FIYTA Precision Technology Co., Ltd. 2020 Semi-annual Report Financial Report I. Auditors’ Report Has the semi-annual report been audited No II. Financial Statements The currency applied in the financial notes and statements is Renminbi (CNY) 1. Consolidated Balance Sheet Prepared by FIYTA Precision Technology Co., Ltd. June 30, 2020 In CNY Items June 30, 2020 December 31, 2019 Current assets: Monetary fund 346,481,641.68 316,668,565.09 Settlement reserve Inter-bank lending Transactional financial assets Derivative financial assets Notes receivable 21,231,543.36 10,596,431.31 Accounts receivable 428,154,219.98 397,471,106.98 Financing with accounts receivable Advance payment 18,403,768.63 10,847,962.28 Receivable premium Reinsurance accounts receivable Reserve for reinsurance contract receivable Other receivables 106,768,399.40 47,239,844.58 Including: Interest receivable Dividends receivable Redemptory monetary capital for sale Inventories 1,798,215,040.24 1,808,820,089.92 Contract assets Held-for-sale assets Non-current assets due within a year Other current assets 44,538,051.17 68,858,096.74 Total current assets 2,763,792,664.46 2,660,502,096.90 Non-current assets: Loan issuing and advance in cash Equity investment Other equity investment Long term accounts receivable Long-term equity investment 48,584,749.77 46,423,837.85 Investment in other equity instruments 85,000.00 85,000.00 Other non-current financial assets Investment-oriented real estate 399,881,983.38 407,503,307.24 Fixed assets 354,294,685.37 363,997,098.94 Construction-in-process Productive biological asset Oil and gas assets Use right assets Intangible assets 37,857,017.44 38,711,821.26 Development expenses Goodwill Long-term expenses to be apportioned 126,571,325.96 152,587,491.33 Deferred income tax asset 96,067,247.70 83,739,383.37 Other non-current assets 10,492,964.34 7,373,248.48 Total non-current assets 1,073,834,973.96 1,100,421,188.47 Total assets 3,837,627,638.42 3,760,923,285.37 Current liabilities: Short term borrowings 673,562,359.55 567,908,833.21 Borrowings from central bank Loans from other banks Transactional financial liabilities Derivative financial liabilities Notes payable 1,400,000.00 Accounts payable 191,041,428.35 279,772,787.37 Advance Receipts 7,251,488.79 23,433,463.57 Contract liabilities 21,475,843.30 Income from sale of the repurchased financial assets Deposits taking and interbank placement Acting trading securities Income from securities underwriting on commission Payroll payable to the employees 62,233,409.51 82,602,845.67 Taxes payable 53,088,654.29 24,064,803.00 Other payables 190,515,397.99 119,616,721.63 Including: interest payable Dividends payable 53,887,144.07 848,233.27 Service charge and commission payable Payable reinsurance Held-for-sale liabilities Non-current liabilities due within a year 373,530.00 360,140.00 Other current liabilities Total current liabilities 1,200,942,111.78 1,097,759,594.45 Non-current liabilities: Reserve for insurance contract Long-term borrowings 4,295,595.00 4,321,680.00 Bonds payable Including: preferred shares Perpetual bond Lease liabilities Long-term accounts payable Long term payroll payable to the employees Estimated liabilities Deferred income 3,046,090.60 3,046,090.60 Deferred income tax liability 1,192,721.71 1,256,242.49 Other non-current liabilities Total non-current liabilities 8,534,407.31 8,624,013.09 Total liabilities 1,209,476,519.09 1,106,383,607.54 Owner’s equity: Capital stock 428,171,881.00 442,968,881.00 Other equity instruments Including: preferred shares Perpetual bond Capital Reserve 1,019,385,022.79 1,081,230,215.32 Less: shares in stock 17,447,988.68 71,267,118.78 Other comprehensive income 3,389,668.49 -940,209.09 Special reserve Surplus Reserve 235,701,180.14 235,701,180.14 Provision for general risks Retained earnings 958,945,348.50 966,840,818.40 Total owners’ equity attributable to the parent 2,628,145,112.24 2,654,533,766.99 company Minority shareholders’ equity 6,007.09 5,910.84 Total owner’s equity 2,628,151,119.33 2,654,539,677.83 Total liabilities and owners’ equity 3,837,627,638.42 3,760,923,285.37 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 2. Balance Sheet, Parent Company In CNY Items June 30, 2020 December 31, 2019 Current assets: Monetary fund 296,412,869.24 270,673,346.02 Transactional financial assets Derivative financial assets Notes receivable Accounts receivable 4,468,617.83 2,848,025.39 Financing with accounts receivable Advance payment Other receivables 697,541,260.60 783,647,732.22 Including: Interest receivable Dividends receivable Inventories Contract assets Held-for-sale assets Non-current assets due within a year Other current assets 14,411,160.44 12,380,243.67 Total current assets 1,012,833,908.11 1,069,549,347.30 Non-current assets: Equity investment Other equity investment Long term accounts receivable Long-term equity investment 1,385,319,621.50 1,380,895,239.27 Investment in other equity instruments 85,000.00 85,000.00 Other non-current financial assets Investment-oriented real estate 323,720,394.86 329,970,083.18 Fixed assets 232,525,547.05 238,594,698.50 Construction-in-process Productive biological asset Oil and gas assets Use right assets Intangible assets 28,849,765.24 30,925,974.54 Development expenses Goodwill Long-term expenses to be apportioned 11,407,352.44 12,106,759.98 Deferred income tax asset 1,376,549.26 1,125,840.75 Other non-current assets 4,798,820.13 4,707,236.86 Total non-current assets 1,988,083,050.48 1,998,410,833.08 Total assets 3,000,916,958.59 3,067,960,180.38 Current liabilities: Short term borrowings 540,581,988.89 540,650,622.50 Transactional financial liabilities Derivative financial liabilities Notes payable Accounts payable 1,484,563.53 12,952,934.93 Advance Receipts 7,251,488.79 3,434,407.04 Contract liabilities Payroll payable to the employees 16,173,553.17 19,019,554.57 Taxes payable 2,695,509.97 1,713,130.68 Other payables 132,347,479.64 82,631,590.46 Including: interest payable Dividends payable 53,887,144.07 848,233.27 Held-for-sale liabilities Non-current liabilities due within a year Other current liabilities Total current liabilities 700,534,583.99 660,402,240.18 Non-current liabilities: Long-term borrowings Bonds payable Including: preferred shares Perpetual bond Lease liabilities Long-term accounts payable Long term payroll payable to the employees Estimated liabilities Deferred income 3,046,090.60 3,046,090.60 Deferred income tax liability Other non-current liabilities Total non-current liabilities 3,046,090.60 3,046,090.60 Total liabilities 703,580,674.59 663,448,330.78 Owner’s equity: Capital stock 428,171,881.00 442,968,881.00 Other equity instruments Including: preferred shares Perpetual bond Capital Reserve 1,025,040,563.89 1,086,885,756.42 Less: shares in stock 17,447,988.68 71,267,118.78 Other comprehensive income Special reserve Surplus Reserve 235,701,180.14 235,701,180.14 Retained earnings 625,870,647.65 710,223,150.82 Total owner’s equity 2,297,336,284.00 2,404,511,849.60 Total liabilities and owners’ equity 3,000,916,958.59 3,067,960,180.38 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 3. Consolidated Profit Statement In CNY Items The first half year of 2020 The first half year of 2019 I. Turnover 1,581,834,715.03 1,785,036,020.23 Including: operating income 1,581,834,715.03 1,785,036,020.23 Interest income Earned insurance premium Service charge and commission income II. Total operating costs 1,501,108,535.92 1,634,493,191.74 Including: Operating costs 977,435,676.87 1,051,504,075.22 Interest payment Service charge and commission payment Surrender Value Compensation expenses, net Appropriation of deposit for duty, net Payment of policy dividend Reinsurance expenses Taxes and surcharges 7,270,983.69 15,094,875.33 Sales costs 380,928,312.51 415,776,028.95 Administrative expenses 98,240,348.73 116,352,835.42 R & D expenditures 20,704,270.76 19,526,410.93 Financial expenses 16,528,943.36 16,238,965.89 Where: Interest cost 13,485,670.67 12,023,843.93 Interest income -2,482,721.82 -908,850.92 Plus: Other income 10,154,015.67 13,045,742.36 Investment income (loss is stated with “-”) 2,160,911.92 1,531,310.06 Including: return on investment in associate 2,160,911.92 1,531,310.06 and joint venture Income from the derecognition of the financial assets measured at amortised cost Exchange income (loss stated with “-“) Net exposure hedge income (loss stated with “-“) Income from change of fair value (loss is stated with “-”) Loss from impairment of credit (loss is -2,467,361.35 -3,081,768.89 stated with “-”) Loss from impairment of assets (loss is 2,514,740.86 stated with “-”) Income from disposal of assets (loss is -200,140.17 -212,010.13 stated with “-“) III. Operating Profit (loss is stated with “-“) 90,373,605.18 164,340,842.75 Plus: Non-operating income 1,391,859.42 294,311.70 Less: non-operating expenditures 118,646.41 524,505.98 IV. Total profit (total loss is stated with “-”) 91,646,818.19 164,110,648.47 Less: Income tax expense 13,907,911.89 40,615,187.57 V. Net Profit (net loss is stated with “-“) 77,738,906.30 123,495,460.90 (I) Classification based on operation sustainability 1. Net Profit from sustainable operation (net loss 77,738,906.30 123,495,460.90 is stated with “-”) 2. Net Profit from termination of operation (net loss is stated with “-”) (II) Classification by ownership 1. Net profit attributable to the parent company’s 77,738,906.30 123,495,460.90 owner 2. Minority shareholders’ gain/loss VI. Net of other comprehensive income after tax 4,329,973.83 1,749,420.87 Net of other comprehensive income after tax 4,329,877.58 1,749,407.20 attributable to the parent company’s owner (I) Other comprehensive income which cannot be re-classified into gain and loss 1. Movement of the net liabilities and net assets re-measured for setting the beneficial plan 2. Other comprehensive income which cannot be converted into gain and loss based on the equity method 3. Movement of the fair value of the investment in other equity instruments 4. Movement of the fair value of the Company’s own credit risk 5. Others (II) Other comprehensive income which shall be 4,329,877.58 1,749,407.20 re-classified into gain and loss 1. Other comprehensive income which can be converted into gain and loss based on the equity method 2. Movement of the fair value of the investment in other debt instruments 3. Amount of the reclassified financial assets counted to the other comprehensive income 4. Provision for impairment of the credit of the other debt investment 5. Reserve for cash flow hedge 6. Conversion difference in foreign 4,329,877.58 1,749,407.20 currency statements 7. Others Net amount of other comprehensive income after tax 96.25 13.67 attributable to minority shareholders VII. Total comprehensive income 82,068,880.13 125,244,881.77 Total comprehensive income attributable to the 82,068,783.88 125,244,868.10 parent company’s owner Total comprehensive income attributable to 96.25 13.67 minority shareholders VIII. Earnings per share: (I) Basic earnings per share 0.1775 0.2788 (II) Diluted earnings per share 0.1775 0.2788 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 4. Profit Statement, Parent Company In CNY Items The first half year of 2020 The first half year of 2019 I. Operating revenue 57,313,218.41 64,124,939.95 Less: Operating cost 17,626,390.24 11,807,925.90 Taxes and surcharges 1,616,108.15 2,257,018.92 Sales costs 597,618.02 582,036.03 Administrative expenses 31,406,670.97 39,783,149.16 R & D expenditures 7,989,092.54 9,146,589.64 Financial expenses 3,458,375.39 3,247,689.32 Where: Interest cost 5,364,370.20 4,007,526.54 Interest income -2,363,907.44 -776,046.44 Plus: Other income 4,334,756.32 7,743,695.89 Investment income (loss is stated with “-”) 2,160,911.92 1,531,310.06 Including: return on investment in 2,160,911.92 1,531,310.06 associate and joint venture Gain from the derecognition of the financial assets measured at amortised cost (loss is stated with “-”) Net exposure hedge income (loss stated with “-“) Income from change of fair value (loss is stated with “-”) Loss from impairment of credit (loss is -100,902.52 -64,803.91 stated with “-”) Loss from impairment of assets (loss is stated with “-”) Income from disposal of assets (loss is -15,641.58 -2,074.20 stated with “-“) II. Operating Profit (loss is stated with “-“) 998,087.24 6,508,658.82 Plus: Non-operating income 33,077.28 18,000.00 Less: non-operating expenditures 200,000.00 III. Total profit (total loss is stated with “-“) 1,031,164.52 6,326,658.82 Less: Income tax expense -250,708.51 1,174,172.39 IV. Net Profit (net loss is stated with “-“) 1,281,873.03 5,152,486.43 (I) Net Profit from sustainable operation (net 1,281,873.03 5,152,486.43 loss is stated with “-”) (II) Net Profit from termination of operation (net loss is stated with “-”) V. Net of other comprehensive income after tax (I) Other comprehensive income which cannot be re-classified into gain and loss 1. Movement of the net liabilities and net assets re-measured for setting the beneficial plan 2. Other comprehensive income which cannot be converted into gain and loss based on the equity method 3. Movement of the fair value of the investment in other equity instruments 4. Movement of the fair value of the Company’s own credit risk 5. Others (II) Other comprehensive income which shall be re-classified into gain and loss 1. Other comprehensive income which can be converted into gain and loss based on the equity method 2. Movement of the fair value of the investment in other debt instruments 3. Amount of the reclassified financial assets counted to the other comprehensive income 4. Provision for impairment of the credit of the other debt investment 5. Reserve for cash flow hedge 6. Conversion difference in foreign currency statements 7. Others VI. Total comprehensive income 1,281,873.03 5,152,486.43 VII. Earnings per share: (I) Basic earnings per share 0.0030 0.0116 (II) Diluted earnings per share 0.0030 0.0116 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 5. Consolidated Cash Flow Statement In CNY Items The first half year of 2020 The first half year of 2019 I. Cash flows arising from operating activities: Cash received from sales of goods and supply 1,704,132,389.05 1,913,555,960.34 of labor service Net increase of customers’ deposit and due from banks Net increase of borrowings from the central bank Net increase of borrowings from other financial institutions Cash received from the premium of the original insurance contract Net cash received from the reinsurance business Net increase of the reserve from policy holders and investment Cash received from interest, service charge and commission Net increase of loan from other banks Net increase of fund from repurchase business Net cash received from securities trading on commission Rebated taxes received 1,408,520.48 3,160,067.59 Other operation activity related cash receipts 31,287,429.73 40,976,127.91 Subtotal of cash flow in from operating activity 1,736,828,339.26 1,957,692,155.84 Cash paid for purchase of goods and reception 1,124,364,970.39 1,116,738,134.87 of labor services Net increase of loans and advances to customers Net increase of due from central bank and due from other banks Cash from payment for settlement of the original insurance contract Net increase of the lending capital Cash paid for interest, service charge and commission Cash for payment of policy dividend Cash paid to and for staff 280,396,366.01 314,068,308.62 Taxes paid 62,495,543.38 130,569,918.63 Other business activity related cash payments 165,926,224.21 237,301,143.35 Subtotal of cash flow out from operating activity 1,633,183,103.99 1,798,677,505.47 Net cash flows arising from operating activities 103,645,235.27 159,014,650.37 II. Net cash flows arising from investment activities Cash received from recovery of investment Cash received from investment income Net cash from disposal of fixed assets, intangible assets and recovery of other long term 19,552.47 84,258.51 assets Net cash received from disposal of subsidiaries and other operating units Other investment related cash receipts Subtotal of cash flow in from investment activity 19,552.47 84,258.51 Cash paid for purchase/construction of fixed 53,912,380.03 89,298,306.14 assets, intangible assets and other long term assets Cash paid for investment Net increase of the pledged loan Net cash paid for acquisition of subsidiaries and other operation units Other investment related cash payments Subtotal of cash flow out from investment activity 53,912,380.03 89,298,306.14 Net cash flows arising from investment activities -53,892,827.56 -89,214,047.63 III. Cash flow arising from financing activities: Cash received from absorbing investment 0.00 18,585,600.00 Incl.: Cash received from the subsidiaries’ absorption of minority shareholders’ investment Cash received from loans 572,430,000.00 330,176,520.00 Other fund-raising related cash receipts Subtotal of cash flow in from fund raising activity 572,430,000.00 348,762,120.00 Cash paid for debt repayment 467,250,228.75 327,486,253.30 Cash paid for dividend/profit distribution or 98,229,142.76 12,018,884.30 repayment of interest Including: Dividend and profit paid by the subsidiaries to minority shareholders Cash paid for other financing activities 26,825,873.78 17,565,400.00 Sub-total cash flow paid for financing activities 592,305,245.29 357,070,537.60 Net cash flow arising from financing activities: -19,875,245.29 -8,308,417.60 IV. Influence of the change of exchange rate on the -64,085.83 201,307.31 cash and cash equivalents V. Net increase of cash and cash equivalents 29,813,076.59 61,693,492.45 Plus: Opening balance of cash and cash 315,093,565.09 162,623,059.97 equivalents VI. Ending balance of cash and cash equivalents 344,906,641.68 224,316,552.42 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 6. Cash Flow Statement, Parent Company In CNY Items The first half year of 2020 The first half year of 2019 I. Net cash flows arising from operating activities: Cash received from sales of goods and supply 84,447,213.29 66,872,263.13 of labor service Rebated taxes received Other operation activity related cash receipts 1,761,219,003.00 1,733,050,857.61 Subtotal of cash flow in from operating activity 1,845,666,216.29 1,799,923,120.74 Cash paid for purchase of goods and reception of labor services Cash paid to and for staff 28,476,180.31 42,848,757.99 Taxes paid 5,608,474.08 5,460,385.81 Other business activity related cash payments 1,646,751,070.92 1,676,610,396.74 Subtotal of cash flow out from operating activity 1,680,835,725.31 1,724,919,540.54 Net cash flows arising from operating activities 164,830,490.98 75,003,580.20 II. Net cash flows arising from investment activities Cash received from recovery of investment Cash received from investment income Net cash from disposal of fixed assets, intangible assets and recovery of other long term 550.00 23,000.00 assets Net cash received from disposal of subsidiaries and other operating units Other investment related cash receipts Subtotal of cash flow in from investment activity 550.00 23,000.00 Cash paid for purchase/construction of fixed 15,073,283.59 31,845,425.44 assets, intangible assets and other long term assets Cash paid for investment Net cash paid for acquisition of subsidiaries and other operation units Other investment related cash payments Subtotal of cash flow out from investment activity 15,073,283.59 31,845,425.44 Net cash flow arising from investment activities -15,072,733.59 -31,822,425.44 III. Cash flow arising from financing activities: Cash received from absorbing investment 18,585,600.00 Cash received from loans 450,000,000.00 310,000,000.00 Other fund-raising related cash receipts Subtotal of cash flow in from fund raising activity 450,000,000.00 328,585,600.00 Cash paid for debt repayment 450,000,000.00 295,000,000.00 Cash paid for dividend/profit distribution or 97,351,309.71 11,510,341.40 repayment of interest Cash paid for other financing activities 26,693,235.96 17,565,400.00 Sub-total cash flow paid for financing activities 574,044,545.67 324,075,741.40 Net cash flow arising from financing activities: -124,044,545.67 4,509,858.60 IV. Influence of the change of exchange rate on the 26,311.50 1,378.48 cash and cash equivalents V. Net increase of cash and cash equivalents 25,739,523.22 47,692,391.84 Plus: Opening balance of cash and cash 269,098,346.02 134,970,466.27 equivalents VI. Ending balance of cash and cash equivalents 294,837,869.24 182,662,858.11 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 7. Consolidated Statement of Changes in Owner’s Equity Amount in the reporting period In CNY The first half year of 2020 Owners’ equity attributable to the parent company Other equity instruments Other Minority Total Items Less: Provision Capital Capital comprehe Special Surplus Retained shareholde owner’s Preferre Perpetu shares in for general Others Sub-total stock Others Reserve nsive reserve Reserve earnings rs’ equity equity d shares al bond stock risks income I. Ending balance of the 442,968, 1,081,230, 71,267,118 -940,209.0 235,701,1 966,840,8 2,654,533, 2,654,539, 5,910.84 previous year 881.00 215.32 .78 9 80.14 18.40 766.99 677.83 Plus: Change in accounting policy Correction of previous errors Consolidation of enterprises under the same control Others II. Opening balance of 442,968, 1,081,230, 71,267,118 -940,209.0 235,701,1 966,840,8 2,654,533, 2,654,539, 5,910.84 the reporting year 881.00 215.32 .78 9 80.14 18.40 766.99 677.83 III. Decrease/increase of the report year -14,797, -61,845,19 -53,819,13 4,329,877. -7,895,469 -26,388,65 -26,388,55 96.25 (decrease is stated with 000.00 2.53 0.10 58 .90 4.75 8.50 “-“) (I) Total comprehensive 4,329,877. 77,738,90 82,068,78 82,068,88 96.25 income 58 6.30 3.88 0.13 (II) Owners’ input and -14,797, -61,845,19 -53,819,13 -22,823,06 -22,823,06 decrease of capital 000.00 2.53 0.10 2.43 2.43 1. Common shares -14,797, -64,385,94 -53,819,13 -25,363,81 -25,363,81 contributed by the owner 000.00 8.25 0.10 8.15 8.15 2. Capital contributed by other equity instruments holders 3. Amount of payment for 2,784,096. 2,784,096. 2,784,096. shares counted to 62 62 62 owners’ equity -243,340.9 -243,340.9 -243,340.9 4. Others 0 0 0 -85,634,37 -85,634,37 -85,634,37 (III) Profit Distribution 6.20 6.20 6.20 1. Provision of surplus reserve 2. Provision for general risks 3. Distributions to the -85,634,37 -85,634,37 -85,634,37 owners (or shareholders) 6.20 6.20 6.20 4. Others (IV) Internal carry-over of owners’ equity 1. Conversion of capital reserve into capital (or capital stock) 2. Conversion of surplus reserve into capital (or capital stock) 3. Loss made up for with surplus reserve 4. Setting of the amount involved in the movement of the beneficial plan carried over to the retained earnings 5. Other comprehensive income carried-over to the retained earnings 6. Others (V) Special reserve 1. Provision in the reporting period 2. Applied in the reporting period (VI) Others IV. Ending balance of the 428,171, 1,019,385, 17,447,98 3,389,668. 235,701,1 958,945,3 2,628,145, 2,628,151, 6,007.09 reporting period 881.00 022.79 8.68 49 80.14 48.50 112.24 119.31 Amount in the previous period In CNY The first half year of 2019 Owners’ equity attributable to the parent company Other equity instruments Other Minority Total Items Less: Provision Capital Preferre Capital comprehe Special Surplus Retained shareholder owner’s Perpetu shares in for general Others Sub-total stock d Others Reserve nsive reserve Reserve earnings s’ equity equity al bond stock risks shares income I. Ending balance of the 438,744, 1,062,455, -5,442,139 223,015,7 851,360,6 2,570,134, 2,570,140,5 5,781.64 previous year 881.00 644.22 .78 93.80 03.66 782.90 64.54 Plus: Change in accounting policy Correction of previous errors Consolidation of enterprises under the same control Others II. Opening balance of 438,744, 1,062,455, -5,442,139 223,015,7 851,360,6 2,570,134, 2,570,140,5 5,781.64 the reporting year 881.00 644.22 .78 93.80 03.66 782.90 64.54 III. Decrease/increase of the report year 4,224,00 16,596,19 32,902,19 1,749,407. 123,495,4 113,162,8 113,162,880 13.66 (decrease is stated with 0.00 7.31 8.89 21 60.89 66.52 .18 “-“) (I) Total comprehensive 1,749,407. 123,495,4 125,244,8 125,244,881 13.66 income 21 60.89 68.10 .76 (II) Owners’ input and 4,224,00 16,596,19 32,902,19 -12,082,00 -12,082,001 decrease of capital 0.00 7.31 8.89 1.58 .58 1. Common shares 4,224,00 16,596,19 18,585,60 2,234,597. 2,234,597.3 contributed by the 0.00 7.31 0.00 31 1 owner 2. Capital contributed by other equity instruments holders 3. Amount of payment for shares counted to owners’ equity 14,316,59 -14,316,59 -14,316,598 4. Others 8.89 8.89 .89 (III) Profit Distribution 1. Provision of surplus reserve 2. Provision for general risks 3. Distributions to the owners (or shareholders) 4. Others (IV) Internal carry-over of owners’ equity 1. Conversion of capital reserve into capital (or capital stock) 2. Conversion of surplus reserve into capital (or capital stock) 3. Loss made up for with surplus reserve 4. Setting of the amount involved in the movement of the beneficial plan carried over to the retained earnings 5. Other comprehensive income carried-over to the retained earnings 6. Others (V) Special reserve 1. Provision in the reporting period 2. Applied in the reporting period (VI) Others IV. Ending balance of 442,968, 1,079,051, 32,902,19 -3,692,732 223,015,7 974,856,0 2,683,297, 2,683,303,4 5,795.30 the reporting period 881.00 841.53 8.89 .57 93.80 64.55 649.42 44.72 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui 8. Statement of Changes in Owner’s Equity, Parent Company Amount in the reporting period In CNY The first half year of 2020 Other equity instruments Other Items Capital Capital Less: shares Special Surplus Retained Total owners’ Preferred Perpetual comprehensiv Others stock Others Reserve in stock reserve Reserve earnings equity shares bond e income I. Ending balance of the 442,968,88 1,086,885,75 71,267,118.7 235,701,180. 710,223,15 2,404,511,849.6 previous year 1.00 6.42 8 14 0.82 0 Plus: Change in accounting policy Correction of previous errors Others II. Opening balance of the 442,968,88 1,086,885,75 71,267,118.7 235,701,180. 710,223,15 2,404,511,849.6 reporting year 1.00 6.42 8 14 0.82 0 III. Decrease/increase of -14,797,000 -61,845,192.5 -53,819,130.1 -84,352,50 the report year (decrease -107,175,565.60 .00 3 0 3.17 is stated with “-“) (I) Total comprehensive 1,281,873. 1,281,873.03 income 03 (II) Owners’ input and -14,797,000 -61,845,192.5 -53,819,130.1 -22,823,062.43 decrease of capital .00 3 0 1. Common shares -14,797,000 -64,385,948.2 -53,819,130.1 -25,363,818.15 contributed by the owner .00 5 0 2. Capital contributed by other equity instruments holders 3. Amount of payment for shares counted to owners’ 2,784,096.62 2,784,096.62 equity 4. Others -243,340.90 -243,340.90 -85,634,37 (III) Profit Distribution -85,634,376.20 6.20 1. Provision of surplus reserve 2. Distributions to the -85,634,37 -85,634,376.20 owners (or shareholders) 6.20 3. Others (IV) Internal carry-over of owners’ equity 1. Conversion of capital reserve into capital (or capital stock) 2. Conversion of surplus reserve into capital (or capital stock) 3. Loss made up for with surplus reserve 4. Setting of the amount involved in the movement of the beneficial plan carried over to the retained earnings 5. Other comprehensive income carried-over to the retained earnings 6. Others (V) Special reserve 1. Provision in the reporting period 2. Applied in the reporting period (VI) Others IV. Ending balance of the 428,171,88 1,025,040,56 17,447,988.6 235,701,180. 625,870,64 2,297,336,284.0 reporting period 1.00 3.89 8 14 7.65 0 Amount in the previous period In CNY The first half year of 2019 Other equity instruments Other Items Capital Capital Less: shares Special Surplus Retained Total owners’ Preferred Perpetual comprehensi Others stock Others Reserve in stock reserve Reserve earnings equity shares bond ve income I. Ending balance of the 438,744,88 1,068,111,18 223,015,793 683,798,086.83 2,413,669,946.95 previous year 1.00 5.32 .80 Plus: Change in accounting policy Correction of previous errors Others II. Opening balance of 438,744,88 1,068,111,18 223,015,793 683,798,086.83 2,413,669,946.95 the reporting year 1.00 5.32 .80 III. Decrease/increase of the report year 4,224,000. 16,596,197.3 32,902,198.8 5,152,486.43 -6,929,515.15 (decrease is stated with 00 1 9 “-“) (I) Total comprehensive 5,152,486.43 5,152,486.43 income (II) Owners’ input and 4,224,000. 16,596,197.3 32,902,198.8 -12,082,001.58 decrease of capital 00 1 9 1. Common shares 4,224,000. 