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China Natural Gas Update Regarding Financial Statements

China Natural Gas, Inc. (Nasdaq: CHNG) 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 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 and guaranteed the repayment of the Loan.

By August 8, 2010, the Company's former outside counsel determined that the Pledge was prohibited by the indenture for the Company's 5% guaranteed senior note issued to Abax Lotus Ltd. dated January 29, 2008. 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 and its Quarterly Report for the quarter ended March 31, 2010 should not be relied upon. On August 20, 2010, the Company filed Amendment No. 1 to the Annual Report and Amendment No. 1 to the Quarterly Report to restate the financial statements contained therein.

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