industry on a commercially viable basis or in a timely manner, or at all. If any of our efforts to begin or operate a business outside of the human resource services industry are not successful, our financial condition and results of operations may be materially and adversely affected.

We may be subject to liability for placing advertisements with content that is deemed inappropriate.

PRC laws and regulations prohibit advertising companies from producing, distributing or publishing any advertisement that contains any content that violates laws and regulations, impairs the national dignity of the PRC, involves designs of the national flag, national emblem or national anthem or the music of the national anthem of the PRC, is reactionary, obscene, superstitious or absurd, is fraudulent, or disparages similar products. If we are deemed to be in violation of such regulations, we may be subject to penalties including confiscation of the illegal revenues, levying of fines and suspension or revocation of our business license or advertising license, any of which may materially and adversely affect our business.

We are subject to potential legal liability from both employers and job seekers with respect to our executive search businesses and other human resource related services.

We are exposed to potential claims associated with the recruitment process, including claims by clients seeking to hold us liable for recommending a candidate who subsequently proves to be unsuitable for the position filled, claims by current or previous employers of our candidates alleging interference with employment contracts, claims by candidates against us alleging our failure to maintain the confidentiality of their employment search or alleging discrimination or other violations of employment law or other laws or regulations by our clients, and claims by either employers or candidates alleging the failure of our business process outsourcing services to comply with laws or regulations relating to employment, employee’s insurance or benefits, individual income taxes or other matters. Any such claims, regardless of merit, may force us to participate in time-consuming, costly litigation or investigation, divert significant management and staff attention, and damage our reputation and brand names. We do not maintain insurance coverage for liabilities arising from claims by employers, candidates or third parties.

We may be exposed to infringement or misappropriation claims by third parties, which, if successful, could cause us to pay significant damage awards.

Third parties may bring claims against us alleging patent, trademark or copyright infringement, or misappropriation of their creative ideas or formats, or other infringement of their proprietary intellectual property rights. Any such claims, regardless of merit, may involve us in time-consuming, costly litigation or investigation, divert significant management and staff attention, require us to enter into expensive royalty or licensing arrangements, prevent us from using important technologies, business methods, content or other intellectual property, result in monetary liability, or otherwise disrupt our operations. We expect that the likelihood of such claims may increase, particularly in our online businesses, as the number of competitors in our markets grows and as related patents and trademarks are registered or copyrights are obtained by such competitors.

We rely heavily on our information systems, and if our access to technology supporting our information systems is impaired or interrupted, or if we fail to further develop our technology, our operations may be seriously disrupted.

Our ability to store, retrieve, process and manage substantial amounts of information, including our client and candidate databases, is an important part of our operations and a critical component of our success. To achieve our strategic objectives and to remain competitive, we must further develop and enhance our information systems. This may require the acquisition of equipment and software and the development, either internally or through independent consultants, of new proprietary software. Our inability to design, develop, implement and utilize, in a cost-effective manner, information systems that provide the capabilities necessary for us to compete effectively, or any interruption or loss of our information processing capabilities, for any reason, could materially disrupt our operations.

If we are not able to respond successfully to technological or industry developments, our business may be materially and adversely affected.

The market for online products and services is characterized by rapid technological developments, frequent launches of new products and services, the introduction of new business models, changes in customer needs and behavior, and evolving industry standards. These developments may make our existing online recruitment services obsolete or less competitive. In order to respond to such developments, we may be required to undertake substantial efforts and incur significant costs. In the event that we do not successfully respond to such developments in a timely and cost-effective manner, our business may be materially and adversely affected.

Computer viruses and “hacking” may cause delays or interruptions on our systems and may reduce use of our services and damage our reputation and brand names.

Computer viruses and hacking may cause delays or other service interruptions on our systems. “Hacking” involves efforts to gain unauthorized access to information or systems or to cause intentional malfunctions, loss or corruption of data, software, hardware or other computer equipment. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. Hacking and computer viruses could result in significant damage to our hardware and software systems and databases, disruptions to our business activities, including to our e-mail and other communications systems, breaches of security and the inadvertent disclosure of confidential or sensitive information, interruptions in access to our website through the use of “denial of service” or similar attacks, and other material adverse effects on our operations. We may incur significant costs to protect our systems and equipment against the threat of, and to repair any damage caused by, computer viruses and hacking. Moreover, if a computer virus or hacking affects our systems and is highly publicized, our reputation and brand names could be materially damaged and usage of our services may decrease.

Our business could be adversely affected if our software contains bugs.

Our online systems, including the www.51job.com website, and our other applications, products and systems could contain undetected errors or “bugs” that could adversely affect their performance. Additionally, we regularly update and enhance our website and our other online systems and introduce new versions of our products and applications. The occurrence of errors in any of these may cause us to lose market share, harm our reputation and brand names, and materially and adversely affect our business.

We are controlled by a small number of our existing shareholders, whose interests may differ from other shareholders, and our board of directors has the power to discourage a change of control.

As of March 31, 2009, the following shareholders beneficially owned approximately 37.7 million common shares:

•

Recruit, which beneficially owned approximately 22.3 million common shares, or 39.8% of our outstanding common shares, and which is affiliated with Hiroyuki Honda, one of our directors; and

•

Rick Yan, our chief executive officer and a director, who beneficially owned approximately 15.4 million, or 27.4% of our outstanding common shares.

These shareholders, together with our other executive officers and directors, beneficially owned approximately 40.4 million common shares. Accordingly, Recruit or Mr. Yan individually could have significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. In cases where their interests are aligned and they vote together, these shareholders will also have the power to prevent or cause a change in control. Without the consent of some or all of these shareholders, we may be prevented from entering into transactions that could be beneficial to us. In addition, these parties could violate their non-competition or employment agreements with us or otherwise violate their fiduciary duties by diverting business opportunities from us to themselves or others. The interests of our largest shareholders may differ from the interests of our other shareholders.

In April 2006, entities affiliated with DCM, a venture capital firm affiliated with one of our directors, Rick Yan, Michael Lei Feng and Norman Lui, and Kathleen Chien, who is our chief operating officer, entered into a share purchase agreement with Recruit. Michael Lei Feng and Norman Lui are co-founders and former executive officers of our company. Under the terms and conditions of the share purchase agreement, Recruit completed a purchase of 8,452,918 common shares, which represented approximately 15% of our outstanding common shares as of December 31, 2005, from these shareholders in April 2006. The share purchase agreement also provides for an option that would allow Recruit to purchase up to an additional 14,862,313 common shares from these shareholders over a three-year period beginning April 2006. In addition, under the share purchase agreement, each of these selling shareholders has agreed that it will use its commercially reasonable best efforts in cooperating with Recruit to have a representative of Recruit nominated to stand for election to our board of directors and that it will vote all of its shares in favor of the election of such nominee to our board of directors at any annual or extraordinary general meetings of our members at which such nominee may stand for election for the duration of the agreement. Mr. Hiroyuki Honda, an executive vice president and director of Recruit, was elected to our board of directors in July 2006.

In addition, our board of directors has the authority, without further action by our shareholders, to issue common and preferred shares of up to 20% by par value of all issued shares and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares. These provisions could have the effect of depriving you of an opportunity to sell your ADSs at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

There are significant uncertainties under the new tax law in China. In addition, dividends we receive from our subsidiaries located in the PRC may be subject to PRC withholding tax.

On March 16, 2007, the National People’s Congress promulgated a new tax law named “Enterprise Income Tax Law of the PRC,” or the EIT Law, which applies a uniform 25% enterprise income tax, or EIT, rate to both foreign-invested enterprises and domestic enterprises effective January 1, 2008. For enterprises that were established before the EIT Law was promulgated and were entitled to preferential tax rates under former tax laws and regulations, the EIT Law has granted a grace period of up to five years for these enterprises to gradually transition from their preferential tax rates to the standard rate of 25%. As a result, some of our subsidiaries in the special economic zones of Shanghai’s Pudong area and Shenzhen were subject to an EIT rate of 18% in 2008, which are to be gradually increased to 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. However, it remains uncertain how the EIT Law and its implementation rules will be enforced. Therefore, the EIT rates of some of our PRC subsidiaries could change and any increases would adversely and materially affect our financial condition and results of operations.

In addition, under the EIT Law and related regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our PRC subsidiaries, to any of its foreign non-resident enterprise investors, and proceeds from the disposition of assets (after deducting the net value of such assets) by such foreign enterprise investor, shall be subject to a 10% withholding tax unless such foreign enterprise investor’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. Undistributed profits earned by foreign-invested enterprises prior to January 1, 2008 are exempted from any withholding tax. We are incorporated in the Cayman Islands which does not have such a tax treaty with China.

We may be deemed a PRC “resident enterprise” under the EIT Law, which could subject us to PRC taxation on our global income, and which may have a material adverse effect on our results of operations.

Under the EIT Law and its implementation rules, enterprises incorporated under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC “resident enterprises” and therefore subject to an EIT rate of 25% on their worldwide income. Under the implementation regulations issued by the State Council relating to the EIT Law, “de facto management bodies” is defined as the bodies that have material and overall management control over the business, personnel, accounts and properties of an enterprise. We are a Cayman Islands holding company and substantially all of our operational management is currently based in China. The detailed implementation regulations are still in the process of promulgation, and to our knowledge, there is a lack of clear guidance regarding the criteria pursuant to which the PRC tax authorities will determine the tax residency of a company under the EIT Law. If we are considered to be an enterprise established outside China with “de facto management bodies” located in China and thus a “resident enterprise,” we may be subject to the uniform 25% EIT rate as to our global income, which would have a material adverse effect on our results of operations.

Under the EIT Law, dividends payable by us to our foreign investors and gains on the sale of our ADSs or common shares may become subject to PRC taxation.

If we are considered a PRC “resident enterprise” under the EIT Law, our shareholders and ADS holders who are deemed “non-resident enterprises” may be subject to an EIT rate of 10% upon the dividends payable by us or upon any gains realized from the transfer of our common shares or ADSs, if such income is deemed derived from China, provided that (i) such foreign enterprise investor has no establishment or place of business in China, or (ii) it has establishment or place of business in China but its income derived from China has no real connection with such establishment or place of business. If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are “non-resident enterprises,” or if you are required to pay PRC income tax on any gains realized from the transfer of our common shares or ADSs, the value of your investment in common shares or ADSs may be materially and adversely affected.

Our earnings have been and will continue to be adversely affected by changes in our accounting policies, including those related to the expensing of stock options.

In 2006, we adopted Statement of Financial Accounting Standards, or SFAS, No. 123R (revised 2004), “Share-Based Payment,” or SFAS No. 123R, which requires that stock-based compensation transactions, such as stock option grants, be accounted for using a fair value based method and recognized as expenses in our consolidated statement of operations. We use the Black-Scholes option pricing model to determine the fair value of stock options grants under SFAS No. 123R. This method is based upon, among other things, the volatility of our ADSs, which has been historically high. Therefore, the adoption of SFAS No. 123R negatively affects our profitability and the trading price of our ADSs. The implementation of SFAS No. 123R could also limit our ability to continue to use stock options as an incentive and retention tool, which could, in turn, hurt our ability to recruit employees and retain existing employees. Other new accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future. The change to existing rules, future changes, if any, or the questioning of current practices may adversely and materially affect our earnings.

If we do not appropriately maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, our business, results of operations and the market price of our ADSs may be materially and adversely affected.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, as required under Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2008. See “Item 15. — Controls and Procedures.”

However, if we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of our ADSs. Furthermore, we have incurred and may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.

We have no business insurance coverage.

Other than insurance for some of our properties, we do not maintain any insurance. We do not have any business liability insurance coverage for our operations. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

We face risks related to health epidemics and other natural disasters.

Our business could be adversely affected by the effects of avian flu, Severe Acute Respiratory Syndrome, or SARS, or another epidemic or outbreak. China reported a number of cases of SARS in 2003, which resulted in the closure of many businesses by the PRC government to prevent the transmission of SARS. In recent years, there have been reports of occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. Restrictions on travel resulting from any prolonged recurrence of avian flu, SARS or another epidemic or outbreak could adversely affect our ability to market and service new and existing customers throughout China. Our business operations could be disrupted if one of our employees is suspected of having avian flu, SARS or another health epidemic, which would require that a certain number of our employees be quarantined and/or our offices be disinfected. In addition, our results of operations could be adversely affected to the extent that avian flu, SARS or another outbreak harms the Chinese economy in general. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of avian flu, SARS or any other epidemic.

We are also vulnerable to natural disasters and other calamities. Our servers are currently hosted in Shanghai and Tianjin. We have backup systems, but we cannot assure you that such backup systems will be adequate if there are problems, or that they will adequately protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist acts or similar events. Any of the foregoing events may give rise to server interruptions, breakdowns, system failures, technology platform failures and Internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide our services to users. For example, after the Sichuan earthquake in May 2008, we experienced business disruptions and suspended operations of www.51job.com during a three-day national mourning period.

We believe that we were not a passive foreign investment company, or a PFIC, for our taxable year ending on December 31, 2008, although there can be no assurance in this regard. However, we believe that we may be a PFIC for our current taxable year or that we may become one in the future, which could result in adverse U.S. federal income tax consequences to U.S. investors.

Based on the past composition of our income and valuation of our assets, including goodwill, we believe that we were not a PFIC for our taxable year ending on December 31, 2008, although there can be no assurance in this regard. However, due to the volatility of the market price of our common shares, as represented by our ADSs, under recent market conditions, we believe that we may be a PFIC for our current taxable year or that we may become one in the future. Under the U.S. Internal Revenue Code of 1986, as amended, the determination of whether we are a PFIC is made annually. Accordingly, our PFIC status for the current taxable year cannot be determined with certainty until after the close of the current taxable year. In particular, our PFIC status may be determined in large part based on the market price of our common shares, as represented by our ADSs, which is likely to fluctuate (and may fluctuate considerably given that the global capital markets have been experiencing extreme volatility). Accordingly, fluctuations in the market price of common shares, as represented by our ADSs, may result in our being a PFIC in the current or any future taxable year.

In addition, as described below under “Risks Related to Our Corporate Structure,” there exist substantial uncertainties regarding the application, interpretation and enforcement of relevant current and future PRC laws and regulations and their potential effect on our corporate structure and contractual arrangements with certain of our affiliated PRC entities. There can be no assurance that the PRC regulatory authorities will not take a view different from the opinions of our PRC counsel. Further, even if the uncertainties as to PRC laws and regulations did not exist, there are also substantial uncertainties as to the treatment of our corporate structure and ownership of these affiliated PRC entities for U.S. federal income tax purposes. If it is determined that we do not own the stock of the affiliated PRC entities for U.S. federal income tax purposes, we would likely be treated as a PFIC for our taxable year ending on December 31, 2008 and any taxable year thereafter.

If we are a PFIC for any taxable year during which you hold our ADSs or common shares, such characterization could result in adverse U.S. federal income tax consequences to you if you are a U.S. investor. For example, if we are or become a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. federal income tax laws and regulations, and will become subject to burdensome reporting requirements. Moreover, non-corporate U.S. investors will be not be eligible for reduced rates on taxation on any dividends received from us in taxable years beginning before January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. See “Item 10. — Additional Information — Taxation — Certain United States Federal Income Tax Considerations — Passive Foreign Investment Company Rules.”

Our subsidiaries face limitations on paying dividends or making other distributions to us.

We are a holding company and do not have any assets or conduct any business operations other than our holding of the equity interests in, directly and indirectly:

	•		Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd., or WFOE, a wholly foreign owned enterprise in China;
	•		Qianjin Network Information Technology (Shanghai) Co., Ltd., or Tech JV;
	•		Shanghai Qianjin Advertising Co., Ltd., or AdCo, and its subsidiaries; and
	•		Shanghai Wang Ju Human Resource Consulting Co., Ltd., or Wang Ju.

As a result of our holding company structure, we rely entirely on dividends, royalty payments and license fees paid under trademark license agreements and certain other contractual arrangements paid to us by our subsidiaries and affiliated entities in the PRC to finance our operations and to pay dividends to our shareholders. These royalty payments and license fees paid under trademark license agreements and certain other contractual arrangements do not require governmental or other third party approval. However, the payment of dividends in China is subject to certain restrictions and taxes. PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in the PRC are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserve funds that are not distributable as cash dividends. In addition, the PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of the PRC. We may also experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. See “Item 4. — Information on the Company — Business Overview — Regulation — Regulation of Foreign Currency Exchange and Dividend Distribution.” If we or any of our subsidiaries are unable to receive all of the revenues from our operations through these contractual or dividend arrangements, we may be unable to effectively finance our operations or pay dividends on our common shares.

Risks Related to Our Corporate Structure

If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions.

The PRC government has regulated foreign ownership in entities providing advertising and human resource related services. Prior to March 2004, PRC laws and regulations prohibited foreign persons from owning a controlling interest in advertising entities. This foreign ownership restriction was subsequently relaxed and foreign persons are now permitted to wholly own advertising entities in China. In addition, until November 2003, there were no PRC laws or regulations explicitly prohibiting or limiting foreign ownership in entities providing human resource related services. Foreign ownership in entities providing human resource related services was limited to 49% beginning in November 2003 and this ownership limitation was increased to 70% in August 2006.

Prior to our restructuring in May 2004, 51net, our British Virgin Islands subsidiary and a foreign entity, owned 99% of Tech JV, which in turn owned, and continues to own, 80% of AdCo. AdCo owned, and continues to own, 90% of the principal AdCo Subsidiaries. During this period, Tech JV, AdCo and the AdCo Subsidiaries conducted a portion of our advertising and human resource services businesses. We have been advised by Jun He Law Offices, our PRC counsel, that the foreign ownership percentage of Tech JV, AdCo and the AdCo Subsidiaries prior to our restructuring was above the maximum foreign ownership permitted for an entity conducting advertising operations. In addition, we have been advised by our PRC counsel that, prior to our restructuring, the foreign ownership percentage of Tech JV was above the maximum foreign ownership permitted for an entity conducting human resource operations. In May 2004, we restructured our operations to comply with then existing PRC laws and regulations governing foreign ownership in entities conducting advertising and human resource related services. In connection with our restructuring, we informed relevant PRC governmental authorities that, historically, our foreign ownership percentage of Tech JV, AdCo and the AdCo Subsidiaries was not in compliance with limitations on foreign ownership of entities conducting advertising and human resources operations. However, we have not received any waiver from the PRC government with respect to our past non-compliance with foreign ownership limitations.

