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山 航B:2017年半年度报告(英文版)2017-08-30  

						Semi-Annual Report 2017




       August 2017
                                                            Content




Section I Important Notice and Paraphrase .................................................................................... 1

Section II Company Profile and Main Finanical Indexes .............................................................. 3

Section III Summary of Company Business .................................................................................... 6

Section IV Discussion and Analysis of Operation ........................................................................... 7

Section V Important Events ............................................................................................................ 16

Section VI Changes in shares and particular about shareholders............................................... 22

Section VII Preferred Stock ............................................................................................................ 26

Section VIII Particulars about Directors, Supervisors and Senior Executives .......................... 27

Section IX Corporate Bond ............................................................................................................. 28

Section X Financial Report ............................................................................................................. 29

Section XI Documents available for reference ............................................................................ 139
Shandong Airlines Co., Ltd.                                       Semi-Annual Report 2017




                        Section I. Important Notice and Paraphrase


Board of Directors, Supervisory Committee, all directors, supervisors and senior

executives of Shandong Airlines Co., Ltd. (hereinafter referred to as the

Company) hereby confirm that there are no any fictitious statements, misleading

statements, or important omissions carried in this report, and shall take all

responsibilities, individual and/or joint, for the reality, accuracy and completion

of the whole contents.

Sun Xiujiang , person in charge of the Company, Xu Guojian, person in charge

of accounting works as well as person in charge of accounting institution

(accounting officer) Zhou Shoubin hereby confirm the accuracy, truthfulness

and completeness of the Financial Report in the Semi-annual Report 2017.

All directors have attended the Board Meeting for Report Deliberation.

China Securities Journal, Securities Times, Hong Kong Commercial Daily and

Juchao Website (www.cninfo.com.cn) are the media for information disclosure

appointed by the Company, all information under the name of the Company

disclosed on the above said media shall prevail, and Investors are advised to

exercise caution of investment risks.

The Company has no plans of cash dividend distributed, no bonus shares and

has no share converted from capital reserve either.




                                                                                            1
Shandong Airlines Co., Ltd.                                                            Semi-Annual Report 2017




                                  Paraphrases


                     Item     Refers to                                  Content

The Company, Company          Refers to Shandong Airlines Co., Ltd.

                                          Shandong Aviation Group, the first largest shareholder and controlling
SDA                           Refers to
                                          shareholder of the Company,

Air China                     Refers to Air China Limited, the second largest shareholder of the Company




                                                                                                                   2
Shandong Airlines Co., Ltd.                                                                               Semi-Annual Report 2017




             Section II Company Profile and Main Finanical Indexes

I. Company profile

Short form of the stock          SHANHANG B                             Stock code                     200152

Listing stock exchange           Shenzhen Stock Exchange

Legal Chinese name of the
                                 山东航空股份有限公司
Company

Abbr. of legal Chinese name
                                 山东航空
of the Company (if applicable)

Legal English Name of the
                                 SHANDONG AIRLINES CO.,LTD.
Company (if applicable)

Abbr. of legal English name of
                                 SDA
the Company (if applicable)

Legal Representative             Sun Xiujiang


II. Way/person to contact

                                                      Secretary of the Board                       Rep. of security affairs

Name                                        Dong Qiantang                               Fan Peng

                                            1/F Office Building, SDA, Yaoqiang          3/F Office Building, SDA, Yaoqiang
Contact adds.
                                            International Airport Licheng District Jinan International Airport Licheng District Jinan

Tel.                                        0531-82085939                               0531-82085586

Fax.                                        0531-85698034                               0531-85698034

E-mail                                      dongqt@shandongair.com.cn                   fanp@shandongair.com.cn


III. Others

1. Way to contact the Company

Register address, office address and code, Company website as well as the email of the Company have no changed in reporting
period, more details please found in the Annual Report of 2016.


2. Information disclosure and preparation place

Newspaper appointed for information disclosure, website for annual report publish appointed by CSRC and preparation place for
semi-annual report have no change in reporting period, more details please found in the Annual Report of 2016.




                                                                                                                                        3
Shandong Airlines Co., Ltd.                                                                                  Semi-Annual Report 2017


IV. Main accounting data and financial indexes

Whether it has retroactive adjustment or re-statement on previous accounting data or not
□Yes    √ No

                                                                                                           Increase/decrease over same
                                                    Current Period           Same period of last year
                                                                                                               period of last year

Operating revenue (RMB)                                 7,550,794,741.92              6,309,749,290.22                         19.67%

Net profit attributable to shareholders of
                                                           90,093,090.83                283,689,488.65                        -68.24%
the listed company (RMB)

Net profit attributable to shareholders of
the     listed   company    after    deducting             31,207,526.00                202,463,168.92                        -84.59%
non-recurring gains and losses (RMB)

Net cash flow arising from operating
                                                          649,153,844.96              1,024,495,732.22                        -36.64%
activities (RMB)

Basic earnings per share (RMB/Share)                                  0.23                          0.71                      -67.61%

Diluted earnings per share (RMB/Share)                                0.23                          0.71                      -67.61%

                                                                                                                5.77 percentage points
Weighted average ROE (%)                                             2.32%                        8.09%
                                                                                                                              decrease

                                                                                                           Increase/decrease over same
                                                 End of current Period       End of period of last year
                                                                                                             period-end of last year

Total assets (RMB)                                     13,054,887,048.33             12,741,974,788.53                          2.46%

Net assets attributable to shareholder of
                                                        3,858,916,125.15              3,836,172,828.06                          0.59%
listed company (RMB)


V. Difference of the accounting data under accounting rules in and out of China

1. Difference of the net profit and net assets disclosed in financial report, under both IAS (International
Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles)

The Company has no condition of difference of the net profit and net assets disclosed in financial report, under both IAS
(International Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles) in the reporting period.


2. Difference of the net profit and net assets disclosed in financial report, under both foreign accounting
rules and Chinese GAAP (Generally Accepted Accounting Principles)

The Company has no condition of difference of the net profit and net assets disclosed in financial report, under both foreign
accounting rules and Chinese GAAP (Generally Accepted Accounting Principles) in the reporting period.


VI. Items and amounts of extraordinary profit (gains)/loss

√ Applicable    □ Not applicable




                                                                                                                                         4
Shandong Airlines Co., Ltd.                                                                          Semi-Annual Report 2017


                                                                                                                        In RMB

                               Item                                        Amount                           Note

Gains/losses from the disposal of non-current asset (including the
                                                                                 -812,548.20
write-off parts that accrued for impairment of assets)

Governmental subsidy reckoned into current gains/losses (not
including the subsidy enjoyed in quota or ration according to
                                                                               60,164,960.18
national standards, which are closely relevant to enterprise’s
business)

Losses/gains from changes of fair values occurred in holding
transaction financial assets and transaction financial liabilities,
and investment income obtaining from the disposal of transaction
                                                                                -1,076,318.24
financial assets and transaction financial liabilities and financial
assets available for sales, excluded effective hedging business
relevant with normal operations of the Company

Other non-operating income and expenditure except for the
                                                                               20,268,766.06
aforementioned items

Less: Impact on income tax                                                     19,659,294.97

Total                                                                          58,885,564.83                 --

In reporting period, the Company has no particular about items defined as recurring profit (gain)/loss according to the lists of
extraordinary profit (gain)/loss in Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to
the Public --- Extraordinary Profit/loss




                                                                                                                                   5
Shandong Airlines Co., Ltd.                                                                                    Semi-Annual Report 2017




                           Section III Summary of Company Business

I. Main businesses of the Company in the reporting period

Our Company and its subsidiaries are mainly engaged in provision of airline transportation service. The details of our operation
scope are set out in the notes to financial statements.
For more than two decades, the Company has always been giving first priority to "ensure safety, pay close attention to efficiency, and
strive to punctuality and quality service". As of June 2017, the company has 109 airplanes like Boeing B737 series, and has set up
branches and flight bases in Jinan, Qingdao, Yantai, Xiamen, Chongqing, Beijing, Urumqi, Guiyang, and other places, built the
triangle airline network among Shandong, Xiamen, and Chongqing; and opened Taiwan air route and the international routes to
South Korea, Japan, Thailand, Cambodia, India and so on. The company elaborately created the "honest and kind" brand
characteristics, which was increasingly blending in the enterprise blood along with the growth of fleet size and airline network.




II. Major changes in main assets

1. Major changes in main assets


               Major assets                                                   Note of major changes


Monetary fund                               Ending balance of monetary fund declined because the debt due are paid in the period

                                            The receivable wet leases amount are not settled in the period and receivable notes
Accounts receivable
                                            increased

Dividend receivable                         The bonus for year of 2016 received from Sichuan Airline are recognized in the period

Other current assets                        The input tax to be certified are increase sharply in the period


2. Main overseas assets

□ Applicable √ Not applicable


III. Core Competitiveness Analysis

The core competitiveness of the Company has no change in the reporting period.




                                                                                                                                         6
Shandong Airlines Co., Ltd.                                                                  Semi-Annual Report 2017




                Section IV Discussion and Analysis of the Operation

I. Introduction

In the first half of 2017, the company has basically completed the intended targets in various works of production
and management.
- The security situation remained stable. Ensured security flight of total 191,100 hours and 91,000 vehicles, a
respective increase of 14.26% and 13.95% on a year-on-year basis; no transporting aviation incidents and above
insecurity incidents occurred due to the company.
- The flight ran normally. The transportation main business totally organized and ensured the flights of 91808
flights, the flight punctuality rate was 70.44%, a decrease of 10.12% on a year-on-year basis;
- Maintained profitability. The total turnover of transportation reached 1.519 billion ton-kilometers, passenger
traffic volume reached 10,878,700 person-time, cargo and mail transport volume reached 79,100 tons, an increase
of 23.15%, 23.95% and 7.35% on a year-on-year basis; achieved operating income of 7.55 billion Yuan, the total
profit of 109.14 million Yuan; passenger load factor of 82.28%, an increase of 6.04% on a year-on-year basis,
cargo and mail load factor of 39.11%, a decrease of 0.36% on a year-on-year basis.
- Quality of service was stable. Passenger satisfaction achieved 96.46 scores, risen by 0.64 score on a
year-on-year basis. Effective complaint rate reached 0.152 piece/ thousands of person-time, a decrease of 0.014
piece/ thousands of person-time on a year-on-year basis, and the civil aviation media service ranked number four.
The company has been awarded as China Top 500 Most Valuable Brand for ten consecutive years, ranking No.
100 with the brand value of 34.645 billion Yuan.
The Company mainly carried out the following work:
(i) Continue to reinforce the quality foundation of safe operation
First is to feasibly practice the safe development concept. Adhere to the concept of “safety first”, and plan the
reform, development, efficiency, stability and other works. Second is to improve the safety management
mechanism. Establish and issue the Control Program for Annual Security Work, define the key links and key
factors, and implement the precision control. Third is to strengthen the risk prevention and control of operation.
Establish the safety performance indicators monitoring system, and implement the special control to key
indicators; strengthen the prevention and management according to the safe production situation in stages to
enhance the systematicness and pertinence of risk control. Fourth is to deeply promote the qualification
construction of key teams, implement the construction requirements of “three basics” (basic level, basis, basic
skill) of Civil Aviation Authority, and reinforce the foundation of safety quality.
(ii) Vigorously promote the work of increasing revenue and reducing expenditure
First is to actively seek the time resources. Increase the transport capacity investment in main bases to continue to
consolidate the control of main base; increase the transport capacity investment in the western markets, and
constantly optimize the network structure. Second is to strengthen the revenue control. Take use of the revenue



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Shandong Airlines Co., Ltd.                                                                      Semi-Annual Report 2017


management system to improve the market research and judgment and the refinement level of freight space
control; actively develop the additional income products, enrich the contents of class upgrading products, promote
the experience, and the sales of “Cixiang” product greatly increase. Third is to enhance the efficiency of resource
allocation and production organization. In the premise of meeting the requirements of the council, scientifically
compress the air routes and the station-crossing time; continue to improve the coordination linkage mechanism of
production, marketing, flight control and finance departments. Fourth is to vigorously implement the cost control.
Establish the efficiency management points and cost control measures, establish the regular traffic control
mechanism; actively promote the energy conservation and emission reduction work, monitor the insurance costs
of major production, and vigorously reduce the administrative costs. Five is to actively seek the synergies. Pay
attention to give play to the synergetic advantages of Air China, and achieve the synergy income through the
aircraft wet lease, frequent traveler cooperation, code sharing, and maintenance support and so on.
(iii) Continue to enhance the service control level
First is to optimize the service control mechanism. Carry out the application for national quality award, and
promote the further optimization of service processes, standards and contents. Second is to actively implement the
service innovation. Actively promote the function development and process optimization of “Lu Yan
housekeeper” platform, carry out the first-class lounge sales, passenger paying for meal selection and other
businesses; vigorously promote the self-service businesses, and actively develop the self-service baggage check-in,
and self-help ticket changing business and so on. Third is to promote the “honest and kind” service culture to take
root. Vigorously carry out the internal propaganda and implementation of “honest and kind” service, center on the
flight supplies, first-class lounge and other service terminals, develop the embodiment scheme of “honest and
kind” service and promote the implementation; cooperate with China Confucius Foundation and establish the first
“Air Confucius School”, which further enrich the service culture connotation.
(iv) Smoothly promote the basic management work
The first is that the organizational structure and fleet structure adjustments are progressing smoothly. The
organizational structure, job responsibilities and post preparation of flight department, engineering technology
company, marketing commission and other departments are optimized and adjusted, the regional control functions
are further intensified and the management power is strengthened by straightening out the management
responsibility and shortening the management chain. The second is that the base construction is steadily
implemented. Actively promote the Shandong Air Base construction at Qingdao new airport, define the
organizational structure and manning quotas of project headquarters, and straighten out the job responsibilities;
focus on the base layout optimization, and actively promote the Urumqi base construction work.

Operation data summary:
                  Index                       Jan.-Jun.2017             Jan.-Jun.2016                  Changes

Total t-km load rate (10 thousand t-km)                         15.19                    12.33                   23.15%

Volume    of     passenger    traffic   (10                   1087.87                   877.67                   23.95%
thousand passengers)
Cargo & mail traffic volume (10                                  7.91                     7.36
                                                                                                                  7.35%
thousand tons)




                                                                                                                           8
Shandong Airlines Co., Ltd.                                                                                    Semi-Annual Report 2017


Flying km (one million km)                                       114.74                            100.24                           14.47%

Flying hours(10 thousand hours)                                      19.11                          16.73                           14.26%

Number of flight (10 thousand times)                                  9.10                             7.99                         13.95%

PLF(passenger load factor)                                      82.28%                             76.24%          6.04 percentage points
                                                                                                                                    increase
Cargo&Mail OLF (overall load factor)                            39.11%                             39.47%          0.36 percentage points
                                                                                                                                 decrease
In the Period, totally ten B737-800 aircrafts are introduced by the Company and five B737-300 aircrafts are out of services. Up to 30
June 2017, the Company operates 109 aircrafts in total and the fleet distribution below:
                 Model                                       Numbers                                   Average service age (Year)

                 737-700                                         3

                 737-800                                       104                                              4.7-year

                CRJ-700                                          2


II. Main business analysis

Summary

 Item of balance sheet              2017.6.30           2016.12.31             +,-                            Reasons
 Monetary funds                                                                        The balance of monetary funds at period-end
                                                                             -43.97%   declined due to the repayments in the Period for
                                  443,328,925.09      791,255,686.65
                                                                                       loans due
 Account receivable                                                                    The receivable wet leases amount are not settled
                                                                             52.52%
                                  492,297,472.32      322,774,169.85                   in the period and receivable notes increased
 Dividend receivable                                                                   The bonus for year of 2016 received from Sichuan
                                   19,278,420.00                       -               Airline are recognized in the period
 Other current assets                                                                  The input tax to be certified are increase sharply
                                                                             39.83%
                                   83,459,901.34       59,685,735.09                   in the period
 Short-term loans                                                                      New short-term debt of honor increased in the
                                  400,000,000.00                       -               period
 Financial liability                                                                   Change of the fair value of interest rate swap
 measured by fair value                                                                held in the period
 and with variation                                                          51.67%
                                    1,753,048.20        1,155,815.80
 reckoned into current
 gains/losses
 Dividend payable                                                            1005025   Bonus for shareholders of 2016 are payable in the
                                  120,011,940.00           11,940.00           .13%    period
 Deferred tax liability                                                                Soaring fair value of the financial assets available
                                                                             38.25%    for sale at period-end makes the correspondingly
                                   63,430,089.33       45,880,020.58
                                                                                       recognized deferred income liability increased
 Other comprehensive                                                                   Soaring fair value of the financial assets available
                                                                             39.92%
 income                           184,530,268.02      131,880,061.76                   for sale at period-end makes the correspondingly




                                                                                                                                               9
Shandong Airlines Co., Ltd.                                                                             Semi-Annual Report 2017


                                                                                 recognized other comprehensive income increased


 Profit statement             Jan.- June. 2017    Jan.- June. 2016     +,-                              Reasons
 Taxes and surcharges                                                            Impact by the replacing business tax with VAT
                                                                     -54.47%
                                  11,049,353.32     24,266,018.24                expanding circumference in May 2016
 Financial expenses                                                              Exchange income arising by RMB appreciated
                                                                     -91.83%     against the U.S. dollar, while there was an
                                   9,333,133.79    114,208,514.18
                                                                                 exchange loss at same period of last year
 Assets impairment loss                                                          Accrual bad debt provision in line with the bad
                                                                     410.89%
                                   2,258,019.93        441,974.60                debt policy of the Company
 Income from changes in                                                          Change of the fair value of interest rate swap
                                                                     84.79%
 fair value                         -597,232.40     -3,926,637.22                held in the period
 Investment income                                                   2376.90     The bonus for year of 2016 from Sichuan Airline
                                  19,365,345.43       -850,513.68            %   are recognized in the Period
 Other income                                                                    Impact on financial statement for accounting
                                  60,164,960.18                  -               policy change
 Non-operating revenue                                                           Impact on financial statement for accounting
                                                                     -82.36%
                                  20,407,892.43    115,697,616.85                policy change
 Non-operating                                                                   The net loss of fixed assets disposal recognized in
                                                                     -63.11%
 expenditure                         951,674.57      2,579,552.24                the period decreased
 Cash flow statement           Jan.- June. 2017   Jan.- June. 2016     +,-                              Reasons
 Cash received with other                                                        The route subsidy in the period are decreased over
 operation activities                                                -41.75%     same period of last year
                                  93,832,179.82    161,074,121.88
 concerned
                                                                                 Correspondingly operation costs increased for the
 Cash paid for purchasing
                                                                                 growth of production scale and volume, and costs
 commodities and                                  4,217,304,381.8    33.84%
                               5,644,642,190.50                                  as price of aviation fuel and landing fee standards
 receiving labor service                                         4
                                                                                 rapidly raised

 Cash received from                                                              The bonus received from invested unit decreased
                                                                     -87.08%
 investment income                   566,011.27      4,381,903.47                over that of last period

 Other cash paid                                                                 The delivery expenditure of tradable financial
 concerning investing                                                -49.11%     assets held in the period decreased from last
                                     214,526.52        421,533.02
 activities                                                                      period

 Cash received from loans                                                        The loans received from financing activities
                                                                     35.14%
                                400,000,000.00     296,000,000.00                increased in the Period
 Cash received concerning                                                        The price of original purchasing right (transfer as
 other financing activities                                          119.97%     leasing aircraft) received in the period increased
                                430,793,362.96     195,845,614.80
                                                                                 over that of last period
                                                                                 The loans paid to the bank decreased over that of
 Cash paid for settling
                                                  1,183,487,265.4    -46.87%     last period
 debts                          628,730,526.71
                                                                 6
 Impact on cash and cash                                             -141.55     Changes of the RMB against foreign currencies
 equivalent from foreign          -5,305,321.08     12,768,432.70            %




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Shandong Airlines Co., Ltd.                                                                                     Semi-Annual Report 2017


 exchange rate change

Y-o-y changes of main financial data
                                                                                                                                    In RMB

                                Current period       Same period of last year    Y-o-y increase/decrease         Reasons for changes

Operating revenue               7,550,794,741.92            6,309,749,290.22                        19.67%

Operating cost                  7,010,777,442.45            5,423,567,853.72                        29.27%

Sale expenses                       344,504,290.18            329,309,482.29                         4.61%

Management expenses                 162,126,382.55            148,238,372.25                         9.37%

                                                                                                              Exchange income arising
                                                                                                              by RMB appreciated
                                                                                                              against the U.S. dollar,
Financial expenses                    9,333,133.79            114,208,514.18                        -91.83%
                                                                                                              while there was an
                                                                                                              exchange loss at same
                                                                                                              period of last year

Income tax expenses                  19,042,319.94              94,368,500.00                       -79.82%

Net cash flow arising
                                    649,153,844.96          1,024,495,732.22                        -36.64%
from operating activities

Net cash flow arising
from investment                 -1,059,136,288.83           -1,026,531,557.25                        3.18%
activities

Net cash flows arising
                                     67,361,003.39            -833,776,740.29                       108.08%
from financing activities

Net increase of cash and
                                 -347,926,761.56              -823,044,132.62                       -57.73%
cash equivalent

No major changes on profit composition or profit resources in reporting period.
Constitution of main business
                                                                                                                                    In RMB

                                                                                Increase/decrease
                                                                                                    Increase/decrease Increase/decrease
                                                                                  of operating
                         Operating                                                                  of operating cost     of gross profit
                                          Operating cost      Gross profit        revenue over
                          revenue                                                                   over same period over same period
                                                                                same period the
                                                                                                     the year before     the year before
                                                                                   year before

According to industries

Aviation
transportation       7,325,032,164.28 6,984,554,599.42                 4.65%             19.62%                29.65%                 -7.37
service

Logistics
transportation           14,834,024.73       9,081,016.88            38.78%              -19.50%              -23.92%                    3.56
service




                                                                                                                                                11
Shandong Airlines Co., Ltd.                                                                                       Semi-Annual Report 2017


Hotel and food
                        13,717,691.70        11,338,647.59                17.34%          -35.55%             -39.11%                  4.84
service

Training Services        8,071,728.36         4,800,314.79                40.53%          -26.78%                 -3.51%             -14.34

According to region

Domestic            6,668,878,390.41 6,185,933,319.96                     7.24%            19.69%                 29.81%              -7.23

Overseas               598,540,470.72       737,968,311.80               -23.29%           21.65%                 29.12%              -7.13

Region                  94,236,747.94        85,872,946.92                8.88%           -14.66%                 0.07%              -13.41


III. Analysis of the non-main business

□ Applicable √ Not applicable


IV. Assets and liability

1. Major changes of assets composition

                                                                                                                                    In RMB

                                                         End of same period of last
                          End of the Period
                                                                   year                 Ratio
                                                                                                          Notes of major changes
                                       Ratio in total                    Ratio in total changes
                        Amount                            Amount
                                          assets                            assets

                                                                                                  Ending balance of monetary fund
                    443,328,925.0
Monetary fund                                 3.40% 791,255,686.65             6.21%     -2.81% declined because the debt due are paid
                                  9
                                                                                                  in the period

                                                                                                  The receivable wet leases amount are
Account             492,297,472.3
                                              3.77% 322,774,169.85             2.53%     1.24% not settled in the period and receivable
receivable                        2
                                                                                                  notes increased

                      111,796,414.6
Inventory                                     0.86% 120,965,243.56             0.95%     -0.09%
                                  9

                    6,828,691,206.                      7,093,233,151.
Fix assets                                   52.31%                           55.67%     -3.36%
                                  33                                79

Construction in     2,703,359,625.                      2,250,500,462.
                                             20.71%                           17.66%     3.05%
process                           93                                35

                    400,000,000.0                                                                 New short-term debt of honor
Short-term loans                              3.06%                            0.00%     3.06%
                                  0                                                               increased in the period

                    1,342,589,872.                      1,799,601,767.                            Part of the long-term loan’s principal
Long-term loans                              10.28%                           14.12%     -3.84%
                                  59                                54                            are paid in the period




                                                                                                                                              12
Shandong Airlines Co., Ltd.                                                                                  Semi-Annual Report 2017


2. Assets and liability measured by fair value

√Applicable □Not applicable
                                                                                                                              In RMB

                                                      Accumulative
                                    Gains/losses of                      Impairment         Amount
                     Opening                          changes in fair                                                     Closing
      Item                          changes in fair                     accrual in this   purchased in   Sale amount
                      amount                          value reckoned                                                      amount
                                        value                               period         this period
                                                        into equity

Financial assets

3.Available-for
-sale financial    190,210,082.34 70,200,275.01 253,720,357.35                                                         260,410,357.35
assets

Subtotal of
                   190,210,082.34 70,200,275.01 253,720,357.35                                                         260,410,357.35
financial assets

The above total 190,210,082.34 70,200,275.01 253,720,357.35                                                            260,410,357.35

Financial
                     1,155,815.80       597,232.40                                                                       1,753,048.20
liability

Whether there have major changes on measurement attributes for main assets of the Company in report period or not
□ Yes √No


3. Assets rights restricted till end of the period

Nil


V. Investment

1. Overall situation

□ Applicable √ Not applicable


2. The major equity investment obtained in the reporting period

□ Applicable √ Not applicable


3. The major non-equity investment doing in the reporting period

□ Applicable √ Not applicable


4. Financial assets investment

(1) Securities investment

The Company had no securities investment in the reporting period.



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Shandong Airlines Co., Ltd.                                                                                        Semi-Annual Report 2017


(2) Derivative investment

The Company has no derivatives investment in the reporting period.


VI. Sales of major assets and equity

1. Sales of major assets

The Company has no sales of major assets in the reporting period.


2. Sales of major equity

□ Applicable √ Not applicable


VII. Analysis of main holding company and stock-jointly companies

Main subsidiary and stock-jointly enterprise with over 10% influence on net profit of the Company
                                                                                                                                           In RMB

   Company                                                          Register      Total                      Operating Operating
                 Type          Main business        Industries                                  Net Assets                              Net profit
       name                                                            capital    assets                     revenue      profit

                        Agency service of
                                                   Transportati
Shandong                land service for the air
                                                   on,
Airlines        Subsid cargo station, storage                     30,000,000.    128,270,2 58,164,35 24,449,08 4,126,242. 3,106,636
                                                   warehouse
Logistic Co.,      iary of goods and ground                       00                23.94             2.27        1.15             05         .39
                                                   and mail
Ltd.                    distribution service
                                                   business
                        etc.

Qingdao
Feisheng
International           Pilot training and
Aviation        Subsid relevant business and                      51,545,500.    71,868,54 69,817,34 2,199,777. -958,849.1 -712,390.
                                                   Education
Technology         iary consulting services                       00                  9.58            6.55         38              0           98
Development             etc.
Training Co.,
Ltd.

Shandong                                           Transportati
                Stock- Offshore oil services,
Rainbow                                            on,
                jointly medical assistance,                       50,000,000. 1,844,824. -165,920,9
Corporate                                          warehouse                                                             -1,813.17 -1,813.17
                compa aerial prospecting and                      00                       50       88.83
Aircraft Co.,                                      and mail
                ny      business flying etc.
Ltd.                                               business

Particular about subsidiaries obtained or disposed in report period
□ Applicable √ Not applicable




                                                                                                                                                     14
Shandong Airlines Co., Ltd.                                                                              Semi-Annual Report 2017


VIII. Structured entity controlled by the Company

□ Applicable √ Not applicable


IX. Prediction of business performance from January – September 2017

Estimation on accumulative net profit from the beginning of the year to the end of next report period to be loss probably or the
warning of its material change compared with the corresponding period of the last year and explanation on reason
□ Applicable √ Not applicable


X. Risks and countermeasures

Risks: The first is that the fluctuations of oil prices and exchange rate become the important factors affecting the
effectiveness of the company. The second is that the future development of high-speed rail will involve more
areas and build more intensive high-speed rail networks, the highly overlap of airline network mainly covering the
East China with high-speed rail network brings greater pressure of alternative competition to the company. The
third is that the regional imbalance of China's economic development leads to higher concentration of air transport
market, the concentration of passengers causes the scarcity of hub market, hot spots and other high-quality
resources, which further increases the difficulties to obtain the high-quality resources.
Countermeasures: The company should adhere to taking the development concept of “innovation, coordination,
green, open, sharing” as the guideline, properly handle the dialectical relationship between development scale and
speed, size and benefit, speed and quality, safety and benefit, actively implement innovation-driven, structural
optimization, quality and efficiency improving and collaboration, create the relatively competitive advantages, and
achieve sustainable and healthy development of enterprises. To focus on grasping the following key issues: first is
to firmly establish the bottom line awareness of “safety first”, and consolidate the development of new
foundations; second is to spare no effort to increase revenue and improve quality and efficiency, create new
advantages of development; third is to scientifically optimize the control mechanisms and stimulate new vitality
for development; fourth is to deeply explore customer value and expand new space for development.




                                                                                                                                   15
Shandong Airlines Co., Ltd.                                                                                        Semi-Annual Report 2017




                                           Section V Important Events

I. In the report period, the Company held annual shareholders’ general meeting and
extraordinary shareholders’ general meeting

1. Shareholders’ General Meeting in the report period


                                                  Ratio of investor
 Session of meeting               Type                                            Date           Date of disclosure     Index of disclosure
                                                       participation

Annual General
                        AGM                                     67.18% 2017-06-15               2017-06-16             2017-09
Meeting of 2016


2. Request for extraordinary general meeting by preferred stockholders whose voting rights restore

□ Applicable √ Not applicable


II. Profit distribution plan and capitalizing of common reserves plan for the Period

The Company has no plans of cash dividend distributed, no bonus shares and has no share converted from capital reserve either for
the semi-annual year.


III. Commitments that actual controller, shareholder, related parties, buyer and committed
party as the Company etc. have fulfilled during the reporting period and have not yet fulfilled
by the end of reporting period

                                              Type of                                                 Commitmen Commitmen Implementa
     Commitments            Promise                                    Content of commitments
                                           commitments                                                   t date       t term         tion

Commitments for share
merger reform

                                                               In February 2004, China National
                                                               Aviation      Holding     Company
                                                               (CNAHC) entered into a equity
                                         Commitment of         transfer agreement with SDA ,
                                         horizontal            that is promise “to avoiding
Commitments in report                                                                                                            Strictly
                                         competition,          horizontal competition with the                     Long-term
of    acquisition or      Air China                                                                   2004-12-06                 implement
                                         related transaction Company          through    reasonable                effective
equity change                                                                                                                    timely
                                         and capital           business       arrangement”;     in
                                         occupying             December, being approved, the
                                                               equity assignee was replaced by
                                                               Air China, and all rights and
                                                               obligations under the agreement




                                                                                                                                              16
Shandong Airlines Co., Ltd.                                                                                  Semi-Annual Report 2017


                                                          was transfer to Air China as the
                                                          party   who       implemented   the
                                                          commitments

Commitments for
reorganization of assets

                                      Commitment of       Controlling       shareholder—SDA
                                      horizontal          provide a commitment letter of
Commitments make in                                                                                                      Strictly
                                      competition,        avoiding horizontal competition to                 Long-term
initial public offering or SDA                                                                  2000-09-12               implement
                                      related transaction the Company in year of 2000                        effective
re-financing                                                                                                             timely
                                      and capital         when the Company initial public
                                      occupying           offering shares
Equity incentive
commitment

Other commitments for
medium      and     small
shareholders

Completed on time
                            Y
(Y/N)


IV. Appointment and non-reappointment (dismissal) of CPA

Semi-annual report of the Company has not been audited.


V. Explanation from Board of Directors and Supervisory Committee for “Qualified Opinion”
that issued by CPA

□ Applicable √ Not applicable


VI. Explanation from the Board for “Qualified Opinion” of last year’s

□ Applicable √ Not applicable


VII. Bankruptcy reorganization

No bankruptcy reorganization for the Company in the reporting period.


VIII. Lawsuits

During the reporting period, the company has no major litigation or arbitration matter.


IX. Penalty and rectification

No penalty or rectification for the Company in the reporting period.




                                                                                                                                       17
Shandong Airlines Co., Ltd.                                                                                               Semi-Annual Report 2017


X. Integrity of the Company and its controlling shareholders and actual controllers

□ Applicable √ Not applicable


XI. Implementation of the Company’s stock incentive plan, employee stock ownership plan or
other employee incentives

The Company has no equity incentive plan, employee stock ownership plans or other employee incentives in the reporting period.