16,596,197.3 18,585,600.0 2,234,597.31 contributed by the owner 00 1 0 2. Capital contributed by other equity instruments holders 3. Amount of payment for shares counted to owners’ equity 14,316,598.8 4. Others -14,316,598.89 9 (III) Profit Distribution 1. Provision of surplus reserve 2. Distributions to the owners (or shareholders) 3. Others (IV) Internal carry-over of owners’ equity 1. Conversion of capital reserve into capital (or capital stock) 2. Conversion of surplus reserve into capital (or capital stock) 3. Loss made up for with surplus reserve 4. Setting of the amount involved in the movement of the beneficial plan carried over to the retained earnings 5. Other comprehensive income carried-over to the retained earnings 6. Others (V) Special reserve 1. Provision in the reporting period 2. Applied in the reporting period (VI) Others IV. Ending balance of 442,968,88 1,084,707,38 32,902,198.8 223,015,793 688,950,573.26 2,406,740,431.80 the reporting period 1.00 2.63 9 .80 Legal representative: Huang Yongfeng Chief Financial Officer: Chen Zhuo Person in charge of the Accounting Department: Tian Hui III. Company Profile FIYTA Precision Technology Co., Ltd (hereinafter referred to as the Company) was reorganized, incorporated and renamed from Shenzhen FIYTA Timer Industry Company on December 25 1992 with approval by the General Office of Shenzhen Municipal People’s Government with Document SHEN FU BAN FU [1992] No. 1259 and with China National Aero-Technology Import & Export Corporation Shenzhen Industry & Trade Center (which was renamed as AVIC International Shenzhen Company Limited) as the sponsor. The Company's head office is located at the 20th Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen, Guangdong Province. On March 10, 1993, the Company, with approval by the People’s Bank of China Shenzhen Special Economic Zone Branch [SHEN REN YIN FU ZI (1993) No. 070], issued publically domestic CNY based common shares (A-shares) and CNY based special shares (B-shares). In accordance with the Approval Document of Shenzhen Municipal Securities Regulatory Office SHEN ZHENG BAN FU [1993] No. 20 and the Approval Document of Shenzhen Stock Exchange SHEN ZHENG SHI ZI (1993) No. 16, the Company’s A-shares and B-shares were all listed with Shenzhen Stock Exchange for trading commencing from June 3, 1993. On January 30, 1997, with approval by Shenzhen Municipal Administration for Industry and Commerce, the Company was renamed as Shenzhen FIYTA Holdings Ltd. On July 4, 1997, according to the equity assignment agreement between China National Aero-Technology Corporation Shenzhen (CATIC Shenzhen Corporation) and CATIC Shenzhen Holdings Limited ( with original name of Shenzhen CATIC Group Co., Ltd. (hereinafter referred to as CATIC Shenzhen)), CATIC Shenzhen Corporation assigned 72.36 million corporate shares (taking 52.24% of the Company’s total shares) to CATIC Shenzhen. From then on, the Company’s controlling shareholder turned to be CATIC Shenzhen from CATIC Shenzhen Corporation. On October 26, 2007, the Company implemented the equity separation reform, according to which the shareholder of the Company’s non-negotiable shares would pay shares to the whole shareholders of negotiable shares registered on the equity record day as designated in the equity separation reform plan at the rate of 3.1 shares for every 10 shares held by them while the Company’s total 249,317,999 shares remained unchanged. So far, after the equity separation reform, the proportion of the Company’s shares held by CATIC Shenzhen reduced from 52.24% to 44.69%. On February 29, 2008, due to expansion of the Company’s business scope and with approval by Shenzhen Municipal Administration for Industry and Commerce, the Company’s enterprise corporate business licence number was changed from 4403011001583 into 440301103196089. In 2010, approved by China Securities Regulatory Commission (CSRC) with the Official Reply on Approval of Non-public Issuing of Shenzhen FIYTA Holdings Ltd., ZHENG JIAN XU KE [2010] No. 1703 and the Official Reply on the Issue of Non-Public Issuing of Shenzhen FIYTA Holdings Ltd. by State-owned Assets Supervision and Administration Commission of the State Council [2010] No. 430, the Company was approved to non-publically issue no more than 50 million common shares (A-shares). After completion of non-public issuing on December 9, 2010, the Company’s registered capital increased to CNY 280,548,479.00 and CATIC Shenzhen holds 41.49% of the Company’s equity based capital. On March 3, 2011, with approval by Shenzhen Municipal Administration for Industry and Commerce, the Company was renamed as FIYTA Holdings Ltd. On April 8, 2011, the Company took the total share capital of 280,548,479 shares as at December 31, 2010 as the base, converted its capital reserve into share capital at the rate of 4 shares for every 10 shares. After the conversion, the Company’s total share capital became 392,767,870 shares. On November 11, 2015, approved by China Securities Regulatory Commission (CSRC) with the Official Reply on Approval of Non-public Issuing of FIYTA Holdings Ltd., ZHENG JIAN XU KE [2015] No. 2588 and the Official Reply on the Issue of Non-Public Issuing of FIYTA Holdings Ltd. by State-owned Assets Supervision and Administration Commission of the State Council [2015] No. 415, the Company was approved to non-publically issue no more than 46,911,649 common shares (A-shares). After completion of non-public issuing on December 22, 2015, the Company’s registered capital increased to CNY 438,744,881.00 and CATIC Shenzhen holds 37.15% of the Company’s equity based capital. On December 20, 2018, approved by State-owned Assets Supervision and Administration Commission of the State Council with the “Official Reply on FIYTA Holdings Ltd. to Implement the Restricted stock Incentive Program”, GUO ZI KAO FEN [2018] No. 936, the Company awarded A-share restricted stock by less than 4.277 million shares. After completion of implementation of the A-share Restricted stock Incentive Program (Phase I) by January 30, 2019, the Company’s registered capital increased to CNY 442,968,881 and AVIC IHL holds 36.79% of the Company’s equity based capital. According to the “Proposal on the Intentional Change of the Company Name and the Short Term of A-share Securities reviewed and approved at 2019 3rd Extraordinary General Meeting of the Company and approved by the Administration for Industry and Commerce of Shenzhen Municipality, commencing from January 9, 2020, the Company changed its name from FIYTA Holdings Limited to FIYTA Precision Technology Co., Ltd." On April 30, 2020, the Company wrote off 14,730,000 B-shares repurchased by the Company, and on June 9, 2020, the number of A-share restricted stock to the original three retired incentive objects which were written-off after being repurchased was 67,000 in total. After the write-off, the total capital stock of the Company decreased from 428,238,881 shares to 428,171,881 shares. The equity capital of the Company held by AVIC IHL increased to 38.06%. Ended June 30, 2020, the Company accumulatively issued altogether 428,171,881 shares. For the detail, refer to Note VII. 53 “Share Capital”. The Company has established the Shareholders’ General Meeting, the Board of Directors, the Supervisory Committee, the Audit Committee, the Strategy Committee and the Nomination, Remuneration and Assessment Committee as the governance organs, etc. The Company has also established a number of functional departments, including the comprehensive management department, the Party construction work department, department of discipline inspection, audit and law, the financial department, the human resource department, the strategy operation department, the data & information department, the innovation & design department, the R & D department, the property operation department, etc. The principal business activities of the Company and its subsidiaries are: production and sales of various pointer type mechanical watches, quartz watches and their driving units, spares and parts, various timing apparatus, processing and wholesale of K gold watches and ornament watches; domestic trade, materials supply and sales (excluding the commodities for exclusive operation, exclusive control and monopoly); property management and lease; design service; self-run import & export business (implemented according to the Document SHEN MAO GUAN DENG ZHENG ZI No. 2007-072). The Company's legal representative is Huang Yongfeng. The financial statements was approved and issued through the resolution of the Board of Directors dated July 28, 2020. There were 11 subsidiaries consolidated during the reporting period. For the detail, refer to Note IX. "Equity in Other Entities". The consolidation scope of the reporting year is the same as that of the previous year. For the detail, refer to Note VIII "Change of the Consolidation Scope". IV. Basis for preparation of the financial statements 1. Preparation Basis These financial statements are prepared in accordance with the Accounting Standards for Enterprises promulgated by the Ministry of Finance and its application guidelines, interpretations and other relevant provisions (collectively referred to as the "Accounting Standards for Enterprises"). In addition, the Group disclosed the relevant financial information according to the Preparation Rules for Information Disclosure by Companies Offering Securities to the Public No. 15 - General Provisions on Financial Reports (2014 Revision) promulgated by China Securities Regulatory Commission. 2. Operation on Going Concern Basis The financial statements of the Company have been prepared on going concern basis. The Group follows the accrual basis for bookkeeping. With the exception of some financial instruments, these financial statements are measured based on the historic cost basis. If impaired, the assets shall provide for impairment in accordance with the relevant regulations. V. Important accounting policies and accounting estimates Presentation on specific accounting policies and accounting estimates: The Group determines the depreciation of fixed assets, amortization of intangible assets and income recognition policies according to its own production and operation characteristics. For the specific accounting policies, refer to Notes V.24, V.30 and V. 39. 1. Statement on complying with the accounting standards for business enterprise The financial statements prepared by the Company in accordance with the requirements of accounting standards for enterprises truly and fully reflect the financial status of the Company as at June 30, 2020, and the relevant information, such as the operation result and cash flow for January to June, 2020. 2. Fiscal period The accounting period adopted by the Company is from January 1 to December 31 of the Gregorian calendar. 3. Business Cycle The Company's operating cycle is 12 months. 4. Recording Currency The Company and its domestic subsidiaries use Renminbi (CNY) as the function currency for book keeping. Except Switzerland based Montres Chouriet SA (hereinafter referred to as the "Swiss Company"), an overseas subsidiary of FIYTA Hong Kong Co., Ltd. (hereinafter referred to as "FIYTA HK"), has determined Swiss Franc as its recording currency for accounting in accordance with the currencies available in its major economic environment where it is operated. The other overseas subsidiaries, including FIYTA HK, Station-68 Limited (hereinafter referred to as “Station-68”), another subsidiary of FIYTA HK, have determined Hong Kong currency as their recording currency for accounting in accordance with the currencies available in their major economic environment where they are operated. Hong Kong currency will be converted into Renminbi while in preparing its financial statements. The currency the Grouptakes in preparation of these financial statements is Renminbi. 5. The accounting treatment on combination of enterprises under the joint control and not under the joint control (1) Combination of enterprises under the joint control For the combination of an enterprise under the joint control, the assets and liabilities of the merged party obtained by the merging party in process of consolidation are measured according to the book value of the merged party in the consolidated financial statements of the eventual controlling party on the date of merger, except for adjustment due to different accounting policies. The difference between the book value of the net assets which the merging party obtains and the book value of the consideration which it pays (or the total par value of the shares issued) shall adjust the capital reserve (capital stock premium). If the capital reserve (capital stock premium) is not sufficient to be offset, the retained earnings shall be adjusted. Combination of enterprises under the joint control realized in steps through repeated transactions In some financial statements, the share of the book value of the shareholders’ equity in the merged party enjoyable in the eventual controller's consolidated financial statements as at the consolidation day is taken as the initial investment cost of the long term equity investment; the difference between the initial investment cost of the long term equity investment and the sum of the book value of the long term equity investment before the consolidation plus the book value of the consideration newly paid for further acquiring the shares on the consolidation day is used to adjust the capital reserve (capital stock premium); if the capital reserve is not sufficient to be offset, the retained earnings should be adjusted. In the consolidated financial statements, the assets and liabilities of the merged party that the merging party obtains in a business combination shall be measured on the basis of their book value in the consolidated financial statements of the eventual controller on the date of combination except the adjustment carried out due to different accounting policies; difference between the sum of the book value of the investment held before the consolidation plus the book value of the consideration newly paid on the consolidation day is used to adjust the capital reserve (capital stock premium); if the capital reserve is not sufficient to be offset, the retained earnings should be adjusted. For the long term equity investment held before the merging party has acquired the control power over the merged party, the concerned profit and loss are recognized commencing from the latter of the day when the original equity is acquired and the day when the merging party and the merged party are under the eventual joint control to the date of combination; the movement of other comprehensive income and other owner’s equity respectively write down the retained earning or current profit and loss at the beginning of the period during the comparative statements. (2) Combination of enterprises not under the joint control For the combination of enterprises not under the joint control, the combination cost is the fair value of the assets, liabilities incurred or assumed and equity securities issued on the date of the acquisition for the purpose of acquiring the control over the acquired party. On the date of acquisition, the assets, liabilities and contingent liabilities of the acquired party are recognized based on the fair value. The difference between the combination cost and the fair value share of the identifiable net assets of the acquired party obtained in the merger is recognized as goodwill, and subsequent measurement is made according to the accumulated impairment provision deducted from the cost; the difference between the combination cost and the fair value share of the identifiable net assets of the acquired party obtained in the combination is recorded in the current profit and loss after review. Combination of enterprises not under the joint control realized in steps through repeated transactions In individual financial statements, the sum of the book value of the equity investment held by the acquired party before the acquisition date and the new investment cost on the purchase date shall be taken as the initial investment cost of the investment. For the equity investment held before the date of acquisition, other comprehensive income recognized by means of the equity method does not undergo accounting treatment by using the this part of other comprehensive income on the date of acquisition; in disposal of the investment, the accounting treatment is carried out on the same basis used by the invested entity in direct disposal of the relevant assets or liabilities; the owner's equity recognized as a result of changes in owner's equity other than the net profit and loss of the investee, other comprehensive income and profit distribution are transferred to the current profit and loss during the disposal of the investment. If the equity investment held before the acquisition date is measured at fair value, the accumulated fair value change originally included in other comprehensive income is transferred to the current profit and loss when it is calculated according to the cost method. In the consolidated financial statement, the combined cost is the sum of the consideration paid on the acquisition date and the fair value of the equity held by the acquired party prior to the acquisition date. The equity held by the acquired party before the acquisition date is re-measured according to the fair value of the equity on the acquisition date, and the difference between the fair value and the book value is recorded in the current income; the equity held by the acquired party before the acquisition date involves other comprehensive income, and changes in other owners' equity converted into current income on the acquisition date, except for other comprehensive income generated by changes in net liabilities or net assets of the investee due to re-measurement of the defined income plan. (3) Disposal of the relevant transaction expenses in business combination Intermediary fees in connection with audit, law service, appraisal and consulting, etc. incurred to the business combination and other relevant administrative fees are counted to the current profit and loss at the time of incurrence. The transaction costs of equity securities or debt securities issued as merger consideration are included in the initial confirmation amount of equity securities or debt securities. 6. Method of preparing consolidated financial statements (1) Consolidation scope The consolidation scope of the consolidated financial statements is determined on the basis of control. Control refers to that the Company has he power over the investee, enjoys variable return by participating in the relevant activities of the investee and is able to impact the amount of return by using the power to the investee. A subsidiary refers to the entity under control of the Company (including the dividable part, structured entity, etc. in the enterprise and the investee, etc.) (2) Method of preparing consolidated financial statements The consolidated financial statements are based on the financial statements of the Company and its subsidiaries, and prepared by the Company according to other relevant information. In preparing the consolidated financial statements, the accounting policies and accounting period of the Company and its subsidiaries are required to maintain consistent, and the significant inter-company transactions and balances are written off. The newly increased subsidiary as well as business as a result of a business combination under joint control during the reporting period, it is deemed that the subsidiaries and business are incorporated into the consolidation scope of the Company from the controlling date by the ultimate controlling party, and the operating results and cash flows from the date are included in the consolidated income statement and cash flow statement. The newly increased subsidiary as well as business as a result of a business combination not under joint control, the subsidiaries and business from the acquisition date and the income, expenses and profit as at the end of reporting period are included in the consolidated income statement, and the cash flow is included in the consolidated statement of cash flows. The part in the shareholders’ equity of the subsidiaries that did not belong to the Company shall be separately presented as minority interest under the shareholders’ equity in the consolidated balance sheet. The share attributable to minority interests of the subsidiaries in current profit and loss, shall be presented as “minority interests” under the net profit in the consolidated income statement. When the loss of the subsidiaries shared by minority shareholders exceeded the shares enjoyed by the minority shareholders in the owners’ equity of the subsidiaries in the beginning period, the balance shall offset the minority interests. (3) Acquisition of the minority shareholders’ equity of the subsidiaries Where the Company acquires a minority interest from a subsidiary’s minority shareholders or disposes of a portion of an interest in a subsidiary without a change in control, the transaction is treated as equity transaction, and the book value of shareholder’s equity attributed to the Bank and to the minority interest is adjusted to reflect the change in the Bank’s interest in the subsidiaries. The difference between the proportion interests of the subsidiary’s net assets being acquired or disposed and the amount of the consideration paid or received is adjusted to the capital reserve in the consolidated balance sheet, with any excess adjusted to retained earnings. (4) Losing control over the subsidiary When the Company loses control over subsidiary because of disposing part of equity investment or other reasons, the remaining part of the equity investment is re-measured at fair value at the date when losing control over the subsidiary. A gain or loss is recognized in profit or loss for the current period and is calculated by the aggregate of the consideration received in disposal and the fair value of remaining part of the equity investment deducting the share of carrying value of net assets in proportion to previous shareholding percentage in former subsidiary since acquisition date and the goodwill. Other comprehensive income related to the former subsidiary is transferred to profit or loss for the current period when the control is lost, except for the comprehensive income arising from the movement of net liabilities or assets in the former subsidiary’s re-measurement of defined benefit plan. 7. Classification of Joint Venture Arrangements and Accounting Treatment of Joint Operations The joint venture arrangement refers to an arrangement between two or more parties control jointly. The joint venture of the Group was divided in co-operation and joint venture. (1) Joint Operation Joint operation refers to the joint venture arrangement in which the Group enjoys the assets related to the arrangement and assumes the liabilities related to the arrangement. The Group recognizes the following items related to the interests of the joint operation, and the accounting treatment is in accordance with the related accounting standards for enterprises: A. Confirmed the assets held individually and the common assets held in accordance with the shares; B. Confirmed the liabilities assumed separately and liabilities shared commonly in accordance with the shares; C. Confirmed income from the sale of joint operation shares; D. Confirmed income from the joint operation in accordance with the shares; E. Recognized expense occurred separately and confirmed the costs of joint operation in accordance with the shares. (2) Joint Venture Joint venture refers to the joint venture arrangements that the Group only has the rights of arranged net assets. The accounting treatment of the joint venture investment in the Group was in accordance with long-term equity investment on equity method. 8. Standard for confirming cash and cash equivalent Cash refers to the cash in stock of the Company and the deposit in hand available for payment at any time. The Company takes short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value as cash equivalents. 9. Foreign currency transactions and translation of foreign currency statements (1) Foreign Currency Translation For the foreign currency businesses incurred in the Group, the amount in a foreign currency shall be translated into amount in the functional currency at the spot exchange rate of the transaction date. On the date of balance sheet, foreign currency monetary items should be translated into functional currency using the spot exchange rate at the balance sheet date. Exchange differences arising from the spot exchange rates at the balance sheet date being different from those at which the monetary items were translated on initial recognition during the period or those of previous balance sheet dates should be recognized in current period profit and loss. Non-monetary items that are measured at historical cost are still using the spot exchange rate at the transaction date. Non-monetary items that are measured at fair value adopts the spot exchange rates at the date when the fair value was determined, and the exchange differences thus arising should be recognized in the profit or loss for the period. (2) Translation of Foreign Currency Financial Statement On the balance sheet date, when the foreign currency financial statements of overseas subsidiaries are translated, the spot exchange rate on the balance sheet date shall be used for the translation of the assets and liabilities items, and the spot exchange rate on the date of incurrence shall be used for the translation of the shareholders' equity items except the "retained earnings". The items of incomes and expenses in the profit statement are translated at the current average exchange rate on the transaction occurring date. All the items in the cash flow statement are translated based on the spot rate of the day of incurrence of the cash flow. The amount of influence of exchange rate changes on cash is taken as the adjustment item, and the item of "influence of exchange rate changes on cash and cash equivalents" is separately listed in the cash flow statement. The difference resulting from the translation of the financial statements is reflected under the "Other comprehensive income" under the item of stockholders' equity in the balance sheet. If overseas operation is disposed and the control right is lost, the translated difference of foreign currency statements as listed under the item of stockholder's equity in balance sheet and related to overseas operation is transferred fully or at the ratio of disposing the overseas operation into the current profits and losses from disposal. 10. Financial instruments Financial instruments refer to any contract that gives rise to a financial asset of the Bank and a financial liability or equity instrument of other entities. (1) Recognition and derecognition of financial instruments A financial asset or financial liability is recognized when the Group becomes a party to a financial instrument contract. A financial asset is derecognized when one of the following criteria is met: ① the contractual rights to the cash flows from the financial asset expire; ② The Company transfers the financial asset and the transfer qualifies under the criteria for the derecognition of financial assets prescribed by transfer of financial assets as stated below. The Company should derecognize a financial liability or part of a financial liability when the present obligation associated with the financial liability ceases or partly ceases. The Group (debtor) enters into an agreement with a creditor so as to substitute the existing financial liabilities by way of any new financial liability, and if the contractual stipulations regarding the new financial liability is substantially different from that regarding the existing financial liability, it shall terminate the recognition of the existing financial liability, and shall at the same time recognize the new financial liability. The financial assets purchased or sold in any conventional manner are made accounting confirmation and termination of confirmation on the date of transaction. (2) Classification and measurement of financial assets In the initial recognition, the Group classifies financial assets into the following three categories according to the business model of financial assets management and the contractual cash flow characteristics of financial assets: financial assets measured at amortized cost, financial assets measured at fair value and whose movements are included in other comprehensive income, and financial assets measured at fair value and whose movements are included in current profit and loss. Financial assets measured based on the amortized cost The Group shall also meet the following conditions and is not designated as a financial asset measured at fair value and its movements recorded in the current profit and loss, classified as a financial asset measured at the amortized cost: The business model of the Group to manage the financial assets is to collect the contract cash flow as the target; According to the contractual terms of the financial asset,the cash flow created on the specific date is exclusively for payment of the principal and the interest based on the outstanding amount of the principal. After the initial recognition, the effective interest rate method is adopted to measure the financial assets by amortized cost. Profit or loss of financial assets measured at the amortized cost but not belonging to part of any hedge relationship is recorded in the current profit and loss upon termination of recognition, amortization or recognition of the impairment in accordance with the effective interest rate method. Financial assets measured at fair value with the movement recorded in the other comprehensive income. The Group classifies the financial assets that as well meet the following conditions and not designated as fair value-measured financial assets and whose movement is recorded in the current profit and loss as the financial assets that are measured at fair value and whose movement is recorded in other comprehensive income: The Group’s business model for managing the financial asset is aimed at both collecting contractual cash flow and selling the financial asset according to the contractual terms of the financial asset,the cash flow created on the specific date is exclusively for payment of the principal and the interest based on the outstanding amount of the principal. After the initial recognition, subsequent measurement of such financial assets is carried out at fair value. Interest, loss from impairment loss or profit calculated by the effective interest rate method and exchange profit and loss are recorded in the current profit and loss, while other profit and loss are recorded in other comprehensive income. When the recognition is terminated, the accumulated profit or loss included in other comprehensive income before is transferred out from other comprehensive income and included in the current profit and loss. Financial assets measured at fair value with the movement recorded in the current profit and loss Except for the above-mentioned financial assets measured at amortized cost and at fair value with movement included in other comprehensive income, the Group classifies all other financial assets as financial assets at fair value with movement included in current profits and losses. At the time of initial recognition, in order to eliminate or significantly reduce accounting mismatches, the Group irrevocably designates some financial assets that should be measured at amortized cost or at fair value and whose movement is included in other comprehensive income as being measured at fair value and its movement included in the financial assets of the current profit and loss. After initial recognition, such financial assets are subsequently measured at fair value, and the resulting profit or loss (including interest and dividend income) are included in the current profit and loss, unless the financial assets are part of the hedging relationship. However, for non-trading equity instrument investments, the Group irrevocably designates them as financial assets measured at fair value and whose movement is included in other comprehensive income at the time of initial recognition. The designation is made on the basis of a single investment, and the related investment meets the definition of an equity instrument from the issuer's perspective. After the initial recognition, subsequent measurement of such financial assets is carried out at fair value. Dividend income meeting the conditions is included in profit and loss, and other profit or loss and the movement of the fair value are included in other comprehensive income. When the recognition is terminated, the accumulated profit or loss included in other comprehensive income before is transferred out from other comprehensive income and included in the retained earnings. The business model of managing financial assets refers to how the Group manages financial assets to generate cash flow. The business model determines whether the source of the cash flow of the financial assets managed by the Group is to collect contractual cash flows, sell financial assets or a combination of both. The Group determines the business model for managing financial assets based on objective facts and the specific business objectives of managing financial assets determined by key management personnel. The Group evaluates the contractual cash flow characteristics of financial assets to determine whether the contractual cash flow generated by the relevant financial assets on a specific date is only the payment of principal and interest based on the outstanding principal amount. Where the principal refers to the fair value of financial assets at the time of initial recognition; interest includes consideration for the time value of money, credit risks related to the outstanding principal amount in a specific period, and other basic borrowing risks, costs and profits. In addition, the Group evaluates contract terms that may lead to changes in the time distribution or amount of contractual cash flows of financial assets to determine whether they meet the above-mentioned contractual cash flow characteristics. Only when the Group changes the business model of managing financial assets, all affected financial assets will be reclassified on the first day of the first reporting period after the business model is changed; otherwise the financial assets shall not be reclassified after initial recognition. Financial assets are measured at fair value at the tune of initial recognition. For the financial assets measured at fair value with the movement counted to the current profit and loss, the relevant transaction expenses are directly included in the current profit and loss; the relevant transaction expenses for