There remains uncertainty regarding whether foreign owned PRC entities, such as AdCo, are required to obtain special governmental approval in order to establish subsidiaries in the PRC or otherwise invest in PRC entities. Following the formation of the AdCo Subsidiaries, in connection with our restructuring we made inquiries with relevant PRC governmental authorities as to whether AdCo was required to obtain such approval before establishing the AdCo Subsidiaries. We have been unable to obtain any governmental ruling or advice on this matter. As a result, it is uncertain whether special governmental approval, which we did not obtain, was necessary for the establishment by AdCo of the AdCo Subsidiaries.

The PRC government may determine that our ownership structure is or was inconsistent with or insufficient for the proper operation of our businesses, or that our business licenses or other approvals are or were not properly issued or not sufficient. For a discussion of the limitations on foreign ownership governing our businesses, see “Item 4. — Information on the Company — Business Overview — Regulation — Limitations on Foreign Ownership of Our Businesses.”

If we or any of our subsidiaries or affiliated entities were found to be or to have been in violation of PRC laws or regulations governing foreign ownership of advertising or human resource services businesses, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:

	•		levying fines;
	•		revoking business licenses;
	•		restricting or prohibiting our use of proceeds from our initial public offering and any future offerings to finance our business and operations in China;
	•		requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or
	•		requiring us to discontinue all or a portion of our business.

Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.

We rely on our agreements with an affiliated entity to provide human resource related services and to act as an Internet content provider, and we rely on agreements with an affiliated entity and its shareholders to receive all of the beneficial interest of this entity.

Current PRC laws and regulations limit foreign investment in entities providing human resource related services and in entities operating as Internet content providers. We currently provide technical, consulting and human resource related services in conjunction with our affiliated entity, RAL, which is indirectly wholly owned by David Weimin Jin and Tao Wang, two executive officers of our company. RAL holds a license to provide human resource related services and we rely on RAL to provide human resource related services to our clients under a contractual arrangement between RAL and our majority owned subsidiary Tech JV. Similarly, RAL holds a license to operate as an Internet content provider. While we provide all of our online recruitment services through Tech JV, we rely on RAL to provide certain Internet content provider services and human resources related services to support Tech JV’s online recruitment services through a contractual arrangement with RAL. We have entered into agreements with RAL’s shareholders which enable us to effectively control RAL.

Tech JV, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues. The minority interests in Tech JV, AdCo and the AdCo Subsidiaries, which are direct or indirect subsidiaries of Tech JV, are held by Qian Cheng, which is indirectly wholly owned by David Weimin Jin and Tao Wang. Through agreements with Qian Cheng and its shareholders, we have the substantial ability to control, bear all the economic risks of, and receive all the economic rewards from, Qian Cheng. As a result, we consolidate all of its interests for U.S. GAAP reporting purposes.

As we rely on the agreements with RAL and Qian Cheng to enable us to provide certain critical services to our clients as well as to receive all the economic benefits of Qian Cheng, a significant disruption in these contractual relationships as a result of governmental sanction or otherwise could result in our being required to restructure our operations which could result in a significant expenditure of resources. If we are unable to restructure our operations to provide those services through a different entity, we may experience significant disruptions in our ability to provide online recruitment services or human resource related services to our customers. In addition, if we are unable to consolidate the minority interests in Tech JV, AdCo and the AdCo Subsidiaries, our results of operations would reflect Qian Cheng’s minority interest in these entities which, if not otherwise consolidated, would result in a significant reduction in our reported net income. For a description of our contractual arrangements with these entities, see “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

If our affiliated entity RAL is found to be operating in jurisdictions outside of Shanghai without a business license, we could be subject to sanctions and our revenues could be adversely affected.

RAL’s existing human resource services license is limited to Shanghai. In 2008, revenues from human resource related services provided to customers outside Shanghai accounted for approximately 3% of our total revenues. It is possible that government authorities in jurisdictions outside Shanghai where certain of RAL’s customers are located may assert that RAL is providing human resource related services in such jurisdictions without a necessary license and is required to obtain a human resource services license in such jurisdictions. As a result, RAL could be required to cease providing human resource services to customers in such locations which could result in a reduction in human resource related revenues. In addition, RAL may be subject to sanctions in the form of forfeiture of profits, fines, or both.

Our contractual arrangements with RAL and Qian Cheng may not be as effective in providing operational control as direct ownership of these businesses.

Because the percentage of foreign ownership in human resource and Internet content businesses in China is limited under PRC laws and regulations, we depend substantially on RAL, in which we have no direct ownership interest, and its contractual arrangements with us to provide those services. Similarly, we rely on our contractual arrangements with Qian Cheng, in which we have no direct ownership interest, to realize all of the economic rewards from Qian Cheng’s minority interests in Tech JV, AdCo and the AdCo Subsidiaries. Our contractual arrangements with RAL, Qian Cheng and their respective shareholders may not be as effective as direct ownership in providing control over their operations. RAL may fail to perform its contractual obligations required for us to operate our business, such as keeping in good standing under its business licenses. Qian Cheng and its shareholders may refuse to make payments or otherwise refuse to perform their contractual obligations necessary for us to realize the economic rewards relating to Qian Cheng’s minority interests in Tech JV, AdCo and the AdCo Subsidiaries. In addition, the contractual arrangements which provide us with the substantial ability to control these entities may be unenforceable and the shareholders of these entities may refuse to renew these contractual arrangements. In any such event, we will have to rely on the PRC legal system to enforce our rights. In many cases, the laws and regulations governing the enforcement and performance of contractual arrangements are significantly more limited than in the United States and many other countries and may afford us little or no effective protection. If we are unable to enforce our rights, we may be unable to operate our human resource and Internet content businesses through RAL or receive all of the economic rewards from Qian Cheng. As a result, we may be required to restructure our operations which would likely entail a significant expenditure of resources. We cannot assure you that any such restructuring would be effective or would not result in similar or other difficulties. For a description of these contractual arrangements, see “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

If we or any of our subsidiaries or affiliated entities were found to be in violation of PRC laws or regulations, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:

	•		levying fines;
	•		revoking business licenses;
	•		restricting or prohibiting our use of proceeds from our initial public offering and any future offerings to finance our business and operations in China;
	•		requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or
	•		requiring us to discontinue all or a portion of our business.

Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.

The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions. In addition, any changes in such PRC laws and regulations may have a material and adverse effect on our business.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. We and our subsidiaries are considered foreign persons or foreign funded enterprises under PRC laws, and, as a result, we are required to comply with PRC laws and regulations, including those governing foreign ownership in the human resource services and Internet content industries. These laws and regulations are relatively new and may be subject to future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, the PRC authorities retain broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business licenses and requiring actions necessary for compliance. In particular, licenses, permits and beneficial treatments issued or granted to us by relevant governmental bodies may be revoked at a later time under contrary findings of higher regulatory bodies. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our businesses. We cannot assure you that any such restructuring would be effective or would not result in similar or other difficulties. We may be subject to sanctions, including fines, and could be required to restructure our operations. As a result of these substantial uncertainties, we cannot assure you that we will not be found in violation of any current or future PRC laws or regulations.

Under equity pledge agreements, the shareholders of our Chinese affiliated entities have pledged their respective equity interests to us. On March 16, 2007, the PRC Property Law was promulgated and took effect on October 1, 2007. According to the PRC Property Law, a pledge of the equity interest of a company in China cannot be legally established until it is duly registered with the relevant administration of industry and commerce. On September 1, 2008, the Measures on Registration of Pledge of Equity Interest with the Administration of Industry and Commerce was promulgated by the PRC State Administration of Industry and Commerce and took effect on October 1, 2008, which contains the procedure for registration of a pledge of the equity interest of a company. The pledges under the equity pledge agreements between WFOE and the shareholders of Qian Cheng, RAL and Run An are yet to be registered with the relevant administration of industry and commerce, and as such, we cannot assure you about the effectiveness of these pledges. We will make efforts to register the pledges when the administration as soon as practically possible.

If we or any of our subsidiaries or affiliated entities or any of our contractual arrangements are found to be or to have been in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would likely have broad discretion in dealing with such violation, including but not limited to:

	•		levying fines;
	•		revoking business licenses;
	•		restricting or prohibiting our use of proceeds from our initial public offering and any future offerings to finance our business and operations in China;
	•		requiring us to restructure the ownership structure or operations of our subsidiaries or affiliated entities; and/or
	•		requiring us to discontinue all or a portion our business.

Any of these or similar actions could cause significant disruption to our business operations or render us unable to conduct a substantial portion of our business operations and may materially and adversely affect our business, financial condition and results of operations.

We are unable to quantify the likelihood that any sanctions would be imposed or the magnitude of the effect of any such sanctions on our business, financial condition or results of operations.

Risks Related to the People’s Republic of China

Our business could be affected by changes in China’s economic, political or social conditions or government policies.

The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. We cannot assure you that the Chinese economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business. For example, the Chinese economy experienced high inflation in the second half of 2007 and the first half of 2008. According to the National Bureau of Statistics of China, the consumer price index increased 7.9% during the six months ended June 30, 2008 as compared to the same period in 2007. To restrain inflation and prevent the economy from overheating, the PRC government instituted a number of tightening macroeconomic measures and monetary policies, including increasing interest rates, raising statutory reserve rates for banks and controlling bank lending to certain industries. However, due in part to the impact of the current global economic and financial market crisis, the growth rate of China’s gross domestic product has decreased from previous levels and slowed to 6.8% and 6.1% in the fourth quarter of 2008 and the first quarter of 2009, respectively, representing the lowest level of growth since 2002. As a result, the PRC government has begun to loosen macroeconomic measures and monetary policies in recent months and announced an economic stimulus package of RMB4 trillion (US$586 billion) in November 2008. We cannot assure you that the various macroeconomic measures, monetary policies and economic stimulus package adopted by the PRC government to guide economic growth and the allocation of resources will be effective in sustaining the fast growth rate of the Chinese economy. In addition, even if these measures benefit the overall Chinese economy, they may impact the hiring behavior of employers and reduce the level of expenditures on human resource services, which would adversely affect our results of operations and financial condition. For example, the PRC government could determine to limit the extent to which government controlled entities may use private sector businesses such as ours to service their human resource requirements. The PRC government could determine to develop and support government owned or controlled human resource enterprises in direct competition with us. The PRC government could also determine to more closely regulate the advertising, Internet content delivery or human resource industries, which could impose additional regulatory costs and burdens on us.

PRC laws and regulations governing operators of Internet websites are unclear and the regulation of the telecommunications and Internet industries may become more burdensome, and if we are found to be in violation of PRC laws and regulations, we could be subject to sanctions.

The interpretation and application of existing PRC laws and regulations, the stated positions of the main governing authority, the PRC Ministry of Industry and Information Technology, or MIIT (formerly the Ministry of Information Industry), and the possibility of new laws or regulations being adopted, have created significant uncertainty regarding the legality of existing and future foreign investments in, and the businesses and activities of, companies with Internet operations, including those of our company. In particular, the MIIT has stated that the activities of Internet content providers, or entities providing delivery of Internet content, are subject to regulation by various PRC government authorities, depending on the specific activities conducted by the Internet content provider. We cannot be certain that the commercial Internet content provider license issued by the local Shanghai Municipal Telecommunications Bureau and held by RAL will satisfy these requirements. For example, we may be required to obtain an inter-provincial Internet content provider license in order to operate online businesses in multiple provinces, autonomous regions and centrally administered municipalities. In addition, PRC government regulation of the telecommunications and Internet industries is burdensome and may become even more so. New regulations could increase our costs of doing business and prevent us from efficiently delivering our services. Our failure to comply with applicable PRC Internet regulations could subject us to severe sanctions.

In July 2006, the MIIT issued the Notice on Strengthening the Administration of Foreign Investment in the Operation of Value Added Telecommunication Business, or the MIIT Notice. According to the MIIT Notice, foreign investors can only operate a telecommunications business in China by establishing a telecommunications enterprise with a valid telecommunications business operation license. Domestic value-added telecommunications services license holders are prohibited from leasing, transferring or selling telecommunications business operation licenses to foreign investors in any form, and from providing any resource, sites or facilities to foreign investors to facilitate the illegal operation of a telecommunications business in China. The MIIT Notice also requires that value-added telecommunications services license holders (including their shareholders) directly own the domain names and registered trademarks used by such value-added telecommunications services license holders in their daily operations. The MIIT Notice further requires each value-added telecommunications services license holder to have the necessary facilities for its approved business operations and to maintain such facilities in the regions covered by its license. In addition, all value-added telecommunications service providers are required to improve network and information security, draft relevant information safety administration regulations and set up networks and information safety emergency plans. The provincial communications administration bureaus in charge of telecommunications services are required to ensure that existing value-added telecommunications services license holders will conduct a self-assessment of their compliance with the MIIT Notice and submit status reports to the MIIT before November 1, 2006. For those who are not in compliance with the requirements above and fail to rectify the noncompliance within the limited period set by provincial communications administration bureaus, the provincial communications administration bureaus may revoke their operating licenses. We have made inquiries with relevant authorities regarding the MIIT Notice. However, due to the lack of clear interpretation guidelines, it is uncertain whether the MIIT would consider our corporate structure and contractual arrangements as a kind of foreign investment in telecommunication services. It remains unclear what impact the MIIT Notice will have on us or other companies that have adopted the same or similar corporate and contractual structures as ours at this time.

The continued growth of the Chinese Internet market depends on the establishment of an adequate telecommunications infrastructure.

Although private sector Internet service providers currently exist in China, almost all access to the Internet is maintained through China Telecom and China Unicom under the administrative control and regulatory supervision of the MIIT. In addition, the national networks in China connect to the Internet through a government-controlled international gateway. This international gateway is the only channel through which a domestic user can connect to the international Internet network. We rely on this infrastructure and China Telecom and China Unicom to provide data communications capacity, primarily through local telecommunications lines. We cannot assure you that this infrastructure will be developed. We have no access to alternative networks or services, on a timely basis or if at all, in the event of disruptions, failures or other problems with China’s Internet infrastructure or telecommunications networks. The Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.

The PRC legal system has inherent uncertainties that could materially and adversely affect us.

The PRC legal system is based upon written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited value as precedents. Since 1979, the PRC legislative bodies have promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However, the PRC has not developed a fully integrated legal system and the array of new laws and regulations may not be sufficient to cover all aspects of economic activities in the PRC. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, published government policies and internal rules may have retroactive effects and, in some cases, the policies and rules are not published at all. As a result, we may be unaware of our violation of these policies and rules until some time later. Our contractual arrangements with our affiliated entities are governed by the laws of the PRC. The enforcement of these contracts and the interpretation of the laws governing these relationships is subject to uncertainty. See “— Risks Related to Our Corporate Structure — The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions.”

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign laws against us or our management.

We conduct substantially all of our operations in China and the majority of our assets are located in China. In addition, the majority of our directors and executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon these directors or executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our PRC counsel has advised us that the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi, which is currently not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend payments from our PRC subsidiaries and other payments such as royalty and licensing fees. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends, royalty payments or other fees to us, or otherwise satisfy their foreign currency dominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

The fluctuation of the Renminbi may materially and adversely affect your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In May 2007, the PRC government widened the daily trading band from 0.3% to 0.5%. These changes in policy resulted in an appreciation in the value of the Renminbi against the U.S. dollar of approximately 3.3% in 2006, 6.5% in 2007 and 6.5% in 2008, and we reported losses from foreign currency translation of RMB9.4 million in 2006, RMB18.1 million in 2007 and RMB17.7 million (US$2.6 million) in 2008. It is possible that the Chinese government could adopt a more flexible currency policy, which could result in further and more significant revaluations of the Renminbi against the U.S. dollar or any other foreign currency. As a portion of our assets are denominated in U.S. dollars, any future upward revaluations of the Renminbi will result in charges to our income statement and reductions in the value of these U.S. dollar denominated assets when translated into Renminbi.

In addition, as we rely entirely on dividends, royalty payments and other fees paid to us in Renminbi by our subsidiaries and affiliated entities in the PRC, any significant downward revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition, and the value of, and any dividends payable on, our ADSs in foreign currency terms. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced. For further information on our foreign exchange risks and certain exchange rates, see “Item 3. — Key Information — Selected Financial Data — Exchange Rate Information” and “Item 11. — Quantitative and Qualitative Disclosures about Market Risk — Foreign Exchange Risk.”

Recent PRC regulations relating to offshore investment activities by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden and adversely impact our business and prospects. If our shareholders who are PRC residents fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.

As part of our growth strategy, we may decide to expand, in part, by acquiring certain complementary or new businesses in the future, including companies incorporated in the PRC. The PRC State Administration of Foreign Exchange, or the SAFE, issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Round-trip Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies in October 2005, which became effective in November 2005, and an implementation rule in May 2007, or collectively the SAFE Rules. According to the SAFE Rules, PRC citizens and foreign citizens who reside in China, are required to register with the SAFE or its local branch office before establishing or controlling any company outside of China for the purpose of financing the offshore company with their ownership interests in the assets of or their interests in any Chinese enterprise. The offshore companies are referred to in the SAFE Rules as “offshore special purpose companies.” In addition, a PRC resident that is a shareholder of an offshore special purpose company is required to amend its SAFE registration with the local SAFE branch with respect to the offshore special purpose company in connection with the injection of equity interests or assets of a Chinese enterprise in the offshore company or overseas fund raising by the offshore company, or any other material change in the capital of the offshore company, including any increase or decrease of capital, transfer or swap of shares, merger, division, long-term equity or debt investment or creation of any security interest. The SAFE Rules apply retroactively. As a result, Chinese residents who have established or acquired control of offshore companies that have made onshore investments in China in the past are required to complete the relevant registration procedures with the applicable local SAFE authority. If any resident of China fails to register with the SAFE with respect to its ownership of an existing offshore entity, dividends remitted by the onshore entity to its overseas parent may be considered an evasion of foreign exchange purchase rules, and therefore, may be subject to penalties under relevant PRC foreign exchange laws and regulations. In addition, failure to comply with registration procedures may result in restrictions on the relevant onshore entity, including prohibitions on the payment of dividends and other distributions to its offshore parent or affiliate and on capital inflow from the offshore entity.