XII. Major related transaction

1. Related transaction with routine operation concerned


                                                                                         Approve
                                                                              Proporti               Whether              Market
                                                                                            d
                                                                    Trading on in the                    to               price of
Related                 Related Related                                                  transacti              Means                           Index
            Related                            Pricing              amount amount                    exceed               similar Date of
transacti               transacti transacti               Dealing                           on                      of                              of
            relations                          principl             (in 10     of the                  the                transacti disclosu
   on                      on          on                  price                         amount                payment                          disclos
              hip                                 e                 thousan    same                  approve                   on          re
 parties                  type     content                                                (in 10                    s                               ure
                                                                    d Yuan) transacti                    d                availabl
                                                                                         thousan
                                                                                on                   amount                    e
                                                                                         d Yuan)

            2nd                    Ground
                        Labor                                                                                  Cash
            largest                service     Market 7,888,33                                                            7,888,33 2017-03 2017-0
                        service                                      788.83     0.78%       4,020 No           settleme
            sharehol               expense price          6.36                                                            6.36       -29        5
                        received                                                                               nt
            der                    s

                                   Purchasi
            2nd                    ng/leasi
                        Labor                                                                                  Cash
            largest                ng air      Market 186,711.                                                            186,711. 2017-03 2017-0
                        service                                       18.67 37.00%               21 No         settleme
            sharehol               material price         99                                                              99         -29        5
                        received                                                                               nt
            der                    expendit
Air                                ure
China       2nd                    Agency
                        Labor                                                                                  Cash
            largest                commis Market 5,458,59                                                                 5,458,59 2017-03 2017-0
                        service                                      545.86 62.64%          1,600 No           settleme
            sharehol               sion        price      6.51                                                            6.51       -29        5
                        received                                                                               nt
            der                    revenue

                                   Irregular
            2nd                    flight
                        Labor                                                                                  Cash
            largest                and         Market 4,647,52                                                            4,647,52 2017-03 2017-0
                        service                                      464.75 24.91%          2,000 No           settleme
            sharehol               group       price      8.32                                                            8.32       -29        5
                        received                                                                               nt
            der                    expendit
                                   ure




                                                                                                                                                          18
Shandong Airlines Co., Ltd.                                                                                     Semi-Annual Report 2017


          2nd
                     Provide Ground                                                                  Cash
          largest                          Market 939,820.                                                      939,820. 2017-03 2017-0
                     labor      services                        93.98 76.00%         398.9 No        settleme
          sharehol                         price    29                                                          29        -29        5
                     service    revenue                                                              nt
          der

                                Simulat
                                or
          2nd
                     Provide mainten                                                                 Cash
          largest                          Market 2,242,71               100.00                                 4,485,42 2017-03 2017-0
                     labor      ance/ho                        224.27               514.57 No        settleme
          sharehol                         price    4.29                       %                                8.57      -29        5
                     service    use                                                                  nt
          der
                                leasing
                                revenue

                                Sales/le
          2nd
Air                  Provide ase of                                                                  Cash
          largest                          Market 12,906.8                                                      12,906.8 2017-03 2017-0
China                labor      air                               1.29   0.36%         77 No         settleme
          sharehol                         price    4                                                           4         -29        5
                     service    material                                                             nt
          der
                                revenue

                                Non-rou
          2nd                   tine
                     Provide                                                                         Cash
          largest               mainten Market 37,220.0                                                         37,220.0 2017-03 2017-0
                     labor                                        3.72 18.00%         21.7 No        settleme
          sharehol              ance       price    0                                                           0         -29        5
                     service                                                                         nt
          der                   service
                                revenue

          2nd                   Agency
                     Provide                                                                         Cash
          largest               commis Market 2,425,29                                                          2,425,29 2017-03 2017-0
                     labor                                     242.53 53.17%          890 No         settleme
          sharehol              sion       price    7.00                                                        7.00      -29        5
                     service                                                                         nt
          der                   revenue

          2nd        Other
                                                                                                     Cash
          largest    related    Wet        Agreem 93,266,1               100.00                                 93,266,1 2017-03 2017-0
                                                              9,326.62              20,000 No        settleme
          sharehol transacti lease         ent price 77.00                     %                                77.00     -29        5
                                                                                                     nt
          der        on
Air                             Frequen
China     2nd        Other      t
                                                                                                     Cash
          largest    related    passeng Agreem 36,000,0                  100.00                                 36,000,0 2017-03 2017-0
                                                                3,600                7,000 No        settleme
          sharehol transacti er            ent price 00.00                     %                                00.00     -29        5
                                                                                                     nt
          der        on         cooperat
                                ion

                                                              15310.5              36543.1
Total                                         --         --               --                    --        --         --         --       --
                                                                    2                   7

Details of return of sales in
                                           N/A
significant amount




                                                                                                                                              19
Shandong Airlines Co., Ltd.                                                                                 Semi-Annual Report 2017


Report the actual implementation of
the normal related transactions which
                                        Implemented by the agreement, no amount exceed the budget approved in shareholders’
were projected about their total
                                        general meeting
amount by types during the reporting
period (if any)

Reasons for major difference
between trading price and market        N/A
reference price (if applicable)


2. Related transactions of assets/equity acquisition and sold

No related transactions of assets/equity acquisition and sold for the Company in the reporting period.


3. Main related transactions of mutual investment outside

No main related transactions of mutual investment outside for the Company in the reporting period.


4. Contact of related credit and debt

There are no related credits or liabilities occurred in the reporting period.


5. Other related transactions

The Company has no other major related transaction in the reporting period.


XIII. Non-business capital occupying by controlling shareholders and its related parties

No non-business capital occupied by controlling shareholders and its related parties in the reporting period.


XIV. Significant contract and implementations

1. Trusteeship, contract and leasing

(1) Trusteeship

No trusteeship for the Company in the reporting period.


(2) Contract

No contract for the Company in the reporting period.


(3) Leasing

No leasing for the Company in the reporting period.




                                                                                                                                      20
Shandong Airlines Co., Ltd.                                                                             Semi-Annual Report 2017


2. Major guarantees

No guarantees for the Company in the reporting period.


3. Other material contracts

No other material contracts for the Company in the reporting period.


XV. Social responsibility

1. Fulfill the social responsibility of target poverty alleviation

The Company has no target poverty alleviation temporary in the year and no subsequent program either.


2. Major environmental protection

The listed Company and its subsidiary whether belongs to the key sewage units released from environmental protection department

No


XVI. Other major events

No other major events of the Company that need to be explained in the reporting period.


XVII. Major event of the subsidiaries

□ Applicable √ Not applicable




                                                                                                                                  21
Shandong Airlines Co., Ltd.                                                                                Semi-Annual Report 2017




    Section VI. Changes in Shares and Particulars about Shareholders

I. Changes in Share Capital

1. Changes in Share Capital

                                                                                                                          In Share

                                   Before changes                           (+,-)                               After changes

                                                                          Capitalizat
                                                                             ion of               Subtot
                                  Amount     Ratio     New issue Bonus                  Other                Amount       Ratio
                                                                            public                  al
                                                                            reserve

I. Unlisted shares            260,000,000     65.00%                                                        260,000,000    65.00%

1. Sponsor shares             168,601,000     42.15%                                                        168,601,000    42.15%

Including: State-owned
                              168,402,000     42.10%                                                        168,402,000    42.10%
shares

         Domestic corporate
                                   199,000     0.05%                                                            199,000     0.05%
shares

4. Preferred stock or other    91,399,000     22.85%                                                         91,399,000    22.85%

II. Listed shares             140,000,000     35.00%                                                        140,000,000    35.00%

2. Domestically listed
                              140,000,000     35.00%                                                        140,000,000    35.00%
foreign shares

III. Total shares             400,000,000    100.00%                                                        400,000,000   100.00%
Reasons for share changed

□ Applicable √ Not applicable

Approval of share changed

□ Applicable √ Not applicable

Ownership transfer of share changes

□ Applicable √ Not applicable

Influence on the basic EPS and diluted EPS as well as other financial indexes of net assets per share attributable to common

shareholders of Company in latest year and period

□ Applicable √ Not applicable

Other information necessary to disclose or need to disclosed under requirement from security regulators

□ Applicable √ Not applicable




                                                                                                                                     22
Shandong Airlines Co., Ltd.                                                                                           Semi-Annual Report 2017


2. Changes of restricted shares


□ Applicable √ Not applicable



II. Securities issuance and listing


□ Applicable √ Not applicable



III. Number of shares and shares held

                                                                                                                                      In Share

                                                                       Total preference shareholders
Total common stock
                                                                       with voting rights recovered at
shareholders in reporting                                    15,887                                                                           0
                                                                       end of reporting period (if
period-end
                                                                       applicable) (found in note8)

                            Particulars about shares held above 5% by shareholders or top ten shareholders

                                                               Total                                                       Number of shares
                                                                                         Amount of         Amount of
                                                              common      Changes                                           pledged/frozen
                                                Proportion                                 un-listed         listed
                                   Nature of
        Shareholders                             of shares shares hold at in report
                                  shareholder                                              common           common
                                                   held                                                                    State of
                                                             the end of    period                                                     Amount
                                                                                         shares held       shares held      share
                                                            report period

                              State-owned
Shandong Aviation Group                            42.00%    168,004,000 0               168,004,000                   0
                              legal person

                              State-owned
Air China Limited                                  22.80%     91,200,000 0                91,200,000                   0
                              legal person

                              Foreign
NORGES BANK                                         0.87%      3,498,479 977679.00                     0     3,498,479
                              legal person

BBH A/C VANGUARD
                              Foreign
EMERGING MARKETS                                    0.74%      2,960,917 0                             0     2,960,917
                              legal person
STOCK INDEX FUND

WANXIANG
INTERNATIONAL                 Foreign
                                                    0.62%      2,490,000 0                             0     2,490,000
INVESTMENT                    legal person
CORPORATION

VANGUARD TOTAL
                              Foreign
INTERNATIONAL STOCK                                 0.43%      1,735,020 152300.00                     0     1,735,020
                              legal person
INDEX FUND

                              Domestic
Hou Chunhu                                          0.41%      1,651,345 0                             0     1,651,345
                              nature




                                                                                                                                                  23
Shandong Airlines Co., Ltd.                                                                                       Semi-Annual Report 2017


                              person

                              Domestic
Chen Jingjian                 nature              0.38%       1,519,400 0                         0   1,519,400
                              person

ISHARES CORE MSCI
                              Foreign
EMERGING MARKETS                                  0.36%       1,420,300 622000.00                 0   1,420,300
                              legal person
ETF

                              Domestic
Yao Ming                      nature              0.31%       1,248,003 -51997.00                 0   1,248,003
                              person
                                             1. Shandong Aviation Group(SDA) is the first largest shareholder of the Company, who
                                             holds the shares of the Company on behalf of the State with unlisted shares;
                                             2. Air China Limited is the second largest shareholder of the Company, who holds the
Explanation on related relationship or shares of the Company on behalf of the State with unlisted shares;
concerted       action    among          the 3. Among the above top ten shareholders, Air China Limited is the first largest
abovementioned shareholders                  shareholder of the SDA, and there exists no associated relationship between SDA and
                                             Air China and the other shareholders, and they don’t belong to the consistent actionist
                                             regulated by the Management Regulation of Information Disclosure on Change of
                                             Shareholding for Listed Companies with the other shareholders.

                                             Shareholding of top 10 circulated shareholders

                                                     Amount of listed shares held at end of the               Type of shares
                   Shareholders
                                                                       Period                              Type             Amount

                                                                                                  Domestically
NORGES BANK                                                                          3,498,479 listed foreign                  3,498,479
                                                                                                  shares

                                                                                                  Domestically
BBH A/C VANGUARD EMERGING
                                                                                     2,960,917 listed foreign                  2,960,917
MARKETS STOCK INDEX FUND
                                                                                                  shares

                                                                                                  Domestically
WANXIANG INTERNATIONAL
                                                                                     2,490,000 listed foreign                  2,490,000
INVESTMENT CORPORATION
                                                                                                  shares

                                                                                                  Domestically
VANGUARD TOTAL INTERNATIONAL
                                                                                     1,735,020 listed foreign                  1,735,020
STOCK INDEX FUND
                                                                                                  shares

                                                                                                  Domestically
Hou Chunhu                                                                           1,651,345 listed foreign                  1,651,345
                                                                                                  shares

                                                                                                  Domestically
Chen Jingjian                                                                        1,519,400 listed foreign                  1,519,400
                                                                                                  shares




                                                                                                                                            24
Shandong Airlines Co., Ltd.                                                                             Semi-Annual Report 2017


                                                                                            Domestically
ISHARES CORE MSCI EMERGING
                                                                                  1,420,300 listed foreign           1,420,300
MARKETS ETF
                                                                                            shares

                                                                                            Domestically
Yao Ming                                                                          1,248,003 listed foreign           1,248,003
                                                                                            shares

                                                                                            Domestically
GUOTAI JUNAN SECURITIES(HONGKONG)
                                                                                  1,199,155 listed foreign           1,199,155
LIMITED
                                                                                            shares

                                                                                            Domestically
Ye Qufa                                                                           1,180,169 listed foreign           1,180,169
                                                                                            shares

                                                     The Company is not aware of their associated relationship among the top ten
Expiation on associated relationship or consistent
                                                     shareholders of circulation share, and is unknown whether other circulation
actors within the top 10 un-restrict shareholders
                                                     shareholders belong to the consistent actionist regulated by the Management
and between top 10 un-restrict shareholders and
                                                     Regulation of Information Disclosure on Change of Shareholding for Listed
top 10 common stock shareholders
                                                     Companies.

Top ten common shareholders or top ten common shareholders with un-restrict shares not held have a buy-back agreement dealing in
reporting period.


IV. Changes of controlling shareholders or actual controller

The controlling shareholder of the Company has no changed in reporting period.
The actual controller of the Company has no changed in reporting period.




                                                                                                                                   25
Shandong Airlines Co., Ltd.                                          Semi-Annual Report 2017




                                       Section VII Preferred Stock

The Company had no preferred stock in the reporting.




                                                                                               26
Shandong Airlines Co., Ltd.                                                                              Semi-Annual Report 2017




           Section VIII Directors, Supervisors and Senior Executives

I. Changes of shares held by directors, supervisors and senior executives

Shares held by directors, supervisors and senior executives have no changes in reporting period, found more details in Annual Report
2016.


II. Resignation and dismissal of directors, supervisors and senior executives

        Name            Title              Type               Date                                 Reason

Liu Zhaolei       Chief engineer    Appointment        2017-03-28          Work accommodation

                  Independent
Wu Chaopeng                         Leave the office 2017-06-15            Personal work reasons
                  director

                  Independent
Xu Xiangyi                          Election           2017-06-15
                  director

                  Independent
Hu Yuanmu                           Election           2017-06-15
                  director




                                                                                                                                       27
Shandong Airlines Co., Ltd.                                                                       Semi-Annual Report 2017




                                         Section IX Corporate Bonds

Whether the Company has corporate bonds that issuance publicly and listed on stock exchange and without due on the date when
semi-annual report approved for released or fail to cash in full on due
No




                                                                                                                               28
Shandong Airlines Co., Ltd.                                                                    Semi-Annual Report 2017




                                         Section X. Financial Report

I. Audit report

The semi-annual financial report has not been audited.


II. Financial Statement

Statement in Financial Notes are carried in RMB/CNY


1. Consolidated Balance Sheet

Prepared by Shandong Airlines Co., Ltd
                                                             2017-06-30
                                                                                                               In RMB

                    Item                                 Closing balance                   Opening balance

Current assets:

     Monetary funds                                                   443,328,925.09                    791,255,686.65

     Settlement provisions

     Capital lent

     Financial assets measured by fair
value and with variation reckoned into
current gains/losses

     Derivative financial liability

     Notes receivable                                                        123,974.00

     Accounts receivable                                              492,297,472.32                    322,774,169.85

     Accounts paid in advance                                         310,136,319.12                    249,136,244.95

     Insurance receivable

     Reinsurance receivables
     Contract reserve of reinsurance
receivable
     Interest receivable

     Dividend receivable                                                   19,278,420.00

     Other receivables                                                400,802,651.37                    351,000,324.78

     Purchase restituted finance asset

     Inventories                                                       111,796,414.69                   120,965,243.56

     Divided into assets held for sale




                                                                                                                         29
Shandong Airlines Co., Ltd.                                         Semi-Annual Report 2017


       Non-current asset due within one
year
       Other current assets                        83,459,901.34             59,685,735.09

Total current assets                             1,861,224,077.93          1,894,817,404.88

Non-current assets:

       Loans and payments on behalf

       Finance asset available for sales          342,072,457.35            271,872,182.34

       Held-to-maturity investment

       Long-term account receivable

       Long-term equity investment

       Investment property

       Fixed assets                              6,828,691,206.33          7,093,233,151.79

       Construction in progress                  2,703,359,625.93          2,250,500,462.35

       Engineering material

       Disposal of fixed asset

       Productive biological asset

       Oil and gas asset

       Intangible assets                          117,640,196.61            114,203,753.20
    Expense           on   Research       and
Development
       Goodwill
    Long-term          expenses      to    be
                                                  464,743,301.05            475,562,660.08
apportioned
       Deferred income tax asset                  737,156,183.13            641,785,173.89

       Other non-current asset

Total non-current asset                         11,193,662,970.40         10,847,157,383.65

Total assets                                    13,054,887,048.33         12,741,974,788.53

Current liabilities:

       Short-term loans                           400,000,000.00

       Loan from central bank
    Absorbing deposit and interbank
deposit
       Capital borrowed

       Financial liability measured by fair
value and with variation reckoned into               1,753,048.20              1,155,815.80
current gains/losses

       Derivative financial liability

       Notes payable




                                                                                              30
Shandong Airlines Co., Ltd.                                        Semi-Annual Report 2017


       Accounts payable                         2,187,147,851.44          1,688,094,861.09

       Accounts received in advance              548,336,285.84            699,319,553.05
     Selling        financial     asset    of
repurchase
   Commission               charge        and
commission payable
       Wage payable                              319,557,453.50            454,375,029.19

       Taxes payable                             167,930,652.95            138,661,805.16

       Interest payable                            2,404,528.96              2,430,456.90

       Dividend payable                          120,011,940.00                 11,940.00

       Other accounts payable                    421,568,704.08            401,854,436.21

       Reinsurance payables

       Insurance contract reserve

       Security trading of agency

       Security sales of agency

       Divided into liability held for sale
       Non-current liabilities due within 1
                                                 770,976,124.33            987,644,012.02
year
Other current liabilities

Total current liabilities                       4,939,686,589.30          4,373,547,909.42

Non-current liabilities:

       Long-term loans                          1,342,589,872.59          1,799,601,767.54

       Bonds payable

         Including: preferred stock

                 Perpetual capital
securities

       Long-term account payable                2,683,579,549.89          2,534,202,090.26

       Long-term wages payable                    92,166,751.43             94,130,651.51

       Special accounts payable

       Projected liabilities

       Deferred income                            74,518,070.64             58,439,521.16

       Deferred income tax liabilities            63,430,089.33             45,880,020.58

       Other non-current liabilities

Total non-current liabilities                   4,256,284,333.88          4,532,254,051.05

Total liabilities                               9,195,970,923.18          8,905,801,960.47

Owner’s equity:

       Share capital                             400,000,000.00            400,000,000.00




                                                                                             31
Shandong Airlines Co., Ltd.                                                                        Semi-Annual Report 2017


     Other equity instrument

       Including: preferred stock

                  Perpetual capital
securities

     Capital public reserve                                             75,410,363.70                        75,410,363.70

     Less: Inventory shares

     Other comprehensive income                                    184,530,268.02                           131,880,061.76

     Reasonable reserve

     Surplus public reserve                                        423,424,327.64                           423,424,327.64

     Provision of general risk

     Retained profit                                              2,775,551,165.79                        2,805,458,074.96
Total owner’s equity attributable to
                                                                  3,858,916,125.15                        3,836,172,828.06
parent company
Minority interests

Total owner’s equity                                             3,858,916,125.15                        3,836,172,828.06

Total liabilities and owner’s equity                            13,054,887,048.33                       12,741,974,788.53


Legal Representative: Sun Xiujiang                                       Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin


2. Balance Sheet of Parent Company

                                                                                                                   In RMB

                     Item                             Closing balance                          Opening balance

Current assets:

     Monetary funds                                                426,574,300.69                           761,645,065.66

     Financial assets measured by fair
value and with variation reckoned into
current gains/losses

     Derivative financial liability

     Notes receivable
     Accounts receivable                                           490,564,582.95                           322,884,254.40

     Account paid in advance                                       309,503,265.74                           248,747,945.46

     Interest receivable

     Dividends receivable                                               19,278,420.00

     Other receivables                                             446,331,461.99                           394,481,947.14

     Inventories                                                    111,796,414.69                          120,965,243.56




                                                                                                                             32
Shandong Airlines Co., Ltd.                                     Semi-Annual Report 2017


     Divided into assets held for sale

     Non-current assets maturing within
one year

     Other current assets                      83,201,194.72             59,685,735.09

Total current assets                         1,887,249,640.78          1,908,410,191.31

Non-current assets:

     Available-for-sale financial assets      342,072,457.35            271,872,182.34

     Held-to-maturity investments

     Long-term receivables

     Long-term equity investments             106,000,685.43            106,000,685.43

     Investment property

     Fixed assets                            6,740,329,988.24          7,000,694,540.06

     Construction in progress                2,703,283,625.93          2,250,424,462.35

     Project materials

     Disposal of fixed assets

     Productive biological assets

     Oil and natural gas assets

     Intangible assets                        103,891,799.36            100,261,260.93

     Research and development costs

     Goodwill

     Long-term deferred expenses              464,743,301.05            475,562,660.08

     Deferred income tax assets               736,409,722.40            641,017,982.18

     Other non-current assets

Total non-current assets                    11,196,731,579.76         10,845,833,773.37

Total assets                                13,083,981,220.54         12,754,243,964.68

Current liabilities:

     Short-term borrowings                    400,000,000.00

     Financial liability measured by fair
value and with variation reckoned into           1,753,048.20              1,155,815.80
current gains/losses

     Derivative financial liability

     Notes payable

     Accounts payable                        2,209,149,062.81          1,702,743,063.11

     Accounts received in advance             544,728,969.44            693,918,823.76

     Wage payable                             317,495,495.44            450,079,741.59




                                                                                          33
Shandong Airlines Co., Ltd.                                      Semi-Annual Report 2017


       Taxes payable                           166,590,454.75            137,221,799.65

       Interest payable                          2,404,528.96              2,430,456.90

       Dividend payable                        120,011,940.00                 11,940.00

       Other accounts payable                  453,817,718.01            425,862,312.50

       Divided into liability held for sale

       Non-current liabilities due within 1
                                               770,976,124.33            987,644,012.02
year

       Other current liabilities

Total current liabilities                     4,986,927,341.94          4,401,067,965.33

Non-current liabilities:

       Long-term loans                        1,342,589,872.59          1,799,601,767.54

       Bonds payable

         Including: preferred stock

                 Perpetual capital
securities

       Long-term account payable              2,683,579,549.89          2,534,202,090.26

       Long-term wages payable                  92,166,751.43             94,130,651.51

       Special accounts payable

       Projected liabilities

       Deferred income                          74,518,070.64             58,439,521.16

       Deferred income tax liabilities

       Other non-current liabilities            63,430,089.33             45,880,020.58

Total non-current liabilities                 4,256,284,333.88          4,532,254,051.05

Total liabilities                             9,243,211,675.82          8,933,322,016.38

Owners’ equity:

       Share capita                            400,000,000.00            400,000,000.00

       Other equity instrument

         Including: preferred stock

                 Perpetual capital
securities

       Capital public reserve                   86,911,168.71             86,911,168.71

       Less: Inventory shares

       Other comprehensive income              184,530,268.02            131,880,061.76

       Reasonable reserve

       Surplus reserve                         422,763,623.11            422,763,623.11




                                                                                           34
Shandong Airlines Co., Ltd.                                                                       Semi-Annual Report 2017


     Retained profit                                             2,746,564,484.88                         2,779,367,094.72

Total owner’s equity                                            3,840,769,544.72                         3,820,921,948.30

Total liabilities and owner’s equity                           13,083,981,220.54                       12,754,243,964.68


Legal Representative: Sun Xiujiang                                      Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin


3. Consolidated Profit Statement

                                                                                                                     In RMB

                    Item                               Current Period                           Last Period

I. Total operating income                                         7,550,794,741.92                        6,309,749,290.22

Including: Operating income                                       7,550,794,741.92                        6,309,749,290.22

     Interest income

     Insurance gained

     Commission charge and commission
income

II. Total operating cost                                          7,540,048,622.22                        6,040,032,215.28

Including: Operating cost                                         7,010,777,442.45                        5,423,567,853.72

     Interest expense

     Commission charge and commission
expense

     Cash surrender value

     Net amount of expense of
compensation

     Net amount of withdrawal of
insurance contract reserve

     Bonus expense of guarantee slip

     Reinsurance expense

     Operating tax and extras                                           11,049,353.32                          24,266,018.24

     Sales expenses                                                344,504,290.18                             329,309,482.29

     Administration expenses                                       162,126,382.55                             148,238,372.25

     Financial expenses                                                  9,333,133.79                         114,208,514.18

     Losses of devaluation of asset                                      2,258,019.93                            441,974.60

     Add: Changing income of fair
                                                                          -597,232.40                          -3,926,637.22
value(Loss is listed with “-”)

     Investment income (Loss is listed                                  19,365,345.43                            -850,513.68




                                                                                                                               35
Shandong Airlines Co., Ltd.                                         Semi-Annual Report 2017


with “-”)

         Including: Investment income on
affiliated company and joint venture

         Exchange income (Loss is listed
with “-”)

         Other income                               60,164,960.18

III. Operating profit     (Loss is listed with
                                                    89,679,192.91           264,939,924.04
“-”)

         Add: Non-operating income                  20,407,892.43           115,697,616.85

              Including: Disposal gains of
                                                        24,408.34                38,150.95
non-current asset

         Less: Non-operating expense                  951,674.57              2,579,552.24

              Including: Disposal loss of
                                                      836,956.54              1,994,829.83
non-current asset

IV. Total Profit     (Loss is listed with “-”)   109,135,410.77           378,057,988.65

         Less: Income tax expense                   19,042,319.94            94,368,500.00

V. Net profit (Net loss is listed with “-”)       90,093,090.83           283,689,488.65

     Net profit attributable to owner’s of
                                                    90,093,090.83           283,689,488.65
parent company

   Minority shareholders’ gains and
losses

VI. Net after-tax of other comprehensive
                                                    52,650,206.26            20,005,619.95
income

   Net after-tax of other comprehensive
income attributable to owners of parent             52,650,206.26            20,005,619.95
company

          (I) Other comprehensive income
items which will not be reclassified
subsequently to profit of loss

                1. Changes as a result of
re-measurement of net defined benefit
plan liability or asset

                2. Share of the other
comprehensive income of the investee
accounted for using equity method which
will not be reclassified subsequently to
profit and loss

         (II) Other comprehensive income
                                                    52,650,206.26            20,005,619.95
items which will be reclassified




                                                                                              36
Shandong Airlines Co., Ltd.                                                                      Semi-Annual Report 2017


subsequently to profit or loss

               1. Share of the other
comprehensive income of the investee
accounted for using equity method which
will be reclassified subsequently to profit
or loss

               2. Gains or losses arising
from changes in fair value of                                          52,650,206.26                          20,005,619.95
available-for-sale financial assets

               3. Gains or losses arising
from reclassification of held-to-maturity
investment as available-for-sale financial
assets

               4. The effect hedging portion
of gains or losses arising from cash flow
hedging instruments

               5. Translation differences
arising on translation of foreign currency
financial statements

               6. Other

  Net after-tax of other comprehensive
income attributable to minority
shareholders

VII. Total comprehensive income                                    142,743,297.09                            303,695,108.60

     Total comprehensive income
                                                                   142,743,297.09                            303,695,108.60
attributable to owners of parent Company

     Total comprehensive income
attributable to minority shareholders

VIII. Earnings per share:

         (i) Basic earnings per share                                           0.23                                   0.71

         (ii) Diluted earnings per share                                        0.23                                   0.71


Legal Representative: Sun Xiujiang                                     Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin


4. Profit Statement of Parent Company

                                                                                                                    In RMB

                     Item                             Current Period                           Last Period

I. Operating income                                              7,540,226,678.64                        6,293,688,379.45




                                                                                                                              37
Shandong Airlines Co., Ltd.                                       Semi-Annual Report 2017


         Less: Operating cost                  7,008,945,672.14          5,418,293,516.30

              Operating tax and extras           10,105,304.57             24,123,637.71

              Sales expenses                    344,504,290.18            329,309,482.29

              Administration expenses           157,885,828.66            143,672,314.98

              Financial expenses                  9,367,754.57            114,199,663.35

              Losses of devaluation of asset      2,340,943.85                773,252.30

         Add: Changing income of fair
                                                   -597,232.40              -3,926,637.22
value(Loss is listed with “-”)

            Investment income (Loss is
                                                 19,365,345.43               -850,513.68
listed with “-”)

            Including: Investment income
on affiliated company and joint venture

              Other income

II. Operating profit      (Loss is listed
                                                 25,844,997.70            258,539,361.62
with “-”)

   Add: Non-operating income                     80,572,767.61            115,693,629.15

              Including: Disposal gains of
non-current asset

         Less: Non-operating expense                951,674.57              2,575,514.24

              Including: Disposal loss of
                                                    836,956.54              1,990,791.83
non-current asset

III. Total Profit    (Loss is listed with
                                                105,466,090.74            371,657,476.53
“-”)

         Less: Income tax expense                18,268,700.58             92,885,355.21

IV. Net profit (Net loss is listed with
                                                 87,197,390.16            278,772,121.32
“-”)

V. Net after-tax of other comprehensive
                                                 52,650,206.26             20,005,619.95
income

          (I) Other comprehensive income
items which will not be reclassified
subsequently to profit of loss

                1. Changes as a result of
re-measurement of net defined benefit
plan liability or asset

                2. Share of the other
comprehensive income of the investee
accounted for using equity method
which will not be reclassified




                                                                                            38
Shandong Airlines Co., Ltd.                                                                       Semi-Annual Report 2017


subsequently to profit and loss

       (II) Other comprehensive income
items which will be reclassified                                       52,650,206.26                           20,005,619.95
subsequently to profit or loss

              1. Share of the other
comprehensive income of the investee
accounted for using equity method
which will be reclassified subsequently
to profit or loss

              2. Gains or losses arising
from changes in fair value of                                          52,650,206.26                           20,005,619.95
available-for-sale financial assets

              3. Gains or losses arising
from reclassification of held-to-maturity
investment as available-for-sale
financial assets

              4. The effect hedging
portion of gains or losses arising from
cash flow hedging instruments

              5. Translation differences
arising on translation of foreign
currency financial statements

              6. Other

VI. Total comprehensive income                                     139,847,596.42                             298,777,741.27

VII. Earnings per share:

       (i) Basic earnings per share

       (ii) Diluted earnings per share


Legal Representative: Sun Xiujiang                                      Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin


5. Consolidated Cash Flow Statement

                                                                                                                     In RMB

                    Item                              Current Period                            Last Period

I. Cash flows arising from operating
activities:

     Cash received from selling
commodities and providing labor                                  7,972,457,319.63                         6,717,200,924.09
services

     Net increase of customer deposit




                                                                                                                               39
Shandong Airlines Co., Ltd.                                       Semi-Annual Report 2017


and interbank deposit

        Net increase of loan from central
bank

        Net increase of capital borrowed
from other financial institution

        Cash received from original
insurance contract fee

  Net cash received from reinsurance
business

       Net increase of insured savings and
investment

        Net increase of amount from
disposal financial assets that measured
by fair value and with variation
reckoned into current gains/losses

        Cash received from interest,
commission charge and commission

        Net increase of capital borrowed

        Net increase of returned business
capital

        Write-back of tax received

        Other cash received concerning
                                                 93,832,179.82            161,074,121.88
operating activities