other categories of financial assets are counted to the amount of the initial recognition. For accounts receivable arising from the sale of products or the provision of labor services that do not contain or consider significant financing components, the amount of consideration that the Group is expected to be entitled to receive is the initial confirmation amount. (3) Classification and measurement of financial liabilities In the initial recognition, financial liabilities are classified as the financial liabilities measured at the amortized cost and that measured at fair value with the movement counted to the current profit and loss. For the financial assets which have not been classified as those measured at fair value with the movement counted to the current profit and loss, the relevant transaction expenses are directly counted to the amount of the initial recognition. Financial liabilities measured at fair value with the movement recorded in the current profit and loss Financial liabilities measured at their fair value with the movement counted to the current profit and loss include transactional financial liabilities and the financial liabilities measured at fair value with the movement counted to the current profit and loss directly designated at the initial recognition. For such financial liabilities with the follow-up measurement carried out at fair value, the profit or loss formed due to the movement of the fair value and dividends and interest expenses related to these financial liabilities included in the current profit and loss. Financial liabilities measured based on the amortized cost The gains or losses generating in case of terminated confirmation, occurrence of devaluation or amortization are included in the current profits and losses. Distinction between financial liabilities and equity instruments Financial liabilities refer to liabilities that meet one of the following conditions: ① Contractual obligations to deliver cash or other financial assets to other parties. ②Under a potentially unfavorable condition, the contractual obligation to exchange financial assets or financial liabilities with other parties. ③ A non-derivative contract that must use or may use the Company’s own equity instruments for settlement in the future, and the Company shall deliver a variable amount of its own equity instrument according to the contract. ④ A derivative instrument contract that must use or may use the Company’s own equity instruments for settlement in the future, except for derivative instrument contract that exchanges a fixed amount of cash or other financial assets for a fixed amount of its own equity instruments. Equity instrument refers to the contract that can certify possession of the residual equity of the Company in the assets after deducting all liabilities. If the Group cannot unconditionally avoid the delivery of cash or other financial assets to perform a contractual obligation, the contractual obligation meets the definition of a financial liability. If a financial instrument must use or may use the Group’s own equity instruments for settlement, it is necessary to consider whether the Group’s own equity instruments are used as a substitute for cash or other financial assets to settle the instrument, or to enable the holder of the instrument to enjoy the residual equity in the issuer's assets after deducting all the liabilities. If it is the former, the instrument is a financial liability of the Group; if it is the latter, the instrument is an equity instrument of the Group. (4) Fair value of financial instruments Fair value refers to the price that a market participant can receive from selling an asset or is payable for transferring a liability in the orderly transactions occurring in the date of measurement. The Group measures related assets or liabilities at fair value, assuming that the orderly transaction of selling assets or transferring liabilities takes place in the main market of related assets or liabilities; if there is no main market, the Group assumes that the transaction is most beneficial to the market of the related assets or liabilities. The main market (or the most favorable market) is the trading market that the Group can enter on the measurement date. The Group adopts the assumptions used by market participants to maximize their economic benefit when pricing the asset or liability. For financial assets or financial liabilities in an active market, the Group uses quoted prices in the active market to determine their fair value. If there exists no active market for a financial instrument, the Group uses valuation techniques to determine its fair value. When non-financial assets are measured at fair value, the ability of market participants to use the asset for the best use to generate economic benefits, or the ability to sell the asset to other market participants who can be used for the best use to generate economic benefits is taken into consideration. The Group adopts valuation techniques that are applicable under the current circumstances and have sufficient available data and other information to support, take priority to use the relevant observable input values; use unobservable input values only if the observable input values are not available or not practicable. For assets and liabilities that are measured or disclosed at fair value in financial statements, the fair value level to which they belong is determined based on the lowest level of input value that is important for fair value measurement as a whole: the input value of the first level is the unadjusted quotation of the same asset or liability in the active market that can be obtained on the measurement date; the second-level input value is the directly or indirectly observable input value of related assets or liabilities other than the first-level input value; the input value of the third level is the unobservable input value of the related assets or liabilities. On each balance sheet date, the Group re-evaluates the assets and liabilities recognized in the financial statements that are continuously measured at fair value to determine whether there is a conversion between the fair value measurement levels. (5) Impairment of financial assets Based on expected credit losses, the Group performs impairment accounting treatments on the following items and recognizes the provision for loss: Financial assets measured based on the amortized cost; Creditor's rights investment measured at fair value with the movement counted in the other comprehensive income; Measurement of the predicted credit loss Expected credit loss refers to the weighted average of the credit loss of financial instruments weighted based on the risk of default. Credit loss refers to the difference between all contractual cash flows receivable under the contract and all cash flows expected to be received by the Group discounted at the original effective interest rate, that is, the present value of all cash shortages. The Group measures the expected credit losses of financial instruments at different stages. If the credit risk has not increased significantly since the initial recognition, the financial instrument is at the first stage, and the Group measures the provision for the loss according to the expected credit loss within the next 12 months; if the credit risk has increased significantly since the initial confirmation but impairment of the credit has not yet occurred, the financial instrument is at the second stage, the Group measures the provision for the loss according to the expected credit loss of the financial instrument for the entire duration; if impairment of the credit has taken place after the initial recognition, the financial instrument is at the third stage, and the Group measures the provision for the loss according to the expected credit loss of the financial instrument for the entire duration. For financial instruments with lower credit risk on the balance sheet date, the Group assumes that its credit risk has not increased significantly since the initial recognition, and measures the provision for the loss according to the expected credit loss within the future 12 months. The expected credit loss for the entire duration refers to the expected credit loss caused by all possible default events that may occur during the entire expected lifetime of a financial instrument. Expected credit loss in the next 12 months refers to the expected credit loss caused by the event of a financial instrument default that may occur within 12 months after the balance sheet date (if the expected duration of the financial instrument is less than 12 months, then the expected duration). It is part of the expected credit loss in the entire duration. When measuring expected credit losses, the longest period that the Group needs to consider is the longest contract period for which the Group faces credit risk (including the consideration of the option of renewal). For the financial instrument at the first stage or the second stage or with lower credit risk, the Group calculates the interest income according to the book balance without deduction of the provision for impairment and the effective interest rate. For the financial instrument at the third stage, the Group calculates the interest income according to the book balance less the amortized cost after provision for the impairment and effective interest rate Regarding notes and accounts receivable, regardless of whether there is a significant financing component, the Group always measures its provision for loss at an amount equivalent to expected credit losses during the entire duration. The Group divides the portfolio of notes receivable and accounts receivable based on credit risk characteristics, and calculates the expected credit losses on the basis of the portfolio. The basis for determining the portfolio is as follows: A. Notes receivable Notes receivable portfolio 1: Bank acceptance Notes receivable portfolio 2: Trade acceptance B. Accounts receivable Accounts receivable portfolio 1: Receivables from related parties within the scope of consolidation Accounts receivable portfolio 2: Accounts receivable from other customers For notes receivable and accounts receivable divided into portfolios, the Group refers to historical credit loss experience with combination of the current conditions and forecasts of future economic conditions, and compiles a comparison table of accounts receivable aging and the entire duration of expected credit loss rate, and calculate the expected credit loss. Other receivables The Group divides the portfolio of other receivables based on credit risk characteristics, and calculates the expected credit losses on the basis of the portfolio. The basis for determining the portfolio is as follows: Other receivables portfolio 1: Deposit and margin receivable Other receivables portfolio 2: Reserve receivable from employees Other receivables portfolio 3: Advance for another to the social insurance premium receivable Accounts receivable portfolio 4: Receivables from related parties within the scope of consolidation Other receivables portfolio 5: Other receivables For other receivables classified into portfolios, the Group calculates expected credit losses based on the default risk exposure and the expected credit loss rate within the next 12 months or the entire duration. Creditor’s rights investment and other creditor’s right investment For creditor’s right investments and other creditor’s right investments, the Group calculates the expected credit loss with reference to the nature of the investment according to various types of counterparties and risk exposures, through the default risk exposure and the expected credit loss rate within the next 12 months or the entire duration loss. Assessment of a significant increase in credit risk The Group compares the default risk of financial instruments on the balance sheet date and the risk of default on the initial recognition day to determine the relative change in the default risk of the financial instrument during the expected life of the financial instrument to assess whether the credit risk of the financial instrument has increased significantly since the initial recognition. When determining whether the credit risk has increased significantly since the initial recognition, the Group considers reasonable and evidence-based information that can be obtained without unnecessary additional costs or efforts, including forward-looking information. The information the Group concerns includes: A debtor has failed to pay the principal and interest on the due date of the contract; A serious deterioration in the external or internal credit rating (if any) of the financial instrument that has occurred or is expected; A serious deterioration in the debtor’s operating results that has occurred or is expected; The existing or anticipated changes in technology, market, economic or legal environment will have a significant adverse impact on the debtor's ability to repay the Group. According to the nature of financial instruments, the Group assesses whether the credit risk has increased significantly on the basis of individual financial instruments or a combination of financial instruments. When evaluating financial instruments based on a portfolio of financial instruments, the Group may classify financial instruments based on common credit risk characteristics, such as overdue information and credit risk ratings. Financial assets which have experienced credit impairment On the balance sheet date, the Group assesses whether financial assets measured at amortized cost and debt investments measured at fair value with the movement included in other comprehensive income have experienced credit impairment. When one or more events that have an adverse effect on the expected future cash flow of a financial asset occur, the financial asset becomes a financial asset with credit impairment. Evidence of credit impairment of financial assets includes the following observable information: The issuer or debtor has experienced serious financial difficulty; The debtor has violated the contract, such as the payment of the interest or the principal in default or overdue, etc.; Due to economic or contractual considerations related to the debtor’s financial difficulty, the Group gives the debtor concession that the debtor may not make under any other circumstances; The debtor is likely to go into liquidation or carry out other financial restructuring; The issuer or debtor’s financial difficulty caused the disappearance of the active market for the financial asset. Presentation of the provision for the predicted credit loss In order to reflect the changes in the credit risk of financial instruments since the initial recognition, the Group re-measures expected credit losses on each balance sheet date, and the resulting increase in loss provision or the amount of reversal shall be counted as impairment loss or profit in the current profit and loss. For financial assets measured at amortized cost, the reserve for loss is deducted from the book value of the financial asset listed in the balance sheet; for creditor’s right investments which is measured at fair value and whose movement is included in other comprehensive income, the Group recognizes the provision for the loss in other comprehensive income, and the book value of the financial asset is not offset. Writing-off If the Group no longer reasonably expects that the contractual cash flow of a financial asset can be recovered in full or in part, it will directly write down the book value of the financial asset. Termination of recognition of the relevant financial assets formed from such writing-down This situation usually occurs when the Group determines that the debtor has no assets or sources of income that can generate sufficient cash flow to repay the amount to be written down. However, in accordance with the Group's procedures for recovering due payments, the financial assets that have been written down may still be affected by execution activities. If the written-down financial assets are later recovered, they shall be included in the current profit and loss as the reversal of the impairment loss. (6) Transfer of financial assets Transfer of financial assets refers to when the Group(the transferor) transfers or delivers a financial asset to a party (the transferee) other than the issuer of the financial asset. The Group derecognizes a financial asset when it transfers substantially all the risks and rewards of ownership of the asset to the transferee, and the Group does not derecognize a financial asset when it retains substantially all the risks and rewards of ownership of the asset. If the Group has neither transferred nor kept substantially all of risks and remunerations on the ownership of the financial asset, treatment is made respectively based on the following conditions: in case control over the financial asset has been given up, recognition of that financial asset as well and the assets and liabilities generated are terminated; in case control over the financial asset has not been given up, relevant financial assets are recognized based on the extent continually involved with the transferred financial asset, and relevant liabilities are recognized accordingly. (7) Setoff of financial assets and financial liabilities When the Group has the legal rights of setting off the recognized financial assets and financial liabilities and can currently these legal rights now, and if the Group has the plan to settle with net amount or synchronously realize these financial assets and discharge these financial liabilities, the financial assets and financial liabilities are listed in the balance sheet with the amount after mutual set-off. Except that, financial assets and financial liabilities are listed respectively in the balance sheet and are not set off mutually. (8) Financial instruments that bear the risk of exchange rate fluctuation Exchange rate risk refers to the risk of fluctuations in the fair value of financial instruments or future cash flows due to movement in foreign exchange rates. Exchange rate risk may be derived from financial instruments denominated in foreign currencies other than the functional currency. The Company's overseas subsidiaries are mainly settled in Hong Kong dollars and Swiss francs. The Company's monetary assets and liabilities denominated in foreign currencies are all affected by the risk of foreign currency exchange rate fluctuations. 11. Notes receivable For the detail, refer to Note V. Important Accounting Policies and Accounting Estimates and 10. Financial Instruments. 12. Accounts receivable For the detail, refer to Note V. Important Accounting Policies and Accounting Estimates and 10. Financial Instruments. 13. Financing with accounts receivable Inapplicable 14. Other receivables Determination and accounting treatment of the predicted credit loss of other receivables For the detail, refer to Note V. Important Accounting Policies and Accounting Estimates and 10. Financial Instruments. 15. Inventories (1) Classification of Inventories The Group’s inventories are classified into raw materials,products-in-process and commodity in stock,etc. (2) Valuation of Inventories Delivered The Group's inventories are priced according to the actual cost. Raw materials, commodity in stock, etc. are priced respectively according to the weighted average (with brand world watch stocks exclusive), specific identification (for famous brand watch stocks) at the time of delivery. (3) Basis for determining net realizable value of inventories and method for providing reserve for price falling of inventories The net realizable value of the inventories refers to the amount of the estimated sales price of the inventory less the estimated sales costs to incur at the time of completion, estimated sales expenses and relevant taxes. In determining the net realizable value of inventory, with the obtained valid evidence as the base, the purpose of holding the inventory and the influence from the events after the balance sheet date is taken into consideration at the same time.. On the balance sheet date, if the cost of inventories is higher than its net realizable value, provision for falling prices of inventories is made. The Group makes provision for inventory depreciation for self-produced FIYTA watch inventory according to model classification, and makes provision for inventory depreciation for brand watches sold in accordance with individual inventory items. On the balance sheet date, if the factors affecting the previous write-down of the inventory value have disappeared, the provision for price falling of inventory shall be reversed within the amount originally provided. (4) Inventory system The Company adopts the perpetual inventory system in inventory accounting. (5) Amortization of low value consumables and packing materials Low value consumables and packing materials are amortized in lump sum at the time of reception. 16. Contract assets 1. Method and criteria for confirmation of contract assets The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between performance obligations and customer payments. The Company is entitled to receive consideration for the transfer of goods or services to customers (while such right depends on other factors other than the passage of time) listed as contract assets. Contract assets and liabilities under the same contract are presented in net. The Company's right to unconditionally (only depending on the passage of time) collect consideration from the customers are separately stated as accounts receivable. 2. Recognition and accounting treatment of the predicted credit loss of contract assets For details on the recognition and accounting treatment method of the predicted credit losses of contract assets, please refer to the accounting treatment of accounts receivable under the new financial instrument standards in Note V. 10 Testing Methods of Financial Asset Impairment and Accounting Treatment Method. 17. Contract cost The contract costs include the incremental cost incurred in obtaining the contract and the cost for performance of the contract. The incremental cost incurred in obtaining the contract refers to the cost which will not incur as long as the Group does not obtain the contract (such as sales commission, etc.) If the cost is expected to be recoverable, the Group recognizes it as a contract acquisition cost as an asset. The Group's expenses incurred in obtaining the contract other than the incremental cost expected to be recovered are included in the current profit and loss when incurred. If the cost incurred in implementing the contract does not fall within the scope of other accounting standards and regulations such as inventory and meets the following conditions at the same time, the Group shall recognize it as an asset as the contract performance cost: ① The cost is directly related to a current or expected contract, including direct labor, direct materials, manufacturing expenses (or similar expenses), clearly borne by the customer, and other costs incurred solely due to the contract; ② This cost increases the Group's resources for future performance obligations; ③ This cost is expected to be recoverable. Assets recognized for contract acquisition costs and assets recognized for contract performance costs (hereinafter referred to as "assets related to contract costs") are amortized on the same basis as the revenue recognition of goods or services related to the asset and included in the current profit and loss. (If the amortization period does not exceed one year, it shall be included in the current profit and loss when it incurs.) When the book value of the asset related to the contract cost is higher than the difference between the following two items, the Group makes provision for impairment of the excess part and recognizes it as an asset impairment loss: ①The residual consideration that the Group expects to obtain due to the transfer of the goods or services related to the asset; ② The costs that shall incur for transferring the related goods or services as estimated. The contract performance cost recognized as an asset is presented in the item of “inventories” with the amortization period not exceeding one year or one normal business cycle at the initial recognition, while it is presented in the item of "other non-current assets" with the amortization period not exceeding one year or one normal operation cycle. The contract acquisition cost recognized as an asset is presented in the item of “other current assets” with the amortization period not exceeding one year or one normal business cycle at the initial recognition, while it is presented in the item of "other non-current assets" with the amortization period not exceeding one year or one normal operation cycle at the initial recognition. 18. Classified as assets held for sale Inapplicable 19. Equity investment Inapplicable 20. Other equity investment Inapplicable 21. Long term accounts receivable Inapplicable 22. Long-term equity investments Long-term equity investments include equity investments in subsidiaries, joint ventures and associates. Those that the Group may exert significant influence on the investees are associates of the Group. (1) Recognition of initial investment cost Long-term equity investment that forms a business combination: For a long-term equity investment acquired through a business combination involving enterprises under joint control, the initial investment cost of the long-term equity investment is the absorbing party’s share of the book value of the owners’ equity of the party being absorbed at the date of combination; for a long-term equity investment acquired through a business combination involving enterprises not under joint control, the initial investment cost of the long-term equity investment is the merge cost. For a long-term equity investment acquired through other ways rather than a business combination: long-term equity acquired by cash paid, the initial investment cost is the actual payment; long-term equity acquired by the issuing of equity securities, the initial investment cost is the fair value of the equity securities. (2) Subsequent Measurement of Long-term Equity Investment Where the Bank can exercise joint control over the investee, a long-term equity investment is accounted for using the cost method and a long-term equity investment is accounted for using the equity method for associated enterprises and joint ventures. For long-term equity investments accounted for in the cost method, except for payments made actually from the investments or cash dividends or profits contained in the consideration which have been declared but not yet paid, the cash dividends or profits which have been declared distribution by investees are recognized and recorded in the current profit and loss as investment gains. For long term equity investment calculated by the equity method, if the initial cost of a long-term equity investment is greater than the investor’s attributable share of the fair values of the net identifiable assets of the investee enterprise at the acquisition date, no adjustment is made to the initial investment cost. If the initial cost of a long-term equity investment is less than the investor’s attributable share of the fair value of the net identifiable assets of the investee enterprise at the acquisition date, the difference is charged to profit or loss for the current period, and the cost of the long-term equity investment is adjusted accordingly. When the equity method is used for calculation, the net gains and losses realized by the investee and the share of the other comprehensive income enjoyable or sharable shall be respectively used to recognize the return on investment and other comprehensive income and at the same time the book value of the long term equity investment is adjusted; according to the profit announced for distribution by the investee or the part of the cash dividend enjoyable upon calculation, the book value of the long term equity investment is reduced correspondingly. For other change in the net profit and loss, other comprehensive income and owner's equity other than the profit distribution, the book value of the long term equity investment is adjusted and counted to the capital reserve (other capital reserve). In recognizing the share of the net profit or loss of an investee enjoyable by the Company, the Company takes the fair value of the distinguishable net assets of the investee at the time of investment as the base and recognizes it after the net profit of the investee has been recognized after adjustment. If due to additional investment or other reasons, it is possible to exert significant influence on the investee or implement joint control but does not constitute control, on the conversion date, the total of the fair value of the original equity plus the new investment cost shall be used as the initial investment cost calculated according to the equity method. The difference between the fair value and the book value of the original equity on the conversion date, and the accumulated fair value changes originally included in other comprehensive income are transferred to the current profit and loss accounted for by the equity method. If the joint control over or significant influence on the investee is lost due to the disposal of part of the equity investment, the remaining equity after the disposal shall undergo the accounting treatment according to the "Accounting Standards for Enterprises No. 22-Recognition and Measurement of Financial Instruments instead on the day when joint control or significant influence is lost. The difference between the fair value and the book value is counted in the current profit and loss. The other comprehensive income from the original equity investment calculated and recognized by means of the equity method undergoes accounting treatment by using the same base as the investee directly disposes the relevant assets or liabilities when the calculation based on the equity method is terminated; the movement of the other owner's equity in connection with the original equity investment is transferred into the current profit and loss. If the control over an investee is lost due to the disposal of part of the equity investment and other reasons, the residual equity after disposal may implement joint control or exert significant influence on the investee, the equity method may be used for accounting instead, and the remaining equity shall be regarded as self-acquisition, and the equity method shall be adopted for accounting adjustment; if the residual equity after disposal can no longer jointly control or exert significant influence on the investee, the accounting treatment shall be carried out in accordance with the relevant provisions of the Accounting Standards for Enterprises No. 22 - Recognition and Measurement of Financial Instruments, and the difference between the fair value and the book value on the day when the control is lost shall be recorded in the current profit and loss. If the Company’s shareholding proportion decreases due to the increase of capital by other investors so that its control power has lost but can still exercise joint control over or exert significant influence on the invested entity, the new shareholding proportion shall be used to confirm the Company’s share of the invested entity due to capital increase and the increase in the share of net assets due to share expansion and the difference between the original book value of the long-term equity investment corresponding to the decline in the shareholding proportion which should be carried forward is included in the current profit and loss; and subsequently according to the new shareholding proportion, it is deemed to be adjusted using the equity method when the investment is obtained The unrealized internal transaction profit and loss between the Group and associates and joint ventures are calculated based on the shareholding proportion attributable to the Group, and the investment profit and loss are recognized on the basis of offsetting. However, the loss from the unrealized internal transaction between the Group and an investee shall not be offset if the loss belongs to impairment of the assets assigned. (3) Recognition basis of the joint control over and significant influence upon an invested entity Joint control refers to the joint control over some arrangement made according to the relevant agreement and the relevant activities for the arrangement must be jointly decided by all the parties sharing the control power. In judging whether there exists joint control, firstly determine whether all the participants or a combination of participants collectively control the arrangement, and secondly determine whether the decision-making on the related activities of the arrangement must be unanimously agreed by the participants collectively controlling the arrangement. If all the participants or a group of participants must act in concert to determine the relevant activities of an arrangement, then all the participants or the group of the participants are considered as collectively in control of the arrangement; If there exists a portfolio of two or more participants that can collectively control an arrangement, it does not constitute joint control. When judging whether there exists joint control, the protective right enjoyed shall not be taken into consideration. Significant influence refers to the investor's power of participation in making an investee's financial and operation policies but the investor cannot control or jointly control with other parties to make such policies. When determining whether significant influence may be exerted on the investee, it is necessary to consider the influence from that the voting shares of the investee directly or indirectly held by the investor and the currently executable potential voting rights held by the investor and other parties are assumed to be convered into equity of the investee,including the influence of current convertible warrants, share options and convertible corporate bonds issued by the investee. When the company directly or indirectly through its subsidiaries owns more than 20% (including 20%) but less than 50% of the voting shares of the investee, it is generally considered to have a significant influence on the investee, unless there is clear evidence that this condition is not allowed to participate in the production and operation decision-making of the invested entity, which means no significant influence has formed; when the Group owns less than 20% (with 20% exclusive) of the voting shares of the investee, it is generally not considered to have a significant influence on the investee unless there is clear evidence that it can participate in the production and operation decision-making of the investee under such circumstances, which means significant influence has formed. (4) Method for testing the impairment and provision for impairment About the investment in subsidiaries, associates and joint ventures, see Note V.31 Method of Provision for Impairment of Assets 23. Investment based real estate Measurement model for investment real estate Measured based on the cost method Depreciation or amortization method About the depreciation method of investment based real estate and the depreciation method of fixed assets, see Note V.24. 