Current regulations are still uncertain and unclear. It is possible that the relevant government authorities may promulgate new legislation to interpret, amend or implement the SAFE Rules in various ways. As a result, we cannot assure you that we or the owners of any target PRC business we may acquire, as the case may be, will be able to complete the necessary approval, filings and registrations for a proposed acquisition. This may restrict our ability to implement our acquisition strategy and adversely affect our business and prospects.

On March 28, 2007, the SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas Listed Company, or the Stock Option Rule, to regulate foreign exchange procedures for PRC individuals participating in employee stock holding and stock option plans of overseas companies. Under the Stock Option Rule, a PRC domestic individual must comply with various foreign exchange procedures through a domestic agent institution when participating in any employee stock holding plan or stock option plan of an overseas listed company. Certain domestic agent institutions, such as the PRC subsidiaries of an overseas listed company, a labor union of such company that is a legal person or a qualified financial institution, among others things, shall file with the SAFE and be responsible for completing relevant foreign exchange procedures on behalf of PRC domestic individuals, such as applying to obtain the SAFE approval for exchanging foreign currency in connection with owning stock or stock option exercises. Concurrent with the filing of such applications with the SAFE, the PRC subsidiary, as a domestic agent must obtain approval from the SAFE to open a special foreign exchange account at a PRC domestic bank to hold the funds in connection with the stock purchase or option exercise, any returns based on stock sales, any stock dividends issued and any other income or expenditures approved by the SAFE. The PRC subsidiary also is required to obtain approval from the SAFE to open an overseas special foreign exchange account at an overseas trust bank to hold overseas funds used in connection with any stock purchase.

Under the Stock Option Rule, all proceeds obtained by PRC domestic individuals from sales of stock shall be fully remitted back to China after relevant overseas expenses are deducted. The foreign exchange proceeds from these sales can be converted into RMB or transferred to the individual’s foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange account opened at the PRC domestic bank. If the stock option is exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to the special foreign exchange account. If we or our PRC optionees fail to comply with these regulations in the future, we or our PRC optionees and their local employers may be subject to fines and legal sanctions.

Risks Related to Our ADSs

The market price for our ADSs may be volatile.

The market prices of the securities of companies with Internet related and online businesses have been extremely volatile and may be subject to wide fluctuations in response to factors including the following:

	•		actual or anticipated fluctuations in our quarterly operating results;
	•		changes or revisions by us to previously released operating and financial targets;
	•		announcements of new services by us or our competitors;
	•		changes in financial estimates or recommendations by securities analysts;
	•		conditions in our industry, which is the market for recruitment advertising services and other human resource related services in China;
	•		announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
	•		additions or departures of key personnel;
	•		release of transfer restrictions on our outstanding common shares or ADSs or sales of additional common shares or ADSs; and
	•		pending or potential litigation or regulatory investigations.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies, such as during the current global economic and financial market crisis. These market fluctuations may also materially and adversely affect the market price of our ADSs.

The future sales, or perceived future sales, by our existing shareholders of a substantial number of our ADSs in the public market or through private transactions could adversely affect the price of our ADSs.

If our shareholders sell, or are perceived as intending to sell, substantial amounts of our common shares or ADSs, including those issued upon the exercise of outstanding options, in the public market or through private transactions, the market price of our ADSs could fall. Such sales, or perceived potential sales, also might make it more difficult for us to sell equity or equity related securities in the future at a time and price that we deem appropriate. Common shares held by our existing shareholders and our affiliates may also be sold in the public market in the future under, and subject to the restrictions contained in, Rule 144 under the U.S. Securities Act of 1933, as amended, or the Securities Act. In addition, see “Item 6. — Directors, Senior Management and Employees — Compensation — Stock-Based Compensation Plans” for a description of outstanding options to purchase our common shares.

Your right to participate in any future rights offerings may be limited, which may cause dilution of your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary bank will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities is either registered under the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

You may not be able to exercise your right to vote.

As a holder of ADSs, you may only exercise the voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying common shares in accordance with these instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares. Under our fifth amended and restated memorandum and articles of association, the minimum notice period required for convening either an annual meeting or a general meeting called to vote on matters requiring the approval of two thirds of the voting shares is 20 days. The minimum notice period for other general meetings is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the shares underlying your ADSs are not voted as you requested.

You may not receive distributions on common shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary is not responsible if it decides that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, common shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, common shares, rights or anything else to holders of ADSs. This means that you may not receive the distribution we make on our common shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law.

We are a company incorporated under the laws of the Cayman Islands, and the majority of our assets are located outside the United States. In addition, a majority of our directors and executive officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or executive officers.

Our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law (2007 Revision), as amended and revised from time to time, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

The Cayman Islands courts are also unlikely:

	•		to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and
	•		to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We commenced our business in 1998. Since our inception, we have conducted substantially all of our operations in China. In March 2000, our founders incorporated a new holding company, now called 51job, Inc., as an exempted limited liability company in the Cayman Islands under the Cayman Islands Companies Law (2007 Revision). Subsequently, 51job, Inc. acquired 51net.com Inc., or 51net, a British Virgin Islands company, and other subsidiaries to become the holding company of our corporate group. We operate as a foreign investment enterprise in China through our wholly owned subsidiaries, 51net, which is the registered owner of some of our trademarks and our domain name, 51net Beijing and 51net HR, which are both Cayman Islands companies, as well as our PRC subsidiaries and affiliated Chinese entities, the primary ones being:

	•		Shanghai Qianjin Advertising Co., Ltd., or AdCo, and AdCo’s seven branch offices, seven majority owned subsidiaries and one jointly owned subsidiary with Tech JV, or, collectively, the AdCo Subsidiaries. AdCo and the AdCo Subsidiaries hold licenses and permits to conduct advertising businesses;
	•		Shanghai Run An Lian Information Consultancy Co., Ltd., or RAL, which holds human resource related services and Internet content provision licenses and is wholly owned by Run An;
	•		Qianjin Network Information Technology (Shanghai) Co., Ltd., or Tech JV, which is allowed to conduct online advertising and holds a human resource related services license;
	•		Qian Cheng Wu You Network Information Technology (Beijing) Co., Ltd., or WFOE, which is wholly owned by 51net Beijing and owns certain of our trademarks and registered copyrights;
	•		Beijing Qian Cheng Si Jin Advertising Co., Ltd., or Qian Cheng, which is our joint venture partner in Tech JV and is wholly owned by Run An;
	•		Beijing Run An Information Consultancy Co., Ltd., or Run An, which is jointly owned by David Weimin Jin and Tao Wang, two executive officers of our company;
	•		Shanghai Wang Cai Advertising Co., Ltd., or Wang Cai AdCo, which is an AdCo Subsidiary jointly owned by AdCo and TechJV and holds licenses to conduct advertising businesses;
	•		Shanghai Wang Ju Human Resource Consulting Co., Ltd., or Wang Ju, which is owned by 51net HR and Run An and holds a license to provide human resource related services; and
	•		Wuhan Mei Hao Qian Cheng Advertising Co., Ltd., or Wuhan AdCo, which holds a minority interest in Tech JV and our AdCo Subsidiary in the city of Wuhan that conducts advertising businesses.

Substantially all of our business and operations are conducted through Tech JV and its branches, AdCo and the AdCo Subsidiaries.

In May 2004, we restructured our operations to comply with then existing PRC laws and regulations governing foreign ownership in entities conducting advertising and human resource related services. For a discussion on our group structure, see “Item 4. — Information on the Company — Organizational Structure.”

Our relationships with Qian Cheng, RAL and Run An, our affiliated entities, have been governed by a series of agreements. As a result of these agreements, under which we have borne all of the economic risks and received all of the economic rewards in these affiliated entities, the historical financial results of these entities have been consolidated in our financial statements as variable interest entities. For a discussion on the contractual arrangements among our entities, see “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

We completed the initial public offering of 6,037,500 American depositary shares, each representing two of our common shares, par value US$0.0001 per share, on October 4, 2004. On September 29, 2004, the trading of our ADSs on the Nasdaq Global Select Market, or Nasdaq, under the symbol “JOBS,” commenced.

In August 2007, we entered into an agreement with Recruit to form a new company to provide coupon advertising services in China.

Our principal executive offices are located at Building 3, No. 1387, Zhang Dong Road, Shanghai 201203, People’s Republic of China. Our telephone number at this address is +(86-21) 6160-1888. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is National Registered Agents, Inc., located at 875 Avenue of the Americas, Suite 501, New York, New York 10001.

Our principal capital expenditures in 2006 totaled RMB155.0 million and consisted of installment payments to complete the purchase of an office complex in Zhangjiang, Shanghai, the purchase of the 21st Floor, Wen Xin Plaza in downtown Shanghai, and the purchases of computers, office equipment and software. In April 2006, we completed the purchase of an office complex at No. 1387, Zhang Dong Road in Zhangjiang, Shanghai, which serves as our principal executive offices, for an aggregate price of RMB113.7 million. Additionally, in July 2006, we completed the purchase of our former executive offices at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, which now serves as our downtown Shanghai sales office, for an aggregate price of RMB27.9 million. Our principal capital expenditures in 2007 consisted of purchases of computers, network equipment, software and other intellectual property rights for a total of approximately RMB32.5 million. Our principal capital expenditures in 2008 were RMB24.3 million (US$3.6 million) and included primarily the purchase of servers and IT equipment, computers and office furnishings.

Our capital expenditure plans for 2009 have not yet been fixed, but we intend to purchase computers, technology-related equipment and software. Capital expenditures in 2008 have been funded through operating cash flows and through our existing capital resources, and we expect to continue fund our capital expenditures through these means.

B. Business Overview

We believe that we are a leading nationwide provider of integrated human resource services in China, with a strong focus on recruitment advertising. We closely integrate print and online recruitment advertising services which enable us to attract a broad base of corporate advertisers and reach a wide and diverse audience of job seekers. In addition to recruitment advertising services, we also provide executive search and other complementary human resource related services to employers. We aim to be a “one-stop” solution to human resource departments by providing recruitment and other human resource related services to employers.

Although we provide services to both employers and job seekers, we derive substantially all of our revenues from employers. We receive a majority of our revenues in the form of fees from employers for placing job advertisements on 51job Weekly and www.51job.com. We also receive fees from employers for accessing our www.51job.com resumé database, using our eHire product and in connection with our eSearch and other human resource related services.

Our Product and Services

We provide a range of human resource services in the following categories:

	•		recruitment related services, including print advertising, online recruitment and executive search services; and
	•		other human resource related services, such as training and business process outsourcing.

We generate a significant majority of our revenues from our recruitment related services. Our print advertising business generated 55.8% of our revenues in 2006, 51.0% of our revenues in 2007 and 41.8% of our revenues in 2008. Our online recruitment services business generated 31.5% of our revenues in 2006, 33.5% of our revenues in 2007 and 36.3% of our revenues in 2008. Our executive search business generated 2.9% of our revenues in 2006, 1.9% of our revenues in 2007 and 1.6% of our revenues in 2008.

We offer a number of other value-added human resource services in areas such as training and business process outsourcing. Other human resource related services generated 9.8% of our revenues in 2006, 13.6% of our revenues in 2007 and 20.3% of our revenues in 2008.

Recruitment Related Services

Print Advertising — 51job Weekly. 51job Weekly is a city-specific recruitment advertising publication which is published once a week and is distributed as an insert in local newspapers and/or on a stand-alone basis. As of March 31, 2009, 51job Weekly was published in 22 major cities in China.

The 22 cities where 51job Weekly is published and our newspaper contractor in each city as of March 31, 2009 are as follows:

City		Newspaper contractor(1)		City		Newspaper contractor(1)
Beijing		China Trade News		Kunming		Chuncheng Evening News
Changsha		Human Resource News		Nanjing		Modern Express
Chengdu		Hua Xi Metropolitan News		Ningbo		Modern Golden News
Chongqing		Human Resource News		Qingdao		Qingdao Financial Times
Dalian(2)		Northern Times		Shanghai		China Trade News
Fuzhou		Straits Talent News		Shenyang		Friendly Times
Guangzhou		Guangzhou Youth Daily		Shenzhen		Nan Fang Metropolitan News
Hangzhou		News Information Daily		Tianjin(3)		Tianjin Education News
Harbin		Harbin Lifestyle Daily		Wuhan		News Information Daily
Hefei		Hefei Evening News		Xian		China Merchant News
Jinan		Jinan Times		Zhengzhou		Youth Herald

51job Weekly is not published in Changchun, Dongguan, Hong Kong or Suzhou although we have established sales offices in these cities.

A different version of 51job Weekly is published in each of our markets, with each version containing city-specific recruitment advertisements. We closely coordinate 51job Weekly with our www.51job.com online recruitment website and post substantially all of the recruitment advertisements appearing in 51job Weekly on www.51job.com as well. 51job Weekly contains recruitment advertisements for the full range of job categories that are available on our website, including sections for professional, middle management and technical personnel. Advertisements placed in 51job Weekly are primarily in Chinese language.

Employers use 51job Weekly both as a recruitment tool and as an advertising and publicity medium to promote their brand name and raise their corporate awareness among job seekers. 51job Weekly recruitment advertisements come in a variety of formats, from large, multi-color advertisements using graphics and corporate trademarks, which are often placed by international and large domestic companies, to simple text job announcements, which are typically posted by smaller, local businesses. 51job Weekly is divided into a number of separate sections, with certain sections targeted at higher income and more educated job seekers containing large, colorful advertisements on glossy, high quality paper. Other sections include simpler text-only advertisements targeted at middle and lower income job seekers. The circulation, page dimensions, type of paper used and number of sections appearing in local editions of 51job Weekly differ from city to city.

In China, entities engaged in publishing activities are required by the government to have a publishing license. Since we do not have any publishing licenses, we have established an exclusive relationship with a single local newspaper in each market where 51job Weekly is produced. We rely on these newspapers to provide us with printing and publishing services on a contractual basis, generally for a term of two years. These newspapers also generally provide us with distribution and marketing support in our local markets, although we sometimes undertake independent and/or additional marketing. 51job Weekly is distributed as an insert in our contractor’s newspaper in an effort to increase our circulation and help us establish our brand name. As an insert in these newspapers, 51job Weekly is sold at newsstands, kiosks, convenience stores, supermarkets and other venues. We provide point-of-sale vendors with marketing materials such as posters, display racks and other promotional items. We also circulate 51job Weekly independently through our direct marketing campaigns. Our direct marketing includes offering free copies of 51job Weekly at job fairs, in the lobbies of major office buildings, at post offices, on university campuses and in other public areas where the public circulation of newspapers is permitted. We have entered into marketing arrangements to offer free copies of 51job Weekly in subway stations in Nanjing and Shenzhen, and in light rail stations in Chongqing, Dalian, Tianjin and Wuhan.

We may change our newspaper contractor in a city when we are able to obtain more favorable terms or higher quality service from a different newspaper contractor. From inception, we have changed our newspaper contractor a total of eleven times. See “Item 3. — Key Information — Risk Factors — Risk Related to Our Business — We are dependent on local newspaper contractors in each of our geographic markets to publish and distribute 51job Weekly.”

The advertising fees that we charge depend on a variety of factors, including the size, placement, format, and use of color and graphics in the advertisement, the length of time the advertisement is to appear, and the city in which the advertisement is placed. Our growth strategy for our print advertising business is focused on increasing our customer base and generating greater volumes of print advertising pages. Our print advertising revenues are primarily affected by the number of print advertising pages and the fees that we charge. Pricing for specific products can vary significantly from city to city due to local competition, purchasing power and other conditions.

Our print advertising business is characterized by seasonal variations, particularly during the peak hiring periods around the Chinese New Year holidays and the beginning of May and October. As a result, our print advertising revenues may fluctuate significantly from quarter to quarter depending on customer demand and needs. Beginning in 2008, the Chinese government has instituted changes to the schedule of public holidays by eliminating the week-long holiday at the beginning of May and recognizing new observances, which may result in new seasonality patterns for our business. See “Item 3. — Key Information — Risk Factors — Risk Related to Our Business — Due to seasonal variations in demand for human resource services, we experience significant fluctuations in our revenue streams which affect our ability to predict our quarterly results and which may also cause quarterly results to vary from period to period.”

From our inception through 2005, increases in our estimated number of print advertising pages generally reflected our geographic expansion as well as further penetration of existing markets. Beginning in 2006, we have focused our efforts and resources on increasing penetration in existing cities. In 2008, we have experienced a decrease in the estimated number of print advertising pages as compared to 2007 due to a decrease in market demand resulting from the global economic and financial crisis and the slowdown in economic growth in China. The following table sets forth the estimated number of print advertising pages we generated for the periods indicated. 51job Weekly was published in 23 cities as of December 31, 2006, 2007 and 2008. We terminated the publication of 51job Weekly in Changchun in January 2009.

		For the year ended December 31,
		2006				2007				2008
Estimated number of print advertising pages			12,609				16,568				16,512

Online Recruitment Services — www.51job.com. We established our online recruitment website, www.51job.com, in 1999. Online recruitment advertisements appear in both Chinese and English on www.51job.com. These advertisements cover many different job categories ranging from professional and middle management positions to clerical, industrial and hourly jobs. Job seekers may search for positions using keywords or based on a number of criteria, including city of employment, industry, job function, job title and job posting date. We regularly maintain and update our www.51job.com with job search, training and general career management content.