Subtotal of cash inflow arising from
                                               8,066,289,499.45          6,878,275,045.97
operating activities

        Cash     paid     for    purchasing
commodities        and    receiving    labor   5,644,642,190.50          4,217,304,381.84
service

        Net increase of customer loans and
advances

        Net increase of deposits in central
bank and interbank

        Cash paid for original insurance
contract compensation

        Cash paid for interest, commission
charge and commission

        Cash paid for bonus of guarantee
slip

        Cash paid to/for staff and workers     1,436,820,991.02          1,215,874,548.17




                                                                                            40
Shandong Airlines Co., Ltd.                                     Semi-Annual Report 2017


     Taxes paid                               244,682,396.26            341,409,771.76

     Other    cash     paid    concerning
                                               90,990,076.71             79,190,611.98
operating activities

Subtotal of cash outflow arising from
                                            7,417,135,654.49           5,853,779,313.75
operating activities

Net cash flows arising from operating
                                              649,153,844.96           1,024,495,732.22
activities

II. Cash flows arising from investing
activities:

     Cash received from recovering
investment

     Cash received from investment
                                                  566,011.27              4,381,903.47
income

     Net cash received from disposal of
fixed, intangible and other long-term
assets

     Net cash received from disposal of
subsidiaries and other units

     Other cash received concerning
investing activities

Subtotal of cash inflow from investing
                                                  566,011.27              4,381,903.47
activities

     Cash paid for purchasing fixed,
                                            1,059,487,773.58           1,030,491,927.70
intangible and other long-term assets

     Cash paid for investment

     Net increase of mortgaged loans

     Net cash received from
subsidiaries and other units obtained

     Other    cash     paid    concerning
                                                  214,526.52                421,533.02
investing activities

Subtotal of cash outflow from investing
                                            1,059,702,300.10           1,030,913,460.72
activities

Net cash flows arising from investing
                                            -1,059,136,288.83         -1,026,531,557.25
activities

III. Cash flows arising from financing
activities

     Cash received from absorbing
investment




                                                                                          41
Shandong Airlines Co., Ltd.                                                                       Semi-Annual Report 2017


     Including: Cash received from
absorbing       minority      shareholders’
investment by subsidiaries

     Cash received from loans                                      400,000,000.00                             296,000,000.00

     Cash received from issuing bonds

     Other cash received concerning
                                                                   430,793,362.96                             195,845,614.80
financing activities

Subtotal of cash inflow from financing
                                                                   830,793,362.96                             491,845,614.80
activities

     Cash paid for settling debts                                  628,730,526.71                         1,183,487,265.46

     Cash paid for dividend and profit
                                                                       41,066,887.26                           56,263,754.65
distributing or interest paying

     Including: Dividend and profit of
minority shareholder paid by
subsidiaries

     Other      cash   paid     concerning
                                                                       93,634,945.60                           85,871,334.98
financing activities

Subtotal of cash outflow from financing
                                                                   763,432,359.57                         1,325,622,355.09
activities

Net cash flows arising from financing
                                                                       67,361,003.39                          -833,776,740.29
activities

IV. Influence on cash and cash
equivalents due to fluctuation in                                      -5,305,321.08                           12,768,432.70
exchange rate

V. Net increase of cash and cash
                                                                  -347,926,761.56                             -823,044,132.62
equivalents

     Add: Balance of cash and cash
                                                                   791,255,686.65                         1,415,399,630.60
equivalents at the period -begin

VI. Balance of cash and cash
                                                                   443,328,925.09                             592,355,497.98
equivalents at the period -end


Legal Representative: Sun Xiujiang                                      Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin


6. Cash Flow Statement of Parent Company

                                                                                                                      In RMB

                   Item                               Current Period                            Last Period

I. Cash flows arising from operating




                                                                                                                                42
Shandong Airlines Co., Ltd.                                    Semi-Annual Report 2017


activities:

     Cash received from selling
commodities and providing labor             7,965,655,251.76          6,704,250,463.84
services

     Write-back of tax received

     Other cash received concerning
                                              93,792,156.77            161,050,542.56
operating activities

Subtotal of cash inflow arising from
                                            8,059,447,408.53          6,865,301,006.40
operating activities

     Cash paid for purchasing
commodities and receiving labor             5,638,597,494.55          4,216,655,959.09
service

     Cash paid to/for staff and workers     1,423,542,158.40          1,204,469,134.52

     Taxes paid                              242,626,945.20            338,480,357.99

     Other    cash     paid    concerning
                                              92,973,776.76             85,634,144.49
operating activities

Subtotal of cash outflow arising from
                                            7,397,740,374.91          5,845,239,596.09
operating activities

Net cash flows arising from operating
                                             661,707,033.62           1,020,061,410.31
activities

II. Cash flows arising from investing
activities:

     Cash received from recovering
investment

     Cash received from investment
                                                 566,011.27              4,381,903.47
income

     Net cash received from disposal of
fixed, intangible and other long-term
assets

     Net cash received from disposal of
subsidiaries and other units

     Other cash received concerning
investing activities

Subtotal of cash inflow from investing
                                                 566,011.27              4,381,903.47
activities

     Cash paid for purchasing fixed,
                                            1,059,184,965.65          1,030,388,040.86
intangible and other long-term assets

     Cash paid for investment




                                                                                         43
Shandong Airlines Co., Ltd.                                                              Semi-Annual Report 2017


     Net      cash     received     from
subsidiaries and other units

     Other      cash   paid    concerning
                                                                 214,526.52                          421,533.02
investing activities

Subtotal of cash outflow from investing
                                                           1,059,399,492.17                     1,030,809,573.88
activities

Net cash flows arising from investing
                                                           -1,058,833,480.90                   -1,026,427,670.41
activities

III. Cash flows arising from financing
activities

     Cash received from absorbing
investment

     Cash received from loans                                400,000,000.00                      296,000,000.00

     Cash received from issuing bonds

     Other cash received concerning
                                                             430,793,362.96                      195,845,614.80
financing activities

Subtotal of cash inflow from financing
                                                             830,793,362.96                      491,845,614.80
activities

     Cash paid for settling debts                            628,730,526.71                     1,183,487,265.46

     Cash paid for dividend and profit
                                                              41,066,887.26                       56,263,754.65
distributing or interest paying

     Other      cash   paid    concerning
                                                              93,634,945.60                       85,871,334.98
financing activities

Subtotal of cash outflow from financing
                                                             763,432,359.57                     1,325,622,355.09
activities

Net cash flows arising from financing
                                                              67,361,003.39                      -833,776,740.29
activities

IV. Influence on cash and cash
equivalents due to fluctuation in                              -5,305,321.08                      12,768,432.70
exchange rate

V. Net increase of cash and cash
                                                            -335,070,764.97                      -827,374,567.69
equivalents

     Add: Balance of cash and cash
                                                             761,645,065.66                     1,401,853,786.39
equivalents at the period -begin

VI. Balance of cash and cash
                                                             426,574,300.69                      574,479,218.70
equivalents at the period -end


Legal Representative: Sun Xiujiang                             Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin




                                                                                                                   44
Shandong Airlines Co., Ltd.                                                                           Semi-Annual Report 2017


7. Statement of Changes in Owners’ Equity (Consolidated)

This Period
                                                                                                                       In RMB

                                                                       This Period

                                             Owners’ equity attributable to parent company
                                     Other
                                equity instrument
       Item                                                  Less:  Other                  Provisio         Minorit Total
                                      Perpet                               Reason
                       Share                       Capital Invento compre          Surplus n of Retaine         y     owners’
                                       ual                                   able
                       capital Prefer              reserve    ry   hensive         reserve general d profit interests equity
                                      capita                               reserve
                                red          Other          shares income                    risk
                                         l
                               stock
                                      securi
                                       ties
                       400,00                                                                         2,805,4          3,836,1
I. Balance at the                                   75,410,          131,880            423,424
                       0,000.                                                                         58,074.          72,828.
end of the last year                                363.70            ,061.76           ,327.64
                           00                                                                             96               06
             Add:
Changes         of
accounting policy
             Error
correction of the
last period

 Enterprise
 combine under
 the same control
              Other

II. Balance at the 400,00                           75,410,          131,880            423,424
                                                                                                      2,805,4          3,836,1
beginning of this 0,000.                                                                              58,074.          72,828.
                                                    363.70            ,061.76           ,327.64
year                   00                                                                                 96               06
III.       Increase/
Decrease in this                                                      52,650,                        -29,906,          22,743,
year (Decrease is                                                      206.26                         909.17           297.09
listed with “-”)
 (i)          Total                                                   52,650,                         90,093,         142,743
comprehensive
                                                                       206.26                         090.83           ,297.09
income
 (ii)      Owners’
devoted        and
decreased capital
1.Common shares
invested         by
shareholders
2. Capital invested
by holders of other
equity instruments




                                                                                                                                 45
Shandong Airlines Co., Ltd.                                 Semi-Annual Report 2017


3.        Amount
reckoned      into
owners equity with
share-based
payment
4. Other

                                                            -120,00        -120,00
(III)        Profit
                                                            0,000.0        0,000.0
distribution
                                                                 0               0
1. Withdrawal of
surplus reserves
2. Withdrawal of
general      risk
provisions

3. Distribution for                                         -120,00        -120,00
owners          (or                                         0,000.0        0,000.0
shareholders)                                                    0               0

4. Other
(IV)       Carrying
forward internal
owners’ equity
1. Capital reserves
conversed        to
capital      (share
capital)
2. Surplus reserves
conversed        to
capital      (share
capital)
3. Remedying loss
with        surplus
reserve
4. Other
(V)     Reasonable
reserve
1. Withdrawal in
the report period

2. Usage in the
report period

(VI)Others

IV. Balance at the 400,00     75,410,   184,530   423,424
                                                            2,775,5        3,858,9
end of the report 0,000.                                    51,165.        16,125.
                              363.70    ,268.02   ,327.64
period                 00                                       79              15

Last Period
                                                                            In RMB




                                                                                      46
Shandong Airlines Co., Ltd.                                                                         Semi-Annual Report 2017


                                                                        Last Period

                                            Owners’ equity attributable to the parent Company
                                    Other
                               equity instrument                                                            Minorit
       Item                                                  Less:  Other                  Provisio                   Total
                                      Perpet                               Reason                             y
                       Share                       Capital Invento compre          Surplus n of Retaine interest    owners’
                                       ual                                   able
                       capital Prefer capita       reserve    ry   hensive         reserve general d profit          equity
                                                                           reserve                            s
                                red          Other          shares income                    risk
                                         l
                               stock
                                      securi
                                       ties
                     400,00                                                                         2,425,0          3,365,0
I. Balance at the                                    75,410,           93,555,          370,981
                     0,000.                                                                         66,740.          13,204.
end of the last year                                 363.70             005.44           ,095.40
                         00                                                                              03              57
             Add:
Changes         of
accounting policy
             Error
correction of the
last period

Enterprise
combine under the
same control
          Other

II. Balance at the 400,00                            75,410,           93,555,          370,981
                                                                                                    2,425,0          3,365,0
beginning of this 0,000.                                                                            66,740.          13,204.
                                                     363.70             005.44           ,095.40
year                   00                                                                                03              57
III.       Increase/
Decrease in this                                                       38,325,           52,443,    380,391         471,159
year (Decrease is                                                       056.32            232.24    ,334.93          ,623.49
listed with “-”)
 (i)          Total                                                    38,325,                      532,834         571,159
comprehensive
                                                                        056.32                      ,567.17          ,623.49
income
 (ii)      Owners’
devoted        and
decreased capital
1.Common shares
invested         by
shareholders
2. Capital invested
by holders of other
equity instruments
3.        Amount
reckoned      into
owners equity with
share-based
payment




                                                                                                                               47
Shandong Airlines Co., Ltd.                                                             Semi-Annual Report 2017


4 Other

                                                                                        -152,44        -100,00
(III)        Profit                                                      52,443,
                                                                                        3,232.2        0,000.0
distribution                                                              232.24
                                                                                             4               0

1. Withdrawal of                                                         52,443,       -52,443,
surplus reserves                                                          232.24        232.24
2. Withdrawal of
general      risk
provisions

3. Distribution for                                                                     -100,00        -100,00
owners          (or                                                                     0,000.0        0,000.0
shareholders)                                                                                0               0

4. Other
(IV)       Carrying
forward internal
owners’ equity
1. Capital reserves
conversed        to
capital      (share
capital)
2. Surplus reserves
conversed        to
capital      (share
capital)
3. Remedying loss
with      surplus
reserve
4. Other

(V) Reasonable
reserve

1. Withdrawal in
the report period

2. Usage in the
report period

(VI)Others

IV. Balance at the 400,00                        75,410,   131,880       423,424
                                                                                        2,805,4        3,836,1
end of the report 0,000.                                                                58,074.        72,828.
                                                  363.70   ,061.76       ,327.64
period                 00                                                                   96              06


Legal Representative: Sun Xiujiang                            Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin




                                                                                                                  48
Shandong Airlines Co., Ltd.                                                                            Semi-Annual Report 2017


8. Statement of Changes in Owners’ Equity (Parent Company)

This Period
                                                                                                                            In RMB

                                                                        This Period
                                         Other
                                   equity instrument
                                                                                   Other                                    Total
       Item            Share            Perpetu                           Less:                                Retaine
                                                            Capital              comprehe Reasonab Surplus
                                           al                          Inventory                                          owners’
                       capital Preferre                     reserve                nsive le reserve reserve    d profit
                                        capital    Other                 shares                                            equity
                               d stock                                            income
                                        securiti
                                           es
                                                                                                               2,779,3
I. Balance at the 400,000,                                 86,911,16            131,880,0          422,763,6              3,820,921
                                                                                                               67,094.
end of the last year 000.00                                     8.71                  61.76            23.11                ,948.30
                                                                                                                    72
     Add: Changes
of     accounting
policy
       Error
correction of the
last period

           Other

II. Balance at the 400,000,                                                                                    2,779,3
                                                           86,911,16            131,880,0          422,763,6              3,820,921
beginning of this                                                                                              67,094.
                     000.00                                     8.71                  61.76            23.11                ,948.30
year                                                                                                                72
III.       Increase/
Decrease in this                                                                52,650,20                      -32,802, 19,847,59
year (Decrease is                                                                      6.26                     609.84         6.42
listed with “-”)
 (i)          Total                                                             52,650,20                      87,197, 139,847,5
comprehensive
                                                                                       6.26                     390.16       96.42
income
 (ii)      Owners’
devoted        and
decreased capital
1.Common shares
invested         by
shareholders
2. Capital invested
by holders of other
equity instruments
3.        Amount
reckoned      into
owners equity with
share-based
payment
4. Other




                                                                                                                                      49
Shandong Airlines Co., Ltd.                                                                           Semi-Annual Report 2017


                                                                                                              -120,00
(III)        Profit                                                                                                      -120,000,
                                                                                                              0,000.0
distribution                                                                                                               000.00
                                                                                                                     0
1. Withdrawal of
surplus reserves
2. Distribution for                                                                                           -120,00
                                                                                                                         -120,000,
owners (or                                                                                                    0,000.0
                                                                                                                           000.00
shareholders)                                                                                                        0

3. Other
(IV)       Carrying
forward internal
owners’ equity
1. Capital reserves
conversed        to
capital      (share
capital)
2. Surplus reserves
conversed        to
capital      (share
capital)
3. Remedying loss
with      surplus
reserve
4. Other
(V)     Reasonable
reserve
1. Withdrawal in
the report period

2. Usage in the
report period

(VI)Others

IV. Balance at the 400,000,                                                                                   2,746,5
                                                          86,911,16             184,530,2         422,763,6              3,840,769
end of the report                                                                                             64,484.
                     000.00                                    8.71                  68.02            23.11                ,544.72
period                                                                                                             88

Last period
                                                                                                                           In RMB

                                                                       Last period
                                        Other
                                  equity instrument
                                                                                  Other                                    Total
       Item           Share            Perpetu                           Less:                                Retaine
                                                           Capital              comprehe Reasonab Surplus
                                          al                          Inventory                                          owners’
                      capital Preferre                     reserve                nsive le reserve reserve    d profit
                                       capital    Other                 shares                                            equity
                              d stock                                            income
                                       securiti
                                          es




                                                                                                                                     50
Shandong Airlines Co., Ltd.                               Semi-Annual Report 2017


                                                                  2,407,3
I. Balance at the 400,000,    86,911,16   93,555,00   370,320,3             3,358,164
                                                                  78,004.
end of the last year 000.00        8.71        5.44       90.87               ,569.53
                                                                       51
     Add: Changes
of     accounting
policy
       Error
correction of the
last period

           Other

II. Balance at the 400,000,                                       2,407,3
                              86,911,16   93,555,00   370,320,3             3,358,164
beginning of this                                                 78,004.
                     000.00        8.71        5.44       90.87               ,569.53
year                                                                   51
III.       Increase/
Decrease in this                          38,325,05   52,443,23 371,989 462,757,3
year (Decrease is                              6.32        2.24 ,090.21        78.77
listed with “-”)
 (i)        Total                         38,325,05               524,432 562,757,3
comprehensive
                                               6.32               ,322.45      78.77
income
 (ii)      Owners’
devoted        and
decreased capital
1.Common shares
invested         by
shareholders
2. Capital invested
by holders of other
equity instruments
3.          Amount
reckoned       into
owners equity with
share-based
payment
4. Other

                                                                  -152,44
(III)        Profit                                   52,443,23             -100,000,
                                                                  3,232.2
distribution                                               2.24               000.00
                                                                        4

1. Withdrawal of                                      52,443,23 -52,443,
surplus reserves                                           2.24 232.24

2. Distribution for                                               -100,00
                                                                            -100,000,
owners (or                                                        0,000.0
                                                                              000.00
shareholders)                                                           0

3. Other
(IV)       Carrying
forward     internal




                                                                                        51
Shandong Airlines Co., Ltd.                                                                      Semi-Annual Report 2017


owners’ equity
1. Capital reserves
conversed        to
capital      (share
capital)
2. Surplus reserves
conversed        to
capital      (share
capital)
3. Remedying loss
with      surplus
reserve
4. Other
(V)     Reasonable
reserve
1. Withdrawal in
the report period

2. Usage in the
report period

(VI)Others

IV. Balance at the 400,000,                                                                              2,779,3
                                                           86,911,16        131,880,0        422,763,6             3,820,921
end of the report                                                                                        67,094.
                     000.00                                     8.71           61.76             23.11               ,948.30
period                                                                                                       72


Legal Representative: Sun Xiujiang                                     Person in charge of Accounting Works: Xu Guojian
Person in charge of Accounting Institution: Zhou Shoubin




                                                                                                                               52
Shandong Airlines Co., Ltd.                                                                                           Semi-Annual Report 2017


                                                           Shandong Airlines Co., Ltd.

                                                        Notes to the Financial Statements

                                                               As at 30th June 2017

                                         (All amounts are expressed in CNY unless otherwise stated)



Note 1 Corporation profile

Shandong Airlines Co., Ltd. (hereafter, the Company) is a foreign-invested limited liability company incorporated in the People’s Republic of China.

The Company was incorporated through the restructuring project jointly initiated by Shandong Airlines Group Co., Ltd. (hereafter, SDA Group),

Inspur Co., Ltd. (previously known as Inspur Electronic Information Industry Group Company (浪潮电子信息产业集团公司), Shandong Hualu

Group Co., Ltd, Shandong Group Corp. of Fisheries Enterprises and Luyin Investment Group (鲁银投资集团股份有限公司) following the

approval (LuTiGaiQiZi(1999)No.88 (鲁体改企字(1999)第 88 号)) granted by the Economic Reform Commission of Shandong Province (山东省

经济体制改革委员会) on July 29th, 1999.

Shandong Airlines Group Co., Ltd. acquired 259,204,000 state-owned corporate shares (国有法人股), with CNY 1.00 at par, of the Company by

transferring its air transportation operation and the related assets and liabilities to the Company on November 25th, 1999. Inspur Co., Ltd.,

Shandong Hualu Group Co., Ltd. and Shandong Group Corp. of Fisheries Enterprises each acquired 199,000 state-owned corporate shares, with

CNY 1.00 at par, by cash investment of CNY 200,000.00 each on November 26th, 1999. Luyin Investment Group acquired 199,000 domestic

corporate shares (国内法人股), with CNY 1.00 at par, by cash investment of CNY 200,000.00 on November 26th, 1999.

The Company issued 140,000,000 domestically listed shares denominated in foreign currency (境内上市外资股) (hereafter, B share(s)), with par

value at CNY 1.00 each and issue price at HKD 1.58 each, on August 28 th, 2000 upon the approval (ZhengJianFaXingZi[2000]No.116 (证监发行

字[2000]116 号)) granted by the China Securities Regulatory Commission on August 22nd, 2000; and, the Company was listed on the Shenzhen

Stock Exchange on September 12th, 2000. Immediately after the issuance of the B shares, the capital of the Company increased to CNY

400,000,000.00.

The Agreement of Share Transfer (《股份转让协议》) signed by SDA Group and China National Aviation Holding Company (hereafter, China

Aviation Group) on February 28th, 2004 authorised the transfer of 91,200,000 shares of the Company, equal to 22.8% shareholding, from SDA

Group to China Aviation Group. Immediately after the share transfer, SDA Group’s shareholding in the Company was 42.00%. In November 2004,

the Board of Directors of the Company, in accordance with the approval (GuoZiChanQuan[2004]No.956 (国资产权[2004]956 号:《关于中国航

空集团公司将受让山东航空股份有限公司国有股的合同实施转让有关问题的批复》)) issued by the State-owned Assets Supervision

and Administration Commission of the State Council, authorised China Aviation Group to transfer the state-owned corporate shares received from

SDA Group to Air China Co., Ltd. (hereafter, Air China). As so provided in GuoZiChanQuan[2004]No.956, the rights and obligation attributable to

China Aviation Group as specified in the Agreement of Share Transfer shall be afforded by Air China. The change of share ownership was

registered at the China Securities Depository and Clearing Corporation Limited Shenzhen Office by SDA Group and Air China on December 3rd,

2004; And, 91,200,000 shares of the Company then became held by Air China.

Legal representative of the Company: SUN, Xiujiang




                                                                                                                                                        53
Shandong Airlines Co., Ltd.                                                                                                 Semi-Annual Report 2017


Place of registration: Shandong Jinan Yaoqiang International Airport

Address of headquarter: Shandong Airlines Centre, 5746 – East 2nd Ring Road, Jinan, Shandong

The Company is permitted to undertake international and domestic passenger and cargo transportation, hotel and beverage related operation

(limited to operation through branch); provision of aircraft maintenance, training of civil aviation pilots and air crew, insurance brokerage; inter-airline

agenting, and principal operation related ground services; sales of airborne material and equipments, grocery, food, health food, art work, souvenir,

etc.; retailing of tobacco products (limited to Qingdao Red-Crowned Crane Hotel); lease of airborne material and equipments; venue rental, private

house rental, business services, hotel accommodation agents and ticket agents; conference services; transportation agency; air cargo storage; and

aviation pilot provision (for other domestic airlines). (The operating activities listed herein does not involve operation related to commodity that are

subject to State Administered Trading (国营贸易管理),but involve operation related to commodity that are subject to quotas , licence

requirements, which are restricted to obtain permission before the operation)(the project that subjects to the approval in accordance with the law,

can carry out business activities only after the approval of the relevant departments to carry out business activities).

No change of scope of consolidation from last year.

The Company operates in the industry of transportation.

Note 2 Basis for preparation of the financial statements

The financial statements of company have been prepared on basis of going concern in conformity with Chinese Accounting Standards for Business

Enterprises and the Accounting Systems for Business Enterprises issued by the Ministry of Finance of People’s Republic of China (Ministry of

Finance issued order No.33, the Ministry of Finance revised order No.76) on15 February 2006, and revised Accounting Standards (order 41 of the

Ministry of Finance) and Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No.15 – General Provisions

on Financial Reports (2014 Revision) issued by the China Securities Regulatory Commission (CSRC).

According to the relevant accounting regulations in Chinese Accounting Standards for Business Enterprises, the company has adopted the accrual

basis of accounting. Held-for-sale non-current assets are measured at the lower of its book value at its classification date and fair value minus

expected disposal costs. Where assets are impaired, provisions for asset impairment are made in accordance with relevant requirements.

Note 3 Statement of Compliance with Enterprise Accounting Standards

The financial statements of the company are recognized and measured in accordance with the regulations in the Chinese Accounting Standards for

Business Enterprises and they give a true and fair view of the financial position, business result and cash flow of the Company as at 30 June 2017.

In addition, the financial statements of the company comply, in all material respects, with the revised disclosing requirements for financial

statements and the Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No.15—General Provisions on

Financial Reports (2014 Revision) issued by China Securities Regulatory Commission (CSRC) in 2014.

Note 4 Important Accounting Principles and Accounting Estimates

     The Company and subsidiaries are principally engaged in air transportation. The Company and subsidiaries in accordance with the actual

production and management features, according to the relevant provisions of Accounting Standards, to make a number of specific accounting

policies and accounting estimates for other transactions and events of revenue recognition, see Note 4.21 “Revenue” for the description. For

description of significant accounting judgments and estimates made by management, see Note 4.28 “Significant accounting judgments and




                                                                                                                                                               54
Shandong Airlines Co., Ltd.                                                                                               Semi-Annual Report 2017


estimates”.

4.1 Accounting period

The accounting period of the Company is classified as interim period and annual period. Interim period refers to the reporting period shorter than a

complete annual period. The accounting period of the Company is the calendar year from January 1 to December 31.

4.2 Operating cycle

Normal business cycle is realized by the Company in cash or cash equivalents from the purchase of assets for processing until. The company has

a 12 -month operating cycle, and its assets and liabilities as liquidity criteria for the classification.

4.3 Monetary Unit

Yuan (CNY) is the currency of the primary economic environment in which the Company and its domestic subsidiaries operate. Therefore, the

Company and its domestic subsidiaries choose CNY as their functional currency. The Company adopts CNY to prepare its functional statements.

4.4 Business combination

A business combination is a transaction or event that brings together two or more separate entities into one reporting entity. Business combinations

are classified into business combinations involving enterprises under common control and business combinations not involving enterprises under

common control.

4.4.1 Business combination involving entities under common control

A business combination involving enterprises under common control is a business combination in which all of the combining enterprises are

ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory.

For a business combination involving enterprises under common control, the party that, on the combination date, obtains control of another

enterprise participating in the combination is the absorbing party, while that other enterprise participating in the combination is a party being

absorbed. Combination date is the date on which the absorbing party effectively obtains control of the party being absorbed.

The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being combined at the combination date.

The difference between the carrying amount of the net assets obtained and the carrying amount of consideration paid for the combination (or the

total face value of shares issued) is adjusted to the capital premium (or share premium) in the capital reserve. If the balance of the capital premium

(or share premium) is insufficient, any excess is adjusted to retained earnings.

The cost of a combination incurred by the absorbing party includes any costs directly attributable to the combination shall be recognized as an

expense through profit or loss for the current period when incurred.

4.4.2 Business combination involving entities not under common control

A business combination involving enterprises not under common control is a business combination in which all of the combining enterprises are not

ultimately controlled by the same party or parties both before and after the business combination.

For a business combination not involving enterprises under common control, the party that, on the acquisition date, obtains control of another

enterprise participating in the combination is the acquirer, while that other enterprise participating in the combination is the acquiree. Acquisition

date is the date on which the acquirer effectively obtains control of the acquiree.

For a business combination not involving enterprise under common control, the combination cost including the sum of fair value, at the acquisition




                                                                                                                                                         55
Shandong Airlines Co., Ltd.                                                                                                    Semi-Annual Report 2017


date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer. The intermediary expenses incurred by the

acquirer in respect of auditing, legal services, valuation and consultancy services etc and other associated administrative expenses attributable to

the business combination are recognized in profit or loss when they are incurred.

The transaction cost arose from issuing of equity securities or liability securities shall be initially recognized as equity securities or liability securities.

The contingent consideration related to the combination shall be booked as combination cost at the fair value at the acquisition date. If, within the

12 months after acquisition, additional information can prove the existence of related information at acquisition date and the contingent

consideration need to be adjusted, goodwill can be adjusted.

Combination cost of the acquirer’s interest and identifiable net assets of the acquirer acquired through the business combination shall be measured

by the fair value at the acquisition date. Where the cost of combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable

net assets, the difference shall be recognized as goodwill. Where the cost of combination is less than the acquirer’s interest in the fair value of the

acquiree’s identifiable net assets, the difference shall be accounted for according to the following requirements: (i) the acquirer shall reassess the

measurement of the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement of the cost of combination;

(ii) if after that reassessment, the cost of combination is still less than the acquirer’s interest in the fair values of the acquiree’s identifiable net

assets, the acquirer shall recognize the remaining difference immediately in profit or loss for the current period.

Where the temporary difference obtained by the acquirer was not recognized due to inconformity with the conditions applied for recognition of

deferred income tax, if, within the 12 months after acquisition, additional information can prove the existence of related information at acquisition

date and the expected economic benefits on the acquisition date arose from deductible temporary difference by the acquiree can be achieved,

relevant income tax assets can be recognized, and goodwill offset. If the goodwill is not sufficient, the difference shall be recognized as profit of the

current period.

Apart from above, the differences shall be taken into profit or loss of the current period if the recognition of deferred income tax assets is related to

the combination.

For a business combination not involving enterprise under common control, which achieved in stages that involves multiple exchange transactions,

according to “The notice of the Ministry of Finance on the issuance of Accounting Standards Interpretation No. 5” (CaiKuai [2012] No. 19) and

Article55 of “Accounting Standards for Business Enterprises No.33 - Consolidated Financial Statements” on the “package deal” criterion (see Note

4.5.2), to judge the multiple exchange transations whether they are the"package deal". If it belong to the “package deal” in reference to the

preceding paragraphs of this section and the Notes described in 4.13 “long-term investment” accounting treatment, if it does not belong to the

“package deal” to distinguish the individual financial statements and the consolidated financial statements related to the accounting treatment:

In the individual financial statements, the total value of the book valueoftheacquiree's equity investment before the acquisition date and the cost of

new investment at the acquisition date, as the initial cost of the investment, the acquiree's equity investment before the acquisition date involved in

other comprehensive income, in the disposal of the investment will be in other comprehensive income associated with the use of infrastructure and

the acquiree directly related to the disposal of assets or liabilities of the same accounting treatment (that is, except in accordance with the equity

method of accounting in the defined benefit plan acquiree is remeasured net changes in net assets or liabilities other than in the corresponding

share of the lead, and the rest into the current investment income).

In the combination financial statements, the equity interest in the acquiree previously held before the acquisition date re-assessed at the fair value




                                                                                                                                                                   56
Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


at the acquisition date, with any difference between its fair value and its carrying amount is recorded as investment income.The previously-held

equity interest in the acquiree involved in other comprehensive income and other comprehensive income associated with the purchase of the

foundation should be used party directly related to the disposal of assets or liabilities of the same accounting treatment (that is, except in

accordance with the equity method of accounting in the acquiree is remeasured defined benefit plans other than changes in net liabilities or net

assets due to a corresponding share of the rest of the acquisition date into current investment income).

4.5 Preparation of the consolidated financial statements

4.5.1 The scope of consolidation

The scope of consolidation for the consolidated financial statements is determined on the basis of control. Control is the power to govern the

financial and operating policies of an enterprise so as to obtain benefits from its operating activities. The scope of consolidation includes the

Company and all of the subsidiaries. Subsidiary is an enterprise or entity under the control of the Company.

Once the change in the relevant facts and circumstances leading to the definition of the relevant elements involved in the control of the change, the

company will be re-evaluated.

4.5.2 Preparation of the consolidated financial statements

The subsidiary of the Company is included in the consolidated financial statements from the date when the control over the net assets and business

decisions of the subsidiary is effectively obtained, and excluded from the date when the control ceases.

For a subsidiary disposed of by the Company, the operating results and cash flows before the date of disposal (the date when control is lost) are

included in the consolidated income statement and consolidated statement of cash flows, as appropriate. For a subsidiary disposed during the

period, no adjustment is made to the opening balance of the consolidated financial statements.

For a subsidiary acquired through a business combination not under common control, the operating results and cash flows from the acquisition (the

date when the control is obtained) are included in the consolidated income statement and consolidated statement of cash flows, as appropriated; no

adjustment is made to the opening balance and comparative figures in the consolidated financial statements.