24. Fixed asset (1) Recognition of fixed assets Fixed assets are tangible assets that are held for product production, supply of services, lease or operation and administration with useful life more than one fiscal year. A fixed asset shall be recognized only when it is probable that economic benefits associated with the asset will flow into the enterprise and the cost of the asset can be measured reliably. The Group's fixed assets are initially measured at the actual cost at the time of acquisition. (2) Depreciation methods Categories Depreciation methods Depreciation life Residual rate Yearly depreciation rate Plant & buildings Average service life method 20 -35 5% 4.80%-2.70% Machinery & equipment Average service life method 10 5%-10% 9.50%-9.00% Electronic equipment Average service life method 5 5% 19% Motor vehicle Average service life method 5 5% 19% Other equipment Average service life method 5 5% 19% (3) Basis for recognizing the fixed assets under financing lease, Pricing and Depreciation Methods Inapplicable 25. Construction-in-process The Group determines the cost of construction-in-process according to the actual expenditure incurred for the construction, including all necessary construction expenditures incurred during the construction period, borrowing costs that shall be capitalized before the construction reaches the condition for intended use and other relevant expenses. Construction-in-process is transferred to fixed assets when the asset is ready for its intended use. About the method of provision for asset impairment of construction-in-process, refer to Note V. 31. 26. Borrowing Costs 1. Principle for recognition of the capitalization of the borrowing costs If the borrowing costs incurred to the Group may be directly attributable to the purchase, construction or production of assets that meet the capitalization conditions, they shall be capitalized and included in the cost of the relevant assets; other borrowing costs are recognized as the expenses based on the amount incurred at the time of occurrence, and counted to the current profit and loss. If the borrowing costs meet the following conditions at the same time, they shall be capitalized: ① The asset disbursements have already incurred, which shall include the cash, transferred non-cash assets or interest bearing debts paid for the acquisition and construction or production activities for preparing assets eligible for capitalization; ② The borrowing costs have already incurred; and ③ The acquisition and construction or production activities which are necessary to prepare the asset for its intended use or sale have already started. (2) Capitalization period of borrowing costs: When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased. The borrowing costs incurred after the qualified asset under acquisition and construction or production is ready for the intended use or sale shall be recognized as expenses at the incurred amount when they are incurred, and shall be recorded into the current profits and losses. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. (3) Calculation for the capitalization rate and capitalization amount of the borrowing costs Interest expenses of special borrowings incurred actually for the current period less interest income from borrowings at bank or investment income from temporary investments is capitalized; capitalization amount is determined as accumulative asset expenditure of general borrowings over weighted average asset expenditure of special borrowings multiples capitalization rate of general borrowings. Capitalization rate is determined as calculating weighted average interest rate of general borrowings. In the capitalization period, exchange differences of special borrowings in foreign currency is totally capitalized; exchange differences of general borrowings in foreign currency is recognized in profit or loss for the current period. 27. Biological Assets Inapplicable 28. Oil and Gas Assets Inapplicable 29. Use right assets Inapplicable 30. Intangible assets (1) Pricing Method, Service Life and Impairment Test The Group's intangible assets include land use rights, software systems, trademark use rights, etc. Intangible assets are initially measured at cost and the useful life of an intangible asset is analyzed and defined at the time of acquisition of the asset. An intangible asset with a finite useful life should be amortized over its estimated useful life using an amortization method that can reflect the expected consumption pattern of the economic benefits associated with the asset, commencing from the time when the intangible asset is available for use. When the expected consumption pattern cannot be determined reliably the asset should be amortized based on a straight-line method. An intangible asset with an indefinite useful life should not be amortized. The method for amortization of intangible assets with limited service life is as follows: Categories Useful Life Amortization Method Remarks Land use right 50 Straight-line method Software system 5 Straight-line method Trademark rights 5 -10 Straight-line method At the end of each year, the Group shall review the service life and amortization method of intangible assets with limited service life. If the former estimate is different, the previous estimate shall be adjusted and treated as the change of the accounting estimate. If an intangible asset is no longer expected to bring future economic benefits to the enterprise on the balance sheet date, the book value of the intangible asset shall be transferred into the current profit and loss. About the method of provision for asset impairment of intangible assets, refer to Note V. 31. (2) Accounting policy for internal research and development expenditure The internal research and development expenditures of the Group are divided into research expenditures and development expenditures. Expenditures on research phase are recorded into profit or loss when it occurred. Expenditure in development stage can be capitalized while meeting the following conditions, i.e. completing the intangible asset so that it is technically feasible to use or sale; has the intent to complete the intangible asset and use or sell it; the way of the intangibles to generate economic benefits, including being able to prove that the products that produced with the use of the intangibles have market or the intangible asset itself has market, the intangible assets will be used internally, and can prove its usefulness; have adequate technical, financial resources and other resources support to complete the development of the intangible assets, and have the ability to use or sell the intangible asset; the expenditure attributable to the intangible asset development phase can be reliably measured. Development expenditure does not meet the above conditions are recognized in the current profit and loss. When the Group’s research and development projects meet the above conditions, through technical feasibility and economic feasibility studies, the development stage begins after project is approved. Expenditures on the development phase after capitalization is listed on the balance sheet as development expenditure and transferred to intangible assets after the project reach its intended use. 31. Impairment of long term assets The impairment of subsidiaries, associates and joint ventures in the long-term equity investments, foreclosed assets, investment property subsequently measured at cost model, fixed assets, construction in progress, and intangible assets (with inventories, deferred income tax asset and financial assets exclusive) are determined as follows: At each balance sheet date, the Group determines whether there may be indication of impairment of the assets, if there is any, the Group will estimate the recoverable amount of the asset, and perform test for impairment. For goodwill and the intangible assets with the service life undetermined and the intangible assets which have not reached applicable status, regardless whether there exists sign of impairment, the Group makes impairment test every year. The recoverable amount shall be determined according to the net amount of the fair value of an asset minus the disposal expenses, and the current value of the expected future cash flow of the asset, whichever is higher. The recoverable amount of asset is estimated on individual basis. If it is not possible to estimate the recoverable amount of the individual asset, the Bank determines the recoverable amount of the asset group to which the asset belongs. The recognition of an asset group shall base on whether the main cash inflow generated by the asset group is independent of those generated by other assets or other group assets. When the asset or asset group’s recoverable amount is lower than its book value, the Group reduces its book value to its recoverable amount, the reduced amount is recorded in profit or loss for the current period and the provision for impairment of assets are recognized. As far as the goodwill impairment test concerned, the book value of the goodwill formed by merger is apportioned to the relevant asset group according to the reasonable method commencing from the date of acquisition; in case it is difficult to be apportioned to the relevant asset group, it is apportioned to the portfolio of the relevant asset groups. The relevant asset group or portfolio of asset groups are those which get benefit from the coordinative effect of enterprise consolidation but should not be greater than the reporting segment determined by the Group. When the relevant asset group or portfolio of asset groups with goodwill included undergo the impairment testing, in case there exists impairment evidence in the goodwill related asset group or portfolio of asset groups, impairment testing should be first conducted on the asset group or portfolio of asset groups without goodwill and the recoverable amount is calculated, and the corresponding impairment loss is recognized. Impairment testing is then conducted on the asset group or portfolio of asset groups with goodwill included. In comparison with the book value and recoverable amount, in case the recoverable amount is lower than the book value, the loss of goodwill impairment is recognized. The loss of asset impairment, once recognized, shall no longer be reversable in the future fiscal periods. 32. Long term expenses to be apportioned Long-term expenses to be apportioned occurred by the Group are priced according to the actual cost, and are amortized averagely according to the expected period of benefit. As for the long-term deferred expenses that can not benefit the future accounting period, the amortized value is recognized in the current profit and loss. 33. Contract liabilities The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between performance obligations and customer payments. The obligation of the Company to transfer goods or provide services to customers after receiving or receivable consideration from customers are listed as contractual liabilities. Contract assets and liabilities under the same contract are presented in net. 34. Employees’ Wages and Salaries (1) Accounting treatment of short term salaries During the accounting period in which the employees render services to the Group, the Group recognizes the actual wages, bonuses, medical insurance premiums, work-related injury insurance premiums, maternity insurance premiums and other social insurance premiums and housing provident funds paid for the employees in accordance with the prescribed standards and proportions as liabilities which are included in the current profit and loss or related asset costs. If the liability is not expected to be fully paid within twelve months after the end of the annual reporting period in which employees have rendered the related services while the financial impact is significant, the liability will be measured at the discounted amount. (2) Post-employment benefits A post-employment benefit plan consists of the defined contribution plan and the defined benefit plan. Where, the defined contribution plan refers to a post-employment benefit plan in which the Company no longer assumes further payment obligation after paying fixed fees to an independent fund; the defined benefit plan refers to a post-employment benefit plan other than the defined contribution plan. Defined Contribution Plans The defined contribution plan includes the basic pension insurance, unemployment insurance and enterprise annuity plans. In addition to basic pension insurance, the Group has established an enterprise annuity plan (the "annuity plan") in accordance with the relevant policies of the national enterprise annuity system, and employees may participate in the annuity plan voluntarily. With the exception of the above, the Group has no other significant social security commitments to employees. During the accounting period in which employees provide services to the Group, the amount of the deposits calculated based on the defined contribution plan is recognized as a liability and counted in the current profit or loss or related asset costs. The defined benefit plan For the defined benefit plan, an independent actuary performs actuarial valuation on the annual balance sheet date, and uses the expected cumulative benefit unit method to determine the cost of providing benefits. The employee compensation cost resulting from the defined benefit plan of the Group includes the following components: ① Service costs include current service costs, past service costs, and settlement profit or loss. Where, the current service cost refers to the increase in the present value of the defined benefit plan obligations caused by the employees providing services in the current period; past service costs refer to the increase or decrease in the present value of defined benefit plan obligations related to previous employee services as a result of modification of the defined benefit plan. ② Net interest on net liabilities or net assets of the defined benefit plan, including interest income on the plan assets, interest expense on the defined benefit plan obligations, and interest on the asset cap effect. ③ Movement of the net liabilities and net assets re-measured for setting the beneficial plan. Unless other accounting standards require or permit the cost of employee benefits to be included in the cost of assets, the Group will include the above Items ① and ② in the current profit and loss; Item ③ will be included in other comprehensive income and will not be converted back to profit and loss in subsequent accounting period. The part originally included in other comprehensive income will be carried forward to the retained earnings within the scope of equity at the end of the original defined benefit plan. (3) Accounting treatment for termination benefits If the Group provides termination benefits to employees, the employee compensation liabilities arising from the termination benefits shall be recognized as soon as possible and included in the current profit and loss: when the Group cannot unilaterally withdraw the termination benefits provided due to the termination of the labor relationship plan or reduction proposal; when the Group confirms the costs or expenses related to the reorganization involving the payment of termination benefits. In the case of implementing an internal retirement plan, the economic compensation prior to the official retirement date shall be considered as termination benefit. During the period from the time when an employee ceases to render services to the day of normal retirement, the salary to the employee of internal retirement and the social insurance premium to be paid shall be recorded into the current profit and loss in a lump sum. The economic compensation after the official retirement date (such as normal old-age pension) shall be treated as post-employment benefits. (4) Accounting treatment for other long term employees' welfare Other long term employees' welfare provided by the Group to its employees shall undergo the accounting treatment according to the defined contribution plan as long as it complies with the defined contribution plan. If it meets the defined benefit plan, it shall be treated in accordance with the above relevant provisions of the defined benefit plan. However, in the relevant employee compensation cost, the part of "change caused by remeasurement of net liabilities or net assets of the defined benefit plan" shall be recorded into the current profit and loss or the cost of relevant assets. 35. Lease liabilities Inapplicable 36. Predicted liabilities If the obligation related to the contingencies meet the following conditions at the same time, the Group will recognize it as estimated liability: (1) The obligation is a current obligation of the Group; (2) The performance of this obligation is likely to lead to the outflow of economic benefit from the Group; (3)The amount of the obligation can be reliably measured. The estimated liabilities shall be initially measured in accordance with the best estimate of the necessary expenses for the performance of the current obligation, and the Bank shall take into full consideration of the risks, uncertainty, time value of money, and other factors pertinent to the Contingencies. If the time value of money is of great significance, the best estimate shall be determined after discounting the relevant future outflow of cash. On the balance sheet date, the Group re-checks the book value of the estimated debts and makes proper adjustment in order to reflect the best estimated amount at present. If the expenses for clearing of predictive liability is fully or partially compensated by a third party, and the compensated amount can only be received basically, it is recognized separated as asset. The compensated amount shall not be greater than the book value of the predictive liability. 37. Share-based payment (1) Type of share-based payment Share-based payments are divided into equity-settled share-based payment and cash-settled share-based payment. (2) Method for determining the fair value of equity instruments The Group determines the fair value of the equity instruments granted, such as options with an active market according to the price quoted in the active market. The fair value of equity instruments such as options without active market is determined by option pricing model. In selecting the option pricing model, the following factors have been taken into consideration: A. price for exercising the option; B. validity of the option; C. the current price of the underlying shares; D. the expected volatility of stock prices; E. the expected dividends on the shares; F. the risk-free interest rate within the term of the option. (3) Basis for determining the best estimate of the vested equity instruments On each balance sheet date during the vesting period, the Group may make best estimate based on the subsequent information, such as the movement of the number of employees eligible for exercising the rights as latest obtained and the number of the vested equity instruments is corrected. On the vesting date, the number of the final estimated vested equity instrument should be equal to the number of the actually vested equity instruments. (4) Relevant accounting treatment for implementation, amendment or termination of the share-based payment plan Share-based payment settled with equity is measured with the fair value of the employee's equity instruments at the grant date. If the right may be exercised immediately after the grant, the fair value of the equity instruments shall, on the date of the grant, be included in the relevant cost or expense and the capital reserves shall be increased accordingly. As to a equity-settled share-based payment in return for employee services, if the right cannot be exercised until the vesting period comes to an end or until the prescribed performance conditions are met, then on each balance sheet date within the vesting period, the services obtained in the current period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses and the capital reserves at the fair value of the equities instruments on the date of the grant. The Group shall, after the vesting date, make no adjustment to the relevant costs or expenses as well as the total amount of the owner's equities which have been confirmed. A cash-settled share-based payment shall be measured in accordance with the fair value of liability calculated and confirmed based on the shares or other equity instruments undertaken by the Group. As to a cash-settled share-based payment instruments, if the right may be exercised immediately after the grant, the fair value of the liability undertaken by the Group shall, on the date of the grant, be included in the relevant costs or expenses, and the liabilities shall be increased accordingly. As to a cash-settled share-based payment, if the right may not be exercised until the vesting period comes to an end or until the specified performance conditions are met, on each balance sheet date within the vesting period, the services obtained in the current period shall, based on the best estimate of the information about the exercisable right, be included in the relevant costs or expenses and the corresponding liabilities at the fair value of the liability undertaken by the Group. The fair value of the liabilities is re-measured and the movement is counted in the current profits and losses on each balance sheet date and settlement day before the settlement of related liabilities. When the Group amends the share-based payment plan, if the amendment increases the fair value of the equity instruments granted, the increase of the services obtained is recognized accordingly based on the increase of the fair value of the equity instruments. If the amendment increases the number of equity instruments granted, the fair value of the increased equity instruments is correspondingly recognized as increase in the services acquired. Increase of the fair value of the equity instrument refers to the difference between the fair value of the equity instrument on the amendment day before and after the amendment. If the amendment reduces the total fair value of the share-based payment or adopts any other method unfavorable to the employees, the service obtained will continue to undergo accounting treatment as if such amendment has never taken place unless the Group has canceled part or all of the granted equity instruments. If the granted equity instrument has been canceled (unless the non-market condition which does not satisfy the right of feasibility is cancelled)during the vesting period, the Group shall treat the cancellation of the granted equity instrument as accelerated vesting, the amount which should be recognized during the remaining vesting period is counted to the current profit and loss immediately and at the same time the capital reserve is recognized. If an employee or other party can choose to meet the non-vesting conditions but fails to meet the vesting period, the Group shall treat it as a cancellation of the granted equity instrument. 38. Other financial instruments, such as preferred shares, perpetual liabilities, etc. Inapplicable 39. Revenue The accounting policy used for revenue recognition and measurement The Company recognizes revenue when it has satisfied the performance obligation under the contract, that is, when the customer has obtained the right to control the relevant goods or services “Obtaining the right to control the relevant goods or services” means that it is able to dominate the use of the goods or services and derive almost all economic benefits therefrom. If a contract contains two or more performance obligations, the Company shall allocate the transaction price to each individual performance obligation in accordance with the relative proportion of the stand-alone selling price of the goods or services promised by each individual performance obligation on the date of the contract The Company measures revenue based on the transaction price allocated to each individual performance obligation. The transaction price refers to the amount of consideration that the company expects to be entitled to receive due to the transfer of goods or services to customers, excluding payments collected on behalf of third parties and payments expected to be returned to customers. The Company determines the transaction price in accordance with the terms of the contract with combination of its past customary practices. When determining the transaction price, the influence from variable consideration, major financing components in the contract, non-cash consideration, consideration payable to customers and other factors should be taken into consideration. The Company determines the transaction price that includes variable consideration at an amount that does not exceed the amount of accumulated recognized revenue that is unlikely to be materially reversed when the relevant uncertainty is eliminated. If there is a significant financing component in the contract, the Company determines the transaction price based on the amount payable in cash when the customer obtains control of the goods or services, and uses the actual interest method to amortize the difference between the transaction price and the contract consideration during the contract period. One of the following conditions shall be fulfilled within a certain period of time; otherwise, it shall be fulfilled at a certain point in time: A customer obtains and consumes the economic benefits brought by the Company's performance at the same time as the Company's performance. A customer may control the products under construction in the Company's performance process. The goods produced by the Company during the performance of the contract have irreplaceable uses, and the Company has the right to collect payment for the cumulative performance part that has been completed so far during the entire contract period. For performance obligations performed within a certain period of time, the Company recognizes revenue in accordance with the performance progress during that period, except where the performance progress cannot be reasonably determined. The Company determines the progress of a contract by using the output method or input method with consideration of the nature of goods or services. When the performance progress cannot be reasonably determined, and the costs incurred are expected to be compensable, the Company recognizes the revenue according to the amount of the costs incurred until the performance progress can be reasonably determined. For performance obligations performed at a certain point of time, the Company recognizes revenue at the point when a customer obtains control of the relevant goods or services. In judging whether a customer has obtained control of goods or services, the Company considers the following signs: The Company has the current right to receive payment for the goods or services, that is, the customer has the current payment obligation for the goods or services. The Company has transferred the legal ownership of the product to the customer, that is, the customer has the legal ownership of the product. The Company has transferred the goods to the customer in kind, that is, the customer has taken possession of the goods in kind. The Company has transferred the main risks and rewards of the ownership of the goods to the customer, that is, the customer has obtained the main risks and rewards of the ownership of the goods. The customer has accepted the goods or services, etc. Differences in revenue recognition accounting policies caused by different business models in similar businesses Nil 40. Government subsidies Government subsidies are recognized when they meet the conditions attached to the government subsidies and can be received. Government subsidies for monetary assets are measured according to the amount received or receivable. If a government subsidy is a non-monetary asset, it shall be measured at its fair value. If its fair value cannot be obtained in a reliable way, it shall be measured at its nominal amount. The government subsidies pertinent to assets mean the government subsidies that are obtained by the Group