We believe that www.51job.com is one of the largest dedicated national recruitment websites in China in terms of the number of recruitment advertisements. We also believe that www.51job.com is among the largest in terms of the number of registered job user accounts and posted job seeker resumés, with approximately 31.7 million user accounts established since the launch of our website in 1999 and more than 23.4 million resumés posted online as of March 31, 2009. We believe that www.51job.com is perceived as a “destination site” by job seekers because of its large volume of advertisements and the job search, training, and general career management and advisory content available on the website.

We believe that www.51job.com provides employers with a cost-effective means of reaching their target audience. As our website contains nationwide recruitment advertisements, employers can access a large pool of potential candidates from a wide geographic area. Certain employers post advertisements solely online when they consider the demographics of their target audience to favor the use of the Internet for recruitment advertising. As a result, www.51job.com includes a higher number of technology related positions than 51job Weekly as well as recruitment advertisements targeted at younger job seekers that are more likely to use the Internet. We generally update the advertisements on our website several times each hour, which allows employers to receive responses more rapidly than is generally possible using print advertisements. Employers also use our website as a marketing tool, placing advertising banners, trademarks, logos, website hyperlinks and other devices to promote their corporate image for a fee that varies depending on the size, graphics, placement and duration. We believe that certain employers view this image promotion as a significant means of attracting online job seekers to their recruitment advertisements on our website. As a result, we believe that our ability to offer these promotional formats is an important element in our ability to attract online recruitment advertising business, which generates a material portion of our revenues. However, in the event of any adverse change in the actual or perceived effectiveness of online image promotion, or online advertising in general, our online recruitment advertising business may be adversely affected. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — If the Internet, and online advertising in particular, does not achieve broad acceptance in China as a medium for recruitment, our online recruitment services business may be adversely affected.”

Employers can use our eHire web-based platform to search our job candidate database and download resumés for a fee. In addition, eHire contains other tools that enable employers to manage, organize and streamline the recruitment and hiring process. We also offer website design as an additional value-added service and marketing tool for corporate customers. We can build customized “private label” recruitment websites with the “look and feel” of a dedicated website. We design these sites in-house to client specifications and operate these sites for our clients. These client sites, together with our www.51job.com website, are hosted by China Telecom and China Unicom.

The following table sets forth the estimated number of unique employers who used our online recruitment services for the periods indicated.

		For the year ended December 31,
		2006				2007				2008
Estimated unique employers using online recruitment services			74,950				94,125				102,562

www.51job.com provides job seekers with online tools to search for job opportunities and allows them to:

	•		search and review all current recruitment advertisements;
	•		receive e-mails of advertisements matching the job seeker’s profile and preferences;
	•		submit resumés directly to prospective employers to apply for a desired position;
	•		organize and track job related information and applications; and
	•		obtain information about upcoming job fairs and career development and other job related information.

We provide job seekers access to www.51job.com free of charge.

We closely coordinate 51job Weekly with our www.51job.com online recruitment website, and we post a significant majority of the recruitment advertisements appearing in 51job Weekly on www.51job.com as well. We place a basic description of a 51job Weekly recruitment advertisement on our website as a complimentary service to our customers. This practice also allows us to introduce our online recruitment website to customers who have only purchased print recruitment advertising to increase potential cross-selling opportunities.

Executive Search — eSearch. To meet employers’ recruitment needs, we supplement our recruitment advertising service with our eSearch executive search services. We conduct searches principally for employers seeking to fill mid-level professional, managerial and junior executive positions. We generally charge corporate clients a total assignment fee of up to 30% of the candidate’s annual compensation, including in some cases a minimum upfront retainer. We maintain a team of specialized executive search consultants dedicated exclusively to providing this service, while working closely with our recruitment and other sales staff to cross-sell our products and develop client relationships. In addition, our search consultants can access our extensive online candidate resumé database which other search firms are restricted from using. Substantially all of our executive search assignments are engaged locally in China.

Other Human Resource Related Services

We conduct training seminars in business management, leadership, sales and marketing, human resource, negotiation skills, financial planning and analysis, public administration, manufacturing, secretarial and other skills. We provide our seminars to the general public and on a customized, in-house basis for corporate clients. We license content and materials from third parties for some of the training courses we provide. We also enter into arrangements with certain trainers and lecturers that meet our knowledge, expertise and experience requirements. In addition to classroom-style seminars, we provide outdoor-based training exercises and programs for corporate clients to promote personal development, team building and communication. We believe that our training services build our brand awareness as a leading provider of integrated human resource services.

We perform business process outsourcing services by managing human resource administrative functions for employers on an outsourced basis. We currently provide business process outsourcing services, including social insurance and welfare payment processing, tracking compliance with local governmental employment regulations and payroll processing, to a small number of corporate clients. We continue to build our outsourcing capability and aim to increase the number and type of services we provide.

We seek to develop business process outsourcing services as part of our strategy to become a “one-stop” solution to our clients. While the market for these services in China is currently limited compared to developed economies like the United States, we expect to further expand and develop these services as the market in China grows. We believe that there is significant future potential for these services as more companies in China become accustomed to using third parties to perform human resource administrative functions.

We provide campus recruitment services to corporations seeking to recruit college and university students. We assist corporations with recruitment strategy, selection of schools, schedule of campus visits, promotion of their image to students and logistical arrangements.

We organize and host annual human resource conferences and events in many of our cities. These conferences and events include lectures, seminars, workshops and networking opportunities for human resource professionals. Although we do not generate significant revenues from hosting these conferences and events, this service provides us with exposure to, and interaction with, existing and prospective clients.

We provide a monthly magazine called Future on a subscription or complimentary basis. Future contains articles, commentary, interviews and reports on general career management and development targeted principally at young working professionals. This magazine was formerly known as Human Capital and was re-designed and re-branded in December 2007.

We also provide general and customized salary survey studies with analyses of compensation and benefits packages across various cities, industries and job positions. Human resource departments utilize this data to understand the market for compensation levels and to assist in their determination of compensation and benefits packages for employees and candidates.

We have developed a proprietary assessment system to assist human resource departments in evaluating capabilities and dispositions of job candidates and existing employees, in aiding employee placement and in allocating employee resources.

Technology

We design and update our website and develop our proprietary software entirely in-house. Our website is hosted by China Telecom and China Unicom, China’s principal telecommunications and Internet service providers. We own the copyrights, software, trademarks and other intellectual property with respect to the design and content of our website, other than the advertisements and trademarks provided by our advertisers.

We employ a large staff of website designers and technicians to update and enhance our website as well as to design, build and provide assistance to customers whose recruitment websites we are maintaining. We update the advertisements on our website from our principal executive offices in Shanghai. New recruitment advertisements provided to us by employers who have purchased and registered online accounts generally appear on our website within a few hours. Complimentary online postings for advertisements in 51job Weekly generally appear on www.51job.com within one to two days.

From time to time we experience slower Internet service from our Internet service providers as a result of technical difficulties associated with high traffic volumes, computer viruses, the proliferation of “spam” e-mail traffic and other difficulties that generally affect Internet traffic. To date, we have not been subject to significant targeted disruptions or “hacking” and we believe that difficulties we have experienced relating to the speed of the Internet service and web-hosting provided by China Telecom and China Unicom are consistent with the difficulties that affect Internet service in China generally. To date, our website has not gone off-line or been shut down for any significant period of time. We do not believe that our business has been materially disrupted or negatively affected by technical difficulties with respect to our website. However, we cannot assure you that our business will not face material disruptions or damage from spam, viruses, hacking or other technical difficulties. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — Computer viruses and “hacking” may cause delays or interruptions on our systems and may reduce use of our services and damage our reputation and brand names;” “— We face risks related to health epidemics and other natural disasters;” and “— We are dependent on our Internet service providers, and we are vulnerable to failures of the Internet, fixed line telecommunications networks in China and our technology platform.”

Competition

We face significant competition in each of our markets with respect to each of our business lines. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — Because we face significant competition, including intense competition in several of our markets, we may lose market share and our results of operations may be materially and adversely affected.”

Print Advertising

51job Weekly is published in 22 cities across China as of March 31, 2009. We face competition within all of our markets. Our competitors typically consist of one or more large local newspapers that include a help-wanted section. Our competitors include Beijing Evening News, Guangzhou Daily, Shanghai Talent Market and Shenzhen Special Zone Daily.

Online Recruitment Services

We experience intense competition in our online recruitment services businesses from dedicated online recruitment websites and websites affiliated with local job fair operators. With the exception of Zhaopin.com which provides print advertising services in select cities in China, we are not aware of any other online competitor that also operates a significant print advertising business. We view our principal existing online competitors to be ChinaHR.com, Cjol.com and Zhaopin.com, which are primarily dedicated online recruitment websites.

None of the well established nationwide Internet portals, including NetEase.com, QQ.com, Sina.com, Sohu.com and Tom.com, are dedicated providers of recruitment advertising or other human resource products, and each offers a wide variety of other online services. However, any or all of our online or print competitors may decide to allocate significant additional resources to providing recruitment advertising or other human resource services. For example, ChinaHR.com, which is wholly owned by Monster Worldwide, and Zhaopin.com, which is majority owned by Australian online recruitment services provider SEEK Limited, have been purported in public reports to have significantly increased expenditures on sales and marketing activities in China in recent years. As a result of these events, we could encounter significantly increased competition in some or all of our markets.

Other Services

We believe that the competition for executive search and training is largely fragmented and localized. The main competitors in our market for executive search services in China include entities such as Bó-Lè Associates, Ltd., Horton International, Hudson Highland Group, which is a spin-off from Monster Worldwide, and Sterling, each of which provides executive search services on a nationwide basis. In the training services market, we face competition primarily from small, local training firms or individual trainers who specialize in specific areas of expertise. The market for business process outsourcing services is in an early stage of development and the competition is usually localized. Our competitors are typically service agencies affiliated with or sponsored by local government personnel bureaus.

Customers

Our customers consist of large multinational corporations, large national Chinese corporations and local Chinese enterprises of all sizes.

Sales and Marketing

Our sales and marketing strategy is focused on promoting our brand names and further establishing our reputation as an integrated provider of high quality human resource services. We utilize such channels as direct marketing, event marketing, mass media advertising, online marketing, cross-marketing and media promotions to target three key groups:

	•		job seekers;
	•		employers with hiring and/or training needs; and
	•		human resource departments with actual or potential outsourcing needs.

Direct Marketing. We target employers principally through direct marketing, which we believe has been highly effective in attracting new customers. As of December 31, 2008, we employed over 1,900 sales and account management representatives across our cities that identify and directly contact potential customers via telephone, personal sales visits, the Internet and the mail. We train our sales staff to cross-sell all of our services and to design comprehensive packages of human resource services for potential clients to meet their specific requirements. In addition, we believe that the personal nature of direct marketing has enabled us to better understand the current and evolving needs of our existing and prospective customers and helped us to develop new services and products.

Event Marketing. We organize customer events, such as recruiting workshops, product information seminars, industry roundtables and networking events, to provide our sales team an opportunity to personally interact with employers and understand their recruitment needs. To attract potential job seekers and build brand awareness, we offer complimentary copies of 51job Weekly at job fairs, at office buildings, in subway and light rail stations in select cities, and in other public and commercial areas. We believe that offering complimentary copies of 51job Weekly to job seekers is also a highly effective means to cross-promote our www.51job.com website.

Mass Media Advertising. We use traditional mass media advertising on a selective basis to increase our brand visibility and corporate image. We advertise though various media, including television, radio and outdoor advertising on digital displays, billboards, bus stops and buses. In addition, we advertise on print media such as newspapers, magazines, industry publications and telephone directories.

Online Marketing. We utilize Internet advertising, such as banner advertisements, keyword and hyperlink purchases and paid listings, to promote our brand names. We also conduct and sponsor online promotion campaigns such as drawings, giveaways and contests to attract traffic and enhance the loyalty of job seekers to our website.

Cross-Marketing. We cross-market our brand names, services and products in 51job Weekly, on www.51job.com and in Future. We also establish cross-marketing relationships with a variety of partners. In addition, we believe that we benefit from recommendations and referrals by the large base of job seekers and employers who use 51job Weekly and www.51job.com.

Media Promotions. We produce surveys and analyses on job market trends and developments that are regularly featured and published in magazines, newspapers and on the Internet. We believe this exposure heightens our corporate image among both employers and job seekers and attracts interest and sales inquiries for our services.

Intellectual Property and Proprietary Rights

We regard our copyrights, trademarks, trade secrets and other intellectual property rights as critical to our business. We rely on trademark and copyright law, trade secret protection, non-competition and confidentiality and/or licensing agreements with our executive officers, clients, contractors and others to protect our intellectual property rights. We have registered our www.51job.com Internet domain name as well as a number of similar domain names in an effort to prevent entities from diverting online traffic away from our website.

We have registered trademarks with the Trademark Office of the PRC State Administration for Industry and Commerce, including 51job.com, , eHire, and eSearch. In addition, our wholly owned British Virgin Islands subsidiary 51net has registered our trademarks , 51job.com and with the Patents Registry, Intellectual Property Department of the Hong Kong Special Administrative Region. 51net is also the registered owner of our trademarks and 51job.com with the Intellectual Property Bureau of the Taiwan Ministry of Economy.

All of our trademarks and the www.51job.com domain name are owned or registered in the PRC by 51net and WFOE. Under a trademark license agreement between 51net, as licensor, and RAL, as licensee, RAL has the right to use certain trademarks in the PRC, with no right of assignment or sublicense. Under a domain name license agreement between 51net, as licensor, and RAL, as licensee, RAL has the right to use the www.51job.com domain name in connection with the operation of our website. See “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

In July 2006, the PRC Ministry of Industry and Information Technology, or MIIT, issued the Notice on Strengthening the Administration of Foreign Investment in the Operation of Value Added Telecommunication Business, or the MIIT Notice. According to the MIIT Notice, value-added telecommunication services license holders (including their shareholders) shall directly own the domain names and registered trademarks used by such value-added telecommunication services license holders in their daily operations. The provincial communications administration bureaus in charge of telecommunications services are required to ensure that existing value-added telecommunication services license holders will conduct a self-assessment of their compliance with the MIIT Notice and to submit status reports to the MIIT before November 1, 2006. For those who are not in compliance with the above requirements and fail to rectify the noncompliance within the limited period set by the provincial communications administration bureaus, the bureaus may revoke their operating licenses. See “Item 3. — Key Information — Risk Factors — Risks Related to the People’s Republic of China — PRC laws and regulations governing operators of Internet websites are unclear and the regulation of the telecommunications and Internet industries may become more burdensome, and if we are found to be in violation of PRC laws and regulations, we could be subject to sanctions.”

Our intellectual property is subject to theft and other unauthorized use, and our ability to protect our intellectual property from unauthorized use is limited. In addition, we may in the future be subject to claims that we have infringed the intellectual property rights of others. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — If we are unable to prevent others from using our intellectual property, our business may be materially and adversely affected” and "— We may be exposed to infringement or misappropriation claims by third parties, which, if successful, could cause us to pay significant damage awards.”

Regulation

Advertising agencies, human resource services firms and Internet content providers are subject to substantial regulation by the Chinese government. An “Internet content provider” is a commercial operator providing the delivery of Internet content. This section sets forth a summary of the most significant PRC regulations that affect the businesses and the industries in which we operate.

In addition to laws and regulations that apply generally to advertising agencies, human resource firms and Internet content providers, special limitations apply to foreign ownership of businesses engaged in human resource and Internet content provider services in China.

Limitations on Foreign Ownership of Our Businesses

Advertising

The principal regulations governing foreign ownership of advertising companies in China include:

	•		Foreign Investment Industrial Guidance Catalogue (2004); and
	•		Regulations on Administration of Foreign Investment in Advertising Enterprises (2004).

Beginning on December 10, 2005, foreign investors, individually or in the aggregate, are permitted to own 100% of the equity interest in an advertising company in the PRC subject to certain qualification requirements. However, for those advertising companies who provide online advertising service, foreign ownership restrictions on the Internet content provision business are still applicable.

Human Resource Services Companies

The principal regulation governing foreign ownership in human resource services companies in China is the Interim Regulations on the Administration of Sino-foreign Equity Joint Venture as Human Resource Agencies (2003), as amended in 2005, jointly promulgated by the PRC Ministry of Personnel, the PRC Ministry of Commerce and the PRC State Administration for Industry and Commerce. Under this regulation, the percentage of foreign ownership in the equity interest of a human resource services company cannot be less than 25% or more than 49%. In August 2006, the PRC government increased the foreign ownership percentage to up to 70%.

Internet Content Providers

In the PRC, entities that coordinate with Internet service providers (such as telecommunications companies) to effect the online placement of content provided by either themselves or third parties are defined as “Internet content providers” and require a special license.

The principal regulations governing foreign ownership in Internet content providers in China include:

	•		Administrative Rules for Foreign Investments in Telecommunications Enterprises (2001); and
	•		Foreign Investment Industry Guidance Catalogue (2007).

Under these regulations, foreign investors, individually or in the aggregate, are prohibited from owning more than 50% of a PRC entity that provides value-added telecommunications services, which include the service of providing Internet content.

General Regulation of Our Businesses

Advertising

The PRC State Administration for Industry and Commerce is responsible for regulating advertising activities in the PRC. The principal regulations governing advertising (including online advertising) in China include:

	•		Advertising Law (1994);
	•		Administration of Advertising Regulations (1987);
	•		Implementation Rules on Administration of Advertising Regulations (2004); and
	•		Measures for the Administration of Advertising Business Licenses (2005).

All enterprises, except for broadcast stations, television stations, newspapers, magazines, non-corporate entities and other entities specified in laws or administrative regulations, are no longer required to obtain a separate advertising license although they are required to apply for inclusion of “advertising services” in their business licenses.