Where a subsidiary and a party being absorbed in a merger by absorption was acquired during the reporting period, through a business

combination involving enterprises under common control, the financial statements of the subsidiary are included in the consolidated financial

statements. The results of operations and cash flow are included in the consolidated balance sheet and the consolidated income statement,

respectively, based on their carrying amounts, from the date that common control was established, and the opening balances and the comparative

figures of the consolidated financial statements are restated.

When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company makes necessary

adjustments to the financial statements of the subsidiary based on the Company’s own accounting period or accounting policies. Where a

subsidiary was acquired during the reporting period through a business combination not under common control, the financial statements was

reconciliated on the basis of the fair value of identifiable net assets at the date of acquisition. Intra-Group balances and transactions, and any

unrealized profit or loss arising from intra-Group transactions, are eliminated in preparing the consolidated financial statements.

Minority interest and the portion in the net profit or loss not attributable to the Company are presented separately in the consolidated balance sheet

within shareholders’/ owners’ equity and net profit. Net profit or loss attributable to minority shareholders in the subsidiaries is presented separately




                                                                                                                                                              57
Shandong Airlines Co., Ltd.                                                                                                  Semi-Annual Report 2017


as minority interest in the consolidated income statement below the net profit line item.

When the amount of loss for the current period attributable to the minority shareholders of a subsidiary exceeds the minority shareholders’ portion

of the opening balance of shareholders’/equity of the subsidiary, the excess is allocated against the minority interests.

When the Company loses control of a subsidiary due to the disposal of a portion of an equity investment or other reasons, the remaining equity

investment is re-measured at its fair value at the date when control is lost. The difference between 1) the total amount of consideration received

from the transaction that resulted in the loss of control and the fair value of the remaining equity investment and 2) the carrying amounts of the

interest in the former subsidiary’s net assets immediately before the loss of the control is recognized as investment income for the current period

when control is lost. Other comprehensive income related to the former subsidiary's equity investment, using the foundation and the acquiree

directly related to the disposal of the same assets or liabilities are accounted when the control is lost(ie, in addition to the former subsidiary is

remeasured at the net defined benefit plan or changes in net assets and liabilities resulting from, the rest are transferred to the current investment

income). The retained interest is subsequently measured according to the rules stipulated in the - “Chinese Accounting Standards for Business

Enterprises No.2 - Long-term equity investment” or “Chinese Accounting Standards for Business Enterprises No.22 - Determination and

measurement of financial instruments”. See Note 4.13 Long-term equity investments and Note 4.9 Financial instruments for details.

The company through multiple transactions step deal with disposal of the subsidiary's equity investment until the loss of control, need to distinguish

between equity until the disposal of a subsidiary's loss of control over whether the transaction is package deal. Terms of the transaction disposition

of equity investment in a subsidiary, subject to the following conditions and the economic impact of one or more of cases, usually indicates that

several transactions should be accounted for as a package deal:①these transactions are considered simultaneously, or in the case of mutual

influence made, ②these transactions as a whole in order to achieve a complete business results; ③the occurrence of a transaction depends on

occurs at least one other transaction; ④a transaction look alone is not economical, but when considered together with other transaction is

economical. If they does not belong to the package deal, each of them separately, as the case of a transaction in accordance with “without losing

control over the disposal of a subsidiary part of a long-term equity investments“ (see Note 4.10.2, 4)) and “due to the disposal of certain equity

investments or other reasons lost control of a subsidiary of the original” (see previous paragraph) principles applicable accounting treatment. Until

the disposal of the equity investment loss of control of a subsidiary of the transactions belonging to the package deal, the transaction will be used

as a disposal of a subsidiary and the loss of control of the transaction. However, before losing control of the price of each disposal entitled to share

in the net assets of the subsidiary 's investment corresponding to the difference between the disposal, recognized in the consolidated financial

statements as other comprehensive income, loss of control over the transferred together with the loss of control or loss in the period.

4.6 Joint arrangement

A joint arrangement is an arrangement of which two or more partieshave joint control.A joint arrangement is either a joint operation or a joint venture,

depending of the rights and obligation of the Company in the joint arrangement. A joint operation is a joint arrangement whereby the Company has

rights to the assets, andobligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the Company has

rights to the net assets of thearrangement.

The Company accounts for joint ventures using the equity method, see Note 4.13.2.2 for details.

The company, a joint operator, recognises in relation to its interest in a jointoperation:(a)its assets, including its share of any assets held jointly;(b)its

liabilities, including its share of any liabilities incurred jointly;(c)its revenue from the sale of its share of the output arising from thejoint




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


operation;(d)its share of the revenue from the sale of the output by the jointoperation; and (e)its expenses, including its share of any expenses

incurred jointly.

When the Company enters into a transaction with a joint operation in which it is ajoint operator, such as a sale or contribution of assets, the

Company, prior to disposal of the assets to a third party by the joint operation,recognises gains and losses resulting from such a transaction onlyto

the extent of the other parties's interests in the joint operation.When there is evidence of a reduction in the net realisablevalue of the assets to be

sold or contributed to the joint operation, or of animpairment loss of those assets which is in line with provision stipulated by CAS 8, those losses

arerecognised fully by the Company.When there is evidence of a reduction in the net realisablevalue of the assets to be purchased or of an

impairment loss of those assets, the Company shall recognise its share of those losses.

4.7 Cash equivalent

Cash and cash equivalents of the Company include cash on hand, ready usable deposits and investments having short holding term (normally will

be due within three months from the day of purchase), with strong liquidity and easy to be exchanged into certain amount of cash that can be

measured reliably and have low risks of change.

4.8 Foreign exchange

4.8.1 Translation in foreign exchange transactions

The foreign currency transactions are recorded, on initial recognition in the functional currency, by applying [the spot exchange
rate on the date of the transaction / an exchange rate that approximates the actual spot exchange rate on the date of
transaction]. The exchange of foreign currency and transactions related to the foreign exchange are translated at the spot
exchange rate.
4.8.2 Translation of monetary foreign currency and non-monetary foreign currency
At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet
date. All the exchange differences thus resulted are taken to profit or loss, except for ①those relating to foreign currency
borrowings specifically for construction and acquisition of qualifying assets, which are capitalized in accordance with the
principle of capitalization of borrowing costs, ②hedging accounting, the exchange difference related to hedging instruments
for the purpose of net oversea operating investment is recorded in the comprehensive income till the date of disposal and
recognized in profit or loss of the period; exchange difference from changes of other account balance of foreign currency
monetary items, ③available-for-trade is recorded into profit or loss except for amortized cost.
Non-monetary foreign currency items measured at historical cost shall still be translated at the spot exchange rate prevailing
on the transaction date, and the amount denominated in the functional currency is not changed. Non-monetary foreign
currency items measured at fair value are translated at the spot exchange rate prevailing at the date when the fair values are
determined. The exchange difference thus resulted are recognized in profit or loss for the current period or as capital reserve.
4.8.3 The translation of financial statement in foreign currency
When the consolidated financial statements include foreign operation(s), if there is a foreign currency monetary item
constituting a net investment in a foreign operation, exchange difference arising from changes in exchange rates are
recognized as “exchange differences arising on translation of financial statements denominated in foreign currencies” in



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Shandong Airlines Co., Ltd.                                                                             Semi-Annual Report 2017


owner’s equity, and in profit or loss for the period upon disposal of the foreign operation.
The Group translates the financial statements of its foreign operations into CNY by following rules.        Assets and liabilities
in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date; all equity items except for
retained earnings are translated at the spot exchange rates at the dates on which such items occur; income and expenses in
income statement are translated at the spot exchange rates at the date of transaction; the opening retained earnings is the
closing retained earnings of the last period after translation; the closing balance of retained earnings is calculates and
presented in the basis of each translated income statements and profit distribution item; the difference arising between the
assets and liabilities and shareholders’ equity shall be booked as translation difference of foreign currency statements, and
shall be presented as a separate component of equity in the balance sheet. On a loss of control over Group’s oversea
operation due to disposal, the Company transfers the accumulated or proportionate share of the accumulated exchange
difference arising on translation of financial statements of this oversea operation attributable to the owners’ equity of the
Company and presented under shareholders’ equity, to profit or loss in the period in which the disposal occurs.
Foreign currency cash flows and cash flow of oversea subsidiaries are translated at the spot exchange rates on the date of
cash flows.The effect of exchange rate changes on cash is separately presented as an adjustment item in the cash flow
statement.
The opening and actual amount of last year are presented in the financial statement after translation
At the disposal of all of the company's ownership interest in a foreign operation, or due to the disposal of part of the equity
investment or other reasons, the loss of control over a foreign operation, the project owner's equity in the balance sheet listed
under the relevant overseas operations attributable to statements of the parent company 's shareholders' equity of foreign
currency translation differences, all transferred to the disposal of the income statement.
At the disposal of part of the equity investment or other causes lower hold percentage overseas business interests, but does
not lose control over a foreign operation, and disposal of the foreign operation section related to foreign currency translation
differences attributable to minority interests, is not transferred to the income statement. At the disposal of a foreign operation
as part of the equity joint venture or joint ventures, foreign currency financial statements of the foreign operation and the
associated translation difference in proportion to dispose of the foreign operation into the disposal of the income statement.

4.9 Financial instruments

4.9.1 Determination of financial assets and liabilities’ fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in
an arm’s length transaction. For a financial instrument which has an active market, the Company uses quoted price in the
active market to establish its fair value. The quoted price in the active market refers to the price that can be regularly obtained
from exchange market, agencies, industry associations, pricing authorities; it represents the fair market trading price in the
actual transaction.
For a financial instrument which does not have an active market, the Company establishes fair value by using a valuation
technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties,




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Shandong Airlines Co., Ltd.                                                                                Semi-Annual Report 2017


reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and
option pricing models.
The Company measures initially and subsequently the fair value of an interest rate swap at the value of a competitor’s interest
rate swap quoted by a recognised financial institution as at the Company’s balance sheet date in accordance with the principle
of consistency.
4.9.2 Classification, recognition and measurement of financial assets
All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. On initial
recognition, the Company’s financial assets are classified into one of the four categories, including financial assets at fair value
though profit or loss, held-to maturity investments, loans and receivables and available-for-trade financial assets. A financial
asset is recognized initially at fair value. In the case of financial assets at fair value through profit or loss, relevant transaction
costs are immediately charged to the profit and loss of the current period; transaction costs relating to financial assets of other
categories are included in the amount initially recognized.
1) Financial assets at fair value through profit or loss:
Including financial assets held-for-trade and financial assets designated at fair value through profit or loss.
Financial asset held-for-trade is the financial asset that meets one of the following conditions:
A. the financial asset is acquired for the purpose of selling it in a short term;
B. the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is
objective evidence indicating that the enterprise recently manages this portfolio for the purpose of short-term profits;
C. the financial asset is a derivative, except for a derivative that is designated and effective hedging instrument, or a financial
guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted equity instrument (without a
quoted price from an active market) whose fair value cannot be reliably measured. For such kind of financial assets, fair
values are adopted for subsequent measurement.
Financial asset is designated on initial recognition as at fair value through profit or loss only when it meets one of the following
conditions:
A. the designation eliminates or significantly reduces the inconsistency in the measurement or recognition of relevant gains or
losses that would otherwise arise from measuring the financial instruments on different bases.
B.    a Group of financial instruments is managed and its performance is evaluated on a fair value basis, and is reported to the
enterprise’s key management personnels. Formal documentation regarding risk management or investment strategy has
prepared.
      Financial assets at fair value through profit or loss are subsequently measured at the fair value. Any gains or losses
arising from changes in the fair value and any dividends or interest income earned on the financial assets are recognized in
the profit or loss.
2) Investment held-to maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that an




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Shandong Airlines Co., Ltd.                                                                              Semi-Annual Report 2017


entity has the positive intention and ability to hold to maturity. Such kind of financial assets are subsequently measured at
amortized cost using the effective interest method. Gains or losses arising from derecognition, impairment or amortization are
recognized in profit or loss for the current period.
Effective interest rate is the rate that exactly discounted estimated future cash flows through the expected life of the financial
asset or financial liability or, where appropriate, a shorter period to the net carrying amount of the financial asset or financial
liability.
When calculating the effective interest rate, the Company shall estimate future cash flow considering all contractual terms of
the financial asset or financial liability without considering future credit losses, and also consider all fees paid or received
between the parties to the contract giving rise to the financial asset and financial liability that are an integral part of the
effective interest rate, transaction costs, and premiums or discounts, etc.
3) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed determinable payment that are not quoted in an active
market. Financial assets classified as loans and receivables by the Company include note receivables, account receivables,
interest receivable dividends receivable and other receivables.
Loans and receivables are subsequently measured at amortized cost using the effective interest method. Gain or loss arising
from derecognition, impairment or amortization is recognized in profit or loss.
4) Financial assets available-for-trade
Financial assets available-for-trade include non-derivative financial assets that are designated on initial recognition as
available for trade, and financial assets that are not classified as financial assets at fair value through profit or loss, loans and
receivables or investment held-to-maturity.
Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from changes in the
fair value are recognized as other comprehensive income and included in the capital reserve, except that impairment losses
and exchange differences related to amortized cost of monetary financial assets denominated in foreign currencies are
recognized in profit or loss, until the financial assets are derecognized, at which time the gains or losses are released and
recognized in profit or loss.
Interests obtained and dividends declared by the investee during the period in which the financial assets available-for-trade
are held, are recognized in investment gains.
4.9.3 Impairment of financial assets
The Group assesses at the balance sheet date the carrying amount of every financial asset except for the financial assets that
measured by the fair value. If there is objective evidence indicating a financial asset may be impaired, a provision is provided
for the impairment.
1) Impairment on held-to maturity investment, loans and receivables
The financial assets measured by cost or amortized cost write down their carrying value by the estimated present value of
future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate the recovery of value




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Shandong Airlines Co., Ltd.                                                                                 Semi-Annual Report 2017


of financial assets after impairment, and it is related with subsequent event after recognition of loss, the impairment loss
recorded originally can be reversed. The carrying value of financial assets after impairment loss reversed shall not exceed the
amortized cost of the financial assets without provisions of impairment loss on the reserving date.
2) Impairment loss on available-for-trade financial assets
Where the fair value of the equity instrument investment drops significantly or not contemporarily according to the integrated
relevant factors, an available-for-trade financial asset is impaired.
When an available-for-trade financial asset is impaired, the cumulative loss arising from declining in fair value that had been
recognized in capital reserve shall be removed and recognized in profit or loss. The amount of the cumulative loss that is
removed shall be difference between the acquisition cost with deduction of recoverable amount less amortized cost, current
fair value and any impairment loss on that financial asset previously recognized in profit or loss.
If, after an impairment loss has been recognized, there is objective evidence that the value of the financial asset is recovered,
and it is objectively related to an event occurring after the impairment loss was recognized, the initial impairment loss can be
reversed and the reserved impairment loss on available-for-trade equity instrument is recorded in the profit or loss, the
reserved impairment loss on available-for-trade debt instrument is recorded in the current profit or loss.
The equity instrument where there is no quoted price in an active market, and whose fair value cannot be reliably measured,
or impairment loss on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument
shall not be reversed.
4.9.4 Recognition and measurement of financial assets transfer
The Group derecognizes a financial asset when one of the following conditions is met:
1) the rights to receive cash flows from the asset have expired;
2) the enterprise has transferred its rights to receive cash flows from the asset to a third party under a pass-through
arrangement; or
3) the enterprise has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all
the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of the asset,
but has transferred control of the asset.
If the enterprise has neither retained all the risks and rewards from the financial asset nor control over the asset, the asset is
recognized according to the extent it exists as financial asset, and correspondent liability is recognized. The extent of
existence refers the level of risk by the financial asset changes the enterprise is facing.
For a transfer of a financial asset in its entirety that satisfies the derecognition criteria, (a). the carrying amount of the financial
asset transferred; and (b) the sum of the consideration received from the transfer and any cumulative gain or loss that had
been recognized in other comprehensive income, is recognized in profit or loss.
If a part of the transferred financial asset qualifies for derecognition, the carrying amount of the transferred financial asset is
allocated between the part that continues to be recognized and the part that is derecognized, based on the relative fair value
of those parts. The difference between (a) the carrying amount allocated to the part derecognized; and (b) the sum of the




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Shandong Airlines Co., Ltd.                                                                                      Semi-Annual Report 2017


consideration received for the part derecognized and any cumulative gain or loss allocated to the part derecognized which has
been previously recognized in other comprehensive income, is recognized in profit or loss.
4.9.5 Classification and measurement of financial liabilities
The Group’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through profit or loss and
other financial liabilities. For financial liabilities at fair value through profit or loss, relevant transaction costs are immediately
recognized in profit or loss for the current period, and transaction costs relating to other financial liabilities are included in the
initial recognition amounts.
1) Financial liabilities measured by the fair value and the changes recorded in profit or loss
The classification by which financial liabilities held-for-trade and financial liabilities designed at the initial recognition to be
measured by the fair value follows the same criteria as the classification by which financial assets held-for-trade and financial
assets designed at the initial recognition to be measured by the fair value and their changes are recorded in the current profit
or loss.
For the financial liabilities measured by the fair value and changes recorded in the profit or loss, fair values are adopted for
subsequent measurement. All the gains or losses on the change of fair value and the expenses on dividends or interests
related to these financial liabilities are recognized in profit or loss for the current period.
2) Other financial liabilities
Derivative financial liabilities that linked with equity instruments, which do not have a quoted price in an active market and their
fair value cannot be measured reliably, is subsequently measured by cost Other financial liabilities are subsequently measured
at amortized cost using the effective interest method. Gains or losses arising from derecognition or amortization is recognized
in profit or loss for the current period.
3) Financial guarantee contracts
For financial guarantee contracts that are not designated as at fair value through profit or loss,they are, after initial recognition,
subsequently measured at the higher of: (i) the amount determined according to the principles of Accounting Standards for
Business Enterprises No. 13 - Contingencies, and (ii) the amount initially recognized less the accumulated amortization
determined according to the principles of Accounting Standards for Business Enterprises No. 14 - Revenue.
4.9.6 Derecognition of financial liabilities
The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or part of it) is discharged or
cancelled or has expired. An agreement between the Company (an existing borrower) and existing lender to replace original
financial liability with a new financial liability with substantially different terms is accounted for as an extinguishment of the
original financial liability and the recognition of a new liability.
When the Company derecognizes a financial liability or a part of it, it recognizes the difference between the carrying amount of
the financial liability (or part of the financial liability) derecognized the consideration paid (including any non-cash assets
transferred or new financial liabilities assumed) in profit or loss.

4.9.7 Derivatives and embedded derivatives




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are entered into and

are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss.

An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial

liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics and risks of the embedded

derivative are not closely related to the economic characteristics and risks of the host contract; and (b) a separate instrument with the same terms

as the embedded derivative would meet the definition of a derivative. If the Company is unable to measure the embedded derivative separately

either at acquisition or at a subsequent balance sheet date, it designates the entire hybrid instrument as a financial asset or financial liability at fair

value through profit or loss.

4.9.8 Offsetting financial assets and financial liabilities
When the Company has a legal right that is currently enforceable to set off the recognized financial assets and financial
liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the financial liability
simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet.
Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet
and shall not be offset.
4.9.9 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its
liabilities. The consideration received from issuing equity instruments, net of transaction costs, are added to shareholders’
equity. All types of distribution (excluding stock dividends) made by the Company to holders of equity instruments are
deducted from shareholders’ equity. The Group does not recognize any changes in the fair value of equity instruments.

4.10 Receivables

The receivables by the Company include account receivables, and other receivables.

4.10.1 Criteria for recognition of bad debts:

The Company carries out an inspection on the balance sheet date. Where there is any objective evidence proving that the receivables have been

impaired, an impairment provision shall be made:

1) A serious financial difficulty occurs to the issuer or debtor;

2) The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the principal, etc.;

3) The debtor will probably become bankrupt or carry out other financial reorganizations;

4) Other objective evidences showing the impairment of the receivables.

4.10.2 Method for bad debts provision

1) Provisions of bad debts in account receivables that is individually significant.

Individual receivables equal to or higher than 5% of total receivables are classified as receivables of individual significance.

For an account receivable that is individually significant, the asset is individually assessed for impairment, the impairment loss is recognized at the

difference between the present value of future cash flow less the carrying amount, and provision is made accordingly.




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Shandong Airlines Co., Ltd.                                                                                                   Semi-Annual Report 2017


2) Provisions of bad debts in account receivables that individually insignificant items with similar credit risk characteristics that have significant risk:

A.Evidence of credit risk characteristics

Whether the financial asset is individually significant or not individually significant, it is included in a group of financial assets with similar credit risk

characteristics and collectively assessed for impairment. Such credit risk reflects the repayment of all due amount under the contract, and is related

to the estimation of future cash flow expected to be derived from the assets.

Evidence of portfolios:

                                Item                                                                 Basis

                                                            Receivables not individually assessed for impairment are categorised on the basis

                                                            of credit risk. Provision for bad debts for each category of receivables is

          Categorisation by nature of receivables           recognised at the actual rate of loss for the previous year of the same or similar

                                                            category bearing similar credit risk characteristics after adjustment for the current

                                                            period circumstances.

B.Provision by credit risk characteristics

During the Company impairment test, the amount of bad debts provisions is determined by the assessed result from the experience of historical

loss and current economic status and the existing loss in the estimated account receivables according to the set of account receivables and credit

risk characteristic.

Provisions for difference portfolios:

                                       Item                                                                       Provision

 Categorisation by nature of receivables                                         Percentage of carrying amount

Portfolio 1 by Aging analysis

                                                        Percentage of carrying amount for recognition of            Percentage of carrying amount for

                       Category                           allowance for bad debt applicable to accounts           recognition of allowance for bad debt

                                                                             receivable                               applicable to other receivables

Categorisation by nature of receivables                                          5%                                                 5%

3) Provisions of bad debts that is individually insignificant.

For the account receivables not individually significant, the Company assesses the account receivables individually for impairment when are of

following characteristics: if there is objective evidence indicating the impairment, the impairment loss is recognized at the difference between the

present value of future cash flow less the carrying amount, and provision is made accordingly. For examples: receivables of individual insignificance

bears differing credit risk characteristics to other receivables of individual insignificance account receivables with related parties; account

receivables under litigations or arbitrations, or account receivables with obvious indication that debtor cannot fulfill the obligation of repayment.

4.10.3 The reversal of bad debts provision

If there is objective evidence of recovery in value of account receivables, and the recovery can be related to an event occurring after the impairment




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Shandong Airlines Co., Ltd.                                                                                                  Semi-Annual Report 2017


was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss. However, the reversal shall not result in a

carrying amount that exceeds what the amortized cost would have been had the impairment loss not been recognized at the date the impairment is

reversed.

4.11 Inventories

4.11.1 Classification of inventory

The Company’s inventory mainly include air materials and low-value consumables.。

4.11.2 Valuation method of inventories upon delivery

Inventories are initially carried at the actual cost. The actual cost of inventories transferred out is assigned by using first-in, first out (FIFO) method.

4.11.3 Basis for determining net realizable value of inventories and provision methods for decline in value of inventories

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs

necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of clear evidence obtained, and takes into

consideration the purpose of holding inventories and effect of post balance sheet events.

At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable value is below the cost of

inventories, a provision for decline in value of inventories is made. The provision for inventories decline in value is determined normally by the

difference of the cost of individual item less its realizable value. For large quantity and low value items of inventories, provision for decline in value

is made based on categories of inventories. For items of inventories relating to a product line that are produced and marketed in the same

geographical area, have the same or similar end users or purposes, and cannot be practicably evaluated separately from other items in that product

line provision for decline in value is determined on an aggregate basis.

After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written down below cost

no longer exist so that the net realizable value of inventories is higher than their cost, the original provision for decline in value is reversed and the

reversal is included in profit or loss for the period.

4.11.4 The perpetual inventory system is maintained for stock system.

4.11.5 Amortization method for low cost and short-lived consumable items and packaging materials.

Low cost and short-lived consumable items are amortized using immediate write-off method; packaging materials are amortized using immediate

write-off method.

4.12 Held-for-sale assets

If the company takes back its book value mainly by selling (including the non-montery assets exchange with commercial substance, the same as

below) rather than noncontinuous use of a non-current asset or disposal group, it shall be divided into the held-for-sale category. The specific

criteria are to meet the following conditions: a certain non-current asset or disposal group can be sold immediately under the current conditions

based on the practice of selling such assets or disposal groups in similar transactions; the Company has made resolutions on the sale plan and has

obtained decided purchase commitments; the sale is expected to be completed within one year. Thereinto, the disposal group refers to a set of

assets that are disposed along with all the others as a whole by sale or other methods in a transaction and the liabilities that are directly related to

those assets transferred in the transaction. The group of assets or asset groups to which the disposal group belongs share the goodwill achieved in




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Shandong Airlines Co., Ltd.                                                                                              Semi-Annual Report 2017


the business combination in accordance with the Accounting Standards for Business Enterprises No.8 – Impairment of Assets, the disposal group

should include the goodwill assigned to the disposal group.

When the initial measurement or the remeasurement at the balance sheet date of the Company is divided into the non-current asset and disposal

group held for sale, if the book value is higher than the net amount after subtracting the selling fees from the fair value, write down the book value to

the net amount after subtracting the selling fees from the fair value, the write-down amount is recognized as asset impairment losses and is

included in the current profits and losses, meanwhile making provisions for impairment of assets held for sale. For the disposal group, the

recognized assets impairment losses firstly offset the book value of goodwill in the disposal group, then offset the book value of various non-current

assets specified by the measurement applicable for Accounting Standards for Business Enterprises No. 42- Non-current Assets, Disposal Group,

and Discontinued Operation Held for Sale (Hereinafter referred to as the Guidelines Held for Sale ) in the disposal group. If the net amount after

subtracting the selling fees from the fair value of the disposal group at the subsequent balance sheet date has an increase, the amount of the

previous write-down should be restored and transferred back in the amount of assets impairment loss recognized by non-current assets and

applicable for held-for-sale standards after being classified as the held-for-sale, the transferred amount should be included in the current profits and

losses, and increase its book value in proportion according to the proportion of book value of various non-current assets applicable for the

measurement and specification of held-for-sale standards in the disposal group except for the goodwill; the book value of which the goodwill has

been offset and the assets impairment losses confirmed before the non-current assets applicable for the measurement and specification of

held-for-sale standards being classified as available-for-sale assets cannot be transferred back.

The non-current assets held for sale or the non-current assets in the disposal group shall not be accrued for depreciation or amortization, continue

to confirm the indebted interest and other expenses in the disposal group held for sale.

When the non-current assets or disposal groups no longer meet the requirements of held-for-sale categories, the Company shall not continue to

classify them as the held-for-sale categories or remove the non-current assets from the held-for-sale disposal group, and measure according to the

lower one of the following:(1) For the book value before being classified as held-for-sale category, the amount of the depreciation, amortization or

impairment that should be confirmed when not being classified as held-for-sale category according to the assumption after being adjusted; (2)

Recoverable amount.

4.13 Long-term equity investments

Long-term equity investments referred to in this section refer to the Company invested entity has control, joint control or significant influence over

the long-term equity investments. The Company invested does not have control, joint control or significant influence over the long-term equity

investments as financial assets available for sale or at fair value and the changes included financial assets through profit or loss, which refer to the

accounting policies in Note 4. 9 “financial Instruments”.

Joint control is the Company control over an arrangement in accordance with the relevant stipulations are common, related activities and the

arrangement must be after sharing control participants agreed to the decision-making. Significant influence is the Company s financial and

operating policies of the entity has the right to participate in decision-making, but can not control or with other parties joint control over those

policies.

4.13.1 Determination of Investment cost




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Shandong Airlines Co., Ltd.                                                                                                 Semi-Annual Report 2017


The cost of a long-term equity investment acquired through business combination under common control is measured at the acquirer's share of the

combination date book value of the acquiree's net equity in the ultimate controller's consolidated financial statements. The difference between the

cost and book value of cash paid, non-monetary assets transferred and liabilities assumed is adjusted to capital reserves, and to retained earnings

if capital reserves is insufficient. If the consideration is transferred by way of issuing equity instruments, the face value of the equity instruments

issued is recognised in share capital and the difference between the cost of the face value of the equity instruments issued is adjusted to capital

reserves, and to retained earnings if capital reserves is insufficient.

The cost of a long-term equity investment acquired through business combination not under common control is the fair value of the assets

transferred, liabilities incurred or assumed and equity instruments issued.

All expenses incurred directly associated with the acquisition by the acquirer, including expenditure of audit, legal services, valuation and

consultancy and other administrative expenses, are recognised in profit or loss for the period during which the acquisition occurs.

Long-term equity investments acquired not through business combination are measured at cost on initial recognition. Depending on the way of

acquisition, the cost of acquisition can be the total cash paid, the fair value of equity instrument issued, the contract price, the fair value or book

value of the assets given away in the case of non-monetary asset exchange, or the fair value of the relevant long-term equity investments. The cost

of acquisition of a long-term equity investment acquired not through business combination also includes all directly associated expenses, applicable

taxes and fees, and other necessary expenses.

4.13.2 Subsequent Measurement

To be invested joint control ( except constitute common operator ) or long-term equity investments significant influence are accounted for using the

equity method. In addition, the Company's financial statements using the cost method of accounting for long-term equity can exercise control over

the investee.

1) Cost method of accounting for long-term equity investments

Under the cost method, a long-term equity investment is measured at initial investment cost. Except for cash dividends or profits declared but not

yet paid that are included in the price or consideration actually paid upon acquisition of the long-term equity investment, investment income is

recognized in the period in accordance with the attributable share of cash dividends or profit distributions declared by the investee.

2) Equity method of accounting for long-term equity investments

Where the initial investment cost of a long-term equity investment exceeds the investing enterprise’s interest in the fair values of the investee’s

identifiable net assets at the time of acquisition, no adjustment shall be made to the initial investment cost.

The carrying amount of an long-term equity investment measured using the equity method is adjusted by the Company's share of the investee's net

profit and other comprehensive income, which is recognised as investment income and other comprehensive income respectively. The carrying

amount of an long-term equity investment measured using the equity method is reduced by profit distribution or cash dividends announced by the

investee. The carrying amount of an long-term equity investment measured using the equity method is also adjusted by the investee's equity

movement other than net profit, other comprehensive income and profit distribution, which is adjusted to capital reserves. The net profit of the

investee is adjusted by the fair value of the investee's identifiable assets as at acquistion. The financial statements and hence the net profit and

other comprehensive income of an investee which does not adopt accounting policies or accounting period uniform with the Company is adjusted




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Shandong Airlines Co., Ltd.                                                                                                 Semi-Annual Report 2017


by the Company's accounting policies and accounting period. The Company's share of unrealised profit or loss arising from related party

transactions between the Company and an associate or joint venture is deducted from investment income. Unrealised loss arising from related

party transactions between the Company and an associate or joint venture which is associated with asset impairment is not adjusted. Where assets

transferred to an associate or joint venture which form part of the Company's investment in the investee but which does not enable the Company

obtain control over the investee, the cost of the additional investment acquired is measured at the fair value of assets transferred and the difference

between the cost of the additional investment and the book value of the assets transferred is recognised in profit or loss. Where assets transferred

to an associate or joint venture form an operation, the difference between the consideration received and the book value of the assets transferred in

recognised in profit or loss. Where assets transferred from an associate or joint venture form an operation, the transaction is accounted for in

accordance with CAS 20 - Business Combination, any gain or loss is reocgnised in profit or loss.

The Company's share of an investee's net loss is limited by the sum of the book value of the long-term equity investment and other net long-term

investments in the investees. Where the Company has obligation to share additional net loss of the investee, the estimated share of loss

recognised as accrued liabilities and investment loss. Where the Company has unrecognised share of loss of the investee when the investee

generates net profit, the Company's unrecognised share of loss is reduced by the Company's share of net profit and when the Company's

unrecognised share or loss is eliminated in full, the Company's share of net profit, if any, is recognised as investment income.

For long-term equity investments in associates and joint ventures which had been held by the Company before its first time adoption of Accounting

Standards for Business Enterprises as of Jan 1 2007, where the initial investment cost of a long-term equity investment exceeds the Company’s

interest in the investee’s net assets at the time of acquisition, the excess is amortized and is recognized in profit or loss on a straight line basis over

the original remaining life.