used for purchase or construction, or forming the long-term assets by other ways with those pertinent to income exclusive. If the subsidy recipient is not specified in the government documents and long-term assets can be formed, the part of the government subsidies corresponding to the asset value is regarded as the government subsidy pertinent to the asset, and the rest is regarded as the government subsidy pertinent to the income; if it is difficult to distinguish, the government subsidies as a whole are regarded as the government subsidies pertinent to the income. Government subsidies pertinent to assets are recognized as deferred income and recorded in profit and loss in installments in accordance with a reasonable and systematic method within the useful life of the relevant assets. If government subsidies pertinent to income are used to compensate related cost or loss already incurred, they are included in the current profit and loss or offsets the related costs; if they are used to compensate related costs or losses in subsequent periods, they shall be included in the deferred income, and included in the current profit and loss or offset the related costs during the recognition period of the related costs or losses. The government subsidy measured at a nominal amount is directly counted to the current profit and loss. The Group adopts the same method to deal with the same or similar government subsidy business. Government subsidies pertinent to daily activities are included in other income in accordance with the nature of economic business. Government subsidies irrelevant with the daily activities are included in non-operating revenue and expenditure. When the government subsidy already recognized needs to be returned, if there is a relevant deferred income balance, the book balance of the relevant deferred income shall be offset, and the excess part shall be included in the current profit and loss; in other cases, it shall be directly included in the current profit and loss. 41. Deferred income tax asset/deferred income tax liability Income tax includes current income tax and deferred income tax. Income taxes should be recognized as income tax expenses in profit or loss for current period except for deferred income tax associated with goodwill arising from business combination, or transactions or events that are directly recognized in owners’ equity, which should be recorded under owners’ equity. A deferred income tax asset or liability is recognized based on the temporary differences between the book value of an asset or a liability at the balance sheet date and its tax basis using the balance sheet liability method. A deferred income tax liability should be recognized for all taxable temporary differences, except to the extent that the deferred income tax liability arises from the following transactions: (1) The initial recognition of goodwill; or the initial recognition of an asset or liability in a transaction that has both of the following characteristics: the transaction is not a business combination; and at the time of the transaction, it neither affects the accounting profit nor taxable profit. (2) A deferred income tax liability should be recognized for all taxable temporary differences arising from the investments in subsidiaries, joint ventures and associates, except to the extent that both of the following conditions are satisfied: A. the Group is able to control the timing of the reversal of the temporary differences; and B. it is probable that the temporary difference will not reverse in the foreseeable future. In respect of deductible temporary differences, the carry-forward of deductible losses and tax deductions, the Group should recognize deferred tax assets to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences, the deductible losses and tax deductions can be utilized, unless the deductible temporary differences arises from the following transactions. (1) The transaction is not business combination and at the time of the transaction, it neither affects accounting profit nor taxable profit. (2) Deferred tax assets should be recognized for all deductible temporary differences associated with investments in subsidiaries, joint ventures and associates if all of the following conditions are satisfied: it is probable that the deductible temporary difference will reverse in the foreseeable future and it is probable that taxable profit in the future will be available against which the deductible temporary difference can be utilized. At the balance sheet date deferred income tax assets and liabilities should be measured at tax rates expected to be applied to the period when the asset is recovered or the liability is settled and the measurement of deferred income tax assets and liabilities should reflect the tax consequences that would follow from the manner in which The Bank expects, at the balance sheet date, to recover or settle the book value of its assets and liabilities. At the balance sheet date the Bank should review the book value of deferred income tax assets. The book value of a deferred income tax asset should be reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of the deferred income tax asset to be utilized. Any such reduction in amount is reversed when it becomes probable that sufficient taxable profits will be available. 42. Lease (1) Accounting process for operating lease A. The Group as the Lessor The rents from operating leases shall be recorded in the profits and losses of the current period by using the straight-line method over each period of the lease term. The initial direct costs incurred shall be recorded into the profits and losses of the current period. B. The Group as the Tenant Lease income from operating leases shall be recorded in the profits and losses of the current period using the straight-line method over each period of the lease term. The initial direct costs incurred shall be recorded into the profits and losses of the current period. (2) Accounting treatment method for finance lease Inapplicable 43. Other important accounting policy and accounting estimate (1) Repurchased shares The shares repurchased by the Company shall be managed as treasury stock before they are cancelled or transferred, and all expenditures for the repurchase of shares shall be transferred to the cost of treasury stock. The consideration and transaction costs paid in the repurchase reduce the owner’s equity. In process of repurchasing, transferring or canceling the Company’s shares, no profit or loss is recognized. When transferring treasury shares, the difference between the actual amount received and the book value of treasury shares is included in the capital reserve. If the capital reserve is insufficient to offset, the surplus reserve and retainted earnings shall be offset. For the cancellation of treasury shares, the share capital shall be reduced according to the book value of the shares and the number of shares cancelled, and the capital reserve shall be reduced according to the difference between the book balance and the book value of the cancelled treasury shares. If the capital reserve is insufficient, the surplus reserve and retained earnings shall be written-down. (2) Restricted stocks In the equity incentive plan, the Company grants restricted stocks to the motivated objects. The motivated objects first subscribe for the stocks. If the unlocking conditions stipulated in the equity incentive plan are not met subsequently, the Company shall repurchase the stocks at the previously agreed price. If the restricted stocks issued to employees have fulfilled the capital increase procedures such as registration in accordance with relevant regulations, on the grant date, the Company shall confirm the share capital and capital reserve (share capital premium) based on the subscription monies paid by the employees; at the same time, the treasury stock and other payables are confirmed for the repurchase obligation. 44. Changes in significant accounting policies and accounting estimates (1) Change in significant accounting policies Contents and cause of the change in the accounting Examination and approval procedures Remarks policy On July 5, 2017, the Ministry of Finance revised and issued the "Accounting Standards for Enterprises No. 14-Revenue". According to the requirements of the Ministry of Finance, companies listed both at home and abroad or listed overseas should prepare their financial The Company reviewed and approved the statements according to the IFRS or the Accounting implementation at its 16th Session of the Ninth Board of Standards for Enterprises commencing from January 1, Directors. 2018; other domestically listed companies implement the same commencing from January 1, 2020; non-listed companies implementing the Accounting Standards for Business Enterprises shall implement the same commencing from January 1, 2021. The Ministry of Finance revised the "Accounting Standards for Enterprises No. 14 - Revenue" in 2017. The revised standards stipulate that in the initial implementation of the standards, an enterprise should adjust the amount of retained earnings and other related items in the financial statements at the beginning of the year based on the cumulative impact, and no adjustments should be made to comparable period information. The Company started to implement the new standards for revenue commencing from January 1, 2020. According to the standards, the Company only adjusts the accumulated impact of contracts that have not been completed on the date of first implementation. The retained earnings at the beginning of 2020 and the amount of other related items in the financial statements would not be adjusted in the 2019 financial statements. The implementation of these standards has no impact on retained earnings at the beginning of 2020 and the amount of other related items in the financial statements. The main impacts of the changes in accounting policies caused by the above new standards for revenue in the financial statements on January 1, 2020 are as follows:: Consolidated Financial Statements: Book value as presented according to the Reclassified Book value as presented according to the new previous standards (December 31, 2019) standards January 1, 2020) Advance Receipts 23,433,463.57 -19,999,056.53 3,434,407.04 Contract liabilities 19,999,056.53 19,999,056.53 Financial Statements, Parent Company Book value as presented according to the Reclassified Book value as presented according to the new previous standards (December 31, 2019) standards January 1, 2020) Advance Receipts 3,434,407.04 3,434,407.04 Contract liabilities (2) Change in significant accounting estimates Inapplicable (3) Adjustment of the relevant financial statements at the current year beginning according to the new standards for revenues and the new standards for lease initially implemented commencing from 2020 Consolidated Balance Sheet In CNY Items December 31, 2019 January 01, 2020 Amount involved in the adjustment Current assets: Monetary fund 316,668,565.09 316,668,565.09 Settlement reserve Inter-bank lending Transactional financial assets Derivative financial assets Notes receivable 10,596,431.31 10,596,431.31 Accounts receivable 397,471,106.98 397,471,106.98 Financing with accounts receivable Advance payment 10,847,962.28 10,847,962.28 Receivable premium Reinsurance accounts receivable Reserve for reinsurance contract receivable Other receivables 47,239,844.58 47,239,844.58 Including: Interest receivable Dividends receivable Redemptory monetary capital for sale Inventories 1,808,820,089.92 1,808,820,089.92 Contract assets Held-for-sale assets Non-current assets due within a year Other current assets 68,858,096.74 68,858,096.74 Total current assets 2,660,502,096.90 2,660,502,096.90 Non-current assets: Loan issuing and advance in cash Equity investment Other equity investment Long term accounts receivable Long-term equity investment 46,423,837.85 46,423,837.85 Investment in other equity 85,000.00 85,000.00 instruments Other non-current financial assets Investment-oriented real estate 407,503,307.24 407,503,307.24 Fixed assets 363,997,098.94 363,997,098.94 Construction-in-process Productive biological asset Oil and gas assets Use right assets Intangible assets 38,711,821.26 38,711,821.26 Development expenses Goodwill Long-term expenses to be 152,587,491.33 152,587,491.33 apportioned Deferred income tax asset 83,739,383.37 83,739,383.37 Other non-current assets 7,373,248.48 7,373,248.48 Total non-current assets 1,100,421,188.47 1,100,421,188.47 Total assets 3,760,923,285.37 3,760,923,285.37 Current liabilities: Short term borrowings 567,908,833.21 567,908,833.21 Borrowings from central bank Loans from other banks Transactional financial liabilities Derivative financial liabilities Notes payable Accounts payable 279,772,787.37 279,772,787.37 Advance Receipts 23,433,463.57 3,434,407.04 -19,999,056.53 Contract liabilities 19,999,056.53 19,999,056.53 Income from sale of the repurchased financial assets Deposits taking and interbank placement Acting trading securities Income from securities underwriting on commission Payroll payable to the employees 82,602,845.67 82,602,845.67 Taxes payable 24,064,803.00 24,064,803.00 Other payables 119,616,721.63 119,616,721.63 Including: interest payable Dividends payable 848,233.27 848,233.27 Service charge and commission payable Payable reinsurance Held-for-sale liabilities Non-current liabilities due within a 360,140.00 360,140.00 year Other current liabilities Total current liabilities 1,097,759,594.45 1,097,759,594.45 Non-current liabilities: Reserve for insurance contract Long-term borrowings 4,321,680.00 4,321,680.00 Bonds payable Including: preferred shares Perpetual bond Lease liabilities Long-term accounts payable Long term payroll payable to the employees Estimated liabilities Deferred income 3,046,090.60 3,046,090.60 Deferred income tax liability 1,256,242.49 1,256,242.49 Other non-current liabilities Total non-current liabilities 8,624,013.09 8,624,013.09 Total liabilities 1,106,383,607.54 1,106,383,607.54 Owner’s equity: Capital stock 442,968,881.00 442,968,881.00 Other equity instruments Including: preferred shares Perpetual bond Capital Reserve 1,081,230,215.32 1,081,230,215.32 Less: shares in stock 71,267,118.78 71,267,118.78 Other comprehensive income -940,209.09 -940,209.09 Special reserve Surplus Reserve 235,701,180.14 235,701,180.14 Provision for general risks Retained earnings 966,840,818.40 966,840,818.40 Total owners’ equity attributable to the 2,654,533,766.99 2,654,533,766.99 parent company Minority shareholders’ equity 5,910.84 5,910.84 Total owner’s equity 2,654,539,677.83 2,654,539,677.83 Total liabilities and owners’ equity 3,760,923,285.37 3,760,923,285.37 Note to the Adjustment Balance Sheet, Parent Company In CNY Items December 31, 2019 January 01, 2020 Amount involved in the adjustment Current assets: Monetary fund 270,673,346.02 270,673,346.02 Transactional financial assets Derivative financial assets Notes receivable Accounts receivable 2,848,025.39 2,848,025.39 Financing with accounts receivable Advance payment Other receivables 783,647,732.22 783,647,732.22 Including: Interest receivable Dividends receivable Inventories Contract assets Held-for-sale assets Non-current assets due within a year Other current assets 12,380,243.67 12,380,243.67 Total current assets 1,069,549,347.30 1,069,549,347.30 Non-current assets: Equity investment Other equity investment Long term accounts receivable Long-term equity investment 1,380,895,239.27 1,380,895,239.27 Investment in other equity 85,000.00 85,000.00 instruments Other non-current financial assets Investment-oriented real estate 329,970,083.18 329,970,083.18 Fixed assets 238,594,698.50 238,594,698.50 Construction-in-process Productive biological asset Oil and gas assets Use right assets Intangible assets 30,925,974.54 30,925,974.54 Development expenses Goodwill Long-term expenses to be 12,106,759.98 12,106,759.98 apportioned Deferred income tax asset 1,125,840.75 1,125,840.75 Other non-current assets 4,707,236.86 4,707,236.86 Total non-current assets 1,998,410,833.08 1,998,410,833.08 Total assets 3,067,960,180.38 3,067,960,180.38 Current liabilities: Short term borrowings 540,650,622.50 540,650,622.50 Transactional financial liabilities Derivative financial liabilities Notes payable Accounts payable 12,952,934.93 12,952,934.93 Advance Receipts 3,434,407.04 3,434,407.04 Contract liabilities Payroll payable to the employees 19,019,554.57 19,019,554.57 Taxes payable 1,713,130.68 1,713,130.68 Other payables 82,631,590.46 82,631,590.46 Including: interest payable Dividends payable 848,233.27 848,233.27 Held-for-sale liabilities Non-current liabilities due within a year Other current liabilities Total current liabilities 660,402,240.18 660,402,240.18 Non-current liabilities: Long-term borrowings Bonds payable Including: preferred shares Perpetual bond Lease liabilities Long-term accounts payable Long term payroll payable to the employees Estimated liabilities Deferred income 3,046,090.60 3,046,090.60 Deferred income tax liability Other non-current liabilities Total non-current liabilities 3,046,090.60 3,046,090.60 Total liabilities 663,448,330.78 663,448,330.78 Owner’s equity: Capital stock 442,968,881.00 442,968,881.00 Other equity instruments Including: preferred shares Perpetual bond Capital Reserve 1,086,885,756.42 1,086,885,756.42 Less: shares in stock 71,267,118.78 71,267,118.78 Other comprehensive income Special reserve Surplus Reserve 235,701,180.14 235,701,180.14 Retained earnings 710,223,150.82 710,223,150.82 Total owner’s equity 2,404,511,849.60 2,404,511,849.60 Total liabilities and owners’ equity 3,067,960,180.38 3,067,960,180.38 Note to the Adjustment Inapplicable (4) Note to the retroactive adjustment of the previous comparative data according to the new standards for revenue and the new standards for lease to be implemented commencing from year 2020 Inapplicable 45. Miscelleneous Inapplicable VI. Taxation 1. Types of major taxes and tax rates Type of taxes Tax basis Tax rates Value-added tax Taxable income 13%, 10%, 9%, 6% and 5% Consumption tax Taxable income 20% Urban maintenance and construction tax Amount of payable turnover tax 5% and 7% Enterprise income tax Taxable income amount Refer to the Note Real estate tax Cost of the property or rental income 1.2% and 12% In case there exists taxpayers subject to different corporate income tax rates, disclose the information. Taxpayers Income tax rates The Company 25.00% Shenzhen Harmony World Watches Center Co., Ltd. (HARMONY) 25.00% Shenzhen FIYTA Precision Technology Co., Ltd. 15.00% FIYTA (Hong Kong) Limited (FIYTA HK) 16.50% Station-68 Co. 16.50% Shenzhen FIYTA Technology Development Co., Ltd. (Technology Development Co.) 15.00% Shiyuehui Boutique (Shenzhen) Co., Ltd. (Shiyuehui ) 25.00% Shenzhen Harmony E-Commerce Co., Ltd. 20.00% Emile Chouriet (Shenzhen) Limited (Emile Choureit Shenzhen Company) 25.00% FIYTA Sales Co., Ltd. (FIYTA Sales Co.) 25.00% Liaoning Hengdarui Commerce & Trade Co., Ltd. (Hengdarui) 25.00% Montres Chouriet SA (the Swiss Co.) 30.00% 2. Tax Preferences (1) According to Article 2 of the Circular on Transmission of the Provisions on the Policy in Connection with the Property Tax and Urban Land Use Tax Promulgated by the State Administration of Taxation (SHEN DI SHUI FA [2003] No. 676: for the new properties newly constructed or purchased by taxpayers, the property tax may be exempted for three years commencing from the next month after completion of the construction or purchase. Our FIYTA Watch Building located at Guangming New Zone of Shenzhen enjoys exemption from the property tax for three years commencing from the next month of completion of the construction in September 2016. (2) In accordance with Notice of the Ministry of Finance and the State Administration of Taxation on Extending the Loss Carryover Period for High and New Technology Enterprises and Small and Medium-Sized Technological Enterprises (CAI SHUI [2018] No. 76), beginning on January 1, 2018, the losses of an enterprise currently qualified as a high and new technology enterprise that occurred during the prior five years and are still not fully covered may be carried over for covering in subsequent years, and the maximum carryover period shall be extended from 5 years to 10 years. 3. Others Note: Property tax According to the provisions of Article 5 of the Notice of Shenzhen Local Tax Bureau on the Issuance of the "Questions and Answers on the Policy for the Property Tax and Vehicle & Vessel Use Tax": Production and business units leasing its properties should pay real estate tax based on 70% of the cost of the properties at the tax rate of 1.2%. The Group pays the property tax for its properties located in Shenzhen at the tax rate specified in the said Notice, and pays the property tax for its properties located in other cities according to local regulations. VII. Notes to items of consolidated financial statements 1. Monetary capital In CNY Items Ending balance Opening balance Cash in stock 215,989.73 229,258.38 Bank deposit 343,931,215.59 285,306,297.62 Other Monetary Funds 2,334,436.36 31,133,009.09 Total 346,481,641.68 316,668,565.09 Including: total amount deposited overseas 1,156,395.61 3,641,389.51 Total amount with restrictions on use due to 1,575,000.00 1,575,000.00 mortgage, pledge or freezing of account Other notes Of other monetary fund, CNY 1,575,000.00 (December 31, 2017: CNY 1,575,000.00) was the margin deposits deposited by the Company for application to banks for unconditional and irrevocable letter of guarantee. 2. Transactional financial assets Inapplicable 3. Derivative financial assets Inapplicable 4. Notes receivable (1) Presentation of classification of notes receivable In CNY Items Ending balance Opening balance Bank acceptance 6,593,239.62 6,187,353.98 Trade acceptance 14,638,303.74 4,409,077.33 Total 21,231,543.36 10,596,431.31 In CNY Ending balance Opening balance Book balance Bad debt reserve Book balance Bad debt reserve Categories Provision Book value Provision Book value Amount Proportion Amount Amount Proportion Amount proportion proportion where Notes receivable for which 21,448,726. 21,231,543.3 10,813,614.0 10,596,431.3 bad debt reserve has been 100.00% 217,182.73 1.01% 100.00% 217,182.73 2.01% 09 6 4 1 provided based on portfolios where 6,593,239.6 Bank acceptance 30.74% 6,593,239.62 6,187,353.98 57.22% 6,187,353.98 2 14,855,486. 14,638,303.7 Trade acceptance 69.26% 217,182.73 1.46% 4,626,260.06 42.78% 217,182.73 4.69% 4,409,077.33 47 4 21,448,726. 21,231,543.3 10,813,614.0 10,596,431.3 Total 100.00% 217,182.73 1.01% 100.00% 217,182.73 2.01% 09 6 4 1 Individual provision for bad and doubtful debts: Inapplicable Total provision for bad and doubtful debts based on portfolio: In CNY Ending balance Description Book balance Bad debt reserve Provision proportion Trade acceptance 14,855,486.47 217,182.73 1.46% Total 14,855,486.47 217,182.73 -- Note to the basis for determining the combination: Inapplicable (2) Provision, recovery or reversal of reserve for bad debts during the reporting period Provision for bad debt during the reporting period In CNY Amount of movement during the reporting period Categories Opening balance Amount recovered or Ending balance Provision Writing-off Others reversed Trade acceptance 217,182.73 217,182.73 Total 217,182.73 217,182.73 Where the significant amount of the reserve for bad debt recovered or reversed: Inapplicable (3) Notes receivable already pledged by the Company at the end of the reporting period Inapplicable (4) Endorsed or discounted notes receivable at the end of the reproting period, but not yet due on the balance sheet date Inapplicable (5) Notes transferred to receivables due to issuer’s default at the end of the reporting period Inapplicable (6) Notes receivable actually written off in current period Inapplicable 5. Accounts receivable (1) Accounts receivables disclosed by types In CNY Ending balance Opening balance Book balance Bad debt reserve Book balance Bad debt reserve Categories Provision Book value Provision Book value Amount Proportion Amount Amount Proportion Amount proportion proportion Accounts receivable for which bad debt reserve has 18,435,421. 17,685,254. 24,140,377.5 17,562,041.1 4.01% 95.93% 750,166.85 5.66% 72.75% 6,578,336.42 been provided based on 50 65 7 5 individual items where Accounts receivable from 18,435,421. 17,685,254. 24,140,377.5 17,562,041.1 4.01% 95.93% 750,166.85 5.66% 72.75% 6,578,336.42 other customers 50 65 7 5 Accounts receivable for which bad debt reserve has 441,309,124 13,905,071. 427,404,053. 402,376,052. 11,483,281.4 95.99% 3.15% 0.94% 2.85% 390,892,770.56 been provided based on .89 76 13 00 4 portfolios where Portfolios 1 (Receivables from related parties within the scope of consolidation) Portfolios 2 (Accounts 441,309,124 13,905,071. 427,404,053. 402,376,052. 11,483,281.4 receivable from other 95.99% 3.15% 94.34% 2.85% 390,892,770.56 .89 76 13 00 4 customers) 459,744,546 31,590,326. 428,154,219. 426,516,429. 29,045,322.5 Total 100.00% 6.87% 100.00% 6.81% 397,471,106.98 .39 41 98 57 9 Individual provision for bad and doubtful debts: In CNY Ending balance Description Book balance Bad debt reserve Provision proportion Provision reason Accounts receivable from other 18,435,421.50 17,685,254.65 95.93% Expected to be unrecoverable customers Total 18,435,421.50 17,685,254.65 -- -- Individual provision for bad and doubtful debts: Inapplicable Total provision for bad and doubtful debts based on portfolio: In CNY Ending balance Description Book balance Bad debt reserve Provision proportion Accounts receivable from other customers 441,309,124.89 13,905,071.76 3.15% Total 441,309,124.89 13,905,071.76 -- Note to the basis for determining the combination: Inapplicable Disclosed based on aging In CNY Aging Ending balance Within 1 year (with 1 year inclusive) 449,801,260.02 1 to 2 years 7,015,459.22 2 to 3 years 942,383.55 Over 3 years 1,985,443.60 3 to 4 years 1,953,085.41 4 to 5 years 32,358.19 Total 459,744,546.39 (2) Provision, recovery or reversal of reserve for bad debts during the reporting period Provision for bad debt during the reporting period In CNY Amount of movement during the reporting period Categories Opening balance Ending balance Provision Amount recovered or Writing-off Others reversed Accounts receivable 29,045,322.59 2,928,414.87 383,411.05 31,590,326.41 from other customers Total 29,045,322.59 2,928,414.87 383,411.05 31,590,326.41 Where the significant amount of the reserve for bad debt recovered or reversed: Inapplicable (3) Accounts receivable actually written off in current period Inapplicable (4) Accounts receivable owed by the top five debtors based on the ending balance In CNY Proportion of the ending balance of the Description of Units Ending balance of accounts receivable Ending balance of the provision for bad debts accounts receivable Accounts receivable from the top 70,888,754.40 15.41% 3,544,437.72 five debtors Total 70,888,754.40 15.41% (5) Account receivable with recognition terminated due to transfer of financial assets Inapplicable (6) Amount of assets and liabilities formed through transfer of account receivable and continuing to be involved Inapplicable 6. Financing with accounts receivable Inapplicable 7. Advance payments (1) Advance payments are presented based on ages In CNY Ending balance Opening balance Aging Amount Proportion Amount Proportion Within 1 year 15,017,714.46 81.60% 10,221,061.48 94.23% 1 to 2 years 2,759,153.37 14.99% 284,733.40 2.62% 2 to 3 years 284,733.40 1.55% 342,167.40 3.15% Over 3 years 342,167.40 1.86% Total 18,403,768.63 -- 10,847,962.28 -- Note to the reason why the prepayment with age exceeding 1 year and a significant amount of money has not been settled in time: Inapplicable (2) Advance payment to the top five payees of the ending balance collected based on the payees of the advance payment The total amount of advance payment to the top five payees of the ending balance collected based on the payees of the advance payment was CNY 10,980,253.84, taking 59.66% of the toal ending balance of the advance payment. Other notes: Inapplicable 8. Other receivables In CNY Items Ending balance Opening balance Other receivables 106,768,399.40 47,239,844.58 Total 106,768,399.40 47,239,844.58 (1) Interest receivable 1) Classification of interest receivable Inapplicable 2) Significant overdue interest Inapplicable 3) Provision for bad debts Inapplicable (2) Dividends receivable 1) Classification of dividends receivable Inapplicable 2) Significant dividends receivable with age exceeding 1 year Inapplicable 3) Provision for bad debts Inapplicable (3) Other receivables 1) Classification of other receivables based on nature of payment In CNY Nature of Payment Ending book balance Opening book balance Reserve 5,462,300.98 2,147,617.27 Cash deposits 45,511,609.60 45,014,657.70 Commodity promotion fee 749,974.83 2,518,891.09 Advance payment for equity allocation 53,183,393.38 Others 12,376,982.56 7,903,069.93 Total 117,284,261.35 57,584,235.99 2) Provision for bad debts In CNY The 1st stage The 2nd stage The 3rd stage Predicted credit loss in the whole Predicted credit loss in the whole Bad debt reserve Predicted credit loss in the Total duration (no credit impairment taken duration (credit impairment already future 12 months place) taken place) Balance as at January 01, 2020 2,450,903.29 7,893,488.12 Balance as at January 01, 2020 —— —— —— —— during the reporting period Provision in the reporting period 49,663.99 Reversal in the reporting period 120,707.78 Other changes 242,514.33 Balance as at June 30, 2020 2,379,859.50 8,136,002.45 Movement of the book balance of provision for loss with significant amount in the reporting period Inapplicable Disclosed based on aging In CNY Aging Ending balance Within 1 year (with 1 year inclusive) 93,144,499.37 1 to 2 years 6,207,121.99 2 to 3 years 4,015,241.00 Over 3 years 13,917,398.99 3 to 4 years 11,790,568.98 4 to 5 years 1,922,066.01 Over 5 years 204,764.00 Total 117,284,261.35 3) Provision, recovery or reversal of reserve for bad debts during the reporting period Provision for bad debt during the reporting period In CNY Amount of movement during the reporting period Categories Opening balance Amount recovered or Ending balance Provision Writing-off Others reversed Bad debt reserve 10,344,391.41 49,663.99 120,707.78 242,514.33 10,515,861.95 Total 10,344,391.41 49,663.99 120,707.78 242,514.33 10,515,861.95 Where the significant amount of the provision for bad debt recovered or reversed: Inapplicable 4) Accounts receivable actually written off in the reporting period Inapplicable 5) Accounts receivable owed by the top five debtors based on the ending balance In CNY Proportion in total ending Ending balance of the Description of Units Nature of Payment Ending balance Aging balance of other receivables provision for bad debts A Payment for goods 6,293,233.44 Over 3 years 5.37% 6,293,233.44 B Deposit in security 3,166,648.00 Within 1 year 2.70% 158,332.40 C Deposit in security 1,672,563.00 Within 1 year 1.43% 83,628.15 D Deposit in security 1,151,403.00 Within 1 year 0.98% 57,570.15 E Deposit in security 946,179.00 Within 1 year 0.81% 47,308.95 Total -- 13,230,026.44 -- 11.28% 6,640,073.09 6) Accounts receivable involving government subsidy Inapplicable 7) Other receivables with recognition terminated due to transfer of financial assets Inapplicable 8) Amount of assets and liabilities formed through transfer of account receivable and continuing to be involved Inapplicable 9. Inventories Does the Company need to comply with the disclosure requirements of real estate industry No (1) Classification of inventories In CNY Ending balance Opening balance Provision for price Provision for price falling of inventories or falling of inventories or Items Book balance