SERIES B CONVERTIBLE PREFERRED STOCK SECURITIES ESCROW AGREEMENT

THIS SERIES B CONVERTIBLE PREFERRED STOCK SECURITIES ESCROW AGREEMENT (the “ Agreement ”), dated as of April 30, 2009, is entered into by and among China New Energy Group Company, a Delaware corporation (the “ Company ”), China Hand Fund I, LLC, a Delaware limited liability company, for itself and as representative (together with its successors and assigns, the “ Purchaser Representative ”) of any additional investors which may become parties to this Agreement  (together with their respective successors and assigns, each, a “ Purchaser ” and collectively, the “ Purchasers ”), and Escrow, LLC, with an address at 360 Main Street, P.O. Box 391, Washington, Virginia 22747 (the “ Escrow Agent ”). Capitalized terms used, but not defined herein shall have the meanings set forth in the Series B Purchase Agreement (as defined below).

WHEREAS, the Purchaser Representative will be purchasing on the date hereof (the “ Closing Date ”) from the Company, 1,116,388 shares of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “ Series B Preferred ”), convertible into 39,073,580 shares of the Company’s common stock, par value $0.001 per share (the “ Common Stock ), and certain common stock purchase warrants to purchase 7,814,719 shares of Common Stock (the “ Warrants ”) pursuant to a Series B Convertible Preferred Securities  Purchase Agreement dated as of the date hereof by and between the Company and the Purchaser Representative (the “ Series B Purchase Agreement ”);

WHEREAS, as an inducement to the Purchaser Representative to enter into the Series B Purchase Agreement, the Company has agreed within 30 days following the Closing Date to issue and deposit the 334,916 shares of Series B Preferred Stock (which equals 30% of the number of shares of Series B Preferred Stock issued under the Series B Purchase Agreement) to be held by the Escrow Agent for the benefit of the Purchasers in the event the Company fails to achieve any of the following financial performance thresholds for the 12-month periods ending December 31, 2009 (“ 2009 ”): After-Tax Net Income of at least (w) $5.0 million if the Company receives at least $5.4 million in gross proceeds from the sale of Securities at the Closings held not later than 30 days after the filing of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2008 (the “ 10-K Filing Date ”) or (x) $4.5 million, if the Company does not receive at least $5.4 million in gross proceeds from the sale of Securities at the Closing held on or prior to the 10-K Filing Date (individually the “ 2009 Target Number ” and they are collectively referred to herein as the “ 2009 Performance Threshold ”);

WHEREAS, as a further inducement to the Purchaser Representative to enter into the Series B Purchase Agreement, the Company has agreed within 30 days following the Closing Date to place the Listing Escrow Shares (as hereinafter defined) into escrow for the benefit of the Purchasers in the event that shares of Common Stock are not listed and trading on a National Stock Exchange by January 31, 2010;

WHEREAS, as an incentive to the members of management of the Company set forth on Exhibit A attached hereto (“ Management ”) (which exhibit shall be completed within 30 days following the Closing Date) to cause the Company to meets its financial projections, the Purchaser Representative has agreed to place Purchaser Deposited Escrow Shares (as hereinafter defined) into escrow for the benefit of the Management; and

WHEREAS, the Company and the Purchaser Representative have requested that the Escrow Agent hold the Company Deposited Escrow Shares (as herein after defined), the Listing Escrow Shares and the Purchaser Deposited Escrow Shares on the terms and conditions set forth in this Agreement and the Escrow Agent has agreed to act as escrow agent pursuant to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows:

1.1.         The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the Company Deposited Escrow Shares, the Listing Escrow Shares and the Purchaser Deposited Escrow Shares as contemplated by this Agreement.

1.2.         Within 30 days following the execution of this Agreement, the Company shall issue and deliver to the Escrow Agent a stock certificate or stock certificates evidencing an aggregate of 334,916 shares of Series B Preferred (which number of shares of Series B Preferred shall be  equivalent to 30% of the number of shares of Series B Preferred to be issued and sold to the Purchaser Representative on the Closing Date and which shares of Series B Preferred may be converted into 11,722,060 shares of Common Stock).  The shares of Series B Preferred described in this Section 1.2 shall be referred to in this Agreement as the “ Company Deposited Escrow Shares ”).  All Company Deposited Escrow Shares shall be accompanied by stock powers executed in blank with signature medallion guaranteed.

1.3.         The parties hereby agree that the Company Deposited Escrow Shares shall be delivered based on the achievement of the Performance Thresholds as set forth below:

(i)            If the After-Tax Net Income for 2009 is less than the 2009 Target Number, then if the Percentage Shortfall (as hereinafter defined) for 2009, is less than fifty percent (50%), but equal or greater than fifteen percent (15%), then an Adjustment Percentage for such year shall be determined.  For purposes of this Section, the “ Percentage Shortfall ” shall mean the percentage obtained by dividing (w) the amount of the shortfall of the After-Tax Net Income from the 2009 Target Number by (x) the 2009 Target Number.   For purposes of this Section, the “ Adjustment Percentage ” for 2009 shall mean the percentage that the Percentage Shortfall for such year bears to fifty percent (50%).  Within five days after the determination of the Percentage Shortfall for 2009 the Purchaser Representative and the Company shall give joint written instructions to the Escrow Agent to, and upon receipt of such written instructions, the Escrow Agent shall, within five days after receipt of such instructions deliver to the Purchasers on a pro rata basis such number of shares of Series B Preferred as is determined by multiplying the Adjustment Percentage for such year by the total number of Company Deposited Escrow Shares then required to be in escrow.  In the case of a delivery of less than all of the shares of the Company Deposited Escrow Shares in respect of the computation of the Adjustment Percentage for 2009, the balance of the Company Deposited Escrow Shares which are not required to be delivered to the Purchasers shall be returned to the Company.  For example, if the Percentage Shortfall for 2009 is 20%, the Adjustment Percentage would be 40%, and 40% of the total number of Company Deposited Escrow Shares then required to be in escrow would be delivered to the Purchasers on a pro rata basis, with the balance being returned to the Company pursuant to this Agreement.