3) Acquisition of minority interest

The difference between newly increased equity investment due to acquisition of minority interests and portion of net asset cumulatively calculated

from the acquisition date is adjusted as capital reserve. If the capital reserve is not sufficient to absorb the difference, the excess are adjusted

against returned earnings.

4) Disposal of long-term equity investment

Where the parent company disposes long-term investment in a subsidiary without a change in control, the difference in the net asset between the

amount of disposed long-term investment and the amount of the consideration paid or received is adjusted to the owner’s equity. If the disposal of

long-term investment in a subsidiary involves loss of control over the subsidiary, the related accounting policies in Note 4.5.2 applies. For disposal

of long-term equity investments in any situation other than the fore-mentioned situation, the difference between the book value of the investment

disposed and the consideration received is recognised in profit or loss.

Where a long-term equity investment is measured by the equity method both before and after part disposal of the investment, cumulative other

comprehensive income relevant to the investment recognised prior to the acquistion is treated in the same manner that the investee disposes the

relevant assets or liabilities proportionate to the disposal. The investee's equity movement other than net profit, other comprehensive income and

profit distribution is reocgnised in profit or loss proportionate to the disposal.

Where a long-term equity investment is measured at cost both before and after part disposal of the investment, cumulative other comprehensive

income relevant to the investment recognised, as a result of accounting by equity method or recognition and measurement principles applicable to




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Shandong Airlines Co., Ltd.                                                                                              Semi-Annual Report 2017


financial instruments, prior to the Company's acquisition of control over the investee is treated in the same manner that the investee disposes the

relevant assets or liabilities and recognised in profit or loss proportionate to the disposal. The investee's equity movement other than net profit,

other comprehensive income and profit distribution, as a result of accounting by equity method, is reocgnised in profit or loss proportionate to the

disposal.

Where the Company's control over an investee is lost due to partial disposal of investment in the investee and the Company continues to have

significant influence over the investee after the partial disposal, the investment in measured by the equity method in the Company's separate

financial statements; where the Company's control over an investee is lost due to partial disposal of investment in the investee and the Company

ceases to have significant influence over the investee after the partial disposal, the investment in measured in accordance with the recognition and

measurement principles applicable to financial instruments in the Company's separate financial statements and the difference between the fair

value and the book value of the remaining investment at the date of loss of control is recognised in profit or loss. Cumulative other comprehensive

income relevant to the investment recognised, as a result of accounting by equity method or recognition and measurement principles applicable to

financial instruments, prior to the Company's acquisition of control over the investee is treated in the same manner that the investee disposes the

relevant assets or liabilities on the date of loss of control. The investee's equity movement other than net profit, other comprehensive income and

profit distribution, as a result of accounting by equity method, is reocgnised in profit or loss when control is lost. Where the remaining investment is

measured by equity method, the fore-mentioned other comprehensive income and other equity movement are recognised in profit or loss

proportionate to the disposal; Where the remaining investment is measured in accordance with the recognition and measurement principles

applicable to financial instruments, the fore-mentioned other comprehensive income and other equity movement are recognised in profit or loss in

full.

Where the Company's joint control or significant influence over an investee is lost due to partial disposal of investment in the investee, the

remaining investment in the investee is measured in accordance with the recognition and measurement principles applicable to financial

instruments, the difference between the fair value and the book value of the remaining investment at the date of loss of joint control or significant

influence is recognised in profit or loss.Cumulative other comprehensive income relevant to the investment recognised, as a result of accounting by

equity method, prior to the partial disposal is treated in the same manner that the investee disposes the relevant assets or liabilities on the date of

loss of joint control or significant influence. The investee's equity movement other than net profit, other comprehensive income and profit distribution

is reocgnised in profit or loss when joint control or significant influence is lost.

Where the Company's control over an investee is lost through multiple disposals and the multiple disposals shall be viewed as one single

transaction, the multiple disposals is accounted for one single transaction which result in the Company's loss of control over the investee. Each

difference between the consideration received and the book value of the investment disposed is recognised in other comprehensive income and

reclassified in full to profit or loss at the time when control over the investee is lost.

4.14 Fixed assets

4.14.1 The conditions of recognition

Fixed assets refers to the tangible assets that are held for the sake of producing commodities, rendering labor service, renting or business

management and their useful life is in excess of one fiscal year.

4.14.2 The method for depreciation




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Shandong Airlines Co., Ltd.                                                                                                 Semi-Annual Report 2017


Fixed assets are stated at cost and consider the impact of expected costs of abandoning the initial measurement. From the following month of state

of intended use, depreciation method of the straight-line method is used for different categories of fixed assets to take depreciation. The recognition

of the classification, useful life and estimated residual rate are as follows:

                       Category                              Expected useful life          Estimated residual value(%)           Depreciation(%)

 Houses and building                                                             27-33                               5.00                     2.88-3.52

 Key components and power supports of aircraft
                                                                                 15-20                               5.00                     4.75-6.33
 engine

 Replacement parts of engine                                                         3-5                             0.00                      20-33.33

 Equipments, electronic devices and furniture                                       4-10                             5.00                     9.5-23.75

 High value rotables                                                             15-18                               0.00                     5.56-6.67

 Transportation vehicles                                                            5-10                             5.00                     9.5-19.00

Expected net residual value of fixed assets is the balance of the Company currently obtained from the disposal of the asset less the estimated costs

of disposal amount, assuming the asset is out of useful life and state the expected service life in the end.

4.14.3 Measurement and recognition of fixed assets

Impairment and provisions of fixed assets are disclosed on Note 4.16.

4.14.4 Fixed Assets under finance leases

A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may not eventually be

transferred.

Fixed assets that are held under finance leases shall be depreciated by applying the same policy as that for the fixed assets owned by the

Company. If it can be reasonably determined that the ownership of the leased assets can be obtained at the end of the lease period, the leased

assets are depreciated over their useful lives; otherwise, the leased assets are depreciated over the shorter of the lease terms and the useful lives

of the leased assets.

4.14.5 Others

A fixed asset is recognized only when the economic benefits associated with the asset will probably flow to the Company and the cost of the asset

can be measured reliably. Subsequent expenditure incurred for a fixed asset that meet the recognition criteria shall be included in the cost of the

fixed asset, and the carrying amount of the component of the fixed asset that is replaced shall be derecognized. Otherwise, such expenditure shall

be recognized in profit or loss in the period in which they are incurred.

The revenue from selling or transferring, or disposing a fixed asset is booked into profit and loss after deduction of carrying value and related tax.

The Company conducts a review of useful life, expected net realizable value and depreciation methods of the fixed asset at least on an annual

base. Any change is regarded as change in accounting estimates.

4.15 Construction in progress




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Shandong Airlines Co., Ltd.                                                                                             Semi-Annual Report 2017


Construction in progress is measured at its actual cost. The actual costs include various construction expenditures during the construction period,

borrowing costs capitalized before it is ready for intended use and other relevant costs. Construction in progress is transferred to a fixed asset when

it is ready for intended use.

Testing method for provision impairment of construction in progress and accrued method for provision impairment please refer to Note 4.19.

4.16 Borrowing costs

Borrowing costs include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection with the

arrangement of borrowings, and exchange differences arising from foreign currency borrowings.

The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized. The amounts of

other borrowing costs incurred are recognized as an expense in the period in which they are incurred. Qualifying assets are asset (fixed assets,

investment property and inventories, etc.) that necessarily take a substantial period of time for acquisition, construction or production to get ready

for their intended use or sale.

Where funds are borrowed for a specific-purpose, the amount of interest to be capitalized is the actual interest expense incurred on that borrowing

for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or any investment income on the

temporary investment of those funds.

Where funds are borrowed for a general-purpose, the amount of interest to be capitalized on such borrowings is determined by applying a weighted

average interest rate to the weighted average of the excess amounts of accumulated expenditure on the asset over and above the amounts of

specific-purpose borrowings

During the capitalization period, exchange differences related to a specific-purpose borrowing denominating in foreign currency are all capitalized.

Exchange differences in connection with general-purpose borrowings are recognized in profit or loss in the period in which they are incurred.

Assets qualified for capitalization are the fixed assets, investment properties or inventories which need a long time of construction or production

activities before ready for intended used or sale.

Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted

by activities other than those necessary to prepare the asset for its intended use or sale, when the interruption is for a continuous period of more

than 3 months. Borrowing costs incurred during these periods recognized as an expense for the current period until the acquisition, construction or

production is resumed.

4.17 Intangible assets

4.17.1 Intangible asset

The term “intangible asset” refers to the identifiable non-monetary assets without physical shape, possessed or controlled by enterprises.

The intangible assets are initially measured by its cost. Expenses related to intangible assets, if the economic benefits related to intangible assets

are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded as cost of intangible assets. The

expenses other than this shall be booked in the profit or loss when they occur.

Land use rights that are purchased by the Company are accounted for as intangible assets. Buildings, such as plants that are developed and

constructed by the Company, and relevant land use rights and buildings, are accounted for as intangible assets and fixed assets, respectively.




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Shandong Airlines Co., Ltd.                                                                                                   Semi-Annual Report 2017


Payments for the land and buildings purchased are allocated between the land use rights and the buildings; if they cannot be reasonably allocated,

all of the land use rights and buildings are accounted for as fixed assets.

When an intangible asset with a definite useful life is available for use, its original cost less net residual value and any accumulate impairment

losses is amortized over its estimated useful life using the straight-line method . An intangible asset with an indefinite useful life is not amortized.

       For an intangible asset with a definite useful life, the Company reviews the useful life and amortization method at the end of the period, and

makes adjustment when necessary.. An additional review is also carried out for useful life of the intangible assets with indefinite useful life. If there

is evidence showing the foreseeable limit period of economic benefits generated to the enterprise by the intangible assets, then estimate its useful

life and amortize according to the policy of intangible assets with definite useful life.

4.17.2 the expenditure of research and development

The expenditures for                   its internal research and development projects of the                      Company shall                be classified

into research expenditures and developmentexpenditures.

The research expenditures shall be recorded into the profits and losses of the current period when they are incurred.

Development expenditures in internal research and development projects shall be recognized as intangible assets where they satisfy all of the

following conditions:

①Technical feasibility of completing the intangible asset so that it will be available for use or sale;

②Intention to complete the intangible asset and use or sell it;

③How the intangible asset will generate economic benefits, including the ability to demonstrate the existence of a market for the output of the

intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

④Availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;

⑤Ability to measure reliably the expenditure that is attributable to the intangible asset during its development.

The expenses which can not be distinguished between research and development stage, shall be recorded into the profit or loss for the

current period.

4.17.3 Impairment testing methods and recognition of impairment provision of intangible assets

Impairment and provisions of intangible assets are disclosed on Note 4.19.

4.18 Deferred charges

Deferred charges represent expenses incurred that should be borne and amortized over the current and subsequent period (together of more than

one year). Deferred charges are amortized by using straight line method. Such as expenses for pilots’ initial trainings, those expenses are

amortized at 10 years according to their benefit period respectively.

4.19 Impairment of long-term assets

Non-financial assets with non-current nature include fixed assets, construction in progress, intangible assets with definite useful lives, investment

properties measured by cost methods and long-term equity investment on subsidiaries, jointly operations. The Company assesses whether there

are any indicators of impairment for all non-financial assets at the balance sheet date, and impairment test is carried out and recoverable value is

estimated if such an indicator exits. Goodwill and intangible assets with indefinite useful lives, as well as intangible assets not ready for use, are




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Shandong Airlines Co., Ltd.                                                                                              Semi-Annual Report 2017


tested for impairment annually regardless of indicators of impairment.

Impairment of loss is calculated and provisions taken by the difference if the recoverable value of the assets is lower than the book value. The

recoverable value is the higher of estimated present value of the future expected cash flows from the asset and net fair value of the asset less

disposed cost. The fair value of asset is determined by the sales agreement price within an arm’s length transaction. In case there is no sales

agreement, but there is active market of assets, the fair value can be determined by the selling price. If there is neither sales agreement nor active

market, the fair value of the asset can be estimated based on the best information obtained.

Disposal expenses include expenses related to the legislation, taxes, transportations and the direct expense for the asset to be ready for sale.

When calculating the present value of expected future cash flows from an asset or asset Group, the management shall estimate the expected

future cash flows from the asset or asset Group and choose a suitable discount rate in order to calculate the present value of those cash flows.

Provision for asset impairment is calculated and determined on the individual basis. If the recoverable of individual asset is hard to estimate, the

recoverable amount can be determined by the asset Group where subject asset belongs. Asset Group is the smallest set of assets that can have

cash flow in independently.

The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the present value of the future

expected cash flows from the asset Groups or sets of asset Groups to which the goodwill is allocated. Estimating the present value requires the

Company to make an estimate of the expected future cash flows from the asset Groups or sets of asset Groups and also choose a suitable

discount rate in order to calculate the present value of those cash flows. Once the loss from above asset impairment is recognized, the recoverable

part cannot be reserved in the subsequent periods.

4.20 Employee Benefits

The employee benefits of the company include short-term employee benefits, post-employment benefits, termination benefits and other long-term

employee benefits:

Short-term employee benefits includes wages, bonuses, allowances and subsidies, welfare, health insurance , maternity insurance, work injury

insurance, housing funds, labor union funds, employee education funds, non-monetary benefits and etc. Short-term employee benefits are

recognised as liabilities and profit or loss account or the costs associated with the asset during the accounting period when employees actually

provide services,. The non -monetary benefits are measured at fair value.

Post-employment benefits include defined contribution plans and defined benefit plans. Defined contribution plan which includes the basic pension,

unemployment insurance and annuities shall be recognised as cost of related assets or profit or loss. Projected unit credit cost method (“PUC”) was

used by independent actuaries engaged by the Company to determine the present value of the defined benefit obligations with unbiased and

consistent actuarial assumptions regarding population variables and financial variables. Defined benefit obligation was presented with the present

value and the related current service cost was accounted into current profit or loss.

When the Company terminates the labor relationship with employees prior to the employment contracts, or encourages employees to accept

voluntary redundancy compensation proposals in this company, a provision shall be recognised for the compensation arising from the termination of

employment relationship with employees at the time when the Company can not unilaterally withdraw layoff proposal termination benefits provided

due to termination of employment, or the company ensures the costs related to the payment for termination benefits related to the restructuring,




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


which one is early to confirm employee benefits liabilities, and recorded as profit or loss. However, if termination benefits can not be fully paid aftert

welve months of the reporting date,, the liability shall be processed in accordance with other long-term employee benefits.

Retirement plan adopts the same principles as the termination benefits . The salaries and insurance to be paid from the date when employees stop

providing services to the date of normal retirementshall be recognised in profit or loss (termination benefits) when satisfying the requirements of a

provision..

Other long-term employee benefits provided by the company to employees that is in line with defined contribution plans shall adopt the accounting

treatment in accordance with defined contribution plans, otherwise the accounting treatment of defined benefit plans..

4.21 Revenue

4.21.1 Revenue from rendering of service

①    The Company recognise revenue from rendering of air service for carriage of passengers when the service is rendered or when an unused

ticket expires. The sale of a ticket does not constitute revenue. An unused ticket expires on the annual anniversary of its sale. Tickets sold but of

which the service is not yet rendered are recognised in current liabilities as Advances from customers. If service is rendered through code sharing,

revenue arising from the service provision is apportioned amongst parties to the code sharing agreement. The revenue arising from code sharing is

also recognised when the service is rendered.

② The Company company recognise air cargo revenue from rendering of air service for carriage of cargo when the service is rendered

③ Revenue arising from other air service rendering is recognised when the service rendering is completed.

4.21.2 Royalty Revenue

According to the contract or agreement, the revenue is recognized on an accrual basis.

4.21.3 Interest Income

The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the enterprise's cash is used by

others and the actual interest rate.

4.22 Government Grants

Government grants are transfer of monetary assets and non-monetary assets from the government to the Company at no consideration, excluding

the capital invested by the government as equity owner. Government grant can be classified as grant related to the assets and grants related to the

income. Government grants obtained by the Company which are relevant to construction or acquisition of long-term assets are classified as

asset-related government grants; all other government grants are classified as revenue-related government grants. For government grants without

speficied beneficiary, the Company performs classification in accordance with the following criteria.

4.22.1 Where a grant is obtained for a specified project, the grant is spitted into asset-related and revenue related portions proportionate to the

project's investment to expense ratio; the classification is reviewed on each balance sheet date and revised if necessary.

4.22.2 Where a grant is obtained for general purpose, the grant as a whole is classified as a revenue-related government grant.

If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable. If a government grant is

in the form of a non-monetary asset, it is measured at fair value. If the fair value cannot be reliably determined, it is measured at a nominal amount.

A government grant measured at a nominal amount is recognized immediately in profit or loss for the period.




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Shandong Airlines Co., Ltd.                                                                                                  Semi-Annual Report 2017


A government grant related to an asset is recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related

asset. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent period,

the grant is recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized. If the grant

is a compensation for related expenses or losses already incurred, the grant is recognized immediately in profit or loss for the period.

For the government subsidy containing both asset-related parts and income-related parts at the same time, distinguish the different parts and make

the accounting treatment, classify the parts which are difficult to be distinguished as the income-related government subsidy.

Then government subsidy related to the Company’s daily activities is included in other incomes or offsets related costs in accordance with the

essence of economic business; while the government subsidy unrelated to the Company’s daily activities is included in non-operating income and

expenditure.

When the recognized government subsidy needs to be refunded or has balance of related deferred income, offset the book balance of related

deferred income, and include the excess parts in the current profits and losses; directly include these belong to other situations in the current profits

and losses.

4.23 Deferred tax assets and deferred tax liabilities

4.23.1 Income tax for the current period

At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset

is realized or the liability is settled, according to the requirements of tax laws. The measurement of deferred tax assets and deferred tax liabilities

reflects the tax consequences that would follow from the manner in which the Company expects at the balance sheet date, to recover the assets or

settle the liabilities.

At the balance sheet date, current income tax liabilities or assets for the current and prior periods, are measured at the amount expected to be paid

(or recovered) according to the requirements of tax laws. The calculation for income tax expenses in the current period is based on the taxable

income according to the related tax laws after adjustment to the accounting profit of the reporting period.

4.23.2 Deferred income tax assets and liabilities

For temporary differences between the carrying amount of certain assets or liabilities and their tax base, or between the nil carrying amount of

those items that are not recognized as assets or liabilities and their tax base that can be determined according to tax laws, deferred tax assets and

liabilities are recognized using the balance sheet liability method.

For temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability arising from a

transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction,

no deferred tax asset or liability is recognized.

For taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, no deferred income

tax liability related is recognized except where the Company is able to control the timing of reversal of the temporary difference and it is probable

that the temporary difference will not reverse in the foreseeable future.

All deferred income tax liabilities arising from taxable temporary differences except the ones mentioned above are recognized.




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


For temporary deductible differences associated with the initial recognition of an asset or liability arising from a transaction (not a business

combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction, no deferred tax asset is

recognized.

For taxable temporary deductible differences associated with investments in subsidiaries and associates, and interests in joint ventures, no

deferred income tax asset related is recognized if it is impossible to reversal the temporary difference in the foreseeable future, or it is not probable

to obtain taxable income which can be used for the deduction of the temporary difference in the future.

Except mentioned above, the Company recognizes other deferred income tax assets that can deduct temporary differences to the extent that it is

probable that taxable profits will be available against which the deductible temporary differences can be utilized.

For the deductible losses and tax credit that can be carried forward, deferred tax assets for deductible temporary differences are recognized to the

extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized.

At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates according to tax laws, that are expected to apply in the

period in which the asset is realized or the liability is settled.

At the balance sheet date, the Company reviews the carrying amount of deferred tax assets. If it is no longer probable that sufficient taxable profit

will be available in future periods to allow the benefits of the deferred tax assets to be used, the Company reduces the carrying amount of deferred

tax assets. The amount of such reduction is reversed when it becomes probable that sufficient taxable profit will be available

4.23.3 Income tax expenses

Income tax expenses consist of current income tax and deferred income tax.

The expenses from income tax and deferred income tax, as well as the revenue, shall be recorded into profit or loss in current accounting period,

except expense for income tax of the current period and deferred income tax that booked into other income or equity and adjusted carrying value of

deferred income tax goodwill arose from business combination.

4.23.4 Income tax offset

When we have the legal right, and have intended to, to make settlement with net amount, or through the asset acquisition and liability fulfillment

simultaneously, the Company shall present the net value from the offset between current income tax asset and current income tax liability in the

financial statement.

When the Company has the legal right to make a settlement with the current income tax asset and current income tax liability, and the deferred

income tax asset and deferred income tax liability are related to the same taxable subject under the same tax payer, or related to different taxable

subject, but the intension of net value settlement in regard of the current income tax asset and current income tax liability, the Company shall

present net value after the offset of deferred income tax asset and deferred income tax liability.

4.24 Leases

A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may not eventually be

transferred. An operating lease is a lease other than a finance lease.

4.24.1 The Company as Lessee under operating Lease

Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of




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Shandong Airlines Co., Ltd.                                                                                               Semi-Annual Report 2017


the related asset or charged to profit or loss for the current period. The contingent rents shall be recorded in the profit or loss of the period in which

they actually arise.

4.24.2 The Company as Leasor under operating Lease

Lease income from operating leases shall be recognized by the leasor in profit or loss on a straight-line basis over the lease term. Initial direct cost

of significance in amount shall be capitalized when incurred. If another basis is more systematic and rational, that basis may be used. Contingent

rents are credited to profit or loss in the period in which they actually arise.

4.24.3 The Company as Lessee under financing Lease

For an asset that is held under a finance lease, at the lease commencement, the leased asset is recorded at the lower of its fair value at the lease

commencement and the present value of the minimum lease payments, and the minimum lease payment is recorded as the carrying amount of the

long-term payables; the difference between the recorded amount of the leased asset and the recorded amount of the payable is accounted for as

unrecognized finance charge, Initial direct costs incurred by the lessee during the process of negotiating and securing the lease agreement shall be

added to the amount recognized for the leased asset.

The net amount of minimum lease payment deducted by the unrecognized finance shall be separated into long-term liabilities and long-term liability

within one year for presentation.

Unrecognized finance charge shall be computed by the effective interest method during the lease term. Contingent rent shall be booked into profit

or loss when actually incurred.

4.24.4 In the case of the leasor of a financing lease

For an asset that is leased out under a finance lease, the aggregate of the minimum lease receipts at the inception of the lease and the initial direct

costs is recorded as a finance lease receivable, and unguaranteed residual value is recorded at the same time; the difference between the

aggregate of the minimum lease receipt, initial direct costs, and unguaranteed residual value, and the aggregate of their present values, is

recognized as unearned finance income, which is amortized using the effective interest rate method over each period during the lease term.

Finance lease receivable less unearned finance income shall be separated into long-term liabilities and long-term liability within one year for

presentation.

Unearned finance income shall be computed by the effective interest method during the lease term. Contingent rent shall be credited into profit or

loss in which actually incurred.

4.25 Regular repair and substantial repair

Regular repair expenditure of own aircrafts and aircrafts acquired under a financial lease is accounted for through profit or loss for the period in

which it is incurred. Substantial repair expenditure eligible for capitalisation is capitalised when incurred and recognised as replacement cost of

non-current assets and depreciated over a reasonable length of time. Substantial repair expenditure of aircrafts under an operating lease incurred

before the lease expiry date is amortised on the basis of air hours over the lease period.

4.26 Changes in major accounting policies and accounting estimates

4.26.1 change of accounting policies

Changes in accounting policies caused by the implementation of new Accounting Standards for Business Enterprises.




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Shandong Airlines Co., Ltd.                                                                                          Semi-Annual Report 2017


On April 28, 2017, the Ministry of Finance issues the Accounting Standards for Business Enterprises No. 42- Non-current Assets, Disposal Group,

and Discontinued Operation Held for Sale, which has been implemented in all enterprises that carry out the Accounting Standards for Business

Enterprises from May 28, 2017. On May 10, 2017, the Ministry of Finance revised the Accounting Standards for Business Enterprises No. 16 –

Government Subsidy, which has been implemented in all enterprises that carry out the Accounting Standards for Business Enterprises from June

12, 2017.

Approved by the resolution of the 3th interim meeting of the 6th Board of Directors on August 29th 2017, the Company has commenced the

implementation of the aforesaid two accounting standards in accordance with the requirements of the Ministry of Finance and has adjusted financial

data in accordance with the guidelines convergence requirements. The impact on the current and previous presentations of the financial statements

and amounts is as follows:

                                                                                        Impact on the relevant financial statements for

                                                                                             the period from January to June 2017

    Accounting                                                                                                        The amount
                       Changes in accounting policy and its impact on the Company
     standards                                                                                                          affected
                                                                                            Account Name
                                                                                                                      Increase + /

                                                                                                                       decrease -

                       In accordance with the Accounting Standards for Business
    Accounting                                                                          Other income
                                                                                                                    60,164,960.18
                       Enterprises No. 16 - Government Subsidy (Revised 2017),
   Standards for
                       government subsidy related to the Company’s daily activities
     Business
                       is included in other incomes ; while the government subsidy
Enterprises No. 16
                       unrelated to the Company’s daily activities is included in
   - Government                                                                         Non-operating income
                       non-operating income and expenditure. The Company adopts
Subsidy (revised in
                       the future applicable method to carry out accounting
       2017)
                       treatment of this accounting policy change.                                                  -60,164,960.18

4.26.2 change of accounting estimates

There is no significant change of accountingestimates for the company during the reporting period.

4.27 Correction of prior period errors

There is no significant change of previous accounting errors for the Company during the reporting period.

4.28 Significant account judgment and estimates

The Company is required to make judgments, estimates and assumptions about the carrying amounts of items in the financial statements that

cannot be measured accurately, due to the internal uncertainties of operation activities. These judgments, estimates and assumptions are based on

historical experiences of the Company’s management as well as other factors that are considered to be relevant. These judgments, estimates and

assumptions may affect value of the financial statements in revenue, expenses, assets and liabilities and the disclosure of contingency at the

balance sheet date. However, the result derived from those uncertainties in estimates may lead significant adjustments to the carrying amounts of




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


the assets or liabilities affected in the future.

The Company has reviewed the judgments, estimates and assumptions regularly on the basis of going concern. Where the changes in accounting

estimates only affect the period when changes occurred, and they are recognized within the same period. Where the changes in accounting

estimates affect both current period and future period, the changes are recognized within the period of change and future period.

At balance sheet date, the followings are the significant areas where the Company needs to make judgment, estimates and assumptions over the

value of items in the financial statements:

4.28.1 Classification of lease

The Company classifies leases as operating lease and financing lease according to the rule stipulated in the Accounting Standard for Business

Enterprises No. 21--Leasing-. The management shall make analysis and judgment on whether the risks and rewards related to the title of leased

assets has been transferred to the leaser, or whether the Company has substantially held the risks and rewards related to the ownership of leased

assets.

4.28.2 Allowance for bad debt

According to the relevant accounting policies of the Company in receivables, allowance method is used for bad debt’s calculation. The impairment

of receivables is calculated based on the assessment of recoverable of receivables. Assurance of receivable impairment needs judgments and

estimations from the management. The difference between actual results and original estimates shall have impact on the carrying amount of

receivables and receivable bad debt provisions or the reverse during the change of estimation.

4.28.3 Impairment of inventories

The Company measures inventories by the lower of cost and realizable net value according to the accounting policies in regard of inventories and

provisions for decline in value of inventories is made if the cost is higher than their net realizable value, and obsolete and slow-movement

inventories. Inventories decline in value to net realizable value is the estimated selling price in the ordinary course of business. Net realizable value

is determined on the basis of clear evidence obtained, and takes into consideration the purposes of holding inventories and effect of post balance

sheet events. The difference between the actual result and the original estimates shall have impact on reverse of the carrying amount of the

inventories and their decline in value or provisions during the period of change.

4.28.4 The fair value of financial instruments

For a financial instrument which has no active market, the Company establishes fair value by using various valuation methods, including of

discounted cash flow analysis model. The Company needs to estimate future cash flow, credit risk, volatility and relationship during the valuation

and choose appropriate discount rate. Such assumptions have uncertainties and their changes shall have impact on the fair value of financial

instruments.

4.28.5 Impairment of non-financial, non-current assets

The Company assesses whether there are any indicators of impairment for all non-current assets other than financial assets at the balance sheet

date. For an intangible asset that has indefinite useful life, impairment test is made in addition to the annual impairment test if there is any indication

of impairment. For non-current assets other than financial assets, impairment test is made when there is any indication that its account balance

cannot be recovered.




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017


Impairment exists when the recoverable amount of an asset is the higher of its fair value less cost of disposal and present value of the future cash

flows expected to be derived from the asset.

Net value between the difference of fair value and disposal cost is determined by reference of the price of similar product in a sale agreement in an

arm’s length transaction or an observable market price less the additional cost directly attributable to the disposal of the asset.

When estimating the present value of future cash flow, significant judgments are made over the asset’s production, selling price and relevant

operating expenses, and discount rate used to calculate present value. All available materials that are considered to be relevant shall be used in the

estimation of recoverable value. These materials include estimations of production, selling price and operating expenses based on reasonable and

supportable assumptions.

The Company makes an impairment test for goodwill at least at each year end. This requires an estimation of present value of future cash flow of

the assets or assets group where goodwill has been allocated. The Company shall makes estimation on the future cash flow derived from assets or

assets group and determine an appropriate discount rate for the present value of future cash flow when the estimation of present value of future

cash flow is made.

4.28.6 Depreciation and amortization

Investment property, fixed assets and intangible assets are depreciated and amortized using the straight-line method over their useful lives after

taking into account residual value. The useful lives are regularly reviewed to determine the depreciation and amortization costs charged in each

reporting period. The useful lives are determined based on historical experience of similar assets and the estimated technical changes. If there is

an indication that there has been a change in the factor used to determine the depreciation or amortization, the rate of depreciation or amortization

is revised.

4.28.7 Deferred tax assets

The Company shall recognize all unused tax losses as deferred tax assets to the extent that it is probable that future taxable profit will be available

against which the unused tax losses and unused tax credits can be utilized. This requires the management of the Company make a lot of

judgments over the estimation of time period, value and tax planning strategies when future taxable profit incurs so that the value of deferred tax

assets can be determined.

4.28.8 Income tax

There are some transactions where ultimate tax treatments and calculations have uncertainties in the Company’s everyday operation. Whether it is

possible for some items to make expenditure before tax needs approval from competent tax authorities. If there is any difference between finalized

determination value and their initial estimations value, the difference shall have the impact on the income tax and deferred income tax of the current

period during the final determination.

4.28.9 Aircraft operating lease and engine overhaul expenses

Aircraft operating lease and engine overhaul expenses are accrued and charged to profit or loss in accordance with the expected maintenance

cycle, based on flight hours, flight cycles overhaul period and the amount of the cost of repairs which may occur. These estimates are largely based

on past historical data about the same or similar types of aircraft and engines repairance. The withholding amount and overhaul costs may be

affected by different judgments and estimates and affect current profit or loss.




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Shandong Airlines Co., Ltd.                                                                                              Semi-Annual Report 2017


4.28.10 Defined benefit plan

The defined benefit plan implemented and maintained by the Company includes post-employment benefits plan. The provided welfare costs under

the above defined benefit plan was calculated by expected cumulative unit credit method according to various actuarial assumptions, and were

recognized during the employee service providing period. Actuarial Assumptions include but not limited to discount rate, mortality rate, and etc.. The

discount rate is on the basis of management's review of national debt, and mortality rate depends on the mortality rate adopted by the China life

insurance industry. Supplemental information of defined benefit plan see

Note 6.28.

Note 5       Taxation

5.1 Major taxes and tax rate

                     Tax                                                                      Tax rate (%)

 Enterprise income tax                         Business tax is calculated according to the taxable income(note1)

                                               The VAT is calculated as the difference between output tax and deductible input tax for the period.

 Value added tax                               The output tax is calculated using the sales of goods and taxable services income (including

                                               transportation and ground services revenue).

                                               Property tax is calculated by the nature of house property and is collected by ad valorem or
 Property tax
                                               specific duties according to the tax rules .