Human Resource

Human resource services firms in China are mainly regulated by the PRC Ministry of Personnel. The principal regulation applicable to human resource services firms is the Regulations on Administration of Human Resource Markets (2001, as amended in 2005), jointly promulgated by the PRC Ministry of Personnel and the PRC State Administration for Industry and Commerce. Under this regulation, any entity providing human resource services in China must obtain a human resource services license from the local Administration of Personnel at the provincial level. Each of these Administrations may adopt rules, with some degrees of variation among provinces, to regulate human resource services operations conducted within the province.

Internet Content Services and Online Commerce

The delivery of content on our website is subject to PRC laws and regulations applicable to telecommunications and Internet service providers. We are also within the regulatory jurisdiction of various governmental bodies, including the PRC Ministry of Industry and Information Technology and the PRC State Administration for Industry and Commerce. The principal regulations applicable to telecommunications and Internet service providers include:

	•		Telecommunications Regulations (2000);
	•		The Administrative Measures for Telecommunications Business Operating Licenses (2009); and
	•		The Internet Information Services Administrative Measures (2000).

Under these regulations, delivery of Internet content is classified as a value-added telecommunications service, and a commercial operator of such services must obtain an Internet content provider license from the appropriate telecommunications authorities.

There are no PRC laws that have national applicability to online commerce relating to advertising and human resource services. However, local authorities may impose requirements on online business activities conducted within its jurisdiction, such as registration or filing requirements.

Regulations Relating to Our Intellectual Property Rights

China has adopted comprehensive legislation governing intellectual property rights, including trademarks, patents and copyrights. China has adhered to the main international conventions on intellectual property rights and has become a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the WTO in December 2001.

The PRC amended its Copyright Law in 2001 to widen the scope of works that are eligible for copyright protection. The amended Copyright Law extends copyright protection to cover Internet activities and products disseminated over the Internet. Copyrighted software is protected under the Copyright Law and other regulations. In addition, there is a voluntary registration system administered by the China Copyright Protection Center.

Registered trademarks are protected under the Trademark Law adopted in 1982 and revised in 2001. Trademarks can be registered with the Trademark Office of the PRC State Administration for Industry and Commerce for renewable ten-year periods. Trademark license agreements are required to be filed with the Trademark Office of the PRC State Administration for Industry and Commerce for the record, and the failure to complete such filings may cause the trademark license agreements to be unenforceable against bona fide third parties.

Domain name disputes are governed by the Measures of China Internet Network Information Center for Resolving Disputes Regarding Domain Names promulgated by the Chinese Internet Network Infrastructure Center, or CNNIC, on February 14, 2006 and effective on March 17, 2006, under which CNNIC can authorize domain name dispute resolution institutions to decide disputes.

Regulations Relating to Internet Privacy

The Constitution of the PRC provides that PRC law protects the freedom and privacy of communications of citizens and that infringement of such rights is not permitted. While PRC laws do not prohibit Internet content providers from collecting personal information of their users, the relevant government authorities have enacted legislation on the use of the Internet that recognizes the protection of personal information from unauthorized disclosure. Under the Regulation on Internet Information Service, Internet information service providers are prohibited from producing, copying, publishing or distributing information that is humiliating or slanderous to others or that trespasses the lawful rights and interests of others. Depending on the nature of their violation, Internet content providers that violate this provision may face criminal charges or be sanctioned by security authorities. In addition, they may be ordered to temporarily suspend their service, or their licenses may be revoked., Under the Administration Regulation on the Internet BBS Service, Internet content providers that provide electronic messaging services must keep users’ personal information confidential and must not disclose such personal information to any third party without the consent of the users, unless the law requires such disclosure. The regulations further authorize the relevant telecommunications authorities to order Internet content providers to rectify an unauthorized disclosure. Internet content providers could be subject to legal liability if the unauthorized disclosure causes damages or losses to the users. To comply with these regulations, we provide subscribers to our website with a range of confidentiality options. They may choose to authorize us to disclose their personal information to third parties, or to instruct us to keep this information strictly confidential. Our systems are designed to maintain information received from these subscribers in accordance with their instructions.

However, the PRC government retains the power and authority to order Internet content providers to turn over personal information of Internet users if the users post any prohibited content or engage in illegal activities on the Internet.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in the PRC are the Foreign Exchange Administration Regulations, as amended in August 2008. Under these regulations, the Renminbi is freely convertible for payments of current account items, such as trade and service related foreign exchange transactions and dividend payments, but not for expenses of capital, such as direct investment, loan or investment in securities, outside the PRC unless the prior approval of the PRC State Administration for Foreign Exchange, or the SAFE, is obtained and prior registration with SAFE is made.

Under the Foreign Exchange Administration Regulations, foreign-invested enterprises in the PRC may purchase or remit foreign exchange without the approval of the SAFE for trade and service related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by the SAFE) to satisfy foreign exchange liabilities or to pay dividends. However, the relevant PRC government authorities, which have significant administrative discretion in implementing the laws, may restrict or eliminate the ability of foreign-invested enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions involving direct investment, loan and investment in securities outside the PRC are subject to limitations and require approvals from the SAFE.

Foreign Exchange Registration of Offshore Investment by PRC Residents

Pursuant to the SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or Circular No. 75, issued on October 21, 2005, (i) a PRC resident, including a PRC resident natural person or a PRC company, shall register with the local branch of the SAFE before it establishes or controls an overseas special purpose vehicle, or SPV, for the purpose of overseas equity financing (including convertible debt financing); (ii) when a PRC resident contributes the assets of or its equity interests in a domestic enterprise to an SPV, or engages in overseas financing after contributing assets or equity interests to an SPV, such PRC resident shall register his or her interest in the SPV and the change thereof with the local SAFE branch; and (iii) when the SPV undergoes a material event outside of China, such as a change in share capital, or merger or acquisition, the PRC resident shall, within 30 days of the occurrence of such event, register such change with the local SAFE branch. PRC residents who are shareholders of SPVs established before November 1, 2005 were required to register with the local SAFE branch before March 31, 2006.

Under Circular No. 75, failure to comply with the registration procedures set forth above may result in penalties, including restrictions on a PRC subsidiary’s foreign exchange activities in capital accounts and its ability to distribute dividends to the SPV.

On December 25, 2006, the People’s Bank of China promulgated the Measures for the Administration of Individual Foreign Exchange, and on January 5, 2007, the SAFE further promulgated the implementation rules on those measures. Both became effective on February 1, 2007. According to the implementation rules, if individuals in the PRC participate in any employee stock ownership plan or stock option plan of an overseas listed company, those individuals must apply as a group through the company or a domestic agency to the SAFE or the appropriate local branch for approval for any foreign exchange-related transactions concerning that plan.

On March 28, 2007, the SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company. Under this rule, PRC citizens who are granted stock options by an overseas publicly listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures.

Dividend Distribution

The principal regulations governing distribution of dividends paid by wholly foreign owned enterprises and Sino-foreign equity joint ventures include:

	•		Wholly Foreign Owned Enterprise Law (1986), as amended;
	•		Wholly Foreign Owned Enterprise Law Implementing Rules (1990), as amended;
	•		Sino-foreign Equity Joint Venture Enterprise Law (1979), as amended;
	•		Sino-foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as amended; and
	•		PRC Enterprise Income Tax Law and its Implementation Rules (2007).

Under these regulations, foreign-invested enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign-invested enterprises in the PRC are required to set aside certain amounts out of their accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends.

C. Organizational Structure

The following chart sets forth our current ownership structure.

Our subsidiary, 51net, directly holds 51% of the outstanding shares of Tech JV, Qian Cheng directly holds 1% of the outstanding shares of Tech JV, and our AdCo Subsidiary located in the city of Wuhan, Wuhan Mei Hao Qian Cheng Advertising Co., Ltd., or Wuhan AdCo, directly holds the remaining 48% of the outstanding shares of Tech JV. As a result of 51net’s indirect majority ownership of Wuhan AdCo and Qian Cheng’s direct minority ownership of Wuhan AdCo, 51net is deemed to effectively hold 69.7% of the equity interest in Tech JV and Qian Cheng is deemed to effectively hold 30.3% of the equity interest in Tech JV.

Qian Cheng and RAL are wholly owned by Run An. Run An is jointly owned by David Weimin Jin and Tao Wang, two executive officers of our company.

Our services are currently provided through the following group entities:

	•		online recruitment services are provided by Tech JV, which however does not act as an Internet content provider or a human resource related services provider;
	•		print advertising services are provided by AdCo and the AdCo Subsidiaries, which are all direct and indirect majority owned PRC subsidiaries of Tech JV;
	•		human resource related services are provided by RAL and Shanghai Wang Ju Human Resource Consulting Co., Ltd., or Wang Ju, which hold licenses to provide human resource related services; and
	•		Internet content provider services are provided by RAL, which holds a license to act as an Internet content provider and operates our www.51job.com website.

Tech JV and its branches, AdCo and the AdCo Subsidiaries recognize substantially all of our revenues and receive substantially all of the cash payments from our clients. Our relationships with Qian Cheng, RAL and Run An, our affiliated entities, have been governed by a series of agreements, under which we have borne all of the economic risks and received all of the economic rewards in these affiliated entities. As a result, the historical financial results of these entities have been consolidated in our financial statements as variable interest entities under Financial Accounting Standards Board, or FASB, Interpretation No. 46 (revised 2003), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.”

In the opinion of Jun He Law Offices, our PRC legal counsel:

	•		our current ownership structure is in compliance with existing PRC laws and regulations;
	•		the agreements among our subsidiaries, affiliated entities and their respective shareholders are valid and binding, and are enforceable under, and will not result in any violation of, existing PRC laws or regulations, with exception to the effectiveness of the pledges under the equity pledge agreements, which are subject to registration with the relevant administrations of industry and commerce, and the trademark license agreement, which may not be enforceable against bona fide third parties until registration with the relevant trademark administration authorities; and
	•		except as otherwise disclosed herein, our current business operations as described in this annual report are not in violation of existing PRC laws, rules and regulations in all material aspects.

There are, however, substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that PRC regulatory authorities will not take a view contrary to the opinion of our PRC legal counsel. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Corporate Structure — The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions” and “— Risks Related to the People’s Republic of China — The PRC legal system has inherent uncertainties that could materially and adversely affect us.”

We have been advised by our PRC counsel that the foreign ownership percentage of Tech JV, AdCo and the AdCo Subsidiaries prior to our restructuring in May 2004 was above the maximum foreign ownership permitted for entities conducting advertising and human resource operations at that time. For a description of the risks associated with our past ownership structure, please see “Item 3. — Key Information — Risk Factors — Risks Related to Our Corporate Structure — If the PRC authorities determine that our past ownership structure was inconsistent with the requirements for operating certain of our businesses, we could be subject to sanctions.”

We intend to continue to evaluate from time to time the PRC regulatory environment with respect to the foreign ownership of, and foreign participation in, human resource related services and Internet content provider services, and plan to continue to streamline our ownership structure and operations as and when permitted by PRC laws and regulations.

Description of the Material Group Entities

51net

51net is an intermediate-level holding company that is the registered owner of some of our trademarks and our domain name and holds direct and indirect equity interests in several of our PRC subsidiaries. Our wholly owned subsidiary 51net is an international business company incorporated in the British Virgin Islands. Specifically, 51net owns the trademarks 51job.com and under certain categories specified by relevant PRC trademark regulations, and the domain name www.51job.com. All of these trademarks have been registered with the Trademark Office of the PRC State Administration for Industry and Commerce and are protected under the PRC Trademark Law adopted in 1982 and revised in 2001. For a description of PRC regulations relating to intellectual property rights, see “Item 4. — Information on the Company — Business Overview — Regulation — Regulations Relating to Our Intellectual Property Rights.”

Tech JV

We provide online recruitment services through Tech JV. Tech JV was initially established as an equity joint venture between 51net and Qian Cheng. Before our restructuring in May 2004, 51net held 99% of the equity interest in Tech JV and Qian Cheng held the remaining 1%. As part of our restructuring, 51net transferred 48% of its equity interest in Tech JV to Wuhan AdCo. Since 51net indirectly holds a majority equity interest in Wuhan AdCo, and Qian Cheng directly and indirectly holds a minority interest in Wuhan AdCo, 51net holds 69.7% of the effective equity interest and Qian Cheng holds 30.3% of the effective equity interest in Tech JV. Because 51net is a British Virgin Islands company, Tech JV is deemed a foreign-invested enterprise and its business activities are subject to the PRC regulatory limitations on foreign ownership as discussed in “Item 4. — Information on the Company — Business Overview — Regulation — Limitations on Foreign Ownership of Our Businesses.” Tech JV has obtained a permit to conduct online advertising from the PRC State Administration for Industry and Commerce. The scope of its business license also includes software development, multimedia and network system design and information technology.

Qian Cheng

Qian Cheng is our joint venture partner in Tech JV and holds a 30.3% effective equity interest in Tech JV. Qian Cheng is an affiliated entity in which we hold no equity interest. Qian Cheng is wholly owned by Run An, which is jointly owned by David Weimin Jin and Tao Wang. Qian Cheng holds a license issued by the Beijing Municipal Administration for Industry and Commerce to provide advertising services, including designing, producing and publishing advertisements for Chinese and multinational companies in China and contracting for advertising projects.

RAL

We provide human resource related and Internet content provider services through RAL. RAL operates our www.51job.com website. RAL is a PRC limited liability company and is an affiliated entity in which we hold no equity interest. RAL is wholly owned by Run An, which is jointly owned by David Weimin Jin and Tao Wang. RAL holds a permit issued by the Shanghai Bureau of Personnel, which allows it to provide certain human resource related services. RAL has also obtained a permit from the Shanghai Municipal Telecommunications Bureau, which allows it to provide Internet content provider services applicable to our businesses.

AdCo and the AdCo Subsidiaries

We provide print advertising services through Shanghai Qianjin Advertising Co., Ltd., or AdCo, and AdCo’s seven branch offices, AdCo’s seven majority owned subsidiaries and Wang Cai AdCo, a jointly owned subsidiary with Tech JV, or collectively, the AdCo Subsidiaries, located in different cities and provinces in China. AdCo is a PRC equity joint venture company. Tech JV and Qian Cheng own 80% and 20%, respectively, of the equity interest in AdCo. AdCo and the AdCo Subsidiaries have obtained permits from the local Administrations for Industry and Commerce in the cities where they operate, which allow them to conduct advertising business, including the designing and production of advertisements and the contracting of domestic advertising projects.

WFOE

We provide advertising related technical and consulting services to Qian Cheng and software and web related technical and consulting services to RAL through WFOE, our wholly owned PRC subsidiary. WFOE is registered in the PRC with the relevant regulatory authorities as a wholly foreign owned enterprise. WFOE owns certain of our trademarks and registered copyrights and its principal business is network and software related technical support services.

Wang Ju

We provide human resource related services through Wang Ju. 51net HR and Run An own 70% and 30%, respectively, of the equity interest in Wang Ju. Because 51net HR is a Cayman Islands company, Wang Ju is deemed a foreign-invested enterprise and its business activities are subject to the PRC regulatory limitations on foreign ownership as discussed in “Item 4. — Information on the Company — Business Overview — Regulation — Limitations on Foreign Ownership of Our Businesses.” Wang Ju holds a permit issued by the Shanghai Bureau of Personnel, which allows it to provide certain human resource related services.

D. Property, Plants and Equipment

Our executive offices as well as our principal customer service, marketing, web operations and development facilities are currently located at No. 1387, Zhang Dong Road, Shanghai 201203, People’s Republic of China. We maintain a large sales office in downtown Shanghai at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, Shanghai 200041, People’s Republic of China. We also lease space for our network of sales offices in Beijing, Changchun, Changsha, Chengdu, Chongqing, Dalian, Dongguan, Fuzhou, Guangzhou, Hangzhou, Harbin, Hefei, Jinan, Kunming, Nanjing, Ningbo, Qingdao, Shanghai, Shenyang, Shenzhen, Suzhou, Tianjin, Wuhan, Xian, Zhengzhou and Hong Kong. As of the date of this annual report, we have leases for office space totaling approximately 20,780 square meters. We believe that we will be able to obtain adequate facilities, principally through the leasing of appropriate properties, to accommodate our expansion plans in the near future.

In April 2006, we completed the purchase of an office complex totaling approximately 12,600 square meters at No. 1387, Zhang Dong Road in Shanghai. The aggregate purchase price for these premises was RMB113.7 million and was funded through operating cash flows and existing capital resources. We completed the move of our national technology and online service center as well as our principal executive offices to this office complex in September 2006.

In July 2006, we completed the purchase of our former executive offices of approximately 1,615 square meters at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, for an aggregate consideration of RMB27.9 million. This location serves as our downtown Shanghai sales office. We funded this purchase through operating cash flows and through our existing capital resources.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. — Key Information — Risk Factors” or in other parts of this annual report.

A. Operating Results

Overview

We believe that we are a leading nationwide provider of integrated human resource services in China. We offer recruitment related services which include print and online recruitment advertising services as well as executive search services. We also provide other complementary human resource related services, consisting primarily of training and business process outsourcing services. We aim to be a “one-stop” solution to human resource departments by providing recruitment and other human resource related services to employers.

We generate a significant majority of our revenues from our recruitment related services. For the year ended December 31, 2008, our print advertising, online recruitment services and executive search businesses generated 41.8%, 36.3% and 1.6% of our revenues, respectively. Other human resource related services generated 20.3% of our revenues in 2008.

