China Natural Gas Provides Update Regarding Financial Statements

XI’AN, China, Sept. 16 /PRNewswire-Asia/ — China Natural Gas, Inc.
(“China Natural Gas” or the “Company”) (Nasdaq: CHNG), a leading provider of
compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for
industrial, commercial and residential use in Xi’an, China, today announced
that its financial statements contained in its Annual Report on Form 10-K for
the year ended December 31, 2009, as amended, Quarterly Report on Form 10-Q
for the quarter ended March 31, 2010, as amended, and Quarterly Report on Form
10-Q for the quarter ended June 30, 2010 can no longer be relied upon.

As previously disclosed in the Company’s Quarterly Report on Form 10-Q for
the quarter ended June 30, 2010, in February 2010, the Company obtained a bank
loan in the amount of $17.7 million (the “Loan”) and, in connection with the
Loan, Xi’an Xilan Natural Gas Co. Ltd., the Company’s variable interest entity,
pledged its equipment and vehicles located within China to secure the Loan
(the “Pledge”) and guaranteed the repayment of the Loan (the “Guarantee”).

By August 8, 2010, the Company’s former outside counsel determined that
the Pledge was prohibited by the indenture (the “Indenture”) for the Company’s
5% guaranteed senior note issued to Abax Lotus Ltd. (“Abax”) dated January 29,
2008 (the “Senior Notes”). As a result, the Company believed that Abax had the
right to declare a default under the Indenture and could thereafter accelerate
the Senior Notes, which would cause a simultaneous default under the warrant
agreement governing the Company’s warrants issued in connection with the
Senior Notes, thereby entitling the warrant holders to require the Company to
redeem their warrants. In view of the potential default under the Indenture
and warrant agreements, the Board, in consultation with management and the
Audit Committee, determined that the Company was required to restate its
annual financial statements for the year ended December 31, 2009 and the
quarter ended March 31, 2010 to reclassify from long-term liabilities to
short-term liabilities the Senior Notes and the fair value of the redeemable
warrants.

Therefore, the Company filed a Current Report on Form 8-K on August 19,
2010 to disclose that its financial statements contained in its Annual Report
on Form 10-K for the year ended December 31, 2009 (the “Annual Report”) and
its Quarterly Report for the quarter ended March 31, 2010 (the “Quarterly
Report”) should not be relied upon. On August 20, 2010, the Company filed
Amendment No. 1 to the Annual Report (as amended, the “Amended 10-K”) and
Amendment No. 1 to the Quarterly Report (as amended, the “Amended 10-Q”) to
restate the financial statements contained therein.

Subsequent to restating its financial statements and filing the Amended
10-K and Amended 10-Q, management of the Company internally revisited the
analysis of whether the Pledge was indeed prohibited by the Indenture and
determined that it was not. In late August 2010, management approached the law
firm DLA Piper, which had not previously advised the Company or management on
these matters, to review and confirm the Company’s analysis. The Company then
engaged DLA Piper as its regular outside counsel for SEC reporting and other
public company matters in early September 2010. At the request of the
Company’s independent auditors, a further law firm with no prior relationship
to the Company was also asked to review and confirm the Company’s analysis.
The Board of Directors of the Company, in consultation with management, the
Audit Committee and DLA Piper, determined on September 15, 2010 that neither
the Loan, the Pledge or the Guarantee, individually or together, were
prohibited by the Indenture.

Accordingly, on September 15, 2010, the Board of Directors of the Company,
in consultation with management and its Audit Committee, determined that the
previously issued restated financial statements contained in the Amended 10-K
and the Amended 10-Q can no longer be relied upon because the restatements set
forth therein were not required, and, in addition, the previously issued
financial statements contained in the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2010 can no longer be relied upon because the
Senior Notes and the fair value of the redeemable warrants are classified as
current liabilities therein. The Company is in the process of working with
their independent auditors to restate the restated financial statements
included in the Amended 10-K and Amended 10-Q to reverse the initial
restatement set forth therein, and to restate the financial statements
included in the Quarterly Report on Form 10-Q for the quarter ended June 30,
2010 to reclassify the Senior Notes and redeemable warrants as long term
liabilities.

The Audit Committee of the Company’s Board of Directors has discussed the
forgoing matters with the Company’s Chief Financial Officer and its
independent auditor, Frazer Frost, LLP.

About China Natural Gas, Inc.

China Natural Gas transports and sells natural gas to vehicular fueling
terminals, as well as commercial, industrial, and residential customers
through its distribution networks in China’s Shaanxi and Henan Provinces. The
Company owns approximately 120 km of high-pressure pipelines and operates 28
CNG fueling stations in Shaanxi Province and 12 CNG fueling stations in Henan
Province. China Natural Gas’ four primary business lines include: (1) the
distribution and sale of CNG through Company-owned CNG fueling stations for
hybrid (natural gas/gasoline) powered vehicles; (2) the installation,
distribution and sale of piped natural gas to residential, commercial and
industrial customers through Company-owned pipelines; (3) the distribution and
sale of gasoline through Company-owned CNG fueling stations for hybrid
(natural gas/gasoline) powered vehicles; and (4) the conversion of
gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles
through its auto conversion division.

Forward-Looking Statements

This press release may contain “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private Securities
Litigation Reform Act of 1995. Words such as “expect,” “estimate,” “project,”
“budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,”
“should,” “believes,” “predicts,” “potential,” “continue,” and similar
expressions are intended to identify such forward-looking statements.
Forward-looking statements include matters that involve known and unknown
risks, uncertainties and other factors that may cause actual results, levels
of activity, performance or achievements to differ materially from results
expressed or implied by this press release. These forward-looking statements
inherently involve certain risks and uncertainties, including, but not limited
to, the risks that are detailed in the Company’s filings with the Securities
and Exchange Commission and available at http://www.sec.gov as well as the
Company’s website at http://www.naturalgaschina.com . You are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date they are made. All forward-looking statements are qualified in their
entirety by this cautionary statement. The Company is not under any obligation
to (and expressly disclaims any such obligation to) update or alter its
forward-looking statements, whether as a result of new information, future
events or otherwise.

    For more information, please contact:

    China Natural Gas Inc.

     Jacky Shi
     IR Director
     Tel:   +86-29-8832-3325 x922
     Cell:  +86-139-9287-9998
     Email: yjshi@naturalgaschina.com

    Investor Relations:

     Dave Gentry
     RedChip Companies, Inc.
     Tel:   +1-800-733-2447 x104
     Email: info@redchip.com
     Web:   http://www.RedChip.com

SOURCE China Natural Gas, Inc.