 Urban maintenance and construction tax        Urban maintenance and construction tax is calculated at 7% of business tax and VAT.

 Education surcharge                           Education surcharge is calculated at 3% of business tax and VAT.

 Local education Surcharge                     Local education Surcharge is calculated at 2% of business tax and VAT.

                                               Civil aviation development fund shall be calculated using the collection standard of the relevant

                                               category of flight routes, maximum departure weight and flight distance adopted by the civil
 Civil aviation development Fund
                                               aviation industry. According to “Interim measures for the administration of the administration of civil

                                               aviation development fund” 《民航发展基金征收使用管理暂行办法》.



Note 1: According to the provision of National Development and Reform Commission ([2014]15), the branch membership of
our company in Western China can get a reduced rate of 15% to pay corporate income tax, when its international and
domestic air passenger and cargo transport projects are in line with the " Catalogue of Encouraged Industries in Western
Region”(《西部地区鼓励类产业目录》). All companies in mainland China are subject to a corporate income tax rate of
25%.


Note 2: Prior to 1 August 2013, revenue arising from air transportation was taxable for business tax at the rate of 3%. As from
1 August 2013, revenue arising from air transportation become VAT taxable per the Notice of Pilot Conversion of
Sales-tax-to-VAT for the Transportation Sector and Certain Contemporary Service Sectors by the Ministry of Finance and



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Shandong Airlines Co., Ltd.                                                                                            Semi-Annual Report 2017


State Administration of Taxation (Caishui[2013]37).(《财政部、国家税务总局关于在全国开展交通运输业和部分现
代服务业营业税改征增值税试点税收政策的通知》(财税[2013]37 号)).


Note 3: From January to April 2016, the taxable income tax of business tax which is calculated according to the tax law shall
be taxed at 3%-5%. According to relevant provisions of "the notice on the full implementation of pilot for replacing the business
tax by VAT " (caishui[2016]36)(《关于全面推开营业税改征增值税试点的通知》 (财税[2016]36 号)), issued by
the Ministry of Finance and the State Administration of Taxation, vat is levied replacing the business tax since May 1, 2016.


5.2 Tax incentives

5.2.1. Zero VAT rate applies to entities and individuals within the Chinese territory that provide international transportation services, research

and development services and designing services provided to foreign entities, roundtrip transportation services between Hongkong, Marcau,and

Taiwan, as well as transportion services provided in Hongkong, Marcau, and Taiwan per the Notice of Pilot Conversion of Sales-tax-to-VAT for the

Transportation Sector and Certain Contemporary Service Sectors by the Ministry of Finance and State Administration of Taxation

(Caishui[2013]No.37)(财税[2013]37号《财政部、国家税务总局关于在全国开展交通运输业和部分现代服务业营业税改征增值税

试点税收政策的通知》)..

5.2.2. Per the Notice of Continuous Implementation of Transitional Business Tax Exemption Policy for Cross-boarder Lease Contracts of Equipment

and Machinery(CaiShui[2011]No.48) (财税[2011]48号《关于跨境设备租赁合同继续实行过渡性营业税免税政策的通知》 jointly issued

by the Ministry of Finance and the State Adnimistration of Taxation on June 30, 2011 and approved by the State Council, the transitional operating

tax exemption applicable to revenue received by overseas leasor(s) to lease contracts (applicable to both financing lease and operating lease) of

machinery and equipment import leasing involving domestic leasee(s) and overseas leasor(s) entered into prior to and remaining in force as at

December 31, 2008 continues to apply from January 1, 2010 to the expiry date of the relevant contract. The Ministry of Finance and the State

Adnimistration of Taxation, "the notice on the full implementation of pilot for replacing the business tax by VAT " (caishui[2016]36)(《关于全面推

开营业税改征增值税试点的通知》(财税[2016]36 号)) “(Appendix 3)The provision of Transitional Policy of pilot for replacing the business

tax by VAT”.(附件3《营业税改征增值税试点过渡政策的规定》)6. The VAT preferential policies will be implemented during the pilot, expect

the projects which have established deadlines and the fifth provision. If the pilot taxpayers have enjoyed the tax preferential policy of business tax

before the day replacing business tax with VAT, during the remaining preferential tax policy term, they should enjoy the relevant vat preferential

according to this provision.

Note 6       Notes to significant elements of the consolidated financial statements

Unless otherwise stated, the meaning of "B/f", "C/f", "Current period", "Prior period" in the following notes (incl. Notes to elements of the separate

financial statements) is "1st January 2017", "30th June 2017", "the date ended June 30th 2017", and "the date ended June 30th 2016" respectively.

6.1 Monetary funds

                               Item                                                 C/f                                        B/f

 Cash at hand:                                                                                495,385.69                                 182,606.18

 Bank deposit:                                                                            442,833,539.40                             791,073,080.47




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Shandong Airlines Co., Ltd.                                                                                                Semi-Annual Report 2017



                               Item                                                C/f                                           B/f

 Other monetary funds:

                               Total                                                       443,328,925.09                              791,255,686.65

 Including: the total amount of deposit abroad                                                1,797,236.77                               1,604,517.22

6.2 Accounts receivables

6.2.1 Disclosure by category

                                                                                                           C/f

                                Category                            Carrying amount                Allowance for bad debt
                                                                                                                                 Book value
                                                                    Amount               %            Amount              %

       Accounts receivable of individual significance and
                                                                  311,885,320.15         60.92                                   311,885,320.15
       subject to individual impairment assessment

       Accounts receivable subject to impairment assessment
                                                                 176,917,861.12          34.56         8,845,893.06       5.00   168,071,968.06
       by credit risk characteristics of a portfolio

       Accounts receivable of individual insignificance but
                                                                   23,163,302.01          4.52        10,823,117.90 46.73         12,340,184.11
       subject to individual impairment assessment

                                   Total                          511,966,483.28 100.00               19,669,010.96       3.84   492,297,472.32

 (Continued)

                                                                                                           C/f

                                 Category                            Carrying amount               Allowance for bad debt
                                                                                                                                 Book value
                                                                    Amount                %           Amount          %

       Accounts receivable of individual significance and
                                                                  228,116,251.34           67.45                                 228,116,251.34
       subject to individual impairment assessment

       Accounts receivable subject to impairment assessment
                                                                   92,078,562.91           27.23 4,603,928.14         5.00        87,474,634.77
       by credit risk characteristics of a portfolio

       Accounts receivable of individual insignificance but
                                                                   18,006,401.64             5.32 10,823,117.90       60.11        7,183,283.74
       subject to individual impairment assessment

                                   Total                          338,201,215.89          100.00 15,427,046.04        4.70       322,774,169.85

① Accounts receivable of individual significance and subject to individual impairment assessment

                     Debtor                                                                          C/f




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Shandong Airlines Co., Ltd.                                                                                             Semi-Annual Report 2017



                                                                          Allowance for Rate of allowance
                                                    Carrying amount                                                     Reason for allowance
                                                                            bad debt               (%)

                                                                                                                 No indication of impairment upon
Air China                                               167,803,828.21
                                                                                                                        individual assessment

                                                                                                                 No indication of impairment upon
BSP-CHINA                                                79,126,159.53
                                                                                                                        individual assessment

                                                                                                                 No indication of impairment upon
Accounting Center of China Aviation                      64,955,332.41
                                                                                                                        individual assessment

                         Total                          311,885,320.15


② Accounts receivable subject to impairment assessment by portfolio

                                                                                        C/f
             Portfolio
                                           Carrying amount                     Allowance for bad debt                   Rate of allowance(%)


 Portfolio by nature                                 176,917,861.12                               8,845,893.06                    5.00

              Total                                  176,917,861.12                               8,845,893.06                    5.00

③ Accounts receivable of individual insignificance but subject to individual impairment assessment

                                                                                            C/f

                Debtor                                                 Allowance for
                                           Carrying amount                                 Rate of allowance (%)          Reason for allowance
                                                                         bad debt

                                                                                                                     impairment upon individual
Debtor #1                                          8,057,209.85             8,057,209.85                    100.00
                                                                                                                     assessment

                                                                                                                     No indication of impairment upon
BSP-others                                         8,476,009.77
                                                                                                                     individual assessment

                                                                                                                     No indication of impairment upon
UATP                                               3,622,367.78
                                                                                                                     individual assessment

                                                                                                                     impairment upon individual
Kun Peng Airlines Co., Ltd.                        1,849,400.00             1,849,400.00                    100.00
                                                                                                                     assessment

                                                                                                                     impairment upon individual
CR Airways                                           916,508.05              916,508.05                     100.00
                                                                                                                     assessment

ARC                                                  241,806.56                                                      No indication of impairment upon




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Shandong Airlines Co., Ltd.                                                                                           Semi-Annual Report 2017



                                                                                            C/f

                  Debtor                                              Allowance for
                                           Carrying amount                                 Rate of allowance (%)           Reason for allowance
                                                                         bad debt

                                                                                                                   individual assessment

                   Total                            23,163,302.01         10,823,117.90                    46.73


Note: BSP-others mainly for BSP accounts receivable of other countries or regions.

6.2.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the year is CNY4,241,964.92.

6.2.3 Top five accounts receivables by debtors

The total amount of top five accounts receivables summarised by debtors as at the end of current period is CNY 377,401,526.80, accounting for

73.72% of the total accounts receivable as at the end of current period, the total corresponding allowance for bad debts is CNY3,275,810.33.

6.3 Prepayments

6.3.1 Disclosure by age

                                                           C/f                                                       B/f
                Age
                                           Amount                         %                         Amount                             %

Within 1 year                                    308,841,751.01                  99.59                 248,363,327.89                             99.69

1 to 2 years                                        572,513.45                      0.18                      50,862.40                            0.02

2 to 3 years                                        228,761.96                      0.07                     231,761.96                            0.09

Over 3 years                                        493,292.70                      0.16                     490,292.70                            0.20

               Total                             310,136,319.12                 100.00                 249,136,244.95                          100.00

6.3.2 Details of top five prepayments

The total amount of top five prepayments as at the end of current period is CNY 123,853,023.17, accounting for 39.94% of the total advance to

suppliers.

6.4 Dividends receivable

6.4.1 Disclosure by item

                           Item                                         C/f                                                 B/f

 Sichuan Airlines                                                                 19,278,420.00

                           Total                                                  19,278,420.00

6.5 Other receivables

6.5.1 Disclosure by category




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Shandong Airlines Co., Ltd.                                                                                               Semi-Annual Report 2017



                                                                                             C/f

                      Category                          Carrying amount                      Allowance for bad debt
                                                                                                                                   Book value
                                                    Amount                 %                Amount                 %

       Other receivables of individual

       significance and subject to individual     369,416,024.66                72.36     104,933,519.66               28.41      264,482,505.00

       impairment assessment

       Other receivables subject to subject

       to impairment assessment by credit          96,106,144.27                18.82       4,805,307.21                 5.00      91,300,837.06

       risk characteristics of a portfolio

       Other receivables of individual

       insignificance but subject to               45,019,309.31                 8.82                                              45,019,309.31

       individual impairment assessment

                         Total                    510,541,478.24               100.00     109,738,826.87               21.49      400,802,651.37

(Continued)

                                                                                             B/f

                       Category                          Carrying amount                    Allowance for bad debt
                                                                                                                                   Book value
                                                      Amount               %                Amount                 %

       Other receivables of individual

       significance and subject to individual       353,220,633.95              76.34     108,431,670.15               30.70      244,788,963.80

       impairment assessment

       Other receivables subject to subject to

       impairment assessment by credit risk          65,822,034.03              14.22        3,291,101.71               5.00       62,530,932.32

       characteristics of a portfolio

       Other receivables of individual

       insignificance but subject to individual      43,680,428.66               9.44                                              43,680,428.66

       impairment assessment

                         Total                      462,723,096.64             100.00      111,722,771.86              24.14      351,000,324.78

① Other receivables of individual significance and subject to individual impairment assessment

                                                                                                   C/f

                     Debtor                                                Allowance for bad             Rate of
                                                     Carrying amount                                                           Reason for allowance
                                                                                   debt            allowance (%)




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Shandong Airlines Co., Ltd.                                                                                                   Semi-Annual Report 2017



                                                                                                    C/f

                        Debtor                                             Allowance for bad              Rate of
                                                    Carrying amount                                                              Reason for allowance
                                                                                 debt               allowance (%)

                                                                                                                           No indication of impairment upon
Debtor #1                                               200,228,266.83
                                                                                                                           individual assessment

                                                                                                                           impairment upon individual
Shandong Rainbow Commercial Jet Co., Ltd.               101,551,717.65         101,551,717.65                   100.00
                                                                                                                           assessment

                                                                                                                           impairment    assessment        by
Debtor #2                                                38,447,080.54           1,922,354.03                       5.00
                                                                                                                           portfolio

                                                                                                                           impairment    assessment        by
Debtor #3                                                29,188,959.64           1,459,447.98                       5.00
                                                                                                                           portfolio

                        Total                           369,416,024.66         104,933,519.66                    28.41


② Other receivables subject to impairment assessment by portfolio

                                                                                        C/f
            Portfolio
                                           Carrying amount                     Allowance for bad debt                          Rate of allowance(%)

 Portfolio by nature                                   96,106,144.27                            4,805,307.21                                            5.00

              Total                                    96,106,144.27                            4,805,307.21                                            5.00

③ Other receivables of individual insignificance but subject to individual impairment assessment

                                                                                                C/f

                      Debtor                                            Allowance for bad      Rate of allowance
                                                 Carrying amount                                                                 Reason for allowance
                                                                              debt                        (%)

                                                                                                                           No indication of impairment upon
Debtor #1                                              17,300,360.00
                                                                                                                           individual assessment

                                                                                                                           No indication of impairment upon
Debtor #2                                               4,238,588.20
                                                                                                                           individual assessment

                                                                                                                           No indication of impairment upon
Debtor #3                                               2,067,420.00
                                                                                                                           individual assessment

                                                                                                                           No indication of impairment upon
Debtor #4                                               2,062,200.00
                                                                                                                           individual assessment




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Shandong Airlines Co., Ltd.                                                                                         Semi-Annual Report 2017



                                                                                              C/f

                   Debtor                                              Allowance for bad     Rate of allowance
                                                 Carrying amount                                                      Reason for allowance
                                                                              debt                    (%)

                                                                                                                 No indication of impairment upon
Debtor #5                                               4,457,873.01
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #6                                                 773,050.73
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #7                                                 895,684.40
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Air China                                               5,615,980.16
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Shandong Air New Media Co., Ltd.                        7,127,044.28
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Shenzhen Airlines Co., Ltd.                                58,736.75
                                                                                                                 individual assessment

Taikoo (Shandong) Aircraft                                                                                       No indication of impairment upon
                                                           72,746.00
Engineering Company Limited                                                                                      individual assessment

                                                                                                                 No indication of impairment upon
Shandong XiangYu Air Technology Co., Ltd.                 349,625.78
                                                                                                                 individual assessment

                    Total                              45,019,309.31

6.5.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the current period is CNY -1,983,944.99.

6.5.3 Disclosure by nature

                    Category                                           C/f                                               B/f

Deposits                                                                           232,027,493.17                                 151,888,719.29

Others                                                                             278,513,985.07                                 310,834,377.35

                      Total                                                        510,541,478.24                                 462,723,096.64

6.5.4 Top five other receivables

                                                                                                                               Allowance for bad
                      Debtor                            Nature               C/f                    Aging            %
                                                                                                                                     debt




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Shandong Airlines Co., Ltd.                                                                         Semi-Annual Report 2017



                                                                                                               Allowance for bad
                     Debtor                 Nature                C/f                    Aging       %
                                                                                                                     debt

Debtor #1                                   Deposits         200,228,266.83        Within 1 year    39.22


Shandong Rainbow Commercial Jet Co., Ltd.   Others           101,551,717.65        Over 4 years     19.89         101,551,717.65


Debtor #2                                   Others            38,447,080.54        Within 2 years   7.53            1,922,354.03


Debtor #3                                   Others            29,188,959.64        Within 3 years   5.72            1,459,447.98


Debtor #4                                   Others            17,517,616.25        Within 1 year    3.43              875,880.81


                      Total                                  386,933,640.91                         75.79         105,809,400.47


6.6 Inventories

                                                                                        C/f
                       Type
                                            Gross carrying amount            Impairment allowance      Net carrying amount

 Consumable air quipements                             107,521,997.55                                            107,521,997.55

 Low-value consumables                                   3,241,190.16                                              3,241,190.16

 Materials                                               1,033,226.98                                              1,033,226.98

                      Total                            111,796,414.69                                            111,796,414.69

(Continued)

                                                                                        B/f
                      Type
                                            Gross carrying amount            Impairment allowance      Net carrying amount

 Consumable air quipements                             115,711,019.94                                            115,711,019.94

 Low-value consumables                                   3,930,799.75                                              3,930,799.75

 Materials                                               1,323,423.87                                              1,323,423.87

                      Total                            120,965,243.56                                            120,965,243.56

6.7 Other current assets

                     Type                                   C/f                                          B/f

 VAT deductible                                                         83,459,901.34                             59,685,735.09

                     Total                                              83,459,901.34                             59,685,735.09

6.8 Financial assets available for sale

6.8.1 General information




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                                                                                      C/f                                                      B/f

                                 Category                                                         Net carrying                                                 Net carrying
                                                               Carrying amount     Impairment                        Carrying amount     Impairment
                                                                                                    amount                                                       amount

             Available for sale equity instruments

             Including: measured by fair value                   260,410,357.35                  260,410,357.35        190,210,082.34                       190,210,082.34

                          measured by cost                        81,662,100.00                   81,662,100.00         81,662,100.00                          81,662,100.00

                                   Total                         342,072,457.35                  342,072,457.35        271,872,182.34                       271,872,182.34

             6.8.2 Financial assets available for sale measured by fair value at the end of current period

                                                                                                 Available for sale equity
                                                 Category                                                                                              Total
                                                                                                       instruments
                  Cost of equity instruments                                                                         6,690,000.00                              6,690,000.00

                  Fair value                                                                                      260,410,357.35                          260,410,357.35

                  Accumulated changes in the fair value recognised into
                  other comprehensive income                                                                      253,720,357.35                          253,720,357.35

                  Impairment amount

             6.8.3 Financial assets available for sale measured by cost at the end of current period

                                             Carrying amounts as at 30/06/2017                                   Impairment

                                                                                                                                                                               Cash

                                                  Increase      Decrease                                Increase       Decrease                 Shareholding in               Dividend
     Investee
                                   B/f            in current    in current           C/f         B/f    in current     in current      C/f           investee(%)              for current

                                                   period        period                                  period          period                                                 year



Sichuan Airlines               35,000,000.00                                     35,000,000.00                                                                 10.00      19,278,420.00

Jinan International

Airport                        46,662,100.00                                     46,662,100.00                                                                  2.53           566,011.27

          Total                81,662,100.00                                     81,662,100.00                                                                            19,844,431.27

             6.9 Long-term equity investments

                  Category                 B/f         Allowance b/f                                   Currency year movement (+, -)




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                                                                                                       Investment gains

                                                                                                          and losses           Other comprehensive         Other
                                                                         Additional    Investment
                                                                                                       recognised under               income             changes
                                                                     investment        reduction
                                                                                                           the equity                adjustment           in equity

                                                                                                           method

            Associates

            Shandong

            Rainbow
                                  22,500,000.00    22,500,000.00
            Commercial

            Jet Co., Ltd.

                 Total            22,500,000.00    22,500,000.00

            (Continued)

                                                                     Currency year movement (+, -)

                            Category               Declared cash dividends or         Allowance                                C/f                Allowance c/f
                                                                                                        Others
                                                               profits                recognised

            Investment in associates

            Shandong Rainbow Commercial

            Jet Co., Ltd.                                                                                                   22,500,000.00            22,500,000.00

                             Total                                                                                          22,500,000.00            22,500,000.00

            6.10 Fixed assets

            6.10.1 General information

                                                  Houses and                                                     Transportation
                   Items                                            Aircrafts and engines High-value rotables                            Others                    Total
                                                   buildings                                                        vehicles

1. Cost:

1.1 Balance as at 31/12/2016                  359,270,176.86             10,490,391,354.44 718,326,376.78 68,932,416.61 190,971,693.13                    11,827,892,017.82

1.2 Increased in current period                                             106,306,575.52    42,369,764.41         838,088.81        10,707,237.35           160,221,666.09

(1) Purchase                                                                106,306,575.52    42,369,764.41         838,088.81        10,707,237.35           160,221,666.09

(2) Transferred from

construction in-progress




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                                             Houses and                                                  Transportation
                   Items                                     Aircrafts and engines High-value rotables                       Others             Total
                                               buildings                                                    vehicles

(3) Transferred from merger

and acquisitions

(4) Others

1.3 Decreased in
                                                                   56,230,000.00      83,703,150.46       1,901,676.63      8,040,296.18     149,875,123.27
current period

(1) Disposal or scrap                                              56,230,000.00      83,703,150.46       1,901,676.63      8,040,296.18     149,875,123.27

(2) Others

1.4 Balance as at 30/06/2017                359,270,176.86    10,540,467,929.96 676,992,990.73 67,868,828.79 193,638,634.30                11,838,238,560.64

2. Accumulated Depreciation

2.1 Balance as at 31/12/2016                 81,895,705.86     4,216,709,384.42 282,875,021.63 38,349,151.75 102,004,728.85                4,721,833,992.51

2.2 Increased in current period               5,829,448.98       368,943,705.30       19,667,430.65       2,471,744.81      9,736,455.25     406,648,784.99

(1) Accrual                                   5,829,448.98       368,943,705.30       19,667,430.65       2,471,744.81      9,736,455.25     406,648,784.99

2.3 Decreased in current period                                    56,230,000.00      56,652,653.37       1,441,552.57      7,180,299.10     121,504,505.04

(1) Disposal or scrap                                              56,230,000.00      56,652,653.37       1,441,552.57      7,180,299.10     121,504,505.04

(2) Others

2.4. Balance as at 30/06/2017                87,725,154.84     4,529,423,089.72 245,889,798.91 39,379,343.99 104,560,885.00                5,006,978,272.46

3. Impairment allowance


3.1 Balance as at 31/12/2016                                                          12,824,873.52                                           12,824,873.52

3.2 Increased in current period

(1) Accrual


3.3 Decreased in current period                                                       10,255,791.67                                           10,255,791.67


(1) Disposal or scrap                                                                 10,255,791.67                                           10,255,791.67

(2) Others


3.4 Balance as at 30/06/2017                                                            2,569,081.85                                           2,569,081.85




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                                                  Houses and                                                      Transportation
                 Items                                              Aircrafts and engines High-value rotables                               Others                Total
                                                   buildings                                                          vehicles

4. Carrying amount

4.1 Carrying amount as at 30/06/2017          271,545,022.02              6,011,044,840.24 428,534,109.97 28,489,484.80                   89,077,749.30       6,828,691,206.33

4.2 Carrying amount as at 31/12/2016          277,374,471.00          6,273,681,970.02 422,626,481.63 30,583,264.86                       88,966,964.28       7,093,233,151.79

           6.10.2 Fixed assets acquired under financial leases

                        Category                          Cost                Accumulated Depreciation       Impairment allowance             Carrying amount

           Aircrafts and engines                         2,135,798,272.75              1,066,081,208.64                                              1,069,717,064.11

                          Total                          2,135,798,272.75              1,066,081,208.64                                              1,069,717,064.11

           6.10.3 Fixed assets pending ownership registration

                                           Item                                      Carrying amount                         Reason for pending

           Operational support building of Yantai Chaoshui International
                                                                                          59,038,005.78 Ownership registration in process
           Airport

                                                                                                          Land rented from Jinan Air Control, not eligible for
           Jinan cargo arrival and departure warehouses                                   12,622,668.74
                                                                                                          ownership registration

           Impairment allowance of fixed assets is CNY 2,569,081.85 as at 30/06/2017, with no additional amount of allowance for fixed assets impairment

           recognised during the period.

           6.11 Construction in progress

           6.11.1 General information

                                                                    C/f                                                             B/f

                     Items                                     Impairment                                                    Impairment
                                       Carrying amount                         Net carrying amount     Carrying amount                        Net carrying amount
                                                               allowance                                                      allowance

              Factory building
                                           149,257,517.66                            149,257,517.66        137,792,677.66                             137,792,677.66
                     project

                Prepayment
                                        2,552,509,147.46                           2,552,509,147.46       2,110,159,957.73                           2,110,159,957.73
                 for aircrafts

               Construction of
                                             1,592,960.81                              1,592,960.81           2,547,826.96                               2,547,826.96
             information system

                     Total              2,703,359,625.93                           2,703,359,625.93       2,250,500,462.35                           2,250,500,462.35




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     6.11.2 Significant projects

                                                                                                            Transferred to
                                                                                      Current period
               Project                   Budget                   B/f                                       fixed assets in      Other decrease               C/f
                                                                                        increase
                                                                                                            current period

     Administrative office
                                      195,000,000.00           136,606,996.49            11,464,840.00                                                   148,071,836.49
     of Xiamen branch

     Aircraft asset
                                   15,004,922,602.00      2,110,159,957.73              861,035,587.26                             418,686,397.53      2,552,509,147.46
     introduction project

               Total               15,199,922,602.00      2,246,766,954.22              872,500,427.26                             418,686,397.53      2,700,580,983.95

     (Continued)

                    Weight of                                                                                                 Including:
                                                                    Including:Transferred
                         cost to    Stage of      Cumulative                                   Including:Transferred           interests      Capitalisation rate
                                                                    into leaseback assets                                                                            Source of
     Items               date in   completion      interests                                  into fixed assets during        capitalized      applicable to the
                                                                        during the current                                                                            finance
                    budgeted                      capitalised                                      the current period         during the        current period
                                                                             period
                          cost                                                                                            current period

Administrative
                                   Not                                                                                                                              current
office of              75.93%
                                   completed                                                                                                                        assets
Xiamen branch

                                                                                                                                                                    Loans from

Aircraft asset                                                                                                                                                      Finance
                                   Not
introduction           17.01%                     58,795,066.01               18,871,410.16                                     320,814.88        3.4177-3.5260 Institutions
                                   applicable
project                                                                                                                                                             and current

                                                                                                                                                                    assets

      Total                                       58,795,066.01               18,871,410.16                                     320,814.88


     Note: The cumulative amount of interests capitalized as at 31/12/2016 is 77,345,661.29, the amount of current period is 320,814.88, including 0

     transferred into fixed assets and 18,871,410.16 transferred into leaseback assets during the current period, the cumulative amount of interests

     capitalized as at 30/06/2017 is 58,795,066.01.

     6.11.3 Recognization of impairment allowance for construction in progress

     No sign of construction in progress impairment occurred as at 30/06/2017, no impairment provision shall be recognised.

     6.12 Intangible assets

     6.12.1 General information




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                        Items                            Land rights           Software                     Total

1. Cost:

1.1 Balance as at 31/12/2016                                  108,347,341.13       28,857,996.52              137,205,337.65

1.2 Increased in current period                                                     6,527,535.90                6,527,535.90

(1) Purchase

(2) Diversion of construction                                                       6,527,535.90                6,527,535.90

(3) Increased from business combination

1.3 Decreased in current period

(1) Disposal

1.4 Balance as at 30/06/2017                                  108,347,341.13       35,385,532.42              143,732,873.55

2. Accumulated amortization

2.1 Balance as at 31/12/2016                                   13,584,809.57        9,416,774.88               23,001,584.45

2.2 Increased in current period                                 1,201,791.44        1,889,301.05                3,091,092.49

(1) Accrual                                                     1,201,791.44        1,889,301.05                3,091,092.49

2.3 Decreased in current period

(1) Disposal

2.4 Balance as at 30/06/2017                                   14,786,601.01       11,306,075.93               26,092,676.94

3. Impairment allowance

3.1 Balance as at 31/12/2016

3.2 Increased in current period

(1) Accrual

3.3 Decreased in current period

(1) Disposal

3.4 Balance as at 30/06/2017

4. Carrying amount

4.1 Carrying amount as at 30/06/2017                           93,560,740.12       24,079,456.49              117,640,196.61

4.2 Carrying amount as at 31/12/2016                           94,762,531.56       19,441,221.64              114,203,753.20

6.12.2 Land rights with pending ownership registration




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No case of land rights with pending ownership registration was identified as at 30/06/2017.

6.13 Goodwill

6.13.1 General information

                                                                      Current period                         Current period

                                                                            increase                           decrease
                 Investee                       B/f                                                                                             C/f
                                                            From business
                                                                                                        Disposal
                                                             combination

Qingdao Feisheng                           10,220,816.22                                                                                     10,220,816.22

                  Total                    10,220,816.22                                                                                     10,220,816.22

6.13.2 Impairment allowance

                                                                      Current period                         Current period

                 Investee                       B/f                         increase                           decrease                         C/f

                                                                  Accrual                               Disposal

Qingdao Feisheng                           10,220,816.22                                                                                     10,220,816.22

                  Total                    10,220,816.22                                                                                     10,220,816.22

6.14 Deferred charges

                                                           Current period              Current period
                 Item                     B/f                                                                  Other decrease                  C/f
                                                              increase                 amortization

Pilot training                        459,390,584.88              31,372,829.61           39,214,140.43                                     451,549,274.06

Decoration expenditure                 12,727,205.54                                        2,774,472.25                                      9,952,733.29

Modification costs for aircraft
                                        3,444,869.66                                         203,575.96                                       3,241,293.70
leasing

                 Total                475,562,660.08              31,372,829.61           42,192,188.64                                     464,743,301.05

6.15 Deferred tax assets and deferred tax liabilities

6.15.1 Deferred tax assets

                                                              C/f                                                              B/f

                  Item              Deductible temporary                                          Deductible temporary
                                                                     Deferred tax assets                                             Deferred tax assets
                                          difference                                                      difference

Allowance for bad debt                           129,407,837.83                   32,351,959.46             127,149,817.90                   31,787,454.48




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Impairment allowance for fixed

  assets                                             2,569,081.85                        642,270.46           12,824,873.52                        3,206,218.38

Fair value movement of financial

liabilities held for trading                         1,753,048.20                        438,262.05            1,155,815.80                          288,953.95

Provisions                                       2,766,225,312.75                 691,556,328.19           2,398,351,341.80                     599,587,835.45

Employment benefits payable                         35,087,927.95                   8,771,981.99              13,339,322.51                        3,334,830.63

Deferred income                                     13,581,523.92                   3,395,380.98              14,319,523.98                        3,579,881.00

                Total                            2,948,624,732.50                 737,156,183.13           2,567,140,695.51                     641,785,173.89

6.15.2 Deferred tax liabilities

                                                                 C/f                                                         B/f

                Item                      Deductible temporary           Deferred tax                 Deductible temporary
                                                                                                                                         Deferred tax liabilities
                                               difference                  liabilities                     difference

Changes in fair value of financial
                                                   253,720,357.35              63,430,089.33                    183,520,082.34                    45,880,020.58
assets available for sale

                Total                              253,720,357.35              63,430,089.33                    183,520,082.34                    45,880,020.58

6.16 Short-term borrowings

                                  Type                                                     C/f                                            B/f

Credit loans                                                                                     400,000,000.00


                                  Total                                                          400,000,000.00


6.17 Financial liabilities measured by fair value with changes in fair value recognised in profit or loss

                         Item                                          Fair value c/f                                        Fair value b/f

Interest rate swaps                                                                         1,753,048.20                                           1,155,815.80

                         Total                                                              1,753,048.20                                           1,155,815.80

The immature interest rate swaps held by the Company had a principal amount of USD 55,962,278.40 as at 30/06/2017; bankers confirmed that the

reporting date fair value of these interest rate swaps is CNY-1,753,048.20.