Factors Affecting Our Results of Operations

The major factors affecting our results of operations and financial condition include:

	•		Growth of the Chinese Economy and Demand for Human Resource Services in China. China’s rapid economic growth over the past decade has served as an important catalyst for the development of the human resource services industry. In addition, China’s entry into the World Trade Organization and the proliferation of new enterprises has led to increased market liberalization and competition. As a result, companies in China are increasingly recognizing the need for improved human resource recruitment processes and management, which has driven the demand for human resource services.
			We expect that our financial results will continue to be affected by the overall growth of the Chinese economy and market demand for human resource services, in particular recruitment services. However, the Chinese economy experienced a GDP growth rate of 9% in 2008, down from 12% in 2007 and 11% in 2006. This slower economic growth in China has been exacerbated by the current global economic and financial market crisis, and GDP growth moderated to 6.8% and 6.1% in the fourth quarter of 2008 and the first quarter of 2009, respectively. As a result of the slowdown in economic activity, we believe that employer demand for recruitment services in China has been reduced, which has led to a lower rate of overall revenue growth and a material decline in sales of our print advertising services in 2008 as compared to 2007. If the slowdown in China continues or worsens, we may experience a further reduction in demand and sales.
	•		Changes in the Composition of the Chinese Labor Market. As the Chinese economy grows, we believe that China is developing a large skilled and educated labor force. This growing skilled and educated work force is a key segment targeted by employers who use our human resource services as they seek to attract and retain talent to build a competitive advantage. In addition, China’s large labor force is increasingly migrating toward urban centers due to continuing economic development and employer demand. As a result, major metropolitan areas have become the foundation for the growing human resource services industry in China. For this reason, we have established sales offices in 26 major cities across China and Hong Kong. We believe these changes in the composition of the Chinese labor market toward a larger, better skilled and urbanized work force will increase the number of job seekers and employers who utilize our human resource services.
	•		Seasonality in the Human Resource Services Market. The human resource services industry is characterized by seasonal fluctuations. Accordingly, these fluctuations, particularly during the seasonal peak hiring periods around the Chinese New Year holidays and the beginning of May and October, may cause our results to vary from quarter to quarter. During seasonal peak periods, demand for recruitment advertising and other human resource related services may or may not rise significantly depending on the needs of employers as well as their perceptions of the job market. The Chinese government also instituted changes to the schedule of public holidays in 2008 which may result in new seasonality patterns for our business. In addition, the dates of the Chinese New Year holidays and new observances are based on the lunar calendar, which varies from year to year and affects our quarter results and the comparability of financial results to corresponding periods in prior years. In addition, we have experienced a trend of lower fourth quarter revenues as compared to revenues from the immediately preceding third quarter in recent years.
	•		Increasing Acceptance of New Recruitment Channels and Human Resource Services. Many employers in China have traditionally relied on job fairs and/or referrals to recruit employees. While we have experienced growth in our print advertising and online recruitment services businesses, the use of advertising services to recruit employees has a limited history in China. In addition, we believe that the concept and use of business process outsourcing services is relatively new in China. Therefore, our ability to successfully increase employer acceptance and adoption of our services materially affects our results of operations.
	•		Growing Use of the Internet as a Platform for Providing Human Resource Services. Our results of operations from our online recruitment services in particular will depend substantially upon an increase in Internet penetration and usage. According to the China Internet Network Information Center, the number of Internet users in China has increased from approximately 79 million in 2003 to 298 million in 2008, ranking China as the largest market of Internet users in the world. We believe that continued development of the China’s technology infrastructure, more affordable and diversified means of Internet access, and expanding personal computer ownership will connect an increasingly larger group of job seekers and employers across a wider geographical area as well as facilitate the use of a web-based platform for the delivery of human resource services.

Revenues

In 2008, our total revenues were RMB860.4 million (US$126.1 million), an increase of 1.9% from RMB844.3 million in 2007. The substantial majority of our revenues come from employers who purchase our print advertising and online recruitment services. We have historically achieved revenue growth in our recruitment advertising businesses principally by increasing sales in existing cities as well as our expansion into new cities. Since January 2006, we have not established operations in a new city and have focused our resources and efforts on increasing customer penetration in existing cities.

The following table sets forth the revenues from our principal lines of business as a percentage of our total revenues for the periods indicated.

		For the year ended December 31,
		2006				2007				2008
Revenues:
Print advertising			55.8	%			51.0	%			41.8	%
Online recruitment services			31.5				33.5				36.3
Executive search			2.9				1.9				1.6
Other human resource related revenues			9.8				13.6				20.3
Total revenues			100.0	%			100.0	%			100.0	%

The following table sets forth our revenue growth rates by business line for the periods indicated.

		2006				2007				2008
		compared to				compared to				compared to
		2005				2006				2007
Print advertising			9.3	%			10.5	%			(16.6	%)
Online recruitment services			37.8				28.6				10.4
Executive search			(24.2	)			(19.3	)			(13.1	)
Other human resource related revenues			28.2				67.5				52.4
Total revenues			17.2	%			21.0	%			1.9	%

Recruitment Related Revenues

We receive recruitment related revenues from the fees that employers pay us for our 51job Weekly print advertising services and our www.51job.com online recruitment services as well as our eSearch executive search services.

Print Advertising Revenues. We generate our print advertising revenues from fees that we charge employers for placing recruitment and related advertisements in local editions of 51job Weekly across our markets in China. We do not receive revenues from the sale of 51job Weekly. The print advertising contracts we enter into with employers are for single or multiple advertisements in one or more markets. In addition, these contracts as well as the time between the signing of a contract and the publishing of an advertisement in 51job Weekly are generally short-term in nature.

Our print advertising revenues are primarily affected by the number of print advertising pages and the fees that we charge. The increase in the number of employers who have used our print advertising services and the number of advertising pages printed has been mainly attributable to growth in our smaller, lower priced markets in recent years. In addition, due to our focus on customer penetration, we expect that the future growth for our print advertising business will be largely driven by increases in the number of employers and our print advertising pages rather than increases in average revenue per page.

The advertising rates that we charge vary and depend on a number of factors including the size, placement, format and use of color and graphics in the advertisement, the length of time the advertisement is to appear and the market in which the advertisement is placed. Our print advertising rates vary considerably between individual markets due to differences in local competition, purchasing power and other conditions. Historically, the print advertising businesses in our individual markets have not been subject to significant or prolonged price competition. While the prices we charge for print advertising in each city have been generally stable, we have from time to time undertaken special promotions or sales campaigns in certain markets which impact our overall average revenue per page. In addition, differences in the relative growth rates and employer acceptance of print advertising service in the local markets affect our overall average revenue per page. Although the prices we charge in our individual markets may remain generally unchanged, we expect that faster growth in our smaller, lower priced markets will reduce our overall average revenue per page.

The growth experienced by our print advertising business has varied in recent years and we saw a decline in print advertising revenues from 2007 to 2008. We believe our print advertising revenues has been affected by a number of factors including, but not limited to, economic growth and policies in China, changes in market demand for print advertising services, the size and allocation of employer budgets for print advertising services, and the use of other recruitment channels, such as the Internet. These factors, many of which are outside of our control, may continue to impact the growth and development of our print advertising business and may result in significant growth rate fluctuations on a quarterly or annual basis. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — We rely on our print advertising business to provide a large portion of our revenues and any adverse development in this business could materially and adversely affect our overall results of operations.”

We calculate the number of our print advertising pages by physically counting the number of paid advertising pages in each of our editions of 51job Weekly. In calculating the number of paid advertising pages, we make adjustments to take into account differing page sizes and pages with mixed advertising and non-advertising content. This is a manual process that is subject to error, including errors in judgment as to the appropriate adjustments to be made. We cannot assure you that our methodology, page counting, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of the actual revenues we generate per page.

As our customers usually place orders for print advertisements on a week-to-week basis, our print advertising business is subject to weekly fluctuations. We do not recognize advertising revenue until an advertisement has been printed in 51job Weekly. As a result, delays or cancellations by advertisers hamper our ability to predict print advertising revenues for future periods and makes it difficult for us to accurately forecast revenues with any degree of certainty. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — Our print advertising business is subject to weekly fluctuations which hamper our ability to predict when revenue will ultimately be recognized, if at all.”

We generally require that all advertising fees be paid in advance of posting an advertisement, although we may offer credit terms to select clients on a case-by-case basis.

Online Recruitment Services Revenues. We generate our online recruitment services revenues from fees we charge employers for placing recruitment and related advertisements on our www.51job.com website and for access to eHire through which our resumé download services and recruitment management tools are available. In addition, we generate online revenues for website design and hosting services that we provide to corporations that wish to maintain their own dedicated recruitment website within www.51job.com. We do not charge job seekers for using www.51job.com.

We believe that the increase of our online recruitment services revenues has been characterized by a combination of greater acceptance of the Internet as a recruitment medium in China and our effectiveness in increasing the number of employers using our online recruitment services. In addition, we believe that, by offering online advertising in connection with our print advertising service, we are able to generate higher total revenue per customer, thereby attracting new customers seeking the broader coverage offered by the integration of these two channels and the ability to reach a wider audience of job seekers.

We expect the future growth of our online recruitment services revenues will be largely driven by greater numbers of unique employers using these services rather than increases in average revenue per unique employer. The prices we charge for online recruitment services have been generally unchanged in recent years. Our overall average revenue per unique employer has been generally stable due to two offsetting trends. Because new customers tend to use basic, lower priced online recruitment services, significant increases in the number of these customers generally result in higher aggregate online recruitment services revenues but lower average revenue per unique employer. In addition, we may choose to offer introductory packages at reduced prices or provide complimentary trials from time to time, which will also lead to a reduction in average revenue per unique employer. However, our ability to retain customers and migrate them over time to higher priced products has offset these factors that reduce our average revenue per unique employer. As more customers become increasingly familiar with our online platform and we build customer loyalty, we may be able sell them a package of multiple online recruitment services or extend the length of their membership period, both of which increase our average revenue per unique employer. Our ability to retain customers and migrate them to higher priced products or multiple purchases may be adversely affected by, among other things, economic growth and policies in China, market demand for online recruitment services, difficulties we may encounter in developing or launching higher priced services and price competition in the online recruitment services market in China.

We define a unique employer as a customer that purchases our online recruitment services during a specified period. We make adjustments for multiple purchases by the same customer within a city to avoid double counting. Each employer is assigned a unique identification number in our management information system. Affiliates and branches of a given employer may, under certain circumstances, be counted as separate unique employers. Our calculation of the number of unique employers is subject to misidentification and other forms of error, including errors in judgment as to appropriate adjustments to be made to the data. We cannot assure you that our methodology, employer identification, calculations and analyses are accurate, or that they yield results that are comparable between periods or give a correct approximation of actual numbers of customers.

As with 51job Weekly, we generally require that all advertising fees be paid in advance of posting an advertisement on our website, although we may offer credit terms to select clients on a case-by-case basis.

Executive Search Revenues. We generate our eSearch executive search revenues from fees and commissions paid by employers. We generally charge a total assignment fee of up to 30% of the candidate’s annual compensation, including in some cases a minimum upfront retainer. We offer executive search services as a part of our “one-stop” solution strategy to provide employers with a comprehensive suite of human resource services. We do not expect that this business will contribute significantly to our revenues in the foreseeable future and our ability to expand this business is affected by competition, our ability to retain our experienced consultants and the adoption of executive search by employers in China as an effective recruitment tool. As a result, we expect that revenues from our executive search service may continue to decline and also decrease as a percentage of our overall revenues.

Other Human Resource Related Revenues

We generate revenues from our other human resource related services principally from fees paid for attending our training seminars and for contracting our business processing outsourcing services as well as, to a lesser extent, for participating in our industry conferences, using our campus recruitment services, utilizing our assessment services and purchasing our salary survey studies. We expect to continue to expand our training and outsourcing businesses and aim to develop additional human resource related services and products for our corporate clients. We believe that these services are an important component of our “one-stop” human resource solution strategy and enhance our reputation and image as an industry innovator. In addition, we believe our business process outsourcing business may experience less seasonal and cyclical variations in revenues than our recruitment advertising businesses over time.

Growth of our other human resource related services will be dependent on our ability to successfully develop, introduce and increase adoption of these types of products and services as well as a relaxation of government regulations in China. We believe the increase in our other human resource related revenues has been primarily driven by growing customer acceptance of these products and services, particularly our training and business process outsourcing services, as well as our sales and marketing efforts. In 2008, we achieved high growth in our other human resource related revenues, which provided 20.3% of our total revenues. We expect that as we continue to expand the scale and scope of these services and meet growing market demand, revenues generated from these services may increase as a percentage of our overall revenues in the future.

Net Revenues and Business Taxes

Our net revenues reflect a PRC business tax of 5% and other related surcharges which are levied on our revenues, after certain deductions, generated from services we provide in China. Due to certain local government financial incentives, a portion of these business taxes that we had previously paid was refunded in 2006, 2007 and 2008 and included as other income in our statement of operations. We cannot assure you if or when we will receive such financial incentives in the future.

Costs

We operate and manage our various businesses as a single segment. In addition, we share operating costs and management resources amongst these businesses. As a result, we do not account for our results of operations on a geographical or other basis, and we are unable to allocate costs among our various businesses.

The following table sets forth our cost of services and total operating expenses as a percentage of our net revenues for the periods indicated.

		For the year ended December 31,
		2006				2007				2008
Cost of services			(44.6	%)			(43.7	%)			(46.3	%)
Total operating expenses			(38.0	%)			(38.7	%)			(41.8	%)

Our cost of services as a percentage of our net revenues is affected by our ability to achieve economies of scale and operating efficiencies, particularly in our print advertising and online recruitment services businesses. We believe that as we grow our operations and infrastructure, we can attract new employers and increase cross-selling opportunities with existing customers across our various markets, thereby allowing us to achieve economies of scale as we may be able to realize a higher level of revenues relative to our direct costs. In addition, the expansion of our online recruitment services business requires limited additional fixed costs. Our cost of services as a percentage of net revenues decreased from 2006 to 2007, which we believe was due to our ability to achieve greater economies of scale and improved operating efficiencies. However, in 2008, a decrease in market demand resulting from the global economic and financial market crisis as well as the slowdown in economic growth in China, combined with higher wage levels, staff additions and greater costs related to the expansion of our service network for business process outsourcing, has led to an increase in cost of services as a percentage of our net revenues as compared to 2007.

Although we expect to increase spending on sales and marketing activities and product development in order to strengthen our brand and enhance our service offerings, we aim to decrease our cost of services and total operating expenses as a percentage of our net revenues in the longer term through greater economies of scale and improved operating efficiencies. However, our ability to achieve economies of scale and operating efficiencies is subject to significant uncertainties. As a result, we cannot assure you that we will be able to decrease these costs as a percentage of our net revenues.

Cost of Services

Our cost of services primarily consists of printing related expenses and employee compensation. Printing related costs, which principally include printing, publishing and distribution expenses that we pay to our newspaper contractors, represent a large portion of our cost of services. Our printing related costs are characterized by both fixed and variable components. In addition, these costs have tended not to increase or decrease proportionately to increases or decreases in our print advertising revenues. We aim to lower our printing related costs as a percentage of print advertising revenues and we continuously seek opportunities to secure more favorable terms with local newspaper contractors, which may result in changes in our newspaper contractors. In addition, we have been able to leverage our existing infrastructure to grow our online recruitment services revenues, allowing us to incur limited additional costs relative to the higher revenues we have generated. The majority of our employee compensation and other costs of services are largely shared across our various business lines.

Operating Expenses

Our operating expenses include sales and marketing expenses and general and administrative expenses.

The following table sets forth our operating expenses as a percentage of our net revenues for the periods indicated.

		For the year ended December 31,
		2006				2007				2008
Operating expenses:
Sales and marketing			(20.7	%)			(22.7	%)			(26.4	%)
General and administrative			(17.3	)			(16.0	)			(15.4	)
Total operating expenses			(38.0	%)			(38.7	%)			(41.8	%)

Our sales and marketing expenses primarily consist of salaries, commissions and share-based compensation for our sales and marketing staff, advertising and promotion expenses, and expenses for our management and staff related to our daily operations in local markets. The level of sales and marketing expenditures varies in each city annually and is impacted by a number of factors, including competition and our strategic objectives in each market. In addition, the sales and marketing strategies we employ in each city varies depending on our determination of the most effective means to promote our brand and services. Our sales and marketing expenses have increased in recent years due primarily to expansion of our sales force and greater marketing and promotional activities. We expect to invest further resources to strengthen our market position and brand. We also receive marketing support for 51job Weekly from many of our newspaper contractors. However, since we record all costs associated with our relationships with our newspaper contractors under cost of services, our sales and marketing expenses do not reflect costs incurred in connection with this marketing support.

Our general and administrative expenses primarily consist of employee salaries, bonuses and share-based compensation, building depreciation, office rent and property management fees, administrative office expenses and professional services fees. Our general and administrative expenses as a percentage of our net revenues declined from 2006 to 2008 due primarily to improved operating efficiencies, although the decrease was largely offset in 2006 by higher share-based compensation expenses under the adoption of a new accounting policy and in 2007 by the impact of a loss provision relating to a third party contractor. As we expand our business and improve our operating and management efficiencies, we aim to lower our general and administrative expenses as a percentage of net revenues in the longer term, but due to significant uncertainties, we cannot assure you of our ability to do so.

Income Taxation

We file separate income tax returns because we, our subsidiaries and our affiliated entities are incorporated in different jurisdictions.

Under the current laws of the Cayman Islands, we are not subject to income or capital gain taxes. In addition, upon payments of dividends by us to our shareholders, no Cayman Islands withholding tax will be imposed.

Under the current laws of the British Virgin Islands, we are exempt from income tax on foreign derived income. In addition, there are no withholding taxes in the British Virgin Islands.

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law named “Enterprise Income Tax Law of the PRC,” or the EIT Law, which applies a uniform 25% EIT rate to both foreign-invested enterprises and domestic enterprises effective January 1, 2008. For enterprises that were established before the EIT Law was promulgated and were entitled to preferential tax rates under former tax laws and regulations, the EIT Law has granted a grace period of up to five years for these enterprises to gradually transition from their preferential tax rates to the standard rate of 25%. Prior to the promulgation of the EIT Law, we obtained preferential tax treatment from local tax authorities for our entities, Wang Jin Information Technology (Shanghai) Co., Ltd., Wang Ju, and Tech JV and Wang Cai’s branches in Shanghai’s Pudong area and for Tech JV and Wang Cai AdCo’s branches in Shenzhen. As a result, these entities were subject to an EIT rate of 18% in 2008, which is to be gradually increased to 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012.