provision for Book value Book balance provision for Book value impairment of contract impairment of contract performance costs performance costs Raw materials 198,721,964.25 21,420,955.08 177,301,009.17 195,644,341.20 21,197,269.90 174,447,071.30 Products in process 6,274,467.37 6,274,467.37 11,707,382.99 11,707,382.99 Commodities in stock 1,676,669,349.53 62,029,785.83 1,614,639,563.70 1,684,674,585.69 62,008,950.06 1,622,665,635.63 Total 1,881,665,781.15 83,450,740.91 1,798,215,040.24 1,892,026,309.88 83,206,219.96 1,808,820,089.92 (2) Provision for price falling of inventories or provision for impairment of contract performance costs In CNY Increase in the reporting period Decrease in the reporting period Items Opening balance Reversal or Ending balance Provision Others Others Offset Raw materials 21,197,269.90 223,685.19 21,420,955.08 Commodities in stock 62,008,950.06 20,835.76 62,029,785.83 Total 83,206,219.96 244,520.95 83,450,740.91 (3) Note to the amount of capitalized borrowing costs involved in the ending balance of inventories Inapplicable (4) Note to the amortized amount of the contract performance costs in the reporting period Inapplicable 10. Contract assets Inapplicable 11. Classified as assets held for sale Inapplicable 12. Non-current assets due within a year Inapplicable 13. Other current assets In CNY Items Ending balance Opening balance Input VAT to be offset 28,805,937.14 47,626,820.11 Income tax paid in advance 3,248,429.93 1,313,954.49 Others - short-term expenses to be apportioned 11,240,638.19 15,661,429.95 VAT paid in advance 1,243,045.91 4,255,892.19 Total 44,538,051.17 68,858,096.74 Other notes: Inapplicable 14. Equity investment Inapplicable 15. Other equity investment Inapplicable 16. Long term accounts receivable (1) About long term accounts receivable Inapplicable (2) Long term account receivable with recognition terminated due to transfer of financial assets Inapplicable (3) Amount of assets and liabilities formed through transfer of long-term accounts receivable and continuing to be involved Inapplicable 17. Long-term equity investments In CNY Opening Increase/ Decrease (+ / -) in the reporting period Ending Ending Investees balance balance balance of Additional Decrease of Income from Other Other equity Announced Provision for Others (book value) (book value) the provision investment investment equity comprehensi movement for impairment for investment ve income distributing impairment recognized adjustment cash under equity dividend or method profit I. Joint Venture II. Associates Shanghai Watch Industry Co., 46,423,837.8 48,584,749.7 2,160,911.92 Ltd. 5 7 (Shanghai Watch) 46,423,837.8 48,584,749.7 Sub-total 2,160,911.92 5 7 46,423,837.8 48,584,749.7 Total 2,160,911.92 5 7 Other notes Inapplicable 18. Investment in other equity instruments In CNY Items Ending balance Opening balance Xi'an Tangcheng Co., Ltd. 85,000.00 85,000.00 Total 85,000.00 85,000.00 Itemized disclosure of investment in non-trading equity instruments in the reporting period Inapplicable 19. Other non-current financial assets Inapplicable 20. Investment based real estate (1) Investment property measured based on the cost method In CNY Items Housing and buildings Land use right Construction-in-process Total I. Original book value 1. Opening balance 603,886,647.35 603,886,647.35 2. Increase in the reporting period (1) Purchased (2) Inventories\fixed assets/construction- in – process transferred in (3) Increase of enterprise consolidation 3. Amount decreased in the reporting period (1) Disposal (2) Other transfer out 4. Ending balance 603,886,647.35 603,886,647.35 II. Accumulative depreciation and accumulative amortization 1. Opening balance 196,383,340.11 196,383,340.11 2. Increase in the reporting period 7,621,323.86 7,621,323.86 (1) Provision or amortization 7,621,323.86 7,621,323.86 3. Amount decreased in the reporting period (1) Disposal (2) Other transfer out 4. Ending balance 204,004,663.97 204,004,663.97 III. Provision for impairment 1. Opening balance 2. Increase in the reporting period (1) Provision 3. Amount decreased in the reporting period (1) Disposal (2) Other transfer out 4. Ending balance IV. Book value 1.Book value at the end of the 399,881,983.38 399,881,983.38 reporting period 2.Book value at the beginning of 407,503,307.24 407,503,307.24 the reporting period (2) Investment property measured based on fair value Inapplicable (3) Investment property that does not have certificate for property right Inapplicable 21. Fixed asset In CNY Items Ending balance Opening balance Fixed assets 354,294,685.37 363,997,098.94 Total 354,294,685.37 363,997,098.94 (1) About fixed assets In CNY Items Plant & buildings Machinery & equipment Motor vehicle Electronic equipment Others Total I. Original book value 1. Opening balance 399,884,182.37 88,576,975.77 15,357,879.37 45,484,697.66 46,262,752.19 595,566,487.36 2. Increase in the 1,673,662.24 2,374,605.84 987,842.49 602,909.94 5,639,020.51 reporting period (1) Purchase 1,673,662.24 2,374,605.84 987,842.49 602,909.94 5,639,020.51 (2) Construction-in-process transferred in (3) Increase of enterprise consolidation 3. Amount decreased in the 418,674.85 779,760.00 406,310.94 1,604,745.79 reporting period (1) Disposal or 418,674.85 779,760.00 406,310.94 1,604,745.79 scrapping 4. Ending balance 401,557,844.61 90,532,906.76 15,357,879.37 45,692,780.15 46,459,351.19 599,600,762.08 II. Accumulative depreciation 1. Opening balance 99,134,756.79 49,325,868.54 13,492,690.81 32,184,334.98 37,431,737.30 231,569,388.42 2. Increase in the 6,968,805.33 3,933,316.11 201,480.66 2,214,596.73 1,601,335.24 14,919,534.07 reporting period (1) Provision 6,968,805.33 3,933,316.11 201,480.66 2,214,596.73 1,601,335.24 14,919,534.07 3. Amount decreased in the 217,213.16 643,229.61 322,403.01 1,182,845.78 reporting period (1) Disposal or 217,213.16 643,229.61 322,403.01 1,182,845.78 scrapping 4. Ending balance 106,103,562.12 53,041,971.49 13,694,171.47 33,755,702.10 38,710,669.53 245,306,076.71 III. Provision for impairment 1. Opening balance 2. Increase in the reporting period (1) Provision 3. Amount decreased in the reporting period (1) Disposal or scrapping 4. Ending balance IV. Book value 1.Book value at the end of the reporting 295,454,282.49 37,490,935.27 1,663,707.90 11,937,078.05 7,748,681.66 354,294,685.37 period 2.Book value at the beginning of the 300,749,425.58 39,251,107.23 1,865,188.56 13,300,362.68 8,831,014.89 363,997,098.94 reporting period (2) About temporarily idle fixed assets Inapplicable (3) Fixed assets rented through finance lease Inapplicable (4) Fixed assets leased through operating lease Inapplicable (5) Fixed assets that do not have certificate for property right The reason why the property ownership certificate has Items Book value not been granted Office occupancy of Harbin Office 247,083.50 There existed problem in ownership (6) Disposal of fixed assets Inapplicable 22. Construction-in-process Inapplicable (4) Engineering materials Inapplicable 23. Productive biological asset (1) Productive biological asset by using the cost measurement model Inapplicable (2) Productive biological asset by using the fair value measurement model Inapplicable 24. Oil and Gas Assets Inapplicable 25. Use right assets Inapplicable 26. Intangible assets (1) About the intangible assets In CNY Items Land use right Patent Right Non-patent technology Software system Trademark rights Total I. Original book value 1. Opening 34,933,822.40 24,114,126.36 11,930,531.38 70,978,480.14 balance 2. Increase in the 1,268,215.40 1,711,282.42 2,979,497.82 reporting period (1) Purchase 1,268,215.40 1,711,282.42 2,979,497.82 (2) Internal R & D (3) Increase of enterprise consolidation 3. Amount decreased in the reporting period (1) Disposal 4. Ending balance 34,933,822.40 25,382,341.76 13,641,813.80 73,957,977.96 II. Accumulative amortization 1. Opening 11,353,509.97 15,410,275.67 5,502,873.24 32,266,658.88 balance 2. Increase in the 366,776.65 2,197,060.87 1,270,464.12 3,834,301.64 reporting period (1) Provision 366,776.65 2,197,060.87 1,270,464.12 3,834,301.64 3. Amount decreased in the reporting period (1) Disposal 4. Ending balance 11,720,286.62 17,607,336.54 6,773,337.36 36,100,960.52 III. Provision for impairment 1. Opening balance 2. Increase in the reporting period (1) Provision 3. Amount decreased in the reporting period (1) Disposal 4. Ending balance IV. Book value 1.Book value at the end of the reporting 23,213,535.78 7,775,005.22 6,868,476.44 37,857,017.44 period 2.Book value at the beginning of the 23,580,312.43 8,703,850.69 6,427,658.14 38,711,821.26 reporting period Proportion 0% of the intangible assets formed through the Company’s internal R & D in the balance of the intangible assets at the end of the reporting period. (2) About the land use right that does not have certificate of title Inapplicable 27. Development expenditure Inapplicable 28. Goodwill (1) Original book value of the goodwill Inapplicable (2) Provision for impairment of the goodwill Inapplicable 29. Long term expenses to be apportioned In CNY Increase in the reporting Amount amortized in the Items Opening balance Other decrease Ending balance period reporting period Charge of fabrication of 41,961,947.89 11,476,444.96 23,585,536.88 29,852,855.97 special counters Refurbishment expenses 95,266,200.86 13,998,397.46 23,273,140.55 85,991,457.77 Others 15,359,342.58 0.00 4,632,330.36 10,727,012.22 Total 152,587,491.33 25,474,842.42 51,491,007.79 126,571,325.96 Other notes Inapplicable 30. Deferred income tax asset/deferred income tax liability (1) Deferred income tax asset without offsetting In CNY Ending balance Opening balance Items Offsetable provisional difference Deferred income tax asset Offsetable provisional difference Deferred income tax asset Asset impairment reserve 103,310,389.63 22,788,457.81 100,912,679.00 22,188,996.64 Unrealized profit from the 156,287,413.96 38,840,027.68 179,676,673.34 44,654,504.04 intracompany transactions Offsetable loss 122,599,534.04 30,135,383.47 50,678,682.32 12,074,057.61 Deferred income 3,046,090.60 761,522.65 3,046,090.60 761,522.65 Share-based payment 7,606,027.81 1,823,052.62 4,440,625.91 1,062,967.67 Advertisement fee available for 8,221,847.42 1,718,803.47 14,988,443.65 2,997,334.76 carrying-forward to the next year Total 401,071,303.46 96,067,247.70 353,743,194.82 83,739,383.37 (2) Deferred income tax liabilities without offsetting In CNY Ending balance Opening balance Items Taxable provisional difference Deferred income tax liability Taxable provisional difference Deferred income tax liability One-time pre-tax deduction of 7,951,478.07 1,192,721.71 8,374,949.93 1,256,242.49 fixed assets Total 7,951,478.07 1,192,721.71 8,374,949.93 1,256,242.49 (3) Deferred income tax asset or liabilities stated with net amount after offsetting Inapplicable (4) Statement of deferred income tax asset not recognized In CNY Items Ending balance Opening balance Offsetable loss 68,005,378.21 64,205,351.75 Provision for impairment of assets 22,775,235.70 22,200,437.70 Total 90,780,613.91 86,405,789.45 (5) Unrecognized deferred income tax asset available for offsetting loss is going to expire in the following years In CNY Amount at the beginning of the reporting Year Amount at the end of the reporting period Remarks period 2020 2021 2022 2023 2,417,279.16 2,417,279.16 2024 7,798,677.32 7,798,677.32 2025 11,684,299.22 11,684,299.22 2026 18,449,678.50 18,449,678.50 2027 23,855,417.55 23,855,417.55 2028 3,800,026.46 Total 68,005,378.21 64,205,351.75 -- Other notes: Inapplicable 31. Other non-current assets In CNY Ending balance Opening balance Items Impairment Impairment Book balance Book value Book balance Book value reserve reserve Advance payment for engineering works and equipment 10,492,964.34 10,492,964.34 7,373,248.48 7,373,248.48 Total 10,492,964.34 10,492,964.34 7,373,248.48 7,373,248.48 Other notes: Inapplicable 32. Short term loans (1) Classification of short-term loans In CNY Items Ending balance Opening balance Secured loan 60,512,090.66 37,271,502.38 Credit loan 613,050,268.89 530,637,330.83 Total 673,562,359.55 567,908,833.21 Note to classification of short term borrowings: Inapplicable (2)Short-term loans overdue but still remaining outstanding Inapplicable 33. Transactional financial liabilities Inapplicable 34. Derivative financial liabilities Inapplicable 35. Notes payable In CNY Categories Ending balance Opening balance Trade acceptance 1,400,000.00 0.00 Total 1,400,000.00 0.00 Total amount of notes payable due but not paid amounting to CNY 0 at the end of the reporting period. 36. Accounts payable (1) Statement of accounts payable In CNY Items Ending balance Opening balance Payment for goods 189,556,864.82 254,887,129.91 Payment for materials 11,932,722.53 Construction cost payable 1,484,563.53 12,952,934.93 Total 191,041,428.35 279,772,787.37 (2) Significant accounts payable with age exceeding 1 year Inapplicable 37. Advance Receipts (1) Statement of advances from customers In CNY Items Ending balance Opening balance Payment for goods Engineering fees Rent 7,251,488.79 3,434,407.04 Unfinished projects formed in the construction contract but already settled Total 7,251,488.79 3,434,407.04 (2) Significant advances from customers with age exceeding 1 year Inapplicable 38. Contract liabilities In CNY Items Ending balance Opening balance Payment for goods 21,475,843.30 19,999,056.53 Total 21,475,843.30 19,999,056.53 Amount and reason of the significant change in the book value during the reporting period Inapplicable 39. Employee remuneration payable (1) Statement of employee remuneration payable In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance I. Short term remuneration 75,434,545.00 254,001,441.87 271,417,606.03 58,018,380.84 II. Post-employment benefit program - defined contribution 7,067,511.52 6,552,660.39 9,405,143.24 4,215,028.67 plan. III. Dismissal welfare 100,789.15 614,333.23 715,122.38 Total 82,602,845.67 261,168,435.49 281,537,871.65 62,233,409.51 (2) Presentation of short term remuneration In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance 1. Salaries, bonus, allowances 74,919,776.81 229,817,392.02 247,521,739.12 57,215,429.71 and subsidies 2. Staff’s welfare 5,604,972.00 5,604,972.00 3. Social security premium 6,959,476.34 6,791,592.13 167,884.21 Including: medical insurance 6,408,859.43 6,259,816.74 149,042.69 premium Work injury 117,511.50 117,078.36 433.14 insurance Maternity Insurance 433,105.41 414,697.03 18,408.38 4. Public reserve for housing 8,279,142.71 8,233,410.71 45,732.00 5. Trade union fund and staff 514,768.19 3,308,991.61 3,234,424.88 589,334.92 education fund 6. Short-term paid leave 31,467.19 31,467.19 Total 75,434,545.00 254,001,441.87 271,417,606.03 58,018,380.84 (3) Presentation of the defined contribution plan In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance 1. Basic endowment insurance 255,571.47 5,508,582.11 5,376,258.34 387,895.24 premium 2. Unemployment insurance 137,321.18 329,926.24 -192,605.06 premium 3. Contribution to the enterprise 6,811,940.05 906,757.10 3,698,958.66 4,019,738.49 annuity scheme Total 7,067,511.52 6,552,660.39 9,405,143.24 4,215,028.67 Other notes: Inapplicable 40. Taxes payable In CNY Items Ending balance Opening balance Value-added tax 26,548,335.81 6,929,833.12 Enterprise income tax 24,101,242.37 15,512,840.60 Individual income tax 1,487,307.93 1,227,923.78 Urban maintenance and construction tax 127,921.38 91,612.52 Education Surcharge 84,988.48 65,887.11 Others 738,858.32 236,705.87 Total 53,088,654.29 24,064,803.00 Other notes: Inapplicable 41. Other payables In CNY Items Ending balance Opening balance Dividends payable 53,887,144.07 848,233.27 Other payables 136,628,253.92 118,768,488.36 Total 190,515,397.99 119,616,721.63 (1) Interest payable Inapplicable (2) Dividend payable In CNY Items Ending balance Opening balance Dividends of common shares 53,887,144.07 848,233.27 Total 53,887,144.07 848,233.27 Other note, including the significant dividends payable remaining outstanding for more than 1 year and necessary to disclose the reason of unpayment: Inapplicable (3) Other payables 1) Other payments stated based on nature of fund In CNY Items Ending balance Opening balance Cash pledge or cash deposit 68,019,256.56 45,114,205.97 Fund for shop-front activities 1,535,874.76 16,636,771.40 Personal account payable 1,280,092.78 1,321,518.82 Refurbishment 3,558,722.65 4,556,469.41 Obligation for repurchase of the restricted stocks 17,442,566.73 17,737,366.73 Others 44,791,740.44 33,402,156.03 Total 136,628,253.92 118,768,488.36 2) Other payables in significant amount and with aging over 1 year Inapplicable 42. Held-for-sale liabilities Inapplicable 43. Non-current liabilities due within a year In CNY Items Ending balance Opening balance Long-term liabilities due within a year 373,530.00 360,140.00 Total 373,530.00 360,140.00 Other notes: Inapplicable 44. Other current liabilities Inapplicable 45. Long-term Loan (1) Classification of Long-term Borrowings In CNY Items Ending balance Opening balance Mortgage loan 4,295,595.00 4,321,680.00 Total 4,295,595.00 4,321,680.00 Note to classification of long term borrowings: (1) The Company has no overdue and outstanding long term borrowing. (2) The Company has no secured borrowings in the balance of the long term borrowings during the reporting period Other notes, including the interest rate interval: The interest rate of long term borrowings is 3.00%. 46. Bonds Payable (1) Bonds payable Inapplicable (2) Increase/Decrease of bonds payable (excluding other financial instruments classified as financial liabilities, such as preferred shares, perpetual bonds, etc.) Inapplicable (3) Note to the conditions and time of share conversion of convertible company bonds Inapplicable (4) Note to other financial instruments classified as financial liabilities Inapplicable 47. Lease liabilities Inapplicable 48. Long term accounts payable Inapplicable (1) Long term accounts payable stated based on the nature Inapplicable (2) Special accounts payable Inapplicable 49. Long term payroll payable (1) Statement of long term payroll payable Inapplicable (2) Change of defined benefit plans Inapplicable 50. Predicted liabilities Inapplicable 51. Deferred income In CNY Increase in the reporting Decrease in the reporting Items Opening balance Ending balance Cause of formation period period Government subsidies 3,046,090.60 3,046,090.60 Income to be recognized Total 3,046,090.60 3,046,090.60 -- Items involving government subsidies: In CNY Amount counted Amount of newly Amount counted Amount offsetting to the Related with added subsidy in to the other costs and Liabilities Opening balance non-operating Other changes Ending balance assets/related the reporting income in the expenses in the income in the with income period reporting period reporting period reporting period Special purpose fund of Shenzhen Related with industrial design 729,945.01 729,945.01 assets development (Note (1)) Funding project for construction of enterprise Related with 1,218,274.51 1,218,274.51 technology center assets designated by the state (Note (2)) Special purpose fund for 2017 Related with Industry and 1,031,833.34 1,031,833.34 income Informationization at Provincial Level (Note (3)) Special fund for upgrading Related with standard and 66,037.74 66,037.74 income quality of consumer goods Other notes: Note (1): It is the special fund for development of industrial design in Shenzhen obtained according to the Operation Instructions on Certification and Financial Support Program for Industrial Design Centers in Shenzhen (Trial Implementation) SHEN JING MAO IT Zi [2013] No. 227 jointly promulgated by Economy, Trade and Information Commission of Shenzhen Municipality and Finance Commission of Shenzhen Municipality; Note (2) : It is the fund from the financial support for construction of enterprise technology centers in Shenzhen obtained according to the Circular of Development and Reform Commission of Shenzhen Municipality on Issuing the First Batch of Supporting Program of Financial Support Fund for Construction of Enterprise Technology Centers in Shenzhen in 2015 (SHEN JING MAO XINXI YU [2015] No. 129 ; Note (3): The special purpose fund obtained according to the Circular of the Economic and Information Commission of Guangdong Province on Doing a Good Job in Submission to the Special Project Library of Production and Services at Provincial Level in 2017 (YUE JING XIN SHENG CHAN HAN (2016) No. 53) jointly promulgated by the Economic & Information Commission of Guangdong Province and the Finance Department of Guangdong Province. 52. Other non-current liabilities Inapplicable 53. Capital stock In CNY Increase / Decrease (+/ -) Opening balance Shares converted Ending balance New issuing Bonus shares Others Sub-total from reserve Total Shares 442,968,881.00 -14,797,000.00 -14,797,000.00 428,171,881.00 Other notes: (1) The Company held the 7th session of the Ninth Board of Directors on April 4, 2019 and the 2nd Extraordinary General Meeting 2019 on April 23, 2019, and reviewed and approved the "Proposal for Repurchase of the Company's Partial Domestically Listed Foreign Shares (B-shares)”, according to which the Company was approved to repurchase the Company’s partial domestically listed foreign shares (B-shares) by means of centralized bidding to reduce its registered capital. Ended April 29, 2020, the Company completed the cancellation of the above shares (14,730,000 shares) repurchased with China Securities Depository and Clearing Corporation Limited Shenzhen Branch. After cancellation of the repurchased shares, the total capital stock of the Company decreased from 442,968,881 shares to 428,238,881 shares. (2) On January 10, 2020 and March 18, 2020, the Company held the 15th and 16th sessions of the Ninth Board of Directors and reviewed and approved the “Proposal for Repurchase and Cancellation of the Partially Restricted Shares Involved in 2018 A-Share Restricted Stock Incentive Plan (Phase 1)”, according to which the Company intended to repurchase and cancel a total of 67,000 A-share restricted stock jointly held, already granted but with the restriction not released to three former incentive objects who have left the Company. 54. Other equity instruments (1) Basic information on the outstanding other financial instruments, including preferred shares, perpetual bonds, etc. at the end of the reporting period Inapplicable (2)Movement of the outstanding other financial instruments, including preferred shares, perpetual bonds, etc. at the end of the reporting period Inapplicable 55. Capital reserve In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance Capital premium (capital stock 1,062,297,140.76 0.00 65,007,645.82 997,289,494.94 premium) Other capital reserve 18,933,074.56 3,165,401.89 2,948.60 22,095,527.85 Total 1,081,230,215.32 3,165,401.89 65,010,594.42 1,019,385,022.79 Other notes, including the note to its increase/decrease and the cause(s) of its movement in the reporting period: (1) The Company held the 7th session of the Ninth Board of Directors on April 4, 2019 and the 2nd Extraordinary General Meeting 2019 on April 23, 2019, and reviewed and approved the "Proposal for Repurchase of the Company's Partial Domestically Listed Foreign Shares (B-shares)”, according to which the Company was approved to repurchase the Company’s partial domestically listed foreign shares (B-shares) by means of centralized bidding to reduce its registered capital. The Company accumulatively repurchased 14,730,000 domestically listed foreign shares (B shares) by means of centralized bidding through special securities repurchase accounts, and the capital reserve (capital stock premium) decreased by CNY 65,007,645.82 (converted in Hong Kong dollars, including the service fees of CNY 243,340.90). (2) Other capital reserve increased by CNY 3,165,401.89 in the reporting period are the restricted stock incentive expenses of A-shares in January, 2020 provided from January to June, 2020. 56. Treasury shares In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance Shares in stock 71,267,118.78 25,969,974.82 79,789,104.92 17,447,988.68 Total 71,267,118.78 25,969,974.82 79,789,104.92 17,447,988.68 Other notes, including the note to its increase/decrease and the cause(s) of its movement in the reporting period: The increase of the shares in stock during the reporting period consisted of two parts. One part was the cancelled retired employees’ restrictive shares in stock with total amount of CNY 294,800.00 and the other part was the amount from the repurchase of B-shares totaling CNY 25,969,974.82 and the repurchased B-shares in stock cancelled subsequently with total amount of CNY 79,494,304.92. 57. Other comprehensive income In CNY Amount incurred in the reporting period Less: the amount counted Less: the amount to the retained counted to the profit earnings during and loss during the Amount incurred the reporting Attributable to Attributable to reporting period Ending Items Opening balance before income period which Less: Income the parent minority which had been balance tax in the had been tax expense company after shareholders counted to the other reporting period counted to the tax after tax comprehensive other income in the comprehensive previous period. income in the previous period. II. Other comprehensive income which shall be -940,209.09 4,329,973.83 4,329,877.58 96.25 3,389,668.49 re-classified into profit and loss Conversion difference in foreign currency -940,209.09 4,329,973.83 4,329,877.58 96.25 3,389,668.49 statements Total other comprehensive income -940,209.09 4,329,973.83 4,329,877.58 96.25 3,389,668.49 Other notes include the valid part of gain and loss of a cash-flow hedge converted into initial amount of arbitraged items for adjustment: The net amount of the other comprehensive income after tax incurred in the reporting period was CNY 4,329,973.83. Where, the net after-tax amount of other comprehensive income attributable to shareholders of the parent company was CNY 4,329,877.58; the net after-tax amount of other comprehensive income attributable to the minority shareholders incurred in the reporting period was CNY 96.25. 58. Special reserve Inapplicable 59. Surplus Reserve In CNY Items Opening balance Increase in the reporting period Decrease in the reporting period Ending balance Statutory surplus reserve 173,716,286.14 0.00 0.00 173,716,286.14 Discretionary surplus reserve 61,984,894.00 0.00 0.00 61,984,894.00 Total 235,701,180.14 0.00 0.00 235,701,180.14 Note to surplus reserve, including the note to its increase/decrease and the cause(s) of its movement in the reporting period: Inapplicable 60. Retained earnings In CNY Items Reporting period Previous period Before adjustment: Retained earnings at the end of the previous 966,840,818.40 851,360,603.66 period After adjustment: Retained earnings at the beginning of the 966,840,818.40 851,360,603.66 reporting period Plus: Net profit attributable to the parent company’s owner in the 77,738,906.30 215,909,014.15 report period Less: Provision of statutory surplus public reserve 12,685,386.34 Dividends of common shares payable 85,634,376.20 87,743,413.07 Retained earnings at the end of the reporting period 958,945,348.50 966,840,818.40 Statement of adjustment of retained earnings at the beginning of the reporting period: 1) The amount involved in the retroactive adjustment according to the Enterprise Accounting Standards and the relevant new provisions influencing the retained earnings at the beginning of the reporting period was CNY 0.00. 2) The amount involved in change of the accounting policy influencing the retained earnings at the beginning of the reporting period was CNY 0.00. 3) The amount involved in correction of the significant accounting errors influencing the retained earnings at the beginning of the reporting period was CNY 0.00. 4) The amount involved in change of the consolidation scope caused by the joint control influencing the retained earnings at the beginning of the reporting period was CNY 0.00. 5) The total amount involved in other adjustments influencing the retained earnings at the beginning of the reporting period was CNY 0.00. 61. Operation Income and Costs In CNY Amount incurred in the reporting period Amount incurred in the previous period Items Income Costs Income Costs Principal business 1,579,084,669.87 977,121,580.01 1,775,615,457.33 1,049,188,996.85 Other businesses 2,750,045.16 314,096.86 9,420,562.90 2,315,078.37 Total 1,581,834,715.03 977,435,676.87 1,785,036,020.23 1,051,504,075.22 Revenue related information: Inapplicable Information in connection with the performance obligation: Inapplicable Information related to the transaction price allocated to the remaining performance obligations: Inapplicable Other notes: Inapplicable 62. Business Taxes and Surcharges In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Consumption tax 39,803.71 184,399.06 Urban maintenance and construction tax 2,489,349.64 6,395,004.36 Education Surcharge 1,762,953.17 4,548,531.69 Resource tax 0.00 0.00 Real estate tax 1,403,403.52 1,886,754.77 Land use tax 119,304.10 211,126.82 Tax on using vehicle and boat 2,880.00 1,035.00 Stamp duty 1,007,174.51 1,102,915.98 Others 446,115.04 765,107.65 Total 7,270,983.69 15,094,875.33 Other notes: Inapplicable 63. Sales expenses In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Salaries & bonus 139,307,052.85 145,512,139.90 Employees’ welfare 2,813,685.58 3,159,080.44 Public reserve for housing 5,258,301.65 5,750,656.98 Social security premium 9,151,865.67 22,997,809.84 Shopping mall and rental fees 89,783,779.60 83,986,057.93 Advertising, exhibition and market promotion fee 61,631,796.14 72,972,500.97 Depreciation and amortization 44,191,277.25 43,315,834.35 Packing expenses 3,301,568.93 5,502,133.20 Water & power supply and property management fee 8,864,424.63 9,561,119.07 Freight 5,368,007.05 6,971,013.87 Office expenses 2,324,895.41 2,779,674.92 Business travel expenses 1,975,223.92 4,887,148.59 Others 6,956,433.83 8,380,858.89 Total 380,928,312.51 415,776,028.95 Other notes: Inapplicable 64. Administrative expenses In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Salaries & bonus 61,814,187.62 67,718,045.37 Employees’ welfare 1,940,091.63 1,790,667.18 Social security premium 2,319,177.99 5,755,767.56 Public reserve for housing 2,231,934.56 2,077,719.29 Enterprise annuity 961,256.78 1,125,994.66 Labor union dues 2,548,950.92 2,630,194.16 Training fee 341,994.77 518,230.67 Depreciation and amortization 13,362,685.84 14,295,251.10 Business travel expenses 967,235.20 3,353,907.41 Office expenses 2,085,464.53 1,688,108.77 Service fee to intermediary agencies 1,598,683.57 1,625,961.96 Others 8,068,685.32 13,772,987.29 Total 98,240,348.73 116,352,835.42 Other notes: Inapplicable 65. R & D expenditures In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Salaries & bonus 12,250,034.26 10,860,114.59 Employees’ welfare 198,645.82 205,127.58 Social security premium 392,814.93 924,124.54 Public reserve for housing 412,951.55 304,138.80 Cost of materials 9,453.09 63,256.68 Intellectual property fee 276,918.12 277,815.00 Payment for samples 593,599.24 868,357.42 Consulting fee 240,576.67 875,841.49 Depreciation and amortization 3,162,020.53 2,627,949.69 Technical cooperation fee 1,536,929.13 560,030.37 Others 1,630,327.42 1,959,654.77 Total 20,704,270.76 19,526,410.93 Other notes: Inapplicable 66. Financial expenses In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Interest payment 13,485,670.67 12,023,843.93 Less: capitalized interest 0.00 0.00 Less: Interest income 2,482,721.82 908,850.92 Exchange gain & loss 713,188.07 -134,740.68 Financial service charges and miscellaneous 4,812,806.44 5,258,713.56 Total 16,528,943.36 16,238,965.89 Other notes: Inapplicable 67. Other income In CNY Source of arising of other income Amount incurred in the reporting period Amount incurred in the previous period Government subsidies 10,154,015.67 13,045,742.36 Total 10,154,015.67 13,045,742.36 68. Return on investment In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Income from long term equity investment based on equity 2,160,911.92 1,531,310.06 method Total 2,160,911.92 1,531,310.06 Other notes: Inapplicable 69. Net exposure hedge income Inapplicable 70. Income from change of the fair value Inapplicable 71. Loss from impairment of credit In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Provision for bad debt of other receivables -1,851.58 -301,318.07 Loss from bad debt of accounts receivable -2,465,509.77 -2,780,450.82 Total -2,467,361.35 -3,081,768.89 Other notes: Inapplicable 72. Loss from impairment of assets In CNY Items Amount incurred in the reporting period Amount incurred in the previous period II. Loss from price falling of inventories or loss from 0.00 2,514,740.86 impairment of contract performance costs Total 0.00 2,514,740.86 Other notes: Inapplicable 73. Income from disposal of assets In CNY Source of income from disposal of assets Amount incurred in the reporting period Amount incurred in the previous period Profit from disposal of assets 0.00 1,720.00 Loss from disposal of assets -200,140.17 -213,730.13 Total -200,140.17 -212,010.13 74. Non-operating expenses In CNY Amount counted to the current Items Amount incurred in the reporting period Amount incurred in the previous period non-operating gain and loss Disposal of account payable impossible to 877,410.33 212,175.93 877,410.33 be paid Carry-over of inventory overage 226,888.80 226,888.80 Others 287,560.29 82,135.77 287,560.29 Total 1,391,859.42 294,311.70 1,391,859.42 Government subsidy counted to the current profit and loss: Inapplicable 75. Non-operating expenditure In CNY Amount counted to the current Items Amount incurred in the reporting period Amount incurred in the previous period non-operating gain and loss Outward donation 0.00 200,000.00 0.00 Others 118,646.41 324,505.98 118,646.41 Total 118,646.41 524,505.98 118,646.41 Other notes: Inapplicable 76. Income tax expense (1) Statement of income tax expenses In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Income tax expense in the reporting period 26,235,776.22 22,066,289.48 Deferred income tax expense -12,327,864.33 18,548,898.09 Total 13,907,911.89 40,615,187.57 (2) Process of adjustment of accounting profit and income tax expense In CNY Items Amount incurred in the reporting period Total profit 91,646,818.19 Income tax expense calculated based on the statutory/ applicable tax rate 22,911,704.55 Influence of different tax rates applicable to subsidiaries -9,197,395.81 Influence of adjustment of the income tax in the previous period -49,934.25 Influence of the non-taxable income 0.00 Influence of the non-offsetable costs, expenses and loss 891,927.62 Influence from the offsetable loss of the unrecognized deferred income tax asset at the 0.00 end of the previous period Influence from the offsetable provisional difference or offsetable loss of the 1,140,007.94 unrecognized deferred income tax asset at the end of the reporting period Influence from the addition of the R & D expenses upon deduction of tax payment (to -1,788,398.15 be stated with “-“) Others 0.00 Income tax expenses 13,907,911.89 Other notes Inapplicable 77. Other comprehensive income For the detail, refer to Note 57. 