6.18 Accounts payable

6.18.1 General information

                         Item                                               C/f                                                    B/f

Aircraft maintenance costs                                                                562,966,441.98                                        463,956,451.17




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                         Item                                            C/f                                             B/f

Fuel cost                                                                           319,440,237.62                               197,231,462.72

Landing fee                                                                         427,815,841.70                               333,773,372.93

Aircraft service cost                                                               388,213,258.16                               345,104,581.50

Flight catering                                                                     120,248,460.13                                82,266,721.74

Computer booking fee                                                                 71,471,899.53                                35,600,521.61

Lease rental                                                                         11,447,814.56                                 7,978,905.87

Others                                                                              285,543,897.76                               222,182,843.55

                         Total                                                    2,187,147,851.44                             1,688,094,861.09

6.18.2 No significant account payable due for more than 1 year as at the reporting date.

6.19 Advance from customers

                         Item                                            C/f                                             B/f
                                                                                  535,922,697.17
 Ticket clearing                                                                                                                671,930,813.96
                                                                                     6,300,535.78
 Advanced payment for tickets                                                                                                     4,811,444.78
                                                                                     6,113,052.89
 Others                                                                                                                          22,577,294.31
                                                                                  548,336,285.84
                         Total                                                                                                  699,319,553.05

6.20 Employee benefits payable

6.20.1 Disclosure by classification

                                                                                Current period       Current period
                        Item                              B/f                                                                      C/f
                                                                                   increase            decrease

1. Short-term employee benefits                         454,375,029.19           1,191,501,026.57      1,326,318,602.26          319,557,453.50

2. Post-employment benefits                                                        106,556,787.04       106,556,787.04

3. Termination benefits

4. Other long-term employee benefits within

one year

                        Total                           454,375,029.19           1,298,057,813.61      1,432,875,389.30          319,557,453.50

6.20.2 Disclosure by classification of short-term employee benefits

                                                                               Current period        Current period
                        Item                              B/f                                                                     C/f
                                                                                 increase              decrease




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                                                                             Current period               Current period
                       Item                             B/f                                                                            C/f
                                                                                increase                    decrease

1. Wages, salaries and subsidies                      413,228,272.68           1,067,988,356.98             1,211,714,104.89          269,502,524.77

2. Employee welfare                                                                   5,598,657.30              5,598,657.30

3. Social insurance:                                                                 37,731,054.43            37,731,054.43

Including: Medical insurance                                                         31,643,641.26            31,643,641.26

           Employment injury insurance                                                2,541,251.07              2,541,251.07

           Maternity insurance                                                        3,546,162.11              3,546,162.11

           Disabled security payments

4.Housing provident fund                                  147,434.00                 33,451,830.80            33,575,120.80                  24,144.00

5.Labour union fee and employee

education fee                                          13,339,322.51                 31,731,127.06            10,039,664.84            35,030,784.73

6. Short-term paid absences                            27,660,000.00                 15,000,000.00            27,660,000.00            15,000,000.00

7. Short-term profit-sharing plan

                       Total                          454,375,029.19           1,191,501,026.57            1,326,318,602.26           319,557,453.50

6.20.3 Disclosure by defined contribution plan

                   Item                      B/f              Current period increase            Current period decrease                 C/f

1. Basic pension                                                           66,459,048.96                          66,459,048.96

2.Unemployment insurance                                                    2,724,338.00                           2,724,338.00

3. Annuity payment                                                         37,373,400.08                          37,373,400.08

                   Total                                                  106,556,787.04                         106,556,787.04

The company participated in basic pension and unemployment insurance in accordance with the regulations. Based on the insurance program, a

percentage of total wages of employees were paid to the account separately. Except for the fee paid, enterprise annuity was deposited to annuity

management institution by a percentage of monthly payment base, which was determined by seniority pay and post salary.

6.21 Taxes and fees payable

                           Tax (Fee)                                           C/f                                              B/f

VAT                                                                                          799,271.10                                  775,322.54


Urban construction and maintenance tax                                                       817,694.42                                  171,124.16




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                         Tax (Fee)                                            C/f                                          B/f

Education surcharge                                                                       585,025.59                                    123,863.13


Enterprise income tax                                                                  29,084,460.23                                   4,877,426.27


Property tax                                                                              170,078.07                                    170,078.07


Land tax                                                                                  246,269.42                                    221,139.00


Personal income tax                                                                    11,137,061.06                                 22,838,989.34


stamp duty                                                                                                                             2,553,371.69


Civil aviation development fund                                                      124,960,374.23                                 106,835,140.08


Others                                                                                    130,418.83                                     95,350.88


                           Total                                                     167,930,652.95                                 138,661,805.16


6.22 Interests payable

                                             Item                                           C/f                          B/f

         Interest on long-term borrowings with repayment by installments                     2,404,528.96                       2,430,456.90

                                           Total                                             2,404,528.96                       2,430,456.90

6.23 Other payables

6.23.1 Disclosure by nature

                          Item                                               C/f                                          B/f

Payable for construction projects                                                     31,100,786.10                                  30,515,708.94

Payable for down payments                                                            117,631,288.49                                  91,264,426.66

Payables associated with aircraft purchase                                            11,382,401.11                                    3,949,505.02

Taxes deducted at source                                                              86,608,192.77                                  80,231,680.37

Others                                                                               174,846,035.61                                 195,893,115.22

                          Total                                                      421,568,704.08                                 401,854,436.21

6.23.2 Significant other payables due for more than 1 year

           Creditor                  Amount                                         Reason for pending settlement

Air China                              20,000,000.00 Margin deposit to be settled upon expiry of immature wet lease

            Total                      20,000,000.00

6.24 Non-current liabilities due within one year




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                                  Category                                               C/f                                 B/f

Long-term borrowings due within one year (Note 6.25)                                           617,888,896.00                      836,269,451.50

Bonds payable due within one year

Long-term payables due within one year (Note 6.26)                                             146,349,115.65                      144,580,142.52

Long-term employee benefits payable due within one
                                                                                                 6,738,112.68                        6,794,418.00
year (Note 6.27)

                                   Total                                                       770,976,124.33                      987,644,012.02

6.25 Long-term borrowings

                                    Category                                                   C/f                            B/f

Mortgage loan

Secured loans                                                                                  1,690,180,208.59                2,027,940,287.04


Guaranteed loans

Credit loans                                                                                     270,298,560.00                    607,930,932.00


Less: Long-term borrowings due within one year (Note 6.24)                                       617,888,896.00                    836,269,451.50


                                      Total                                                    1,342,589,872.59                1,799,601,767.54


Note: ① Class and amount of mortgage assets see Note 6.50 assets with imposed restriction on ownership.

     ② Interest rates as at 30/06/2017 of the above-mentioned long-term borrowings range from 2.1177%-4.4100%.

6.26 Long-term payables

                                               Category                                                     C/f                      B/f

Financial lease rental payables                                                                           838,611,112.16           921,300,803.04

Maintenance payables for aircrafts and engines held under operating lease                               2,549,546,659.38       2,217,672,688.43

Less: Financial lease rental payables due within one year (Note 6.24)                                     146,349,115.65           144,580,142.52

Less: Maintenance payables for aircrafts and engines held under

operating lease due within one                                                                            558,229,106.00           460,191,258.69

 year (Note 1)

                                                Total                                                   2,683,579,549.89       2,534,202,090.26

Note : Maintenance payables for aircrafts and engines held under operating lease due within one year had been included in accounts payable.

6.27 Long-term employee benefits payable

6.27.1 General information




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                                                    Item                                                   C/f                     B/f

 Post-employment benefits-net defined benefit liability                                                  98,904,864.11       100,925,069.51

 Less: long-term staff remuneration payable due within one year (Note 6.24)                               6,738,112.68           6,794,418.00

                                                    Total                                                92,166,751.43        94,130,651.51

6.27.2 Movements

①    Defined benefit obligation

                                             Item                                       Current period                   Prior period

 (1) Net Defined Benefit Asset/(Liability) at End of Prior Period                            100,925,069.51                   90,145,000.00


 (2) Defined benefit costs recognised
                                                                                               1,584,500.00                      1,308,000.00
 into current profit or loss

 1. Current Service Cost

 2. Past Service Cost

 3. Settlement (Gain)/Loss

 4. Net Interest/(Income) on Net Defined Benefit Liability/(Asset)                             1,584,500.00                      1,308,000.00


 (3) Defined benefit costs recognised

 into other comprehensive income

 1. Actuarial gains/(losses)

 (4) Other movements                                                                           3,604,705.40                      3,415,116.37


 1. Settlement payment

 2. Benefits Paid Directly by Employer                                                         3,604,705.40                      3,415,116.37


 (5) Net defined benefit asset/(liability) at end of current period                           98,904,864.11                   88,037,883.63

②    Actuarial Assumptions

                                      Item                                    31st December, 2016                  30th June,2017

 Discount Rate                                                                      3.00%                                3.25%

                                                                                   China Life Insurance Mortality Rate 2000-2003
 Mortality Rate
                                                                                                     (Annuity)

 Cost of Living Adjustments for Retired Cadres and
                                                                                                         0.00%
 Retirees

 Cost of Living Adjustments for Internal Retirees                                                        0.00%




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                                    Item                                                31st December, 2016                        30th June,2017

 Cost of Living Adjustments for Dependants                                                                          0.00%

28. Government Subsidy

6.28.1 General information of government subsidy initially recognized in this period

                                                 Related to the assets                              Related to the income

                                                            offset the book
                                                                                                                                                 whether it
                                                              balance of                                                            offset the
     subsidy project            amount         deferred                           deferred                         non operating                 is actually
                                                                related                          other income                        cost and
                                                income                            income                              income                     received
                                                            book value of as                                                         expense

                                                                  set

Airline subsidies              59,238,280.87                                                      59,238,280.87                                        Yes

Energy-saving reward

from ministry of                  188,679.25                                                          188,679.25                                       Yes

finance


              Total
                               59,426,960.12                                                      59,426,960.12

6.28.2 General information of government subsidy included in the current profits and losses

                                 related to the assets/       included in other              included in
          subsidy project                                                                                       offset the cost and expense
                                 related to the income            income             non-operating income

Airline subsidies                  related to the income          59,238,280.87


Energy-saving reward from

ministry of                        related to the income             188,679.25

finance

Designated subsidy for snow
                                    related to the assets            249,750.00
disaster

Designated subsidy for civil

aviation                            related to the assets            488,250.06

energy-saving program


                Total
                                                                  60,164,960.18

6.29 Deferred income




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                                                                                     Current period             Current period
                        Item                                    B/f                                                                             C/f
                                                                                        increase                  decrease

Unrealized gains and losses of operating lease
                                                                 44,119,997.18             25,550,859.37                8,734,309.83            60,936,546.72
from aircraft leaseback

Designated subsidy for snow disaster                              1,490,458.34                                           249,750.00              1,240,708.34


Designated subsidy for civil aviation
                                                                 12,829,065.64                                           488,250.06             12,340,815.58
energy-saving program

                        Total                                    58,439,521.16             25,550,859.37                9,472,309.89            74,518,070.64


Details of government grants:



                                                                                Current period decrease
                                                                                                                                            related to the
                                                    Current
                                                                                                                                                assets/
                                                                                                    offset
            Item                        B/f          period                                                                    C/f
                                                                   included in
                                                                                    included in the cost       Other                        related to the
                                                    increase
                                                                 non-operating
                                                                                   other income     and       decrease                          income
                                                                       income
                                                                                                   expense

Designated subsidy for                                                                                                                           related to the
                                  1,490,458.34                                       249,750.00                            1,240,708.34                   assets
snow disaster

Designated subsidy for civil
                                                                                                                                                 related to the
aviation energy-saving
                                12,829,065.64                                        488,250.06                           12,340,815.58                   assets
program


            Total
                                14,319,523.98                                        738,000.06                           13,581,523.92

6.30 Share capital

                                              B/f                        Currency period movement (+, -)                                  C/f

                                                                                 Coversion
           Category                                            Share Bonus
                                    Amount            %                             from       Others        Subtotal          Amount                 %
                                                               issue    issue
                                                                                  reserves

1. Shares with

restriction on

disposal

1.1 State-held shares




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                                           B/f                       Currency period movement (+, -)                    C/f

                                                                            Coversion
             Category                                       Share Bonus
                                     Amount         %                         from      Others    Subtotal     Amount         %
                                                            issue   issue
                                                                            reserves

1.2 Shares held by
                                   259,801,000.00   64.95                                                    259,801,000.00       64.95
 state-owned entities

1.3 Shares held by
                                      199,000.00     0.05                                                       199,000.00         0.05
other domestic investors

Including:        Held        by
                                      199,000.00     0.05                                                       199,000.00         0.05
institutional investors

  Held by non-institutional

investors

1.4 Shares held by foreign

investors

Including: Held by

institutional investors

             Held by

non-institutional investors

Subtotal     of   shares    with
                                   260,000,000.00   65.00                                                    260,000,000.00       65.00
restriction on disposal

2. Floating shares

2.1 Ordianry shares issued

in CNY

2.2     Shares     issued     in

domestic stock market in           140,000,000.00   35.00                                                    140,000,000.00       35.00

foreign currency

2.3 Shares issued in foreign

market in foreign currency

2.4 Others

Subtotal of floating shares        140,000,000.00   35.00                                                    140,000,000.00       35.00

Total                              400,000,000.00 100.00                                                     400,000,000.00     100.00

6.31 Capital reserves




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                                                                    Current period                  Current period
             Category                      B/f                                                                                          C/f
                                                                         increase                     decrease

Share premium                               67,618,282.54                                                                                67,618,282.54

Other capital reserves                       7,792,081.16                                                                                 7,792,081.16

               Total                        75,410,363.70                                                                                75,410,363.70

6.32 Other comprehensive income

                                                                         Total amount in current period

                                                         Less: previously

                                                            recognised in
                                                                                                      After tax         After tax
                                          Amount for             other
        Item                 B/f                                                    Less: Income    attributable to   attributable to         C/f
                                          the period        comprehensive
                                                                                    tax expense       the parent         minority
                                          before tax            income
                                                                                                      company         shareholders
                                                            transferred into

                                                             profit or loss

1.Other

comprehensive

income will be

reclassified into

income or loss in

the future               -5,760,000.00                                                                                                   -5,760,000.00

Including:

remeasurement

of net assets or

net liabilities of

defined      benefit

plans                    -5,760,000.00                                                                                                   -5,760,000.00

2.Other

comprehensive

income

reclassifiable to

profit or loss in

subsequent

periods                 137,640,061.76   70,200,275.01                              17,550,068.75   52,650,206.26                       190,290,268.02




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                                                                            Total amount in current period

                                                             Less: previously

                                                              recognised in
                                                                                                          After tax         After tax
                                             Amount for             other
       Item                   B/f                                                    Less: Income       attributable to   attributable to           C/f
                                             the period       comprehensive
                                                                                      tax expense        the parent          minority
                                             before tax             income
                                                                                                          company         shareholders
                                                              transferred into

                                                               profit or loss

Gains and losses

from changes in

fair value of

financial assets

available for sale       137,640,061.76     70,200,275.01                            17,550,068.75     52,650,206.26                         190,290,268.02

Total of other

comprehensive

income                   131,880,061.76     70,200,275.01                            17,550,068.75     52,650,206.26                         184,530,268.02

6.33 Surplus reserves

                                                                            Current period               Current period
                Category                           B/f                                                                                        C/f
                                                                               increase                       decrease

Statutory surplus reserve                          423,424,327.64                                                                            423,424,327.64

                 Total                             423,424,327.64                                                                            423,424,327.64

Notes: according to the Company Law and the Articles of Association, 10% of net profit was transferred to statutory surplus reserve.

The company may make allocations to the discretionary surplus reserve from the after-tax profits after making allocations to the statutory surplus

reserve from the after-tax profits. Approved surplus reserves can be released to recover losses or for conversion into share capital.

6.34 Retained earnings

                                    Items                                                    Current period                          Prior year

Pre-adjustment balance brought forward                                                               2,805,458,074.96                       2,425,066,740.03

Total adjustment to retained earnings b/f (+, -)

Retained earnings b/f after adjustment                                                               2,805,458,074.96                       2,425,066,740.03

Add: Net profit attributable to shareholders of the parent                                             90,093,090.83                         532,834,567.17

Other transfer




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                                   Items                                                Current period                           Prior year

Pre-adjustment balance brought forward                                                         2,805,458,074.96                       2,425,066,740.03

Less: Appropriation to statutory surplus reserve                                                                                         52,443,232.24

Appropriation to discretionary surplus reserve

General reserve

     Ordinary dividends declared                                                                 120,000,000.00                         100,000,000.00

     Bonus issue

Balance carrying forward                                                                       2,775,551,165.79                       2,805,458,074.96

6.35 Operating revenues and costs

                                                   Current period                                                 Prior period
           Category
                                   Operating revenues               Operating costs            Operating revenues                 Operating costs

Principal business                         7,361,655,609.07            7,009,774,578.68                  6,174,403,762.33             5,422,888,318.50

Other business                               189,139,132.85                1,002,863.77                   135,345,527.89                       679,535.22

             Total                         7,550,794,741.92            7,010,777,442.45                  6,309,749,290.22             5,423,567,853.72

6.36 Tax and surcharges

                          Item                                         Current period                                   Prior period

Business tax                                                                                                                                  4,626,340.00


Urban maintenance and construction tax                                                    7,470,575.03                                   19,639,678.24


Property tax                                                                              1,208,730.14


Land tax                                                                                   977,402.06


Vehicle and vessel tax                                                                      34,222.58


stamp duty                                                                                1,358,423.51


                         Total                                                           11,049,353.32                                   24,266,018.24


Notes: Applicable rates for business tax and surcharges see Note 5 Taxation.

6.37 Sales expenses

                      Category                                      Current period                                     Prior period

Agency fees                                                                           112,513,566.00                                    142,524,924.99


Employment benefits                                                                   104,260,383.02                                     87,674,449.74




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                     Category              Current period                    Prior period

Computer booking                                             58,863,913.92                   48,542,318.85


Online payment                                               15,910,504.99                   18,243,015.91

Sales expense of annual tickets                                328,077.20                      569,258.24

Lease rental                                                  8,067,710.47                    5,386,640.36

Advertisement fees                                            6,751,819.61                    5,933,117.54

Administrative office expenses                                1,476,762.08                    2,328,914.03

Travel expenses                                               2,867,765.21                    2,768,481.58

System and network                                           17,687,307.23                    1,315,330.83

BSP data processing                                           2,373,896.01                    1,509,044.75

Depreiciation                                                  733,987.92                      804,033.70

Others                                                       12,668,596.52                   11,709,951.77

                       Total                                344,504,290.18                  329,309,482.29


6.38 General and administrative expenses

                     Category              Current period                    Prior period

Employment benefits                                          83,476,149.47                   75,981,194.22

Lease rental                                                 11,249,615.81                   10,303,991.66

Business entertainment costs                                  2,657,241.98                    2,073,800.42

Depreiciation                                                 7,334,279.71                    7,473,243.21

Taxes and fees                                                                                5,486,165.66

Technology development costs                                  3,181,341.72                    1,722,759.24

Amortisation of intangibles                                   3,091,092.49                    2,577,170.71

Water, electricity charges                                    5,009,064.83                    5,911,247.24

Outsourcing fee                                               5,237,232.81                    8,035,371.48

Others                                                       40,890,363.73                   28,673,428.41

                       Total                                162,126,382.55                  148,238,372.25


6.39 Financial costs

                     Category              Current period                    Prior period




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Interest expenses                                                                  59,926,303.54                                    67,649,152.92

Less: Interest income                                                                  3,834,523.99                                  7,344,162.51

Exchange difference                                                                -47,560,156.02                                   50,594,145.29

Bank charges and others                                                                 801,510.26                                   3,309,378.48

                        Total                                                          9,333,133.79                               114,208,514.18

6.40 Loss on asset impairment

                      Category                                    Current period                                  Prior period

Allowance for bad debt                                                                 2,258,019.93                                    441,974.60

                        Total                                                          2,258,019.93                                    441,974.60

6.41 Gain from changes in fair value

                      Source                                      Current period                                  Prior period

Interest rate swaps                                                                     -597,232.40                                 -3,926,637.22

                        Total                                                           -597,232.40                                 -3,926,637.22

6.42 Investment income

                                             Category                                                  Current period             Prior period

Income from holding of financial assets available for sale                                                  19,844,431.27                        3.47


Income from long-term equity investment income of equity method

Income from financial assets measured by fair value with changes in
                                                                                                              -479,085.84             -850,517.15
fair value recognised in profit or loss

                                               Total                                                        19,365,345.43             -850,513.68


6.43 Other income

                          Item                                        Current period                               Prior period

Airline subsidies                                                                      59,238,280.87


Energy-saving reward from ministry of
                                                                                          188,679.25
finance

Designated subsidy for snow disaster                                                      249,750.00


Designated subsidy for civil aviation
                                                                                          488,250.06
energy-saving program




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                          Total                                        60,164,960.18


6.44 Non-operating income

                                                                                                                Included in current period

                             Category                    Current period                 Prior period             non-recurring profit and

                                                                                                                          loss

Gain on non-current asset disposals                                24,408.34                       38,150.95                      24,408.34


Including: Gain on fixed asset disposals                           24,408.34                       38,150.95                      24,408.34


Government grants (See details of government
                                                                                           108,958,388.62
grants below)

Others                                                          20,383,484.09                    6,701,077.28              20,383,484.09


                                  Total                         20,407,892.43                  115,697,616.85              20,407,892.43


Details of government grants:

                                                                                                             related to the assets/
                    Government assitance          Current period                Prior period
                                                                                                             related to the income

Airline subsidies                                                                   86,623,850.00


Energy-saving reward from ministry of
                                                                                    19,420,000.00
finance

                                                                                      249,750.00
 Designated subsidy for snow disaster

                                                                                      488,250.06
 Designated subsidy for civil aviation

 energy-saving program

Others                                                                               2,176,538.56


                            Total                                                 108,958,388.62


6.45 Non-operating expenses

                                                                                                             Included in current period
                       Category                Current period                    Prior period
                                                                                                            non-recurring profit and loss

Loss on non-current asset disposals                      836,956.54                        1,994,829.83                          836,956.54

Including: Loss on fixed asset disposals                 836,956.54                        1,994,829.83                          836,956.54

Others                                                   114,718.03                            584,722.41                        114,718.03

                         Total                           951,674.57                        2,579,552.24                          951,674.57




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6.46 Income tax expenses

6.46.1 Income tax expenses

                      Items                                       Current period                                      Prior period

Current income tax expense                                                         114,413,329.18                                     258,215,995.70

Deferred tax                                                                       -95,371,009.24                                     -163,847,495.70

Total                                                                              19,042,319.94                                       94,368,500.00

6.46.2 Reconciliation of account profit and income tax expenses

                                             Items                                                              Current period

Profit before tax                                                                                                                     109,135,410.78


Income tax computed in accordance with the applicable tax rate                                                                         27,283,852.70


Income tax computed in accordance with the applicable tax rate                                                                          -3,648,015.88


Impact of non-taxable income                                                                                                            -4,961,107.82


Impact of non-deductible costs, expenses and losses                                                                                       367,590.94


Income tax expenses                                                                                                                    19,042,319.94


6.47 Other comprehensive income

Please see Note 6. 32 for detail.

6.48 Notes to the consolidated statement of cash flows

6.48.1 Other cash receipts relating to operating activities

                        Category                                       Current period                                  Prior period

Government grants                                                                       59,426,960.12                                 108,220,388.56

Interest income on bank deposit                                                          3,834,523.99                                   7,344,162.51

Cash receiptes from non-operating income                                                20,383,484.09                                   6,701,077.28

Cash receiptes from operating balance                                                   10,187,211.62                                  38,808,493.53

                          Total                                                         93,832,179.82                                 161,074,121.88

6.48.2 Other cash payments relating to operating activities

                                        Category                                               Current period                  Prior period

Bank charges                                                                                             801,510.26                      3,310,024.48


Cash payments for non-operating expenses                                                                 114,718.03                       584,722.41




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                                          Category                                                 Current period                Prior period

Cash payments for operating balance                                                                       62,159,661.28                 52,354,485.57


Cash payments for sales and general and administrative expenses                                           27,914,187.14                 22,941,379.52


                                            Total                                                         90,990,076.71                 79,190,611.98


6.48.3 Other cash payments relating to investing activities

                              Category                                            Current period                             Prior period

Cash payments of settlement of interest rate swaps                                                 214,526.52                                421,533.02

                                Total                                                              214,526.52                                421,533.02

6.48.4 Other cash receipts relating to financing activities

                                           Category                                                 Current period                Prior period

Cash receipts for disposal of purchase rights on aircrafts
                                                                                                         430,793,362.96                195,845,614.80
(which became acquired under operating lease instead of purchase)

                                             Total                                                       430,793,362.96                195,845,614.80


6.48.5 Other cash payments relating to financing activities

                                        Category                                            Current period                      Prior period

Cash payments for aircraft financial lease rental                                                      93,634,945.60                    85,871,334.98

                                         Total                                                         93,634,945.60                    85,871,334.98

6.49 Supplementary information to the consolidated statement of cash flows

6.49.1 Supplementary information to the statement of cash flows

                                                 Items                                                 Current period              Prior period

 ① Reconciliation of cash flows from operating activities to net profit:

 Net profit                                                                                                 90,093,090.83            283,689,488.65


 Add: Loss on asset impairment                                                                               2,258,019.93                   441,974.60


 Depreciation of fixed assets, oil and gas assets, biological assets held for production                   406,648,784.99            390,723,606.22


 Amortisation of intangible assets                                                                           3,091,092.49               2,577,170.71


 Amortisation of Long-term deferred expenditure                                                             42,192,188.64             40,967,578.75


 Loss on non-current assets disposal (gain presented by "-" prefix)                                             812,548.20
                                                                                                                                        1,956,678.88




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                                              Items                        Current period           Prior period

 Loss on scrap of fixed assets (gain presented by "-" prefix)

 Loss on fair value changes (gain presented by "-" prefix)                        597,232.40            3,926,637.22


 Financial costs (gain presented by "-" prefix)                                 5,645,105.18          131,315,878.01


 Investment loss (gain presented by "-" prefix)                               -19,365,345.43              850,513.68


 Decrease of deferred tax assets (increase presented by "-" prefix)           -95,371,009.24         -163,847,495.70


 Increase of deferred tax liabilities (increase presented by "-" prefix)

 Decrease of inventories (increase presented by "-" prefix)                     9,168,828.87          -11,498,790.06


 Decrease of operating receivables (increase presented by "-" prefix)        -282,707,697.16         -176,385,529.52


 Increase of operating payables (decrease presented by "-" prefix)            489,695,710.66          523,193,137.15


 Others                                                                        -3,604,705.40
                                                                                                       -3,415,116.37

 Net cash flows generated from operating activities                           649,153,844.96        1,024,495,732.22


 ②Significant investing and financing activities involve no cash:

      Debt-to-capital conversion

      Convertible loan due within one year

      Fixed assets acquired under financial lease

 ③      Movement of cash and cash equivalents:

 Cash as at 30/06/2017                                                        443,328,925.09          592,355,497.98


 Less: Cash as at 31/12/2016                                                  791,255,686.65        1,415,399,630.60


 Add: Cash equivalents as at 30/06/2017

 Less: Cash equivalents as at 31/12/2016

 Net increase of cash and cash equivalents                                   -347,926,761.56         -823,044,132.62


6.49.2 Composition of cash and cash equivalents

                                                   Items                         Current period       Prior period

①Cash                                                                             443,328,925.09       791,255,686.65

      Including: Cash at hand                                                          495,385.69           182,606.18

      Demand bank deposit                                                          442,833,539.40       791,073,080.47




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                                                Items                                                       Current period             Prior period

      Demand other monetary funds

      Demand deposit in the Central Bank

      Deposit in peer firms

      Loan to peer firms

②Cash equivalents

Including: Debt instrument matured within three months

               ……

④    Cash and cash equivalents as at 30/06/2017                                                              443,328,925.09            791,255,686.65

Including: restricted cash and cash equivalents in parent company or subsidiary

Note: Cash and cash equivalents excluding restricted cash and cash equivalents in parent company or subsidiary.

6.50 Assets with imposed restriction on ownership

                      Category                                         C/f                                          Reason of restriction

Assets pledged as security                                                        3,515,126,638.81

      Aircrafts and engines                                                       3,515,126,638.81 Pledge as security for borrowings

Other form of restriction:                                                        1,069,717,064.11

      Aircrafts and engines                                                       1,069,717,064.11 Assets acquired under financial lease

                       Total                                                      4,584,843,702.92

6.51 Foreign currency monetary items

                                                           Original amount as at                                         Translated amount as at
                             Item                                                         Foreign exchange rate
                                                                30/06/2017                                                      30/06/2017

Monetary funds


Including:   -USD
                                                                      41,441,618.06                        6.7744                      280,742,097.39

             -CAD                                                                 10.00                    5.2144                                 52.14

             -KRW                                                     25,444,230.00                        0.0059                            150,120.96

             -TWD                                                       7,016,794.00                       0.2228                           1,563,341.70

             -THB                                                        690,473.50                        0.1996                            137,818.51




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                                                      Original amount as at                               Translated amount as at
                         Item                                                    Foreign exchange rate
                                                          30/06/2017                                            30/06/2017




Prepayments

Including:   -USD                                                34,575,749.93                   6.7744                234,229,960.33




Other receivables

Including:   -USD                                                14,809,814.44                   6.7744                100,327,606.94




Accounts payable

Including:   -USD                                                 4,792,054.86                   6.7744                 32,463,296.44

             -EUR                                                    18,525.71                   7.7496                      143,566.84

             -GBP                                                 8,348,421.00                   0.0605                      505,079.47




Other payables

Including:   -USD                                                20,861,098.53                   6.7744                141,321,425.88




Non-current liabilities due within one year

Including:   -USD                                                94,511,856.87                   6.7744                640,261,123.18




Long-term borrowings

Including:   -USD                                              160,278,382.23                    6.7744              1,085,789,872.57




Long-term payables

Including:   -USD                                                61,477,802.26                   6.7744                416,475,223.63

Note 7: Change of scope of consolidation

No change of scope of consolidation from last year.

Note 8: The equity in other main entities

8.1 The equity in subsidiaries




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8.1.1 The construction of the group

                                       Place of          Place              Nature              Holding proportion %
            Subsidiaries                                                                                                               Acquired method
                                      operation     of registration       of business          Directly      Indirectly

Shandong aviation Logistics Ltd Qingdao,            Qingdao,          Logistics      and
                                                                                                100.00                    acquired through investment
(hereafter, Qingdao Logistics)    Shandong          Shandong          storage

Qingdao Feisheng International
                                                                                                                          Acquired through business
Aviation Training Technology      Qingdao,          Qingdao,
                                                                      Pilot training           100.00                     combination not under common
Development Co., Ltd              Shandong          Shandong
                                                                                                                          control
(hereafter, Qingdao Feisheng)

8.2 The equity in associates

8.2.1 Significant associates

                                                                                                           Holding proportion %              The accounting

                                             Place of            Place                 Nature                                                 treatment of
                    Associates
                                             operation     of registration         of business            Directly        Indirectly         investments in

                                                                                                                                               associates

Shandong Rainbow Commercial Jet               Jinan,             Jinan,                 Aero
                                                                                                                45.00                    Equity method
Co., Ltd.                                    Shandong        Shandong             transportation

8.2.2 Key financial information of significant associate- Shandong Rainbow Commercial Jet Co., Ltd.

                                      Item                                              Jun 30th,2017/Current period           Dec 31th,2016/Prior period

Current assets                                                                                              1,819,652.14                           1,820,781.43

Non-current assets                                                                                              25,172.36                                25,856.24

Total assets                                                                                                1,844,824.50                           1,846,637.67




Current liabilities                                                                                       167,765,813.33                         167,765,813.33

Non-current liabilities

Total liabilities                                                                                         167,765,813.33                         167,765,813.33




Minority interests

Equity attributable to shareholders of the parent                                                         -165,920,988.83                       -165,919,175.66




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                                    Item                                       Jun 30th,2017/Current period            Dec 31th,2016/Prior period

Pro rata share of the net assets calculated

Adjusting events

- Goodwill

-Unrealized profits from internal transaction

-Others

Book value of equity investments in associates




Fair value of publicly quoted equity investments in associates




Operating income


Net profit
                                                                                                      -1,813.17                                -952.04

Net profit from discontinued operations

Other comprehensive income

Total comprehensive income




Dividends received from associates during the year

8.2.3 Excess loss occurred by associates

                                                                                     Unrecognized losses of current
                                                        Cumulative unrecognized                                            Cumulative unrecognized
                      Associates                                                      period (Share of net profit of
                                                          losses of Prior period                                            losses of current period
                                                                                             current period)

Shandong Rainbow Commercial Jet Co., Ltd.                           -74,663,608.80                             -815.93                 -74,664,424.73




Note 9 The risk associated with financial instruments

The main financial instruments of the Company including equity investments, loans, accounts receivable, accounts payable etc., please see Note 6

for detail of related items. The risk associated with financial instruments, and risk management policies which the company use to reduce these

risks are described below. The management of the Company manages and supervises the risks to ensure that the risks can be controlled within a

limited range.