The amount of income tax payable by our PRC subsidiaries in the future will depend on various factors, including, among other things, the results of operations and taxable income of, and the statutory tax rate applicable to, each of the subsidiaries, and our effective tax rate depends in part on the extent of each of our subsidiaries’ relative contribution to our consolidated taxable income. As our overseas entities recognize share-based compensation expense and losses from foreign currency translation which are not deductible for PRC tax purposes, our effective tax rate has at times exceeded the statutory rate.

Under the EIT Law, dividends payable by a foreign investment enterprise to its foreign investors from profits earned after January 1, 2008 are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are incorporated, does not have such a tax treaty with China. In addition, under the EIT Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to an EIT rate of 25% on their worldwide income. Under the implementation regulations issued by the State Council relating to the EIT Law, “de facto management bodies” is defined as the bodies that have material and overall management control over the business, personnel, accounts and properties of an enterprise. We are a Cayman Islands holding company and substantially all of our operational management is currently based in China. The detailed implementation regulations are still in the process of promulgation, and to our knowledge, there is a lack of clear guidance regarding the criteria pursuant to which the PRC tax authorities will determine the tax residency of a company under the EIT Law. As such, we cannot guarantee that we will not be considered an enterprise established outside China with “de facto management bodies” located in China and thus a “resident enterprise” subject to the uniform 25% EIT rate as to our global income. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Business — We may be deemed a PRC “resident enterprise” under the EIT Law, which could subject us to PRC taxation on our global income, and which may have a material adverse effect on our results of operations.”

Some of our PRC subsidiaries and affiliated entities have accumulated tax loss carryforwards that have not previously been recognized as deferred tax assets because there was significant uncertainty as to whether we would be able to realize the benefit from those loss carryforwards. To the extent permitted by PRC tax rules, we may undertake further reorganizations or transactions among our subsidiaries and affiliated entities or with third parties to utilize some or all of these tax loss carryforwards before they expire, or qualify for additional tax benefits.

Critical Accounting Policies

We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements, and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application assists management in making their business decisions.

We operate and manage our various businesses as a single segment. In addition, since our revenues are primarily generated from customers in the PRC, we do not account for our results of operations on a geographical or other basis. Since many of our management and staff provide services with respect to many or all of our businesses, and since our infrastructure and operations are designed to facilitate all of our businesses as an integrated unit, we are unable to allocate costs among our various businesses or present our financial results in terms of multiple business segments.

Income Taxes

We adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109,” or FIN 48, effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in our financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes,” and prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The cumulative effects of applying FIN 48 is recorded as an adjustment to retained earnings as of the beginning of the period of adoption. We did not incur a cumulative effect adjustment upon adoption of FIN 48. We have elected to classify interest and penalties related to an uncertain tax position, if any and when required, as general and administrative expenses. As of December 31, 2008, we did not have any tax provisions related to uncertain tax positions or interest and penalties associated with such uncertain tax positions.

We provide a valuation allowance on our deferred tax assets to the extent we consider it to be more likely than not that we will be unable to realize all or part of such assets. Our future realization of our deferred tax assets is dependent on many factors, including our ability to generate taxable income within the period during which temporary differences reverse or before our tax loss carryforwards expire, the outlook for the Chinese economy and overall outlook for our industry. We consider these factors at each balance sheet date and determine whether valuation allowances are necessary.

We had deferred tax assets, net of valuation allowance, of RMB4.9 million, RMB6.1 million and RMB2.7 million (US$0.4 million) as of December 31, 2006, 2007 and 2008, respectively.

As of December 31, 2006, 2007 and 2008, we recognized aggregate valuation allowances of RMB7.8 million, RMB6.5 million and RMB2.1 million (US$0.3 million), respectively. As a result of our current expectations as to our ability to generate taxable income, we currently do not expect to provide significant further valuation allowances with respect to our net deferred tax assets. In the event that unexpected developments prevent us from realizing some or all of our deferred tax assets, we will be required to take a charge against our net income for the period in which such events occur.

Share-Based Compensation

Beginning on January 1, 2006, we have accounted for share-based compensation arrangements under SFAS No. 123R (revised 2004), “Share-Based Payment,” or SFAS No. 123R, which requires companies to expense the value of employee stock options and similar awards. Under SFAS No. 123R, share-based compensation is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis, net of estimated forfeitures, over the vesting period. We have selected the modified prospective method as the transitional method, under which the expenses related to unvested but still outstanding options as calculated under the original SFAS No. 123, “Accounting for Stock-Based Compensation,” be charged to expense without any change in previously calculated measurement. We recognized share-based compensation expense of RMB28.5 million in 2006, RMB29.7 million in 2007 and RMB27.4 million (US$4.0 million) in 2008 in connection with the grant of options to our employees, executives and directors.

Under SFAS No. 123R, we applied the Black-Scholes valuation model in determining the fair value of options granted, which requires the input of highly subjective assumptions, including the expected life of the stock option, stock price volatility and the pre-vesting option forfeiture rate. Our assumption for expected life takes into account vesting and contractual terms, employee demographics and historical exercise behavior, which we believe are useful reference points. We estimate expected volatility at the date of grant based on historical volatilities of the market price of our ADSs. The assumptions used in calculating the fair value of stock options represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock options that are granted, exercised and forfeited. If our actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be significantly different from what we have recorded in the current period.

See note 2(m) to our consolidated financial statements included elsewhere in this annual report for further discussion of stock-based compensation under SFAS No. 123R. The guidance provided in SFAS No. 123R and Staff Accounting Bulletin No. 107, or SAB No. 107, may be subject to further interpretation and refinement over time. The adoption of SFAS No. 123R increased our share-based compensation expense in our consolidated statement of operations beginning in 2006 and we expect the implementation of SFAS No. 123R may continue to adversely affect our earnings in the future.

Basis for Consolidation and Our Relationships with Our Affiliated Variable Interest Entities

We consolidate 100% of the interests of all of our subsidiaries and affiliated variable interest entities.

We have entered into contractual arrangements with Qian Cheng, RAL and Run An under which we bear all of their economic risk and received all of their economic rewards. In our consolidated financial statements, we have consolidated all of the interests of Qian Cheng, RAL and Run An under FASB Interpretation No. 46 (revised 2003), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” or FIN 46R. Qian Cheng and RAL are wholly owned by Run An. Run An is jointly owed by David Weimin Jin and Tao Wang, PRC nationals and executive officers of our company.

FIN 46R requires a “variable interest entity” to be consolidated by the primary beneficiary of such entity. An entity is considered to be a variable interest entity if certain conditions are present, including where the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Under various agreements with Qian Cheng, RAL and Run An, we are considered the primary beneficiary of Qian Cheng, RAL and Run An, and all of their interests have been consolidated in our financial statements. In addition, as a result of our consolidation of Qian Cheng, its minority interests in Tech JV and its subsidiaries have been consolidated in our financial statements. All significant transactions and balances between us, our subsidiaries, Qian Cheng, RAL and Run An have been eliminated upon consolidation.

In the opinion of Jun He Law Offices, our PRC legal counsel, except as otherwise disclosed in this annual report, these contractual arrangements and our current business operations are not in violation of existing PRC laws, rules and regulations in all material aspects. There are, however, substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including but not limited to the laws and regulations governing our business or the enforcement and performance of our contractual arrangements in the event of the imposition of statutory liens, death, bankruptcy and criminal proceedings. Accordingly, we cannot assure you that PRC regulatory authorities will not take a view contrary to the opinion of our PRC legal counsel. See “Item 3. — Key Information — Risk Factors — Risks Related to Our Corporate Structure —The PRC laws and regulations governing our current business operations and contractual arrangements are uncertain, and if we are found to be in violation, we could be subject to sanctions” and “— Risks Related to the People’s Republic of China — The PRC legal system has inherent uncertainties that could materially and adversely affect us.”

For additional information with respect to our contractual arrangements with Qian Cheng, RAL and Run An, see “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

Allowances for Doubtful Accounts

We provide general and specific provisions for bad debts when facts and circumstances indicate that the receivable is unlikely to be collected. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Long-Lived Assets

Our accounting for long-lived assets, including property and equipment and intangible assets, is described in note 2(g) and 2(h) to our consolidated financial statements included elsewhere in this annual report. The recorded value of long-lived assets is affected by a number of management estimates, including estimated useful lives, residual values and impairment charges.

We assess impairment for long-lived assets whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” We assess the recoverability of an asset group based on the undiscounted future cash flows the asset group is expected to generate and recognize an impairment loss when the estimated undiscounted future cash flows expected to result from the use of the asset group plus net proceeds expected from the disposition of the asset group, if any, are less than the carrying value of the asset group. If we identify an impairment, we reduce the carrying amount of the asset group to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. In 2006, we recorded a RMB48,966 impairment charge associated with office equipment, which we disposed in 2007. We did not record any impairment charges for the years ended December 31, 2007 and 2008. If different judgments or estimates had been utilized, material differences could have resulted in the amount and timing of the impairment charge and the related depreciation and amortization charges.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141R, which replaces SFAS No. 141. SFAS No. 141R establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R becomes effective for us on January 1, 2009. We do not believe the adoption of SFAS No. 141R will have a material impact on our financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51,” or SFAS No. 160, which clarifies the presentation of a noncontrolling interest in consolidated financial statements, establishes a single method of accounting for changes in a parent’s ownership interest and expands disclosure requirements. SFAS No. 160 becomes effective for us on January 1, 2009. We do not believe the adoption of SFAS No. 160 will have a material impact on our financial statements.

In February 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,” and FSP No. 157-2, “Effective Date of FASB Statement No. 157,” which collectively remove certain leasing transactions from the scope of SFAS No. 157 and partially delay the effective date of SFAS No. 157 for one year for certain non-financial assets and liabilities. In October 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. We do not believe the adoption of these FSPs will have a material impact on our financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” or SFAS No. 161. SFAS No. 161 applies to all derivative instruments and related hedged items accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or SFAS No. 133. SFAS No. 161 requires entities to provide greater transparency about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We do not believe the adoption of SFAS No. 161 will have a material impact on our financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets,” or FSP FAS 142-3. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets,” or SFAS No. 142. The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other applicable accounting literature. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008. We do not believe the adoption of FSP FAS 142-3 will have a material impact on our financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles,” or SFAS No. 162, which became effective on November 15, 2008. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States (the GAAP hierarchy). We do not believe the adoption of SFAS No. 162 will have a material impact on our financial statements.

In June 2008, the Emerging Issues Task Force, or EITF, of FASB issued EITF Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,” or EITF 07-5. EITF 07-5 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS No. 133. EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. EITF 07-5 does not permit early adoption for an existing instrument. We do not believe the adoption of EITF 07-5 will have a material impact on our financial statements.

In June 2008, the FASB issued FSP EITF Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” or FSP EITF 03-6-1. FSP EITF 03-6-1 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends or dividend equivalents before vesting should be considered participating securities. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 on a retrospective basis. We have not granted any share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents before vesting since incorporation. We are currently evaluating the potential impact, if any, of the adoption of FSP EITF 03-6-1 on our financial statements.

In November 2008, the EITF issued EITF Issue No. 08-6, “Equity Method Investment Accounting Considerations,” or EITF 08-6. Because of the significant changes to the guidance on subsidiary acquisitions and subsidiary equity transactions and the increased use of fair value measurements as a result of SFAS No. 141R and SFAS No. 160, questions have arisen regarding the application of that accounting guidance to equity method investments. EITF 08-6 provides guidance for entities that acquire or hold investments accounted for under the equity method. This issue is effective for transactions occurring in fiscal years and interim periods beginning on or after December 15, 2008. We do not believe the adoption of EITF 08-6 will have a material impact on our financial statements.

In November 2008, the FASB ratified the consensus reached by the EITF in EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets,” or EITF 08-7. EITF 08-7 requires entities that will acquire a defensive intangible asset after the effective date of SFAS No. 141R, to account for the acquired intangible asset as a separate unit of accounting and amortize the acquired intangible asset over the period during which the asset would diminish in value. EITF 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008. We do not believe the adoption of EITF 08-7 will have a material impact on our financial statements.

In April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” or FSP FAS 157-4. FSP FAS 157-4 relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what SFAS No. 157 states is the objective of fair value measurement — to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. This guidance is effective for interim and annual periods ending after June 15, 2009, but entities may early adopt this guidance for the interim and annual periods ending after March 15, 2009. We are currently evaluating the impact of adopting FSP FAS 157-4 on our financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” or FSP FAS 115-2 and FAS 124-2. FSP FAS 115-2 and FAS 124-2 on other-than-temporary impairments is intended to bring greater consistency to the timing of impairment recognition, and provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. The measure of impairment in comprehensive income remains fair value. The FSP also requires increased and more timely disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses. This guidance is effective for interim and annual periods ending after June 15, 2009, but entities may early adopt this guidance for the interim and annual periods ending after March 15, 2009. We are currently evaluating the impact of adopting FSP FAS 115-2 and FAS 124-2 on our financial statements.

Results of Operations

The following table sets forth a summary of our audited consolidated statements of operations for the periods indicated both in Renminbi and as a percentage of net revenues:

		For the year ended December 31,
		2006								2007								2008
(in thousands, except percentages)		RMB				%				RMB				%				RMB				%
Revenues:
Print advertising			389,535				59.0				430,621				53.9				359,234				44.0
Online recruitment services			219,794				33.3				282,688				35.4				312,121				38.3
Executive search			19,938				3.0				16,086				2.0				13,979				1.7
Other human resource related revenues			68,586				10.4				114,871				14.3				175,083				21.5
Total revenues			697,853				105.8				844,266				105.6				860,417				105.5
Less: Business and related tax			(38,010	)			(5.8	)			(44,982	)			(5.6	)			(44,939	)			(5.5	)
Net revenues			659,843				100.0				799,284				100.0				815,478				100.0
Cost of services(1)			(294,068	)			(44.6	)			(349,022	)			(43.7	)			(377,487	)			(46.3	)
Gross profit			365,775				55.4				450,262				56.3				437,991				53.7
Operating expenses(1):
Sales and marketing			(136,770	)			(20.7	)			(181,230	)			(22.7	)			(215,228	)			(26.4	)
General and administrative			(114,322	)			(17.3	)			(128,347	)			(16.0	)			(125,981	)			(15.4	)
Total operating expenses			(251,092	)			(38.0	)			(309,577	)			(38.7	)			(341,209	)			(41.8	)
Income from operations			114,683				17.4				140,685				17.6				96,782				11.9
Loss from foreign currency translation			(9,440	)			(1.4	)			(18,134	)			(2.3	)			(17,732	)			(2.2	)
Interest and investment income			20,744				3.1				24,635				3.1				26,400				3.2
Other income			1,914				0.3				1,793				0.2				2,327				0.3
Income before income tax provision			127,901				19.4				148,979				18.6				107,777				13.2
Income tax expense			(28,560	)			(4.3	)			(45,402	)			(5.7	)			(31,176	)			(3.8	)
Net income			99,341				15.1				103,577				12.9				76,601				9.4
(1) Share-based compensation expense:
Included in cost of services			(4,621	)			(0.7	)			(4,931	)			(0.6	)			(4,564	)			(0.6	)
Included in operating expenses:
Sales and marketing			(3,972	)			(0.6	)			(4,241	)			(0.5	)			(3,923	)			(0.5	)
General and administrative			(19,926	)			(3.0	)			(20,479	)			(2.6	)			(18,947	)			(2.3	)

2008 Compared to 2007

Total Revenues. Our total revenues increased 1.9% to RMB860.4 million (US$126.1 million) in 2008 from RMB844.3 million in 2007. This increase was primarily driven by growth in revenues from our other human resource related and online recruitment services, which was mostly offset by declines in revenues from our print advertising and executive search businesses. We derived our total revenues from:

•

Print Advertising. Our print advertising revenues decreased 16.6% to RMB359.2 million (US$52.7 million) in 2008 from RMB430.6 million in 2007. This decrease was primarily due to lower overall average revenue per page and less advertising page volume in 2008, which was impacted by a decrease in market demand that became increasingly pronounced in the second half of 2008 due primarily to the recent global economic and financial market crisis and a slowdown in the Chinese economy. Print advertising prices charged in each city were relatively unchanged compared to 2007 levels, but overall average revenue per page decreased 16.3% as lower priced cities comprised a larger portion of print advertising volume. We estimate that the number of print advertising pages decreased 0.3% to 16,512 in 2008 from 16,568 in 2007.

•

Online Recruitment Services. Our online recruitment services revenues increased 10.4% to RMB312.1 million (US$45.7 million) in 2008 from RMB282.7 million in 2007. This increase was primarily the result of growth in the number of unique employers using online recruitment services and higher average revenue per unique employer, but customer growth slowed in the latter part of 2008 due to weaker economic conditions in China. We estimate that the number of unique employers using online services increased 9.0% to 102,562 in 2008 from 94,125 in 2007. Although the prices we charge were generally unchanged from 2007 to 2008, our average revenue per unique employer in 2008 increased 1.3% as employers who purchased multiple or higher priced services more than offset customers who purchased lower priced or introductory products.

•

Executive Search. Our executive search revenues decreased 13.1% to RMB14.0 million (US$2.0 million) in 2008 from RMB16.1 million in 2007 due to fewer candidate assignments and placements.

•

Other Human Resource Related Revenues. Our revenues from other human resource related services increased 52.4% to RMB175.1 million (US$25.7 million) in 2008 from RMB114.9 million in 2007. This increase was primarily driven by growth in market demand and adoption of our business process outsourcing services. We believe this growth is also partly attributable to the implementation of a new labor contract law in China in 2008, which strengthened enforcement of worker rights and instituted greater penalties on employers for non-compliance resulting in greater acceptance of outsourced human resource administrative services provided by professional third party providers like ourselves.