(ii)           If the Percentage Shortfall for 2009, is equal to or greater than fifty percent (50%), then within five days after the determination of the Percentage Shortfall for 2009 the Purchaser Representative and the Company shall give joint written instructions to the Escrow Agent, and upon receipt of such written instructions, the Escrow Agent shall within five days after receipt of such instructions, deliver all of the Company Deposited Escrow Shares then held by the Escrow Agent to Purchasers on a pro rata basis.

(iii)          If the Percentage Shortfall for 2009 is less than fifteen percent (15%), then the Purchaser Representative and the Company shall give joint written instructions to the Escrow Agent to, and upon receipt of such written instructions, the Escrow Agent shall within five days after receipt of such instructions, return to the Company for cancellation all of the Company Deposited Escrow Shares.

(iv)          The determination regarding the number and the distribution, if any, of Company Deposited Escrow Shares to be distributed to the Purchasers pursuant to this Section 1.3 shall be made within five (5) Trading Days after the date the Company is required to file its Annual Report on Form 10-K for the applicable fiscal year with the Commission (after giving effect to any extension pursuant to Rule 12b-25 of the Exchange Act). In the event that the Company does not file (after giving effect to any extension pursuant to Rule 12b-25 of the Exchange Act) its Annual Report on Form 10-K for the year ended December 31, 2009 with the Commission then within (30 days after the date the Company is required to file its Annual Report  after giving effect to any extension pursuant to Rule 12b-25 of the Exchange Act, all of the Company Deposited Escrow Shares shall be delivered to the Purchasers on a pro rata basis within five (5) Trading Days following the expiration of such thirty (30) day period.

(v)           Notwithstanding anything to the contrary set forth herein, only those Purchasers who own shares of Series B Preferred issued under the Purchase Agreement and remain shareholders of the Company at the time that any Company Deposited Escrow Shares become deliverable hereunder shall be entitled to their pro rata portion of such Company Deposited Escrow Shares calculated based on their ownership interest at the time when the Company Deposited Escrow Shares become deliverable hereunder. Any Company Deposited Escrow Shares not delivered to Purchasers because the Purchasers no longer hold shares of Series B Preferred acquired under the Purchase Agreement shall remain in escrow with the Escrow Agent until transferred either to the Purchasers or returned to the Company pursuant to Section 1.3(ii) or 1.3(iii), as applicable.

(vi)          Notwithstanding anything to the contrary contained in this Section 1.3 or in the Series B Purchase Agreement, the Parties agree that for purposes of determining whether or not the Target Numbers have been achieved,

(A)           the release of any or all of the Company Deposited Escrow Shares shall not be counted as an expense, charge, or other deduction from revenues in calculating net income even though GAAP may require contrary treatment,

(B)           any registration delay payments arising under the Registration Rights Agreement that are accrued or paid by the Company to any Series B Purchaser will be excluded from the calculation of net income, and

(vii)         So long as the Company Deposited Escrow Shares remain in escrow, such shares shall not be counted in calculating a quorum for stockholder voting purposes nor shall such shares be voted at any meeting of stockholders or included in a written consent.

1.4.          (i) Within 30 days if the execution of this Agreement, the Purchaser Representative shall deliver to the Escrow Agent a stock certificate or stock certificates evidencing an aggregate of 22,328 shares of Series B Preferred (which number of shares of Series B Preferred is equivalent to 2.0% of the number of shares of Series B Preferred issued and sold to the Purchaser Representative on the Closing Date and which shares of Series B Preferred may be converted into 781,480 shares of Common Stock). Such shares shall be collectively referred to in this Agreement as the “ Purchaser Deposited Escrow Shares ”). All Purchaser Deposited Escrow Shares shall be accompanied by stock powers executed in blank with signature medallion guaranteed.

(ii)  If the Company achieves the 2009 Performance Threshold, then within five Trading Days after the filing of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2010 the Company and the Purchaser Representative shall give joint written instructions to the Escrow Agent to, and upon receipt of such instructions, the Escrow Agent shall within five days after receipt of such instructions, transfer all of the Purchaser Deposited Escrow Shares to Management, pro rata in accordance with the percentages set forth in Exhibit A.   In such instance, the Purchaser Deposited Escrow Shares shall be converted to common stock in accordance with their terms prior to distribution to Management.

(iii)  If the Company fails to achieve the 2009 Performance Threshold, then within five Trading Days after the filing of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2009 the Company and the Purchaser Representative shall give joint written instructions to the Escrow Agent to, and upon receipt of such instructions, the Escrow Agent shall within five days after receipt of such instructions, transfer all of the Purchaser Deposited Escrow Shares to the Purchasers who deposited such shares.

1.5.          The Company will provide the Purchaser Representative with the Company’s audited financial statements for 2009 prepared in accordance with US GAAP, on or before March 31, 2010 so as to allow the Purchaser Representative the opportunity to evaluate whether the 2009 Performance Threshold was attained.

1.6.          The parties hereby agree that the Listing Escrow Shares (as hereinafter defined) shall be deposited in escrow and as set forth below:

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