Sensitivity analysis techniques are adopted by the Company to analyse the impact of reaonsable and possible changes of risk variables on the




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profit and loss or shareholders' equity for the current period. While risk variables seldomly change in isolation, and the correlation among variables

will have a significant effect on the ultimate impact of the change of one risk variable. Therefore, the following content is based on the assumption

that changes in each variable is independent.

9.1 The targets and policies of risks management

The target of risks management is to obtain the proper balance between the risks and benefits, to reduce the negative impact that caused by the

risk of the Company to the lowest level, and to maximize the benefits of shareholders and other equity investors. Based on the targets of risk

management, the basic strategy of the Company’s risk management is to identify and analyse the risks which are faced by the Company, establish

suitable risk tolerance baseline and proceed the risk management, and supervise a variety of risks timely and reliably, and control the risk within a

limited range.

9.1.1 Market Risk

(1) Foreign exchange risk

Foreign exchange risk refers to the risk of loss due to exchange rate fluctuations generally. The company bears the foreign exchange risk primarily

concerned with USD, and uses USD for pricing or settlement in the field of main financing business, operating leases, financing leasing. On 30

June 2017, except the following assets or liabilities in Note 6.50 are recorded in foreign currency, the others are recorded in CNY. Foreign exchange

risk of the assets and liabilities in foreign currencies may have an impact on the Company's performance of operation.

 (2) Interest rate risk - the risk of changes in cash flow

The risk of changes in cash flows of a financial instrument due to interest rate is mainly concerned with the floating rate of bank borrowings (see

Note 6.25,6.26). The company's policy is to maintain a floating interest rate on the borrowings.

 (3) Other price risk

Financial assets available for sale and financial assets held-for-trade held by the company should be measured at fair value on the balance sheet

date. For the reason that, the company bears the risk of changes in the stock market.

9.1.2. Credit Risk

As at the statement date, the maximum risk that could cause the Company’s financial losses mainly comes from default of the other party of the

contract, which includes:

The carrying amount of financial assets recognised in the Consolidated statement of financial position; for financial instruments measured by fair

value, the book value reflects its risk exposure but not the maximum risk exposure, which will vary with changes in the fair value in the future.

In order to reduce credit risk, the Company set up a team responsible for determination of credit limits, credit approvals and other monitoring

procedures to ensure that the necessary measures be taken to recover overdue debts. In addition, the Company reviews the recoverable amount of

each individual trade debt at each balance sheet date to ensure fully provision for bad debts recognised for the money that cannot be recovered.

Therefore the Company's management believes the Company’s credit risk has been greatly reduced.

The Company's circulating funds were deposited in banks with high credit ratings, so that the credit risk of circulating funds was low.

9.1.3 Liquidity risk

When managing liquidity risk,the Company’s management believes maintaining adequate cash and cash equivalents, and monitoring that at same




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time, in order to meet the needs of operation of the Company, and to reduce the impact of fluctuations in cash flows.The management of the

Company monitors the use of bank borrowings and ensure to abide by loan agreements.

Note 10 Disclosure of the fair value

10.1 The fair value at the end of current period of assets and liabilities which are measured by fair value

                                                                               The fair value at the end of current period

                                                           The first level                                The third level
                          Item                                                   The second level
                                                          measured by fair                               measured by fair              Total
                                                                               measured by fair value
                                                               value                                           value

1. Continuous measurement by fair value

1.1 financial assets available for sale                     260,410,357.35                                                          260,410,357.35


(1) Equity instruments investment                           260,410,357.35                                                          260,410,357.35


Total     amount         of      assets    continuous
                                                            260,410,357.35                                                          260,410,357.35
measurement by fair value

2. Financial liabilities measured at fair value with
                                                                                        1,753,048.20                                   1,753,048.20
changes in fair value recognised in profit or loss

                                                                                        1,753,048.20                                   1,753,048.20
Interest rate swaps

Total amount of liabilities continuous
                                                                                        1,753,048.20                                   1,753,048.20
measurement by fair value

10.2 Determined on the basis of continuous and noncontinuous first level for fair value measurement of the market of project

Financial assets available for sale of continuous measurement by fair value is the investment in TravelSky Technology Limited, whose fair value

was determined based on the closing price for the stock market in Hong Kong Stock Exchange on balance sheet date.

10.3 Determined on the basis of continuous and noncontinuous second level for fair value measurement of the market of project

Fair value measurement basis of interest rate swaps which was continuously measured by fair value is quotes from counterparty banks on the fair

value of interest rate swaps.

Note 11 Related parties and related party transaction

11.1 Major investors

                                                                                                        Shareholding in the     Voting right in the
                                            Place of
              Investor                                   Nature of operation      Registered capital         Company                Company
                                          registration
                                                                                                                (%)                    (%)

                                                           Investment and
SDA Group                                    Jinan                                     580,000,000.00                   42.00                  42.00
                                                         management of aero




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                                                                                                        Shareholding in the   Voting right in the
                                          Place of
              Investor                                      Nature of operation   Registered capital        Company               Company
                                         registration
                                                                                                               (%)                      (%)

                                                              transportation

Air China                                  Beijing          Aero transportation     13,084,751,004.00                 22.80                   22.80

Note: SDA Group and Air China is the first and second largest shareholder of the Company respectively. Air China is the largest shareholder of SDA

Group; Air China’s shareholding and voting right in SDA Group is 49.406% and 49.406% respectively.

11.2 Subsidiaries

See Note 8.1 for subsidiaries.

11.3 Associates

See Note 8.2 for associates.

11.4 Other related parties

                                      Other related party                                               Relationship to the Company

Taikoo (Shandong) Aircraft Engineering Company Limited                                                  Controlled by major investors

Shandong XiangYu Air Technology Co., Ltd.                                                               Controlled by major investors

Shandong Rainbow Commercial Jet Co., Ltd.                                                               Controlled by major investors

Shandong Air New Media Co., Ltd.                                                                        Controlled by major investors

Air China Import & Export Co., Ltd.                                                                     Controlled by major investors

Zhejiang Aviation Service Co., Ltd.                                                                     Controlled by major investors

Air China Shanghai Aviation Service Co., Ltd.                                                           Controlled by major investors

Beijing Golden Phoenix Human Resources Service Co., Ltd.                                                Controlled by major investors

CATIC Industrial Co., Ltd.                                                                              Controlled by major investors

Air Macau                                                                                               Controlled by major investors

Air China Offshore Holding Company                                                                      Controlled by major investors

Air China Hongkong Development Limited                                                                  Controlled by major investors

Beijing Airlines Co., Ltd.                                                                              Controlled by major investors

China International Aviation Shantou Industrial Development Corporation                                 Controlled by major investors

Chengdu Fukai Aircraft Engineering Services Limited                                                     Controlled by major investors

Beijing Aircraft Maintenance and Engineering Corporation                                                Controlled by major investors




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                                     Other related party                                           Relationship to the Company

Air China Cargo Co., Ltd.                                                                          Controlled by major investors

China Aviation Group Finance Co., Ltd.                                                             Controlled by major investors

Shenzhen Airlines Co., Ltd.                                                                        Controlled by major investors

Dalian Airlines Co., Ltd.                                                                          Controlled by major investors

China International Airlines Inner Mongolia Co., Ltd.                                              Controlled by major investors

Kunming Airlines Ltd                                                                               Controlled by major investors

Sichuan international aero engine maintenance Co., Ltd.                                         jointly operated by major investors

SkyWorks Capital Asia Ltd.                                                                      jointly operated by major investors

ACT Cargo (USA), Inc.                                                                           jointly operated by major investors

Shanghai Pudong International Airport West Public Cargo Terminal Co., Ltd.                      jointly operated by major investors

Ji'an Beijing Aviation Asset Management Co., Ltd.                                               jointly operated by major investors

Shanghai International Airport Ground Service Co., Ltd.                                         jointly operated by major investors

11.5 Related party transactions

11.5.1 Purchase of goods and services

                Related party                               Transaction                 Current period                  Prior period

SDA Group                                         Office lease rental and catering               13,739,607.74                15,513,331.65


Taikoo (Shandong) Aircraft Engineering
                                                        Aircraft maintenance                     50,826,981.46                28,803,053.19
Company Limited

Shandong XiangYu Air Technology Co., Ltd.                   Repairment                           38,996,267.68                29,668,696.78


Shandong XiangYu Air Technology Co., Ltd. Purchase / lease of aircraft materials                     13,705.00


Air China                                                  Ground service                         7,888,336.36                  6,169,564.28


Air China                                                   Repairment                                                             724,929.11


Air China                                      Purchase / lease of aircraft materials               186,711.99                     152,804.77

Air China                                                  Agency service                         5,458,596.51                  6,168,028.80

Air China                                           Irregular flight expenditure                  4,647,528.32                  7,283,337.46

Shenzhen Airlines Co., Ltd.                                Agency service                         1,355,884.53                     382,425.92

Shenzhen Airlines Co., Ltd.                    Purchase / lease of aircraft materials                77,366.20




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               Related party                                Transaction                   Current period                 Prior period

Shenzhen Airlines Co., Ltd.                                   Catering                                821,436.08                  533,732.80

Shenzhen Airlines Co., Ltd.                               Ground service                                  82,320.00

Air China Cargo Co., Ltd.                                 Ground service                            1,375,854.32                1,551,773.69

Beijing Aircraft Maintenance and
                                                            Repairment                             25,863,897.05               22,363,336.17
Engineering Corporation

Beijing Aircraft Maintenance and
                                               Purchase / lease of aircraft materials                 294,133.10                   87,545.01
Engineering Corporation

Beijing Aircraft Maintenance and
                                                          Ground service                           14,791,642.54               15,553,050.00
Engineering Corporation

Sichuan International Aero Engine
                                                            Repairment                             3,485,554.10              202,356,167.14
Maintenance Co., Ltd.

Chengfu FuKai Aircraft Engineering Co., Ltd.                Repairment                              1,831,830.31                2,636,992.53

Shandong Air New Media Co., Ltd.               Aircraft offerings and advertising fees              3,494,970.00

Beijing Golden Phoenix Human Resources
                                                          Ground service                              979,920.00                  875,178.00
Service Co., Ltd.

Air China Import & Export Co., Ltd.                 Taxes of aircraft materials                                                        4,786.52

                    Total                                                                         176,212,543.29             340,828,733.82


11.5.2 Sales of goods and vendering of services

               Related party                                Transaction                  Current period                 Prior period

Air China                                                 Ground service                            939,820.29                  2,323,611.71

                                               Simulator maintenance / House rental
Air China                                                                                         2,242,714.29                  2,242,714.29
                                                               income

Air China                                          Sale /rent of aircraft materials                  12,906.84                     4,710.21

Air China                                           Irregular flight expenditure                     37,220.00                     4,570.00

Air China                                                 Agency service                          2,425,297.00                1,657,266.61

Air China Cargo Co., Ltd.                                  Cargo income                           2,117,233.31                   889,454.73

Beijing Aircraft Maintenance and
                                                   Sale /rent of aircraft materials                 343,536.05                   169,173.21
Engineering Corporation




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                Related party                              Transaction                           Current period                  Prior period

Shenzhen Airlines Co., Ltd.                              Agency service                                       740,562.00                    162,976.46

Shenzhen Airlines Co., Ltd.                              Ground service                                        51,200.00                    172,600.00

Shenzhen Airlines Co., Ltd.                       Sale /rent of aircraft materials                             57,676.75


Shenzhen Airlines Co., Ltd.                         Irregular flight expenditure                                  560.00


Shenzhen Airlines Co., Ltd.                               Cargo income                                         26,337.00                          100.00

Dalian Airlines Co., Ltd.                                Ground service                                        63,737.09                      42,231.70

Dalian Airlines Co., Ltd.                           Irregular flight expenditure                               20,780.00                      59,520.00

Taikoo (Shandong) Aircraft Engineering
                                                     Sale of aircraft materials                               114,470.12                      79,511.75
Company Limited

Shandong XiangYu Air Technology Co., Ltd.            Sale of aircraft materials                               338,955.30                      39,302.57

Shandong Air New Media Co., Ltd.                       Media resource fee                                   6,050,000.00


                     Total                                                                                15,583,006.04                    7,847,743.24


11.5.3 Related Party borrowing funds demolition

                  Related Party                     Borrowing money                Beginning date              Due date              Description

borrowing:

                                                                                                                               Balance         as      at

China National Aviation Finance Co., Ltd.            296,000,000.00                  2016-6-20                 2026-6-20       30/06/2017           CNY

                                                                                                                               266,400,000.00

11.5.4 Remuneration to key management personel

                                  Item                                                  Current period                         Prior period

Remuneration to key management personel                                                      CNY 5.8623 million                 CNY 4.5343 million

11.5.5 Other related party transactions



                Related party                            Transaction                         Current period                     Prior period


Air China                                                 Wet lease                                      93,266,177.00                   183,404,273.00

Air China                                               Code sharing                                                                          -247,032.01

Air China                                         Frequent flyer cooperation                             36,000,000.00                    36,000,000.00

Air China Cargo Co., Ltd.                          Code sharing for cargo                                 2,216,952.30                    -2,479,852.47




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                     Total                                                                   131,483,129.30                      216,677,388.52


11.6 Related party balances

11.6.1 Receivables

                                                                       C/f                                              B/f

                     Related party                                           Allowance for bad                                Allowance for bad
                                                     Carrying amount                                 Carrying amount
                                                                                   debt                                              debt

Accounts receivable

Air China                                                  167,803,828.21                                 111,220,493.07

                         Total                             167,803,828.21                                 111,220,493.07

Other receivables


Air China
                                                             5,615,980.16                                   6,250,133.00


Shenzhen Airlines Co., Ltd.
                                                                58,736.75                                        468,173.37


Shandong Rainbow Commercial Jet Co., Ltd.
                                                           101,551,717.65        101,551,717.65           101,551,717.65         101,551,717.65


Shandong XiangYu Air Technology Co., Ltd.                                                                         15,444.48
                                                              349,625.78

Taikoo (Shandong) Aircraft Engineering Company
                                                                                                                 198,526.00
Limited                                                         72,746.00


Shandong Air New Media Co., Ltd.                                                                            1,027,044.28
                                                             7,127,044.28

                         Total                             114,775,850.62        101,551,717.65           109,511,038.78         101,551,717.65


11.6.2 Payables

                                 Related party                                             C/f                                 B/f

Accounts payable

Shandong XiangYu Air Technology Co., Ltd.                                                         4,107,384.61                       2,451,618.94


Taikoo (Shandong) Aircraft Engineering Company Limited                                            5,014,595.72                       1,279,779.59


Air China                                                                                    230,144,770.75                      190,287,022.82


Air China Cargo Co., Ltd.                                                                         1,048,153.98                        260,935.50


Beijing Golden Phoenix Human Resources Service Co., Ltd.                                           159,354.00                         161,838.00




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                                  Related party                                  C/f                               B/f

Shenzhen Airlines Co., Ltd.                                                                  467,678.58                    208,826.20


Aircraft Maintenance and Engineering Corporation (Ameco Beijing)                       17,024,265.48                     10,860,743.99


Sichuan International Aero Engine Maintenance Co., Ltd.                                 2,808,000.00                     64,482,126.00


                                      Total                                        260,774,203.12                    269,992,891.04


Other payables

SDA Group                                                                               7,919,618.11                      6,041,798.09


Air China                                                                              20,000,000.00                     20,000,000.00


Taikoo (Shandong) Aircraft Engineering Company Limited                                       245,400.00                    245,400.00


                                      Total                                            28,165,018.11                     26,287,198.09


Note 12 Commitments

12.1 Signifcant commitments

12.1.1 Capital commitment

                                      Item                                       C/f                               B/f

Firm contracts not recognized in the financial statements

- Commitment to acquire non-current assets                                       15,839,411,117.62                18,276,050,022.59

- large outsourcing contract

- External investment commitments

                                      Total                                      15,839,411,117.62                18,276,050,022.59

12.1.2 Operating lease

Information of irrevocable operating lease contracts as at the reporting date:

                                           Item                                        C/f                          B/f

Minimum lease rental for irrevocable operating lease contracts

Within one year from the reporting date                                             2,529,499,561.85               2,290,232,032.00

Within two years from the reporting date                                            2,464,330,497.74               2,155,144,647.15

Within three years from the reporting date                                          2,328,174,416.06               2,125,539,777.15

Subsequent years                                                                  12,388,577,021.15               11,553,366,310.20

                                          Total                                   19,710,581,496.80               18,124,282,766.50




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12.1.3 Other commitment

No other significant commitments of the Company need to be disclosed as at 30/06/2017.

Note 13 Post balance sheet date events

No Post reporting date events is subject to disclosure as at the reporting date.

Note 14 Other significant events

14.1 Pension Plan

No significant change of the annuity program occurred for current period, see note 6.20, 6.27.

Note 15 Notes to elements of the separate financial statements

15.1 Accounts receivable

15.1.1 Disclosure by category

                                                                                                       C/f

                           Category                                  Carrying amount               Allowance for bad debt
                                                                                                                                    Book value
                                                                   Amount              %           Amount             %

Accounts receivable of individual

significance and subject to individual                            311,716,022.15        61.45                                       311,716,022.15

impairment assessment

Accounts receivable subject to

impairment assessment by credit risk                              172,896,955.78        34.08       8,644,847.79             5.00   164,252,107.99

characteristics of a portfolio

Accounts receivable of individual

insignificance but subject to individual                           22,653,662.66         4.47       8,057,209.85          35.57      14,596,452.81

impairment assessment

                             Total                                507,266,640.59       100.00      16,702,057.64             3.29   490,564,582.95

(Continued)

                                                                                                        B/f

                            Category                                   Carrying amount              Allowance for bad debt
                                                                                                                                    Book value
                                                                     Amount                %          Amount           %

Accounts receivable of individual significance and subject to       228,079,021.34         68.01                                    228,079,021.34

individual

impairment assessment

Accounts receivable subject to                                       88,170,349.23         26.29      4,408,517.46          5.00     83,761,831.77




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                                                                                                              B/f

                             Category                               Carrying amount                     Allowance for bad debt
                                                                                                                                           Book value
                                                                   Amount                 %                 Amount             %

impairment assessment by credit risk

characteristics of a portfolio

Accounts receivable of individual                                  19,100,611.14              5.70          8,057,209.85        42.18        11,043,401.29

insignificance but subject to individual

impairment assessment

                                 Total                           335,349,981.71           100.00        12,465,727.31              3.83    322,884,254.40

① Accounts receivable of individual significance and subject to individual impairment assessment

                                                                                                      C/f

                         Debtor                                              Allowance for bad               Rate of
                                                     Carrying amount                                                            Reason for allowance
                                                                                    debt               allowance (%)

                                                                                                                           No indication of impairment upon
Air China                                                167,634,530.21
                                                                                                                           individual assessment

                                                                                                                           No indication of impairment upon
BSP-CHINA                                                  79,126,159.53
                                                                                                                           individual assessment

                                                                                                                           No indication of impairment upon
Accounting Center of China Aviation                        64,955,332.41
                                                                                                                           individual assessment

                         Total                            311,716,022.15

② Accounts receivable subject to impairment assessment by portfolio

                                                                                               C/f
               Portfolio
                                             Carrying amount                   Allowance for bad debt                         Rate of allowance (%)

 Portfolio by nature                                 172,896,955.78                                  8,644,847.79                                     5.00

                 Total                               172,896,955.78                                  8,644,847.79                                     5.00

③ Accounts receivable of individual insignificance but subject to individual impairment assessment

                                                                                                        C/f

                                                                                                       Rate of
                           Debtor                                           Allowance for bad
                                                       Carrying amount                                allowance               Reason for allowance
                                                                                   debt
                                                                                                            (%)




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                                                                                                              Impairment          upon        individual
Debtor #1                                                   8,057,209.85        8,057,209.85         100.00
                                                                                                              assessment

                                                                                                              No indication of impairment upon
BSP-others                                                  8,476,009.77
                                                                                                              individual assessment

                                                                                                              No indication of impairment upon
UATP                                                        3,622,367.78
                                                                                                              individual assessment

                                                                                                              No indication of impairment upon
Shandong aviation Logistics Ltd                             2,256,268.70
                                                                                                              individual assessment

                                                                                                              No indication of impairment upon
ARC                                                           241,806.56
                                                                                                              individual assessment

                          Total                            22,653,662.66        8,057,209.85          35.57


15.1.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the year is CNY4,236,330.33.

15.1.3 Top five accounts receivables by debtors

The total amount of top five accounts receivables summarized by debtors as at the end of current period is CNY 377,232,228.80, accounting for

74.37% of the total accounts receivable as at the end of current period, the total corresponding allowance for bad debts is CNY3,275,810.33.

15.2 Other receivables

15.2.1 Disclosure by category

                                                                                                      C/f

                           Category                                Carrying amount               Allowance for bad debt
                                                                                                                                         Book value
                                                                   Amount             %           Amount               %

Other receivables of individual

significance and subject to individual                           415,303,737.60       74.69     104,933,519.66            27.37          310,370,217.94

impairment assessment

Other receivables subject to subject to

impairment assessment by credit risk                              95,728,352.36       17.22        4,786,417.62            5.00           90,941,934.74

characteristics of a portfolio

Other receivables of individual

insignificance but subject to individual                          45,019,309.31        8.10                                               45,019,309.31

impairment assessment

                                 Total                           556,051,399.27      100.00     109,719,937.28            19.73          446,331,461.99




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(Continued)

                                                                                                            B/f

                             Category                                Carrying amount                 Allowance for bad debt
                                                                                                                                             Book value
                                                                     Amount             %                 Amount                 %

Other receivables of individual

significance and subject to individual                              398,743,770.11      78.79        108,431,670.15                  27.19   290,312,099.96

impairment assessment

Other receivables subject to subject to

impairment assessment by credit risk                                 63,673,072.13      12.58             3,183,653.61                5.00    60,489,418.52

characteristics of a portfolio

Other receivables of individual

insignificance but subject to individual                             43,680,428.66       8.63                                                 43,680,428.66

impairment assessment

                                 Total                              506,097,270.90     100.00         111,615,323.76                 22.05   394,481,947.14

① Other receivables of individual significance and subject to individual impairment assessment

                                                                                                    C/f

                                                                                                          Rate of
                        Debtor                           Carrying
                                                                          Allowance for bad debt allowance                      Reason for allowance
                                                         amount
                                                                                                           (%)

                                                                                                                         No indication of impairment upon
Debtor #1                                               200,228,266.83
                                                                                                                         individual assessment

                                                                                                                         impairment upon individual
Shandong Rainbow Commercial Jet Co., Ltd.               101,551,717.65           101,551,717.65              100.00
                                                                                                                         assessment

                                                                                                                         No indication of impairment upon
Shandong Air Logistics Co., Ltd.                          45,887,712.94
                                                                                                                         individual assessment

                                                                                                                         impairment assessment by
Debtor #2                                                 38,447,080.54              1,922,354.03                 5.00
                                                                                                                         portfolio

                                                                                                                         impairment assessment by
Debtor #3                                                 29,188,959.64              1,459,447.98                 5.00
                                                                                                                         portfolio

                         Total                          415,303,737.60           104,933,519.66               25.27




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② Other receivables subject to impairment assessment by portfolio

                                                                                         C/f
            Portfolio
                                         Carrying amount                     Allowance for bad debt                 Rate of allowance (%)

 Portfolio by nature                                95,728,352.36                              4,786,417.62                 5.00

             Total                                  95,728,352.36                              4,786,417.62                 5.00

③ Other receivables of individual insignificance but subject to individual impairment assessment

                                                                                                    C/f

                        Debtor                                             Allowance for bad Rate of allowance
                                                       Carrying amount                                                Reason for allowance
                                                                                  debt                    (%)

                                                                                                                 No indication of impairment upon
Debtor #1                                                  17,300,360.00
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #2                                                   4,238,588.20
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #3                                                   2,067,420.00
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #4                                                   2,062,200.00
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #5                                                   4,457,873.01
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #6                                                     773,050.73
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Debtor #7                                                     895,684.40
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Air China                                                   5,615,980.16
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Shandong Air New Media Co., Ltd.                            7,127,044.28
                                                                                                                 individual assessment

                                                                                                                 No indication of impairment upon
Shenzhen Airlines Co., Ltd.                                    58,736.75
                                                                                                                 individual assessment

Taikoo (Shandong) Aircraft Engineering                         72,746.00                                         No indication of impairment upon




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                                                                                                          C/f

                       Debtor                                                    Allowance for bad Rate of allowance
                                                         Carrying amount                                                     Reason for allowance
                                                                                       debt                     (%)

Company Limited                                                                                                        individual assessment

                                                                                                                       No indication of impairment upon
Shandong XiangYu Air Technology Co., Ltd.                      349,625.78
                                                                                                                       individual assessment

                           Total                            45,019,309.31


15.2.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the current period is CNY -1,895,386.48.

15.2.3 Disclosure by nature

                    Category                                               C/f                                                 B/f

Deposits                                                                               232,023,443.17                                    149,790,973.93


Others                                                                                 324,027,956.10                                    356,306,296.97


                      Total                                                            556,051,399.27                                    506,097,270.90


15.2.4 Top five other receivables

                                                                                                                                      Allowance for bad
                  Debtor                       Nature               C/f                       Aging                    %
                                                                                                                                            debt



Debtor #1                                     Deposits          200,228,266.83            Within 1 year
                                                                                                                              36.01


Shandong Rainbow Commercial Jet Co.,
                                               Others           101,551,717.65            Over 4 years                        18.26      101,551,717.65
Ltd.

Shandong aviation Logistics Ltd                Others             45,887,712.94           Over 5 years                         8.25


Debtor #2                                      Others             38,447,080.54           Within 2 years                       6.91        1,922,354.03


Debtor #3                                      Others             29,188,959.64           Within 3 years                       5.25        1,459,447.98


                   Total                                        415,303,737.60                                                74.68      104,933,519.66


15.3 Long-term equity investments

15.3.1 Disclosure by category

       Item                                   C/f                                                                     B/f




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                                                 Impairment              Net carrying                                 Impairment
                       Carrying amount                                                        Carrying amount                          Net carrying amount
                                                  allowance                 amount                                    allowance

 Investments in

 subsidiaries             106,000,685.43                                106,000,685.43         106,000,685.43                               106,000,685.43

 Investments in

 associates                22,500,000.00         22,500,000.00                                   22,500,000.00     22,500,000.00

      Total               128,500,685.43         22,500,000.00          106,000,685.43         128,500,685.43      22,500,000.00            106,000,685.43

 15.3.2 Investments in subsidiaries

                                                              Current
                                                                             Current period                               Allowance           Year-end
            Investee                       B/f                 period                                   C/f
                                                                               decrease                                   recognized          allowance
                                                              increase

 Shandong aviation

 Logistics Ltd                        48,323,205.97                                                   48,323,205.97

 Qingdao Feisheng

 International Aviation

 Training Technology

 Development Co., Ltd                 57,677,479.46                                                   57,677,479.46

             Total                   106,000,685.43                                                  106,000,685.43

 15.3.3 Investments in associates

                                                                                                Currency year movement (+, -)

                                                                                               Investment gains
                                            Impairment
     Investee                 B/f                              Additional       Investment        and losses       Other comprehensive      Other changes
                                             allowance
                                                              investment        reduction      recognized under       income adjustment        in equity

                                                                                               the equity method

Associates

Shandong

Rainbow
                          22,500,000.00     22,500,000.00
Commercial Jet

Co., Ltd.

       Total              22,500,000.00     22,500,000.00

  (Continued)




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Shandong Airlines Co., Ltd.                                                                                               Semi-Annual Report 2017



                                                  Currency year movement (+, -)

         Investee                 Declared cash                                                                     C/f             Year-end allowance
                                                            Allowance recognized          Others
                                dividends or profits

Associates

Shandong Rainbow
                                                                                                                    22,500,000.00         22,500,000.00
Commercial Jet Co., Ltd.

             Total                                                                                                  22,500,000.00         22,500,000.00

15.4 Operating revenues and costs

                                                   Current period                                                  Prior period
         Category
                                  Operating revenues                Operating costs          Operating revenues                   Operating costs

Principal business                         7,351,087,545.79           7,007,942,808.37               6,158,342,851.56                  5,417,613,981.08


Other business                               189,139,132.85               1,002,863.77                 135,345,527.89                        679,535.22


             Total                         7,540,226,678.64           7,008,945,672.14               6,293,688,379.45                  5,418,293,516.30


15.5 Investment income

                                              Category                                                     Current period              Prior period

Income from long-term equity investments measured at cost                                                         19,844,431.27                       3.47


Income from long-term equity investment income of equity method

Income from long-term equity investment income of equity method                                                     -479,085.84             -850,517.15


                                                Total                                                             19,365,345.43             -850,513.68


Note 16 Supplementary information

16.1 Non-recurring profit and loss

                                                       Category                                                       Current period       Description

     Gains from disposals of non-current assets after expending impairment provisions                                       -812,548.20


     Exceeded-authority approved, non-official approved or accidental tax repayment and relief

     Government grants recognised through profit or loss for the current reporting period, excluding grants

which are closely related to the Company’s operating activities and of which the quota or approval is eligible           60,164,960.18

for automatic renewal in accordance with relevant regulations

     Financial resource usage fees charged on non-financial institution recognised through profit or loss for

the current reporting period




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                                                      Category                                                         Current period     Description

      Gains arising from bargain purchase in business combination and investments in associates and joint

ventures

      Non-monetary asset exchange

      Consigned investment and asset management

      Impairment provision resulting from force majeure, eg. natural desasters

      Reorganisation

      Reorganisation expenditure

      Unfair transactions

      Net profits or losses achieved by an acquired under-common-control entity during the period from the

start of the period to the acquisition date

      Gains or losses arising from contingent events unconnected with the Company’s daily operating

activities

      Fair value changes of tradable financial assets and tradable financial liabilities held and gains or losses
                                                                                                                          -1,076,318.24
arising from disposals of tradable financial assets, tradable financial liabilities and available-for-sale financial

assets, excluding hedging contracts relevant to the Company’s daily operating activities

      Reversal of impairment provision for accounts receivables eligible for individual impairment assessment

      Gains or losses arising from consigned borrowings

      Fair value changes of property investments subsequently measured at fair value

      One-off adjustment of profit or loss for the current reporting period in accordance with tax and

accounting laws and regulations

      Consignment income arising from consigned operations

      Income and expenses other than items listed above                                                                  20,268,766.06

      Other gains or losses satisfying the definition of extraordinary gains or losses

                                                      Subtotal                                                           78,544,859.80

Less: Impact of income tax                                                                                               19,659,294.97

      Less: Impact on non-controlling interest

                                                        Total                                                            58,885,564.83

Note: Positive amounts and negative amounts in non-recurring categories mean income and expense or loss respectively.




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The Company recognised non-recurring categories of activities in accodance with the Explanatory Announcement regarding Information Disclosure

by Publicly Listed Company No. 1 - Non-recurring Profit and Loss (Zhengjianhui Gonggao [2008] No.43).

16.2 Rate of return on net assets and earnings per share

                                                                                                         Earnings per share (CNY/share)
                        Profit catetory                          Weighted average rate of RONA
                                                                                                         Basic EPS           Diluted EPS

Net profit attributable to ordinary shareholders                                                 2.32                0.23                 0.23


Recurring profit or loss attributable to ordinary shareholders                                   0.80                0.08                 0.08




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                       Section XI. Documents available for Reference

1. Financial statements carrying the personal signatures and seals of Chairman of the Board, Chief Accountant and Person in Charge
of Accounting Department.
2. Originals of all documents and notices publicly disclosed on newspapers and websites designated by CSRC in the reporting period.

3. The Company will offer above documents for reference timely provided that CSRC or Stock Exchange demands or shareholders
requires according to the regulations and Articles of Association.




                                                                                                                            BOD
                                                                                                       Shandong Airlines Co., Ltd.
                                                                                                                 30 August 2017




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