Net Revenues. Our net revenues increased 2.0% to RMB815.5 million (US$119.5 million) in 2008 from RMB799.3 million in 2007. Our net revenues reflected our total revenues less the amounts paid as business taxes of RMB44.9 million (US$6.6 million) in 2008 and RMB45.0 million in 2007.

Cost of Services. Our cost of services increased 8.2% to RMB377.5 million (US$55.3 million) in 2008 from RMB349.0 million in 2007. This increase was primarily attributable to higher wage levels compared to the prior year, staff additions and greater costs related to the expansion of our service network for business process outsourcing services, which was partially offset by lower printing related expenses. Our cost of services in 2008 also included share-based compensation expense of approximately RMB4.6 million (US$0.7 million) compared with RMB4.9 million in 2007. Our cost of services increased as a percentage of net revenues in 2008 as compared to 2007 due primarily to an increase in costs that outpaced revenue growth slowed by weak global economic conditions and a reduction in market demand for our recruitment related services.

Gross Profit. As a result of the above factors, our gross profit decreased 2.7% to RMB438.0 million (US$64.2 million) in 2008 from RMB450.3 million in 2007. Our gross profit margin, which is equal to our gross profit divided by our net revenues, was 53.7% in 2008 compared with 56.3% in 2007.

Operating Expenses. Our total operating expenses increased 10.2% to RMB341.2 million (US$50.0 million) in 2008 from RMB309.6 million in 2007. The increase in our operating expenses was primarily due to an increase in sales and marketing expenses, which was partially offset by a decrease in general and administrative expenses. Our operating expenses consisted of:

•

Sales and Marketing Expenses. Our sales and marketing expenses increased 18.8% to RMB215.2 million (US$31.5 million) in 2008 from RMB181.2 million in 2007. This increase was primarily due to increased labor costs from staff additions and higher wage levels compared to the prior year as well as greater advertising and promotion expenses. Our advertising and promotion expenses in 2008 grew 32.0% to RMB45.0 million (US$6.6 million) from RMB34.1 million in 2007 as we increased spending on brand advertising activities and conducted a greater number of promotional events. Our sales and marketing expenses in 2008 also included share-based compensation expense of RMB3.9 million (US$0.6 million) compared with RMB4.2 million in 2007.

•

General and Administrative Expenses. Our general and administrative expenses decreased 1.8% to RMB126.0 million (US$18.5 million) in 2008 from RMB128.3 million in 2007. This decrease was primarily due to a loss provision of RMB9.7 million recorded in 2007 relating to the non-compliance to contract terms by a third party which provided services to us in connection with our human resource outsourcing operations in Beijing. Partially offsetting the impact of this loss provision were increases in labor costs resulting from staff additions and higher wage levels in 2008 as compared to 2007 as well as higher rental, property management and office expenses. Our general and administrative expenses in 2008 included share-based compensation expense of RMB18.9 million (US$2.8 million) compared with RMB20.5 million in 2007.

Loss from Foreign Currency Translation. We recognized a loss from foreign currency translation of RMB17.7 million (US$2.6 million) in 2008 compared with RMB18.1 million in 2007 as a result of the appreciation of the Renminbi against the U.S. dollar. For more information about China’s foreign exchange policy, see “Item 10. — Additional Information — Exchange Controls.”

Interest and Investment Income. Our interest and investment income increased 7.2% to RMB26.4 million (US$3.9 million) in 2008 from RMB24.6 million in 2007 due to higher average balances in our interest bearing bank deposits which was partially offset by lower interest rates.

Income Tax Expense. We recorded an income tax expense of RMB31.2 million (US$4.6 million) in 2008 compared with RMB45.4 million in 2007. Our effective tax rate was 28.9% in 2008 compared with 30.5% in 2007. Effective January 1, 2008, we were subject to a new PRC tax law. For more information about taxation in China, see “— Income Taxation.”

Net Income. As a result of the above factors, our net income decreased 26.0% to RMB76.6 million (US$11.2 million) in 2008 from RMB103.6 million in 2007.

2007 Compared to 2006

Total Revenues. Our total revenues increased 21.0% to RMB844.3 million in 2007 from RMB697.9 million in 2006. This increase was primarily driven by growth in revenues from our online recruitment services, other human resource related services and print advertising. We derived our total revenues from:

•

Print Advertising. Our print advertising revenues increased 10.5% to RMB430.6 million in 2007 from RMB389.5 million in 2006. This increase was primarily due to a higher number of recruitment advertisements placed in our editions of 51job Weekly as we increased customer penetration in our existing markets. We estimate that the number of print advertising pages increased 31.4% to 16,568 in 2007 from 12,609 in 2006. The increase in revenues from greater advertisement volumes was partially offset by a 15.9% decrease in our overall average revenue per page due to higher growth rates in lower priced markets. We did not materially change the prices we charge for print advertising in each local market in 2007.

•

Online Recruitment Services. Our online recruitment services revenues increased 28.6% to RMB282.7 million in 2007 from RMB219.8 million in 2006. This increase was mainly attributable to growth in the number of unique employers placing recruitment and related advertisements on www.51job.com as well as greater use of our eHire web-based online resumé and recruitment management platform. We estimate that the number of unique employers increased 25.6% to 94,125 in 2007 from 74,950 in 2006. The prices we charge for our online recruitment services were generally unchanged in 2007. However, our average revenue per unique employer in 2007 increased 2.4% over 2006 as a result of the greater number of customers purchasing multiple online recruitment services and the migration of customers to higher priced products, both factors which increase our average revenue per unique employer, more than offset the increase in new online customers, who generally purchase basic, lower priced recruitment advertisements and decrease our average revenue per unique employer.

•

Executive Search. Our executive search revenues decreased 19.3% to RMB16.1 million in 2007 from RMB19.9 million in 2006, primarily as a result of fewer candidate assignments.

•

Other Human Resource Related Revenues. Our revenues from other human resource related services increased 67.5% to RMB114.9 million in 2007 from RMB68.6 million in 2006. This increase was primarily attributable to an increase in training revenues as we conducted a greater number of seminars and added new course content as well as an increase in business process outsourcing revenues from the growing number of corporate customers and their employees we served.

Net Revenues. Our net revenues increased 21.1% to RMB799.3 million in 2007 from RMB659.8 million in 2006. Our net revenues reflected our total revenues less the amounts paid as business taxes of RMB45.0 million in 2007 and RMB38.0 million in 2006.

Cost of Services. Our cost of services increased 18.7% to RMB349.0 million in 2007 from RMB294.1 million in 2006. This increase was principally due to higher printing related expenses associated with greater page volumes of 51job Weekly as well as higher employee compensation expense from staff additions and a rise in wage levels. Our cost of services in 2007 also included share-based compensation expense of approximately RMB4.9 million compared with RMB4.6 million in 2006. Our cost of services decreased as a percentage of net revenues in 2007 due to greater economies of scale and improved operating efficiencies in our businesses.

Gross Profit. As a result of the above factors, our gross profit increased 23.1% to RMB450.3 million in 2007 from RMB365.8 million in 2006. Our gross profit margin was 56.3% in 2007 compared with 55.4% in 2006.

Operating Expenses. Our total operating expenses increased 23.3% to RMB309.6 million in 2007 from RMB251.1 million in 2006. The increase in our operating expenses was primarily due to an increase in sales and marketing expenses as well as a loss provision included in general and administrative expenses. Our operating expenses consisted of:

•

Sales and Marketing Expenses. Our sales and marketing expenses increased 32.5% to RMB181.2 million in 2007 from RMB136.8 million in 2006. This increase was due to the expansion of our sales and marketing staff, higher employee salaries and commissions, and greater spending on advertising and promotional activities. Our advertising and promotion expenses in 2007 increased 79.6% to RMB34.1 million from RMB19.0 million in 2006 due to a greater number of customer events and activities as well as increased spending on brand advertising campaigns. Our sales and marketing expenses in 2007 also included share-based compensation expense of RMB4.2 million compared with RMB4.0 million in 2006.

•

General and Administrative Expenses. Our general and administrative expenses increased 12.3% to RMB128.3 million in 2007 from RMB114.3 million in 2006. This increase was primarily due to a loss provision of RMB9.7 million recorded in the fourth quarter of 2007 relating to the non-compliance to contract terms by a third party which provided services to us in connection with our human resource outsourcing operations in Beijing. We have terminated our relationship with the third party contractor and have been involved in an ongoing investigation of this contractor with the assistance of local authorities. Due to the contractor’s non-compliance, we have assessed that we face probable liability and have estimated a loss of RMB9.7 million related to this matter. We are exploring all legal options available to recover funds from the third party contractor. However, the outcome of the investigation and our ability to recover funds is unclear.

In addition to the loss provision, our general and administrative expenses increased in 2007 due to higher employee compensation and depreciation and amortization expenses which were partially offset by lower office rent and professional services fees. Our general and administrative expenses in 2007 included share-based compensation expense of RMB20.5 million compared with RMB19.9 million in 2006.

Loss from Foreign Currency Translation. We recognized a loss from foreign currency translation of RMB18.1 million in 2007 compared with RMB9.4 million in 2006 as a result of the appreciation of the Renminbi against the U.S. dollar.

Interest and Investment Income. Our interest and investment income increased 18.8% to RMB24.6 million in 2007 from RMB20.7 million in 2006 due to higher average balances in our interest bearing bank deposits.

Income Tax Expense. We recorded an income tax expense of RMB45.4 million in 2007 compared with RMB28.6 million in 2006. Our effective tax rate increased to 30.5% in 2007 from 22.3% in 2006 due to the expiration of certain tax exemptions for some of our entities in China in 2007.

Net Income. As a result of the above factors, our net income increased 4.3% to RMB103.6 million in 2007 from RMB99.3 million in 2006.

Inflation

According to the National Bureau of Statistics of China, the change of consumer price index in China was 1.5%, 4.8% and 5.9% in 2006, 2007 and 2008, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. For example, certain operating costs and expenses, such as employee compensation and office operating expenses, may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and short-term investments, high inflation could significantly reduce the value and purchasing power of these assets. We are unable to hedge our exposures to higher inflation in China.

Unaudited Quarterly Results of Operations

We have presented our unaudited quarterly results of operations for the four fiscal quarters of 2008. You should read the following table in conjunction with the consolidated financial statements and related notes contained elsewhere in this annual report. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. This information reflects all adjustments, consisting only of normal recurring adjustments, which are in the opinion of our management necessary for fair presentation of our results of operations for the quarters presented. Because the recruitment advertising and human resource industries in China are relatively new and rapidly evolving, and because our business also has a limited operating history, operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.

The following table presents our unaudited quarterly results of operations for 2008:

		For the three months ended,
		March 31,				June 30,				September 30,				December 31,
		2008				2008				2008				2008
(in thousands)			RMB				RMB				RMB				RMB
Revenues:
Print advertising			122,426				93,946				83,163				59,699
Online recruitment services			78,430				83,287				77,663				72,741
Executive search			5,497				3,158				2,945				2,379
Other human resource related revenues			30,085				38,354				45,252				61,392
Total revenues			236,438				218,745				209,023				196,211
Net revenues			224,098				208,269				197,766				185,345
Cost of services(1)			(99,296	)			(93,867	)			(93,445	)			(90,879	)
Gross profit			124,802				114,402				104,321				94,466
Operating expenses(1):
Sales and marketing			(55,391	)			(52,208	)			(49,437	)			(58,192	)
General and administrative			(30,839	)			(31,927	)			(32,817	)			(30,398	)
Total operating expenses			(86,230	)			(84,135	)			(82,254	)			(88,590	)
Income from operations			38,572				30,267				22,067				5,876
Income before income tax provision			34,716				30,294				30,548				12,219
Income tax expense			(12,467	)			(10,984	)			(2,262	)			(5,463	)
Net income			22,249				19,310				28,286				6,756
(1) Share-based compensation expense:
Included in cost of services			(1,009	)			(1,153	)			(1,192	)			(1,210	)
Included in operating expenses:
Sales and marketing			(868	)			(992	)			(1,023	)			(1,040	)
General and administrative			(4,422	)			(5,053	)			(4,252	)			(5,220	)

B. Liquidity and Capital Resources

Liquidity

Our liquidity has been principally affected by net cash generated from operating activities in addition to our purchases of property, equipment and software as well as our repurchases of ADSs in the open market in 2008.

The following table sets forth a summary of our cash flows for the periods indicated.

		For the year ended December 31,
		2006				2007				2008				2008
(in thousands)		RMB				RMB				RMB				US$
Net cash provided by operating activities			185,229				193,315				119,867				17,569
Net cash used in investing activities			(144,402	)			(41,248	)			(48,451	)			(7,101	)
Net cash provided by (used in) financing activities			6,099				4,470				(4,101	)			(601	)
Net increase in cash			38,064				138,822				50,790				7,445

Cash Flows from Operating Activities. Our net cash provided by operating activities in 2006 was RMB185.2 million and consisted of RMB99.3 million in net income, which increased primarily due to higher revenues generated by our online recruitment services and print advertising businesses as well as a lower effective tax rate. The increase in net cash provided by operating activities also included RMB28.5 million in share-based compensation, RMB15.9 million in depreciation and RMB9.4 million in loss from foreign currency translation. In addition, our net cash provided by operating activities was impacted by an increase of RMB17.3 million in advances from customers and an increase of RMB7.3 million in salary and employee related accrual.

Our net cash provided by operating activities in 2007 was RMB193.3 million and consisted of RMB103.6 million in net income, which increased principally due to revenue growth in our online recruitment services, other human resource related services and print advertising businesses. The increase in net cash provided by operating activities also included RMB29.7 million in share-based compensation, RMB18.4 million in depreciation and RMB18.1 million in loss from foreign currency translation. In addition, our net cash provided by operating activities was impacted by an increase of RMB15.1 million in prepayments and other current assets, an increase of RMB17.6 million in advances from customers, an increase of RMB9.7 million in taxes payable and an increase of RMB7.7 million from other payables and accruals.

Our net cash provided by operating activities in 2008 was RMB117.1 million (US$17.2 million) and consisted of RMB76.6 million (US$11.2 million) in net income, RMB27.4 million (US$4.0 million) in share-based compensation, RMB23.8 million (US$3.5 million) in depreciation and RMB17.7 million (US$2.6 million) in loss from foreign currency translation. In addition, our net cash provided by operating activities was impacted by a decrease of RMB20.2 million (US$3.0 million) in taxes payable, a decrease of RMB15.3 million (US$2.2 million) in other payables and accruals, an increase of RMB12.1 million (US$1.8 million) in advances from customers, an increase of RMB11.9 million (US$1.7 million) in prepayments and other current assets, and a decrease of RMB10.2 million (US$1.5 million) in accounts receivable.

Cash Flows from Investing Activities. Our net cash used in investing activities from 2006 to 2008 reflected purchases of property, equipment, software and other intellectual property rights in these years in connection with the general growth of our businesses. We established one new office in 2006. In 2006, we paid RMB90.9 million to complete the purchase of our principal executive offices in Zhangjiang and purchased our former executive offices at 21st Floor, Wen Xin Plaza, 755 Wei Hai Road, which serves as our downtown Shanghai sales office, for an aggregate consideration of RMB27.9 million. Under our cooperation agreement with Recruit, we provided financing in the amount of RMB8.8 million in 2007 and RMB7.9 million (US$1.2 million) in 2008 to Area Link for the coupon company.

Cash Flows from Financing Activities. Our net cash from financing activities from 2006 to 2008 has been primarily affected by proceeds from the exercise of options by our employees, executives and directors as well as the repurchase of our ADSs. Our net cash provided by financing activities consisted of the exercise of options by employees, directors and officers in the amount of RMB6.1 million in 2006 and RMB4.5 million in 2007. In 2008, our net cash used in financing activities consisted of our repurchase of 136,827 ADSs in the open market for an aggregate consideration of RMB6.2 million (US$0.9 million), which was partially offset by RMB2.1 million (US$0.3 million) from the exercise of options.

Capital Resources

To date, we have primarily financed our operations through cash flows from operating activities, equity investments by certain of our founders, the sale of preferred shares in 2000 and our initial public offering in 2004. We have not financed our operations through significant borrowings, and as of December 31, 2008, we had no material debt obligations outstanding. As of December 31, 2008, we had RMB1,074.4 million (US$157.5 million) in cash and short-term investments.

Our operations are conducted primarily through Tech JV and its subsidiaries. As a result, our ability to finance our operations and any debt that we, or our subsidiaries, may incur is dependent, in part, upon the flow of dividends from, and the payment of royalties and other fees by, our subsidiaries. The payment of dividends in China is subject to restrictions. PRC regulations currently permit payment of dividends only out of accumulated profits as determined in accordance with PRC accounting standards and regulations. Our subsidiaries and affiliated entities in the PRC are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserve funds that are not distributable as cash dividends. Through certain contractual arrangements, we are able to require Qian Cheng to pay us any cash it receives as dividends or other distributions with respect to its minority shareholding in Tech JV and its subsidiaries. Our ability to obtain cash or other assets under these contracts depends on their effectiveness and enforceability. For a description of these agreements and our PRC counsel’s opinion as to their enforceability, see “Item 7. — Major Shareholders and Related Party Transactions — Related Party Transactions — Contractual Arrangements Among Our Group Entities.”

We believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

C. Research and Development, Patents and Licenses, etc.

We employ a large staff of website designers and software developers to design and update our website and create our proprietary software. We did not incur material expenditures with respect to our research and development activities in any of the three years ended December 31, 2006, 2007 or 2008. For more information on our technology operations, see “Item 4. — Information on the Company — Business Overview — Technology.”

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2006 to December 31, 2008 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2008:

						Less than				1-3				3-5				More than
		Total				1 year				years				years				5 years
(in thousands)		RMB				RMB				RMB				RMB				RMB
Publication fee agreements			55,083				42,003				9,672				3,288				120
Operating lease obligations			53,097				24,978				24,595				3,524				—
Purchase obligations			65,158				44,277				20,881				—				—
Total			173,338				111,258				55,148				6,812				120