78. Cash Flow Statement Items (1) Other operation activities related cash receipts In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Commodity promotion fee 5,210,311.30 7,326,827.42 Government subsidies 10,154,015.67 13,045,742.36 Cash deposit 7,315,744.37 6,493,217.88 Interest income 2,482,721.82 908,850.92 Reserve 1,303,065.89 687,618.62 Others 4,821,570.68 12,513,870.71 Total 31,287,429.73 40,976,127.91 Note to other cash received in connection with operating activities: Inapplicable (2) Other cash paid in connection with operation activities In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Market promotion 30,650,504.85 55,480,743.21 Rent 56,722,191.19 54,742,365.90 Shopping mall fees 12,740,511.78 30,786,192.52 Advertisement fee 6,000,177.41 11,083,207.52 Packing expenses 3,491,359.91 5,703,500.29 Business travel expenses 2,955,291.84 8,284,981.38 Water and electricity fees 5,422,039.82 6,714,986.63 R & D expenses 3,588,855.18 4,322,224.36 Office expenses 5,169,903.19 5,207,489.18 Freight 5,917,126.15 7,747,014.23 Exhibition fee 45,727.87 6,546,230.71 Property management fee 9,544,159.17 7,982,065.97 Business entertainment 1,310,428.39 2,683,582.53 Service fee to intermediary agencies 2,671,307.29 2,043,210.38 Others 19,696,640.17 27,973,348.54 Total 165,926,224.21 237,301,143.35 Note to other cash paid in connection with operating activities: Inapplicable (3) Other investment activities related cash receipts Inapplicable (4) Other investment activities related cash payments Inapplicable (5) Other fund-raising activities related cash receipts Inapplicable (6) Other fund-raising activities related cash payments In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Repurchase of B-shares 26,825,873.78 17,565,400.00 Total 26,825,873.78 17,565,400.00 Note to other cash paid in connection with fund-raising activities: The amount incurred in the reporting period was the payment for repurchase of B-shares. 79. Supplementary information of the cash flow statement (1) Supplementary information of the cash flow statement In CNY Supplementary information Amount in the reporting period Amount in the previous period 1. Net cash flows arising from adjustment of net profit into -- -- operating activities: Net profit 77,738,906.30 123,495,460.90 Plus: Provision for impairment of assets 2,467,361.35 567,028.03 Depreciation of fixed assets, depletion of oil and 21,037,291.58 21,385,076.08 gas asset, depreciation of productive biological asset Amortization of intangible assets 3,829,094.00 3,291,008.97 Amortization of the long-term expenses to be 50,739,190.23 46,754,405.36 apportioned Loss (income is stated in “-”) from disposal of 200,140.17 212,010.13 fixed assets, intangible assets and other long term assets Financial expenses (income is stated with “-”) 13,485,670.67 12,023,843.93 Investment loss (income is stated with “-”) -2,160,911.92 -1,531,310.06 Decrease of the deferred income tax asset -12,327,864.33 17,382,217.94 (increase is stated with “_”) Increase of deferred income tax liability -63,520.78 (decrease is stated with “-”) Decrease of inventories (Increase is stated with 10,360,528.74 57,362,696.37 “-”) Decrease of operative items receivable -57,935,867.20 -112,532,040.70 (Increase is stated with “-”) Increase of operative items payable (Decrease is -3,724,783.54 -9,395,746.58 stated with “-”) Net cash flows arising from operating activities 103,645,235.27 159,014,650.37 2. Significant investment and fund-raising activities with no -- -- cash income and expenses involved: 3. Net change in cash and cash equivalents: -- -- Ending cash balance 344,906,641.68 224,316,552.42 Less: Opening balance of cash 315,093,565.09 162,623,059.97 Net increase of cash and cash equivalents 29,813,076.59 61,693,492.45 (2) Net cash paid for acquisition of subsidiary in the reporting period Inapplicable (3) Net cash received from disposal of subsidiary in the reporting period Inapplicable (4) Composition of cash and cash equivalents In CNY Items Ending balance Opening balance I. Cash 344,906,641.68 315,093,565.09 Including: Cash in stock 344,906,641.68 315,093,565.09 Bank deposit available for payment at any time 215,989.73 229,258.38 Other monetary fund used for payment at any time 343,931,215.59 285,306,297.62 Due from central bank available for payment 759,436.36 29,558,009.09 III. Ending balance of cash and cash equivalents 344,906,641.68 315,093,565.09 Including: cash and cash equivalents restricted for use from 1,575,000.00 3,641,389.51 the parent company or other subsidiaries of the Group Other notes: Inapplicable 80. Notes to items of statement of change in owner’s equity Specify the description of the item "others" and the adjusted amount of the balance at the end of last year: Inapplicable 81. Assets restricted in ownership or use right In CNY Items Book value at the end of the reporting period Cause of restriction Monetary fund 1,575,000.00 Deposit for L/G Fixed assets 14,201,915.48 Security guarantee Total 15,776,915.48 -- Other notes: Inapplicable 82. Foreign currency monetary items (1) Foreign currency monetary items In CNY Items Ending balance of foreign currency Conversion rate Ending balance of Renminbi converted Monetary fund -- -- Including: USD 2,733,938.06 7.07950 19,354,914.51 Euro 30,154.43 7.96100 240,059.40 HKD 8,747,941.93 0.91344 7,990,720.07 SF 138,202.79 7.44340 1,028,698.65 Accounts receivable -- -- Including: USD 603,055.08 7.0795 4,269,328.45 Euro 30,425.59 7.9610 242,218.13 HKD 2,970,361.11 0.91344 2,713,246.66 SF 30,527.96 7.4434 227,231.82 Long-term Loan -- -- Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 0.00 0.91344 0.00 SF 577,101.19 7.44340 4,295,595.00 Advance payment for goods Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 0.00 0.91344 0.00 SF 859,637.54 7.44340 6,398,626.07 JP Yen 10,477,519.30 0.06581 689,504.59 Accounts payable Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 1,771,811.89 0.91344 1,618,443.85 SF 29,675.49 7.44340 220,886.54 Other receivables Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 146,038.44 0.91344 133,397.35 SF 908,889.21 7.44340 6,765,225.95 Advance from customers Including: USD 31,617.09 7.07950 223,833.19 Euro 0.00 7.96100 HKD 1,179,628.55 0.91344 1,077,519.90 SF 7.44340 Other payables Including: USD 4,702.87 7.07950 33,293.97 Euro 1,090.35 7.96100 8,680.28 HKD 416,145.72 0.91344 380,124.15 SF 71,910.54 7.44340 535,258.91 Short term loans Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 58,302.42 0.91344 53,255.76 SF 1,405,115.26 7.44340 10,458,834.93 Non-current liabilities due within a year Including: USD 0.00 7.07950 0.00 Euro 0.00 7.96100 0.00 HKD 0.00 0.91344 0.00 SF 50,182.71 7.44340 373,530.00 Other notes: Inapplicable (2) Note to overseas operating entities, including important overseas operating entities, which should be disclosed about its principal business place, function currency for bookkeeping and basis for the choice. In case of any change in function currency, the cause should be disclosed. Inapplicable 83. Hedging Inapplicable 84. Government subsidies (1) Basic information of government subsidies In CNY Amount counted to the current profit and Categories Amount Items presented loss Qualification of the enterprise in 150,000.00 Other income 150,000.00 Guangming District for Baselworld 2019 Financing the enterprises for project development in the domestic market in 88,280.00 Other income 88,280.00 2020 The 1st fund allocation of the first R&D 571,000.00 Other income 571,000.00 financial support (A) in 2019 Financial support for improving both technical innovation and brands (B) in 800,000.00 Other income 800,000.00 2020 Funding and award in the Shenzhen 176,681.00 Other income 176,681.00 Standard Field in 2019 Export credit insurance premiums for the 34,123.00 Other income 34,123.00 second half year of 2018 Financial support for improving both quality and brand in the technical 800,000.00 Other income 800,000.00 innovation doubling special subsidy program (C) in 2020 Business subsidy 3,601.49 Other income 3,601.49 Subsidy to the employees of the Education Bureau of Xiacheng District engaged in 500.00 Other income 500.00 nursing service Business opening bonus received from the 100.00 Other income 100.00 Bureau of Commerce Local government subsidy for COVID-19 6,577.35 Other income 6,577.35 prevention Refunded education surcharge 273.22 Other income 273.22 Financial support for improving both quality and brand in the technical 800,000.00 Other income 800,000.00 innovation doubling special subsidy program (C) in 2020 Social insurance subsidy 12,100.00 Other income 12,100.00 Allowance for the Endowment and Medical Insurance for the Disabled in the Second 3,590.52 Other income 3,590.52 Half of 2019 from Guangming District Financial support for exhibition at 20,000.00 Other income 20,000.00 Guangdong Industrial Expo Financial support for certifying the second national hi-tech enterprises in 2019 from 100,000.00 Other income 100,000.00 Guangming District Financing the enterprises for project development in the domestic market in 71,510.00 Other income 71,510.00 2020 Special fund subsidy in the field of 60,814.00 Other income 60,814.00 Shenzhen Standards in 2019 Salary delivered to the employees still not 1,078,243.40 Other income 1,078,243.40 starting work as subsidy in Switzerland Special financial support for 2019 Nanshan District Excellence-Creation 1,618,800.00 Other income 1,618,800.00 Rating Independent Innovation Project (National Design Center) (D) Special financial support for 2019 Nanshan District Innovation Carrier 776,500.00 Other income 776,500.00 Support Technology Project (E) Special fund for 2019 Nanshan District 9,500.00 Other income 9,500.00 Patent Support Program Special fund for 2019 Nanshan District 57,000.00 Other income 57,000.00 Standardization Work Support Plan Award for 2019 Nanshan District Technology Innovation (China Award for 200,000.00 Other income 200,000.00 Excellence in Design) Financial support from 2019 Nanshan District Enterprise R & D Investment 657,400.00 Other income 657,400.00 Support Plan (F) Basic electricity charge for February paid 103,740.00 Other income 103,740.00 on behalf by the municipal government Special fund subsidy in the field of Shenzhen Standards in 2019 from the 741,665.00 Other income 741,665.00 Market Supervision & Administration Bureau of Shenzhen Municipality (G) Financing the enterprises for project development in the domestic market in 1,473.34 Other income 1,473.34 2020 Subsidies to the affected enterprises in 499,019.60 Other income 499,019.60 2019 (H) Employment stabilization subsidies 433,480.80 Other income 433,480.80 Refunded individual income tax 278,042.95 Other income 278,042.95 Total 10,154,015.67 10,154,015.67 Notes: A. It is the government subsidy obtained according to the Notice of Shenzhen Municipal Science & Technology Innovation Commission on the First Supporting Fund Application Materials and Appropriation Materials for the Advance Reception of the Enterprise R & D Funding Plan in 2019. B. It is the government subsidy obtained according to the Notice of the Bureau of Industry and Information Technology of Shenzhen Municipality on the Disclosure of the Intentional Financial Support Scheme for Quality Brand Double Promotion of the Special Subsidy Plan for Technology Improvement Multiplication in 2020. C. It is the government subsidy obtained according to the Notice of the Bureau of Industry and Information Technology of Shenzhen Municipality on the Disclosure of the Intentional Financial Support Scheme for Quality Brand Double Promotion of the Special Subsidy Plan for Technology Improvement Multiplication (Batch I) in 2020. D. It is the government subsidy obtained according to the "Measures of the Bureau of Industry and Information Technology of Nanshan District for Management of the Special Fund for Development of the Independent Innovation Industry in Nanshan District" and the "Rules for Implementation of the Special Fund for Independent Innovation Industry Development in Nanshan District - the Itemized Fund for Economic Development". E. It is the government subsidy obtained according to the Notice of the General Office of Nanshan District People's Government of Shenzhen Municipality on the Printing and Issuing of the "Measures for Management of the Special Fund for Development of the Independent Innovation Industry in Nanshan District” SHEN NAN FU BAN GUI [2019] No. 2. F. It is the government subsidy obtained according to the Notice of the General Office of Nanshan District People's Government of Shenzhen Municipality on the Printing and Issuing of the "Measures for Management of the Special Fund for Development of the Independent Innovation Industry in Nanshan District” SHEN NAN FU BAN GUI [2019] No. 2. G. It is the government subsidy obtained according to the Notice of the Market Supervision and Administration Bureau of Shenzhen Municipality on the Special Fund Support and Incentive Scheme for the Standard Fields 2019 in Shenzhen. H. It is the government subsidy obtained according to the Notice of the Small and Medium-sized Enterprise Service Bureau of Shenzhen Municipality for Allocating the Subsidy for the Domestic Market Development Projects to the Program of Innovative Development, Fostering and Support of Shenzhen Local Private and Small & Medium-sized Enterprises in 2020. (2) Refunding of the government subsidies Inapplicable 85. Others Inapplicable VIII. Change in consolidation scope 1. Consolidation of enterprises not under the joint control (1) Consolidation of enterprises not under joint control during the reporting period Inapplicable (2) Consolidation cost and goodwill Inapplicable (3) Purchasee's distinguishable assets and liabilities as at the date of purchase Inapplicable (4) Profit or loss of the equity held before the date of purchase arising from re-measurement based on the fair value Does there exist any transaction in which the enterprise consolidation is realized step by step through several transactions and the control power is obtained within the reporting period. No (5) Note to the consolidation consideration or the fair value of the distinguishable assets and liabilities of the purchasee which cannot be reasonably identified as at the date of purchase or at the end of the very period of consolidation Inapplicable (6) Other notes No change took place in the consolidation scope of the Company in 2020 2. Consolidation of enterprises under the joint control (1) Consolidation of enterprises under joint control during the reporting period Inapplicable (2) Consolidation cost Inapplicable (3) Book value of the consolidatee's assets and liabilities as at the date of consolidation Inapplicable 3. Counter purchase Inapplicable 4. Disposal of subsidiaries Does there exist any such situation that a single disposal may cause the control power over the investment in a subsidiary lost? No Does there exist any such situation that disposal in steps through a number of transactions may cause the control power over the investment in a subsidiary lost during the reporting period? No 5. Change of consolidation scope due to other reason Note to the change in the consolidation scope (e.g. new subsidiaries, liquidation subsidiaries, etc.) caused by other reasons and relevant information: Inapplicable 6. Others Inapplicable IX. Equity in other entities 1. Equity in a subsidiary (1) Composition of an enterprise group Shareholding proportion Subsidiaries Main business location Place of registration Nature of business Way of acquisition Direct Indirect Establishment or HARMONY Shenzhen Shenzhen Commerce 100.00% 0.00% investment Precision Technology Establishment or Shenzhen Shenzhen Manufacture 90.00% 10.00% Co. investment Establishment or the Hong Kong Co. Hong Kong Hong Kong Commerce 100.00% 0.00% investment Establishment or Station-68 Co. Hong Kong Hong Kong Commerce 0.00% 60.00% investment Shenzhen Harmony Shenzhen Shenzhen Commerce 100.00% 0.00% Establishment or E-Commerce Co., Ltd. investment Science & Technology Establishment or Shenzhen Shenzhen Manufacture 100.00% 0.00% Development Co. investment Establishment or SHIYUEHUI Shenzhen Shenzhen Commerce 100.00% 0.00% investment Emile Choureit Establishment or Shenzhen Shenzhen Commerce 100.00% 0.00% (Shenzhen) investment Establishment or FIYTA Sales Co., Ltd. Shenzhen Shenzhen Commerce 100.00% 0.00% investment Consolidation of Hengdarui Shenyang Shenyang Commerce 100.00% 0.00% enterprises under the joint control Consolidation of Swiss Company Switzerland Switzerland Commerce 0.00% 100.00% enterprises not under the joint control Other notes: Inapplicable (2) Important non-wholly-owned subsidiaries Inapplicable (3) Key financial information of important non-wholly-owned subsidiaries Inapplicable (4) Significant restriction on use of enterprise group’s assets and paying off the enterprise group’s liabilities Inapplicable (5) Financial support or other support provided to the structured entities incorporated in the scope of consolidated financial statements Inapplicable 2. Transaction with a subsidiary with the share of the owner’s equity changed but still under control (1)Note to change in the share of the owner's equity in subsidiaries Inapplicable (2) Affect of the transaction on the minority equity and owner's equity attributable to the parent company Inapplicable 3. Equity in joint venture arrangement or associates (1) Important joint ventures or associates Shareholding proportion Accounting treatment Name of joint venture or method for investment Main business location Place of registration Nature of business associate Direct Indirect in joint ventures or associates Shanghai Watch Shanghai Shanghai Commerce 25.00% Equity method (2) Key financial information of important joint ventures Inapplicable (3) Key financial information of important associates In CNY Ending balance/amount incurred in the reporting period Opening balance/amount incurred in the reporting period Current assets 119,900,356.87 117,096,911.21 Non-current assets 15,186,082.97 13,556,720.58 Total assets 135,086,439.84 130,653,631.79 Current liabilities 21,476,491.68 22,661,506.61 Non-current liabilities - 7,978,869.84 Total liabilities 21,476,491.68 30,640,376.45 Equity attributable to the parent company’s shareholders 113,609,948.16 100,013,255.34 Share of net assets calculated according to the 28,402,487.04 25,003,313.84 shareholding proportion Book value of the equity investment in associates 48,584,749.77 46,423,837.85 Revenue 54,674,292.84 57,039,155.07 Net profit 8,643,647.69 6,125,240.23 Total comprehensive income 8,643,647.69 6,125,240.23 Other notes Inapplicable (4) Financial information summary of unimportant joint ventures and associates Inapplicable (5) Note to significant restriction on the competence of a joint venture or an associate in transferring funds to the Company Inapplicable (6) Excessive loss incurred to a joint venture or an associate Inapplicable (7) Unrecognized commitment in connection with investment in a joint venture Inapplicable (8) Contingent liabilities in connection with investment in joint ventures or associates Inapplicable 4. Important joint operation Inapplicable 5. Equity in the structurized entities not incorporated in the consolidated financial statements Inapplicable 6. Others Inapplicable X. Financial instruments and risk management The Group's main financial instruments include monetary funds, notes receivable, accounts receivable, other receivables, other equity instrument investments, accounts payable, other payables, short-term borrowings, non-current liabilities due within 1 year, and long-term borrowings. Details of the financial instruments have been disclosed in the relevant notes. The risks involved in these financial instruments and the Group’s risk control policies aiming at reducing these risks are stated as follows. The Group’s management conducts management and monitoring of these risk exposures so as to ensure risks to be controlled within a specific limitation. 1. Risk management goals and policies The Group's objective in risk management is to achieve a proper balance between risk and return and to reduce the adverse impact of financial risks on the Group's financial performance. Based on this risk management objective, the Group has developed risk management policies to identify and analyze the risks faced by the Group, set appropriate acceptable levels of risks and design corresponding internal control procedures to monitor the risk level of the Group. The Group regularly reviews these risk management policies and relevant internal control systems to respond to changes in market conditions or the Group's business activities. The Group's internal audit department also periodically or randomly checks whether the implementation of the internal control system conforms to the risk management policy. The main risks caused by the Group's financial instruments are credit risk, liquidity risk and market risk (including exchange rate risk, interest rate risk and commodity price risk). The Board of Directors is responsible for planning and establishing the risk management framework of the Group, formulating the risk management policies and relevant guidelines of the Group and supervising the implementation of risk management measures. The Group has formulated risk management policies to identify and analyze the risks faced by the Group. These risk management policies clearly specify specific risks and cover many aspects such as market risk, credit risk and liquidity risk management. The Group regularly evaluates the market environment and changes in the Group's business activities to determine whether or not to update the risk management policy and system. The risk management of the Group is carried out by the Risk Management Committee in accordance with policy approved by the Board of Directors. The Risk Management Committee works closely with other business units of the Group to identify, evaluate and mitigate risks. The internal audit department of the Group conducts regular audits of risk management controls and procedures and reports the audit results to the audit committee of the Group. The Group diversifies the risk of financial instruments through appropriate diversification of investments and business portfolios and reduces the risk of being concentrated in a single industry, a specific region or a specific counterparty by developing appropriate risk management policy. (1) Credit risk Credit risk refers to the risk of the Group's financial loss caused by the counterparty's failure to fulfill its contractual obligations. The Group manages credit risk by portfolio classification. Credit risk mainly arises from bank deposits, notes receivable, accounts receivable, other receivables, etc. The Group places its bank deposits mainly with financial institutions with good reputation and high credit rating, and the Group does not expect that there exists any significant credit risk to the bank deposits. For notes receivable, accounts receivable and other receivables, the Group has set the relevant policy to control credit exposure. The Group evaluates the customer's credit qualification and sets the corresponding credit period based on their financial position, credit history and other factors such as current market conditions. The Group shall regularly monitor customers' credit records. For customers with poor credit records, the Group shall use such methods as written payment reminders, shortening or canceling credit periods to ensure that the overall credit risks of the Group are under control. The Group’s debtors of accounts receivable are customers engaged in different industries and located in different regions. The Group continues to conduct credit assessment of the financial position of accounts receivable and, where appropriate, purchases credit guarantee insurance. The maximum credit risk exposure the Group accesses to is the book value of each financial asset in the balance sheet. The Group is also exposed to credit risks due to the provision of financial guarantees, as detailed in Note XII.2. In the Group's accounts receivable, the amount owed by the top five customers took 15.42% of the Group's total accounts receivable (2019: 25.39%); in the Group's other receivables, the amount owed by the top five customers took 11.28% of the Group's total other receivables (2019: 40.94%). (2) Liquidity risks Liquidity risk refers to the risk that the Group encounters a shortage of funds in fulfilling its obligation to settle by delivery of cash or other financial assets. When managing flow risks, each of the Group's affiliates is responsible for its own cash flow forecast. The Group's financial center monitors long - and short-term fund demands at the Group level based on the cash flow forecast results of each member enterprise. The Group manages the surplus fund within the Group through the capital pool plan established with some large banking financial institution, and ensures that each member enterprise has sufficient cash reserves to meet the payment obligations due for settlement. In addition, the Group has entered into agreements for line of financing credit with its major correspondent banks to support the Group in fulfilling its obligations related to commercial paper. The Group raises working capital through funds generated from its operations and bank borrowings. As at June 30,2020, the amount of the bank loans not yet used by the Group was CNY 2,316.68 million (December 31,2019: CNY 1,970.39 million). (3) Market risks Market risk of financial instruments refers to the risk that the fair value or future cash flow of financial instruments may fluctuate due to changes in market prices, including interest rate risk, exchange rate risk and other price risk. Interest rate risks Interest rate risk refers to the risk that the fair value of financial instruments or future cash flow may fluctuate due to changes in market interest rates. Interest rate risk may arise from recognized interest bearing financial instruments and unrecognized financial instruments (such as certain loan commitments). The interest rate risk of the Group is mainly generated from short-term bank borrowing, long-term bank borrowing and other interest-bearing debts. Financial liabilities with floating interest rate expose the Group to interest rate risk of cash flow while financial liabilities with fixed interest rate expose the Group to interest rate risk of fair value. The Group determines the relative proportion of fixed and floating rate contracts in accordance with prevailing market conditions and maintains an appropriate portfolio of fixed and floating rate instruments through regular reviews and monitoring. The interest-bearing financial instruments held by the Group are as follows (In CNY 10,000) : Items Amount in the reporting year Amount in the previous year Financial instruments with fixed interest rate Financial liabilities Where: short-term borrowings 67,356.24 48,710.37 Long-term Loan 466.91 468.18 Sub-total 67,823.15 49,178.55 Financial instruments with floating interest rate Financial liabilities Where: short-term borrowings 8,000.00 Total 67,823.15 57,178.55 For the financial instruments held on the balance sheet date that expose the Group to fair value interest rate risk, the impact of net profit and shareholders' equity in the sensitivity analysis above is the impact after the re-measurement of the financial instruments according to the new interest rate, assuming that the daily interest rate of the balance sheet changes. For floating rate non-derivative instruments held at the balance sheet date that expose the Group to cash flow interest rate risk, the impact on net profit and shareholders' equity in the sensitivity analysis above is the impact of the above interest rate change on the annualized estimated interest expense or income. The previous year's analysis was based on the same assumptions and methodology. Exchange rate risk Exchange rate risk refers to the risk of fluctuations in the fair value of financial instruments or future cash flows due to movement in foreign exchange rates. Exchange rate risk may be derived from financial instruments denominated in foreign currencies other than the functional currency. Exchange rate risk mainly refers to the Group's financial position and cash flow affected by foreign exchange rate fluctuations. In addition to the subsidiary established in Hong Kong holding assets in Hong Kong dollars and the sub-subsidiary established in Switzerland holding assets in Swiss Francs, the Group's other major business activities are mainly settled in Renminbi. However, foreign exchange risks still exist in the foreign currency assets and liabilities recognized by the Group and in future foreign currency transactions. As of June 30, 2020, the amount of foreign currency financial assets and foreign currency financial liabilities held by the Group converted into Renminbi is listed as follows (In CNY 10,000) : Items Foreign currency liabilities Foreign currency assets Amount at the end of the Amount at the beginning of Amount at the end of the Amount at the beginning of reporting period the reporting period reporting period the reporting period US$ 25.71 - 2,362.42 4,601.89 HK$ 312.93 1,939.47 1,083.74 1,072.77 CHF 1,588.41 1,700.89 1,441.98 3,497.65 Euro 0.87 - 48.23 359.81 JP Yen - 68.95 Total 1,927.93 3,640.36 5,005.32 9,532.12 The Group pays close attention to the impact of exchange rate fluctuations on exchange rate risks of the Group. The Group is not currently taking any measures to protect itself from exchange rate risk. However, the management is responsible for monitoring currency risks and will consider hedging significant currency risks as needed. On June 30, 2020, for the Group’s foreign currency monetary funds, bank loans and other financial instruments, and so on, may lead to appreciation or depreciation of the Group's shareholders' equity and net profit by about CNY 1.2494 million (December 31, 2019: about CNY 2.9459 million) with the assumption that that Renminbi to foreign currencies (mainly against US Dollars, HK Dollars and Swiss Franc) may be appreciated or depreciated by 5% with other factors remain unchanged. 2. Capital management The objective of the Group's capital management policy is to ensure that the Group is a going concern, thus providing returns to shareholders and benefits to other stakeholders, while maintaining an optimal capital structure to reduce the cost of capital. In order to maintain or recapitalize, the Group may adjust the way of financing, adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares and other equity instruments, or sell assets to reduce its debts. The Group monitors its capital structure on the basis of the asset-liability ratio (that is, the total liabilities are divided by the total assets). As at 30 June 2020, the Group's gearing was 31.52% (December 31, 2019: 29.420%). XI. Disclosure of Fair Value 1、 Fair value at the end of the reporting period of the assets and liabilities measured based on the fair value Inapplicable 2. Basis for determining the market price of the items measured based on the continuous and non-continuous first level fair value Level 1: the quotation of the same assets or liabilities in an active market (unadjusted) 3. Items measured based on the continuous or uncontinuous 2nd level fair value, valuation technique as used, nature of important parameters and quantitative information Level 2: either directly (i.e., price) or indirectly (i.e., derived from price) use observable input value other than market quotations for assets or liabilities at Level 1. 4. Items measured based on the continuous or uncontinuous 3rd level fair value, valuation technique as used, nature of important parameters and quantitative information Level 3: The asset or liability has used any input value not based on observable market data (non-observable input value). 5. Items measured based on the continuous 3rd level fair value, sensitivity analysis on adjusted information and unobservable parameters between the book value at beginning and end of the period Inapplicable 6. In case items measured based on fair value are converted between different levels incurred in the current period, state the cause of conversion and determine conversion time point This year, the fair value measurement of the Group's financial assets and financial liabilities has neither experienced any conversion between Level 1 and Level 2, nor experienced transfer-in or transfer-out to/from Level 3. 7. Change of valuation technique incurred in the current period and cause of such change Inapplicable 8. Fair value of financial assets and financial liabilities not measured at fair value The Group's financial assets and financial liabilities measured with amortized costs mainly include monetary funds, notes receivable, accounts receivable, other receivables, short-term loans, accounts payable, other payables, long-term loans due within a year, long-term loans, etc. The difference between the book value and fair value of the above financial assets and financial liabilities not measured with fair value is very little. 9. Others Inapplicable XII. Related parties and transactions 1. Details of the parent company of the Company Shareholding ratio of the Ratio of vote right of the Name of the parent Place of registration Nature of business Registered capital parent company in the parent company in the company Company Company Investment in industries, AVIC IHL Shenzhen domestic trade, material CNY 1,166.162 million 38.06% 38.06% supply and distribution Note to the parent company: The proportion of the equity held by AVIC International Shenzhen Co., Ltd. in AVIC International Holdings Limited is 33.93%. AVIC International Shenzhen is a wholly owned subsidiary of AVIC International Holdings Limited (AVIC IHL) and China Aviation Industry Corporation (AVIC) directly holds 91.14% of the equity of AVIC IHL. Therefore, the Company’s ultimate controller is AVIC. Other notes: Inapplicable 2. Subsidiaries of the Company Refer to Note IX. 1 for details of subsidiaries of the Company. 3. Joint venture and association of the Company Refer to NOTE IX.3 for details of the Company's major joint ventures or associates. 4. Other related parties of the Company Names of other related parties Relationship between other related parties and the Company AVIC Property Management Co., Ltd. (AVIC Property) An associate of the holding shareholder Shenzhen AVIC Building Technology Co., Ltd. (AVIC Building Co.) An associate of the holding shareholder China Merchants Jiyu Industry Operation & Service Co., Ltd. (China Merchants JIYU) An associate of the holding shareholder Shenzhen AVIC Guanlan Real Estate Development Co., Ltd. (AVIC Guanlan Real An associate of the holding shareholder Estate) Shenzhen AVIC 9 Square Assets Management Co., Ltd. (9 Square Asset) An associate of the holding shareholder Shenzhen AVIC City Investment Co., Ltd.(AVIC City Investment) An associate of the holding shareholder Ganzhou CATIC 9 Square Commerce Co., Ltd. (Ganzhou 9 Square) An associate of the holding shareholder AVIC City Property (Kunshan) Co., Ltd. (AVIC City Property (Kunshan) ) An associate of the holding shareholder Shenzhen AVIC Security Service Co., Ltd. (AVIC Security Service) An associate of the holding shareholder Shenzhen AVIC Property Asset Management Co., Ltd. (AVIC Property Asset An associate of the holding shareholder Management) Jiujiang 9 Square Commerce Management Co., Ltd. (9 Square Commerce An associate of the holding shareholder Management) Shenzhen AVIC Real Estate Development Co., Ltd. (AVIC Real Estate) An associate of the holding shareholder Shenzhen AVIC Nanguang Elevator Co., Ltd. An associate of the holding shareholder Rainbow Department Store Co., Ltd. and its subsidiaries (RAINBOW) Controlled by the same party Shennan Circuit Co., Ltd. and its subsidiaries (Shennan Circuit) Controlled by the same party Shenzhen AVIC City Commerce development Co., Ltd. (AVIC City Development) Controlled by the same party Shenzhen AVIC Huacheng Commerce development Co., Ltd. (AVIC Huacheng Controlled by the same party Commerce development) Shenzhen AVIC City Parking Lots Management Co., Ltd. (AVIC Parking Lots Controlled by the same party Management) Shenzhen CATIC Technical Testing Office Co., Ltd. (CATIC Technical Testing) Controlled by the same party Tianma Micro-electronics Co., Ltd. (SHEN TIANMA) Controlled by the same party AVIC Securities Co., Ltd. (AVIC Securities) Controlled by the same party Xi’an Skytel Hotel Co., Ltd. (Skytel Hotel) Controlled by the same party Shenzhen AVIC Changtai Investment Development Co., Ltd. (AVIC Changtai) Controlled by the same party Shenzhen CATIC Group Training Center (CATIC Training Center) Controlled by the same party Shenzhen Grand Skylight Hotel Management Co., Ltd. (Grand Skylight Hotel Controlled by the same party Management) AVIC Finance Co., Ltd. (AVIC Finance ) Controlled by the same party Shenzhen AVIC Grand Skylight Hotel Management Co., Ltd. (Grand Skylight Hotel) Controlled by the same party Gongqingcheng CATIC Cultural Investment Co., Ltd. (Gongqingcheng CATIC Cultural Controlled by the same party Investment) AVIC International Complete Set Equipment Co., Ltd. (AVIC Complete Set Equipment) Controlled by the same party AVIC International Aero-Development Corporation Controlled by the same party AVIC XI’AN AERONAUTICS COMPUTING TECHNIQUE RESEARCH INSTITUTE Controlled by the same party AVIC JINCHENG NANJING ENGINEERING INSTITUTE OF AIRCRAFT SYSTEM Controlled by the same party AVIC Lutong Industrial Co., Ltd. Controlled by the same party AVIC East China Optoelectronic Co., Ltd. Controlled by the same party AVIC East China Optoelectronic (Shanghai) Co., Ltd. Controlled by the same party China Aviation Industry Supply and Marketing Zhongnan Co., Ltd. Controlled by the same party Huang Yongfeng A senior executive Wang Mingchuan A senior executive Fu Debin A senior executive Xiao Zhanglin A senior executive Wang Bo A senior executive Chen Libin A senior executive Wang Jianxin A senior executive Zhong Hongming A senior executive Tang Xiaofei A senior executive Wang Baoying A senior executive Sheng Qing A senior executive Fang Jiasheng A senior executive Lu Wanjun A senior executive Liu Xiaoming A senior executive Pan Bo A senior executive Li Ming A senior executive Chen Zhuo A senior executive Tang Haiyuan A senior executive Xu Chuangyue A senior executive Other notes Inapplicable 5. Related transactions (1) Related transactions of purchase and sale of commodities and supply and acceptance of labor services Statement of purchase of commodities and acceptance of labor services In CNY Description of Related Amount incurred in the Transaction quota as Has it exceeded the Amount incurred in the Related parties Transactions reporting period approved transaction quota previous period AVIC Property Property management 5,255,465.36 1,800.00 No 4,665,553.46 fee Shopping mall Rainbow Ltd. 2,389,264.94 1,000.00 No 3,005,499.82 fees/purchase of goods SHEN TIANMA Purchase of goods 31,309.90 800.00 No Ganzhou 9 Square Shopping mall fees 92,549.84 200.00 No 9 Square Commerce Shopping mall fees 43,147.68 No Management Co., Ltd. AVIC Building Co. Refurbishment 32,924.52 No Shenzhen AVIC Nanguang Repairing fee 122,830.20 No Elevator Co., Ltd. AVIC City Commerce Shopping mall fees 19,346.13 No Development Statement of sales of goods/supply of labor services In CNY Related parties Description of Related Transactions Amount incurred in the reporting period Amount incurred in the previous period Rainbow Ltd. Products and labor services 29,669,833.80 35,273,411.88 Ganzhou 9 Square Products and labor services 8,748.67 68,392.00 Shennan Circuit Sales of materials and supply of labor 3,086,589.15 4,656,548.21 Gongqingcheng CATIC Cultural Sales of products 182,271.24 Investment AVIC International Sales of products 4,424.78 AVIC International Aero-Development Sales of products 140,884.97 Corporation Shanghai Watch Sales of products 2,047,890.00 AVIC City Commerce Development Sales of products 94,585.88 AVIC Changtai Sales of products 0 AVIC XI’AN AERONAUTICS COMPUTING Sales of products 7,061.95 TECHNIQUE RESEARCH INSTITUTE AVIC JINCHENG NANJING Sales of products 176,991.15 ENGINEERING INSTITUTE OF AIRCRAFT SYSTEM AVIC Lutong Industrial Co., Ltd. Sales of products 14,123.89 AVIC East China Optoelectronic Co., Ltd. Sales of products 212,389.38 AVIC East China Optoelectronic Sales of products 35,398.23 (Shanghai) Co., Ltd. China Aviation Industry Supply and Sales of products 7,079.65 Marketing Zhongnan Co., Ltd. Note to the related transactions of purchase and sale of commodities and supply and acceptance of labor services Inapplicable (2) Related entrusted management/contracted and mandatory management/contracting Inapplicable (3) Related lease The Company as lessor: In CNY Rental income recognized in the current Rental income recognized in the Names of lessees Categories of leasehold properties period previous period AVIC Property Housing 6,196,298.09 9,236,271.13 Tianyue Hotel Housing 2,095,238.09 CMPO Housing 926,577.86 AVIC City Investment Housing 139,986.58 133,320.56 AVIC Securities Housing 657,257.16 527,428.55 Rainbow Ltd. Housing 696,114.82 289,764.58 AVIC Huacheng Commerce Development Housing 117,566.50 9 Square Assets Housing 1,042,900.03 993,238.13 CATIC Public Security Service Co. Housing 502,635.07 706,043.41 Guanlan Real Estate Housing 69,993.29 172,145.99 AVIC City Property Housing 149,630.10 AVIC Real Estate Housing 140,569.86 133,876.07 The Company as lessee: In CNY Rental fee recognized in the Rental fee recognized in the Names of lessees Categories of leasehold properties current period previous period Ganzhou 9 Square Housing 449,741.52 538,609.84 AVIC City Property (Kunshan) Housing 87,666.38 Jiujiang AVIC Real Estate Housing 191,570.45 9 Square Commerce Management Housing 192,860.44 Co., Ltd. AVIC City Commerce Development Housing 68,807.29 203,568.04 Note to related lease Inapplicable (4) Related guarantee The Company as a guarantor In CNY Guarantees Amount guaranteed Effective date Expiring date Is the guarantee finished Harmony 100,000,000.00 December 30, 2019 December 29, 2020 No Harmony 40,000,000.00 April 21, 2020 April 21, 2021 No the Hong Kong Co. 3,721,700.00 August 22, 2019 August 19, 2020 No the Hong Kong Co. 3,721,700.00 September 23, 2019 September 19, 2020 No the Hong Kong Co. 2,977,360.00 October 31, 2019 October 25, 2020 No The Sales Co. 50,000,000.00 April 26, 2020 April 26, 2021 No Precision Technology Co. 30,000,000.00 April 24, 2020 April 24, 2021 No Science & Technology 2,430,000.00 April 29, 2020 April 29, 2021 No Development Co. The Company as a guarantee Inapplicable (5) Borrowings and lendings among related parties In CNY Related parties Borrowing amount Starting date Due date Note Borrowed from AVIC Financial Co. 50,000,000.00 March 26, 2019 March 26, 2020 AVIC Financial Co. 100,000,000.00 April 02, 2019 April 02, 2020 AVIC Financial Co. 60,000,000.00 October 25, 2019 October 25, 2020 Lending (6) Assets assignment and liabilities reorganization of related parties Inapplicable (7)Remuneration to senior executives Inapplicable (8) Other related transactions The balance of the Company's deposit at the end of the current year with AVIC Finance amounted to CNY 289,316,243.49, of which the interest received in the current year amounted to CNY 469,992.60. 6. Accounts receivable from and payable to related parties (1) Receivables In CNY Ending balance Opening balance Project name Related parties Book balance Bad debt reserve Book balance Bad debt reserve Accounts receivable: Rainbow Ltd. 8,983,247.13 449,162.36 633,187.49 31,596.06 Shennan Circuit 1,421,361.72 71,068.09 1,704,634.58 85,061.27 Gongqingcheng CATIC 31,387.08 1,569.35 Cultural Investment AVIC City Commerce 29,251.10 1,462.56 Development AVIC Property 227,167.05 11,358.35 Tianyue Hotel 7,630.00 381.50 CATIC Public Security 271,533.23 13,576.66 Service Co. Shanghai Watch 140,000.00 6,986.00 Notes receivable: Shennan Circuit 2,094,782.89 2,263,719.32 Advance payment: SHEN TIANMA 581,280.00 31,309.90 Other receivables: Rainbow Ltd. 1,208,200.00 60,410.00 975,867.00 50,647.50 Ganzhou 9 Square 122,665.60 6,366.34 122,665.60 6,366.34 AVIC City Property 40,000.00 2,000.00 32,000.00 1,660.80 (Kunshan) Gongqingcheng CATIC 5,500.00 275.00 Cultural Investment 9 Square Commerce 50,000.00 2,595.00 50,000.00 2,595.00 Management Co., Ltd. AVIC City Commerce 59,923.00 3,110.00 59,923.00 3,110.00 Development AVIC IHL 11,101.80 576.18 11,101.80 576.18 (2) Payables In CNY Project name Related parties Ending book balance Opening book balance Accounts payable: AVIC Building Co. 23,300.97 SHEN TIANMA 3,415.84 Advance receipts: China Aviation Industry Supply and 29,175.00 Marketing Zhongnan Co., Ltd. Other payables: AVIC Property 2,001,989.48 1,237,403.65 CMPO 442,407.92 442,407.92 AVIC City Investment 309,732.00 309,732.00 AVIC Securities 213,000.00 213,000.00 AVIC Building Co. 71,153.70 54,691.44 AVIC City Commerce Development 0.00 99,052.32 AVIC Huacheng Commerce Development 0.00 73,819.68 9 Square Assets 378,483.84 378,483.84 Rainbow Ltd. 257,490.98 155,672.90 AVIC Real Estate 51,014.88 51,014.88 Guanlan Real Estate 25,401.60 25,401.60 CATIC Public Security Service Co. 226,603.44 226,603.44 Tianyue Hotel 57,718.82 28,886.00 7. Related parties’ commitments Inapplicable 8. Others Inapplicable XIII. Stock payment 1. General Inapplicable 2. Stock payment for equity settlement In CNY Method for determining the fair value of equity instruments as at the granting day Closing price of the Company’s shares as at the granting day Employee service period, achievement rate of performance indicators and Basis for determining the quantity of exercisable equity instruments individual performance evaluation result Cause of significant difference between the estimation of the reporting period and that of Nil the previous period Accumulated amount of the equity-settled share-based payment counted to the capital 17,447,988.68 reserve Total expenses recognized in the equity-settled share-based payment during the reporting 3,165,401.89 period Other notes Inapplicable 3. Stock payment for cash settlement Inapplicable 4. Correction and termination of stock payment Inapplicable 5. Others Inapplicable XIV. Commitments and contingencies 1. Important commitments Important commitments existing as at the balance sheet date Implementation of irrevocable operating lease contract signed by the Company ended the balance sheet date is as follows: Minimum rent payment for irrevocable operational lease Ending balance Opening balance 1st year after the balance sheet date 75,083,458.13 69,420,770.36 2nd year after the balance sheet date 34,286,090.53 40,749,688.35 3rd year after the balance sheet date 14,875,155.04 15,620,420.28 Subsequent years 5,240,332.87 11,333,148.34 Total 129,485,036.57 137,124,027.33 2. Contingencies (1) Significant contingencies existing as at the balance sheet date As of June 30, 2020, the guarantee status within the Group is as follows (in CNY 10,000) : Guarantees Guarantors The guarantees Line of credit Used credit line Effective date Expiring date Harmony The Company Letter of 20,000.00 10,000.00 December 30, 2019 December 29, 2020 guarantee Harmony The Company Loan 4,000.00 4,000.00 April 21, 2020 April 21, 2021 the Hong Kong Co. The Company Loan 372.17 August 22, 2019 August 19, 2020 the Hong Kong Co. The Company Loan 3,653.76 372.17 September 23, 2019 September 19, 2020 the Hong Kong Co. The Company Loan 297.74 October 31, 2019 October 25, 2020 The Sales Co. The Company Loan 5,000.00 5,000.00 April 26, 2020 April 26, 2021 Precision Technology The Company Loan 3,000.00 3,000.00 April 24, 2020 April 24, 2021 Co. Science & Technology The Company Loan 3,000.00 243.00 April 29, 2020 April 29, 2021 Development Co. Total 38,653.76 23,288.88 (2) Important contingencies unnecessary to be disclosed but necessary to be explained Inapplicable 3. Others As of June 30, 2020, there exist no other contingencies in the Group necessary to be disclosed. XV. Events after balance sheet date 1. Significant non-adjustment events Inapplicable 2. Profit distribution In CNY Profit or dividend to be distributed 85,634,376.20 Profit or dividend announced to be distributed after review and approval 85,634,376.20 3. Sales return Inapplicable 4. Note to other matters after the balance sheet date Inapplicable XVI. Other significant events 1. Correction of the accounting errors in the previous period (1) Retroactive restatement Inapplicable (2) Prospective application Inapplicable 2. Liabilities restructuring Inapplicable 3. Replacement of assets (1) Non-monetary assets exchange Inapplicable (2) Other assets exchange Inapplicable 4. Pension plan Inapplicable 5. Discontinuing operation Inapplicable 6. Segment information (1) Basis for determining the reporting segments and accounting policy Inapplicable (2) Financial information of the reporting segments Inapplicable (3) In case there is no reporting segment or the total assets and liabilities of the reporting segments cannot be disclosed, explain the reason Inapplicable (4) Other notes Inapplicable 7. Other significant transactions and matters that may affect investors' decision making Inapplicable 8. Others Inapplicable XVII. Notes to the parent company’s financial statements 1. Accounts receivable (1) Accounts receivables disclosed by types In CNY Ending balance Opening balance Categories Book balance Bad debt reserve Book balance Bad debt reserve Book value Book value Amount Proportion Amount Provision Amount Proportion Amount Provision proportion proportion where Accounts receivable for which provision for bad debt is based 4,699,542.96 100.00% 230,925.13 5.00% 4,468,617.83 2,997,921.46 100.00% 149,896.07 5.00% 2,848,025.39 on portfolios where Accounts receivable from other 4,699,542.96 100.00% 230,925.13 5.00% 4,468,617.83 2,997,921.46 100.00% 149,896.07 5.00% 2,848,025.39 customers Total 4,699,542.96 100.00% 230,925.13 5.00% 4,468,617.83 2,997,921.46 100.00% 149,896.07 5.00% 2,848,025.39 Individual provision for bad and doubtful debts: Inapplicable Provision for bad debts based on portfolio: accounts receivable from other customers In CNY Ending balance Description Book balance Bad debt reserve Provision proportion Accounts receivable from other customers 4,699,542.96 230,925.13 5.00% Total 4,699,542.96 230,925.13 -- Note to the basis for determining the combination: Inapplicable Disclosed based on aging In CNY Aging Ending balance Within 1 year (with 1 year inclusive) 4,699,542.96 Total 4,699,542.96 (2) Provision, recovery or reversal of reserve for bad debts during the reporting period Provision for bad debt during the reporting period In CNY Amount of movement during the reporting period Categories Opening balance Amount recovered or Ending balance Provision Writing-off Others reversed Bad debt reserve 149,896.07 230,925.13 149,896.07 0.00 0.00 230,925.13 Total 149,896.07 230,925.13 149,896.07 0.00 0.00 230,925.13 Where the significant amount of the reserve for bad debt recovered or reversed: Inapplicable (3) Accounts receivable actually written off in current period Inapplicable (4) Accounts receivable owed by the top five debtors based on the ending balance In CNY Proportion of the ending balance of the Ending balance of the provision for bad Description of Units Ending balance of accounts receivable accounts receivable debts Receivable from the top five customers 2,421,654.32 52.00% 121,082.71 Total 2,421,654.32 52.00% (5) Account receivable with recognition terminated due to transfer of financial assets Inapplicable (6) Amount of assets and liabilities formed through transfer of account receivable and continuing to be involved Inapplicable 2. Other receivables In CNY Items Ending balance Opening balance Other receivables 697,541,260.60 783,647,732.22 Total 697,541,260.60 783,647,732.22 (1) Interest receivable 1) Classification of interest receivable Inapplicable 2) Significant overdue interest Inapplicable 3) Provision for bad debts Inapplicable (2) Dividends receivable 1) Classification of dividends receivable Inapplicable 2) Significant dividends receivable with age exceeding 1 year Inapplicable 3) Provision for bad debts Inapplicable (3) Other receivables 1) Classification of other receivables based on nature of payment In CNY Nature of Payment Ending book balance Opening book balance Collateral and Deposit 235,761.90 235,761.90 Inter-company current account 643,492,028.31 783,005,800.85 Advance payment for equity allocation 53,183,393.38 0.00 Others 739,511.33 495,730.33 Total 697,650,694.92 783,737,293.08 2) Provision for bad debts In CNY The 1st stage The 2nd stage The 3rd stage Predicted credit loss in the whole Predicted credit loss in the whole Bad debt reserve Predicted credit loss in the Total duration (no credit impairment taken duration (credit impairment already future 12 months place) taken place) Balance as at January 01, 2020 89,560.86 Balance as at January 01, 2020 —— —— —— —— during the reporting period Provision in the reporting period 19,873.46 Balance as at June 30, 2020 109,434.32 Movement of the book balance of provision for loss with significant amount in the reporting period Inapplicable Disclosed based on aging In CNY Aging Ending balance Within 1 year (with 1 year inclusive) 697,403,235.59 1 to 2 years 10,127.53 2 to 3 years 197,281.80 Over 3 years 40,050.00 3 to 4 years 40,050.00 4 to 5 years 0.00 Over 5 years 0.00 Total 697,650,694.92 3) Provision, recovery or reversal of reserve for bad debts during the reporting period Provision for bad debt during the reporting period In CNY Amount of movement during the reporting period Categories Opening balance Amount recovered or Ending balance Provision Writing-off Others reversed Bad debt reserve 89,560.86 19,873.46 0.00 0.00 0.00 109,434.32 Total 89,560.86 19,873.46 0.00 0.00 0.00 109,434.32 Where the significant amount of the provision for bad debt recovered or reversed: Inapplicable 4) Accounts receivable actually written off in the reporting period Inapplicable 5) Accounts receivable owed by the top five debtors based on the ending balance In CNY Proportion in total ending Ending balance of the Description of Units Nature of Payment Ending balance Aging balance of other receivables provision for bad debts Inter-company current Harmony 447,480,015.30 Within 1 year 64.00% 0.00 account Inter-company current Hengdarui 93,350,157.00 Within 1 year 13.00% 0.00 account Inter-company current Precision Technology Co. 63,956,637.59 Within 1 year 9.00% 0.00 account Inter-company current SHIYUEHUI 27,809,145.33 Within 1 year 4.00% 0.00 account Emile Chouriet (Shenzhen) Inter-company current 10,896,073.09 Within 1 year 2.00% 0.00 Limited account Total -- 643,492,028.31 -- 92.00% 0.00 6) Accounts receivable involving government subsidy Inapplicable 7) Other receivables with recognition terminated due to transfer of financial assets Inapplicable 8) Amount of assets and liabilities formed through transfer of account receivable and continuing to be involved Inapplicable 3. Long-term equity investments In CNY Ending balance Opening balance Items Book balance Impairment reserve Book value Book balance Impairment reserve Book value Investment in 1,336,734,871.73 0.00 1,336,734,871.73 1,334,471,401.42 0.00 1,334,471,401.42 subsidiaries Investment in associates and joint 48,584,749.77 0.00 48,584,749.77 46,423,837.85 0.00 46,423,837.85 ventures Total 1,385,319,621.50 0.00 1,385,319,621.50 1,380,895,239.27 0.00 1,380,895,239.27 (1) Investment in subsidiaries In CNY Increase/ Decrease (+ / -) in the reporting period Ending balance of Opening balance Ending balance Investees Additional Decrease of Provision for the provision for (book value) Others (book value) investment investment impairment impairment Harmony 602,538,761.04 0.00 0.00 0.00 875,279.56 603,414,040.60 0.00 The Sales Co. 451,377,582.46 0.00 0.00 0.00 970,532.34 452,348,114.80 0.00 Precision Technology 9,344,923.49 0.00 0.00 0.00 255,455.31 9,600,378.80 0.00 Co. Science & Technology 10,126,964.71 0.00 0.00 0.00 57,199.69 10,184,164.40 0.00 Development Co. the Hong Kong Co. 137,737,520.00 0.00 0.00 0.00 0.00 137,737,520.00 0.00 SHIYUEHUI 5,000,000.00 0.00 0.00 0.00 0.00 5,000,000.00 0.00 Shenzhen Harmony E-Commerce Co., 2,184,484.39 0.00 0.00 0.00 0.00 2,184,484.39 0.00 Ltd. Hengdarui 36,867,843.96 0.00 0.00 0.00 0.00 36,867,843.96 0.00 Emile Chouriet 79,293,321.37 0.00 0.00 0.00 105,003.41 79,398,324.78 0.00 (Shenzhen) Limited Total 1,334,471,401.42 0.00 0.00 0.00 2,263,470.31 1,336,734,871.73 0.00 (2) Investment in associates and joint ventures In CNY Increase/ Decrease (+ / -) in the reporting period Income from Opening equity Other Announced for Ending balance Ending balance Investees balance (book Additional Decrease of investment comprehensive Other equity distributing Provision for of the provision Others (book value) value) investment investment recognized income movement cash dividend impairment for impairment under equity adjustment or profit method I. Joint Venture II. Associates Shanghai Watch Industry 46,423,837.85 0.00 0.00 2,160,911.92 0.00 0.00 0.00 0.00 0.00 48,584,749.77 0.00 Co., Ltd. 2,160,911.92 Sub-total 46,423,837.85 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48,584,749.77 2,160,911.92 Total 46,423,837.85 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 48,584,749.77 (3) Other notes Inapplicable 4. Operation Income and Costs In CNY Amount incurred in the reporting period Amount incurred in the previous period Items Income Costs Income Costs Principal business 57,329,018.41 17,626,390.24 64,124,939.95 11,807,925.90 Other businesses -15,800.00 0.00 0.00 0.00 Total 57,313,218.41 17,626,390.24 64,124,939.95 11,807,925.90 5. Return on investment In CNY Items Amount incurred in the reporting period Amount incurred in the previous period Income from long term equity investment based on equity 2,160,911.92 1,531,310.06 method Total 2,160,911.92 1,531,310.06 6. Others Inapplicable XVIII. Supplementary information 1. Statement of non-recurring gains and losses in the reporting period In CNY Items Amount Note 1. Gain/Loss from disposal of non-current assets -200,140.17 The government subsidies included in the profits and 10,154,015.67 losses of the current period ( (excluding government grants which are closely related to the Company’s business and conform with the national standard amount or quantity) Reversal of the impairment provision for receivables and contract assets which have been tested 296,622.87 individually for impairment Other non-operating income and expenses other than the 1,273,213.01 aforesaid items Less: Amount affected by the income tax 2,454,282.53 Total 9,069,428.85 -- For the Company’s non-recurring gain/loss items as defined in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering their Securities to the Public – Non-recurring Gains and Losses and its non-recurring gain/loss items as illustrated in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering their Securities to the Public – Non-recurring Gains and Losses which have been defined as recurring gains and losses, it is necessary to explain the reason. Inapplicable 2. ROE and EPS Earnings per share Profit in the reporting period Return on equity, weighted average Basic earning per share Diluted earning per share (CNY/share) (CNY/share) Net profit attributable to the Company’s 2.91% 0.1775 0.1775 shareholders of ordinary shares Net profit attributable to the Company’s shareholders of ordinary shares less 2.57% 0.1568 0.1568 non-recurring gains and loss 3. Discrepancy in accounting data between IAS and CAS (1) Discrepancy in net profit and net assets as disclosed in the financial report respectively according to IAS and CAS Inapplicable (2) Discrepancy in net profit and net assets as disclosed in the financial report respectively according to the accounting standards outside Mainland China and CAS Inapplicable (3) Note to the discrepancy in accounting data under the accounting standards outside Mainland China. In case the discrepancy in data which have been audited by an overseas auditing agent has been adjusted, please specify the name of the overseas auditing agent. Inapplicable 4. Others Inapplicable