2017 Annual Report Stock Code:900956 Stock Abbreviation:Dongbei B Huangshi Dongbei Electrical Appliance Co., Ltd. 2017 Annual Report 1 / 139 2017 Annual Report Important Notes 1.The Board of Directors ,Supervisory Committee,directors , supervisors and Senior Executives of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. 2.All the directors attended the board meeting. 3. Hubei Daxin Certified Public Accountants Co., Ltd. ( Special General Partnership) issued standard unqualified auditors' report for the Company. 4. Mr.Zhu Jinming, Person in charge of the Company, Ms. Lu Lihua, Chief financial officer and the Ms. Ma Li, the person in charge of the accounting department (the person in charge of the accounting )hereby confirm the authenticity and completeness of the financial report enclosed in this Annual Report. 5. The profit allocation plan or the capitalization from capital public reserve during the report period examined by the Board of Directors. Considering taking into account the company's development and the project's demand for funds, the com pany's 2017 profit distribution plan is formulated as: The profit allocation and the capitalization from capital public reserve will not be conducted for the Company in the report period.. 6.And forward-looking statement √ Applicable □ Not applicable Such as those involving the future operational plans in this report shall not be considered as virtual prolmises of the Company to investors. And investors are kindly reminded to pay attention to possible risks. 7. Whether the controlling shareholder and its related parties did not occupy the funds of the Company for operation. No. 8. Whether the Company did not provide guarantee in violation of specified decision-making procedure. No. 9.Reminder of Major Risks: √ Applicable □ Not applicable The Company has described the possible risks in this year’s report in order to attract attention from the investors. For more refer to the ― Report of the future development discussion by Board of Directors‖. 10.Other □Applicable√ Not applicable 2 / 139 2017 Annual Report Table of Contents I. Definitions II. Basic Information of the Company and Financial index III. Outline of Company Business IV. Management’s Discussion and Analysis V. Important Events VI. Change of share capital and shareholding of Principal Shareholders VII. Situation of the Preferred Shares VIII. Information about Directors, Supervisors and Senior Executives IX. Administrative structure X. Corporate Bond XI. Financial Report XII. Documents available for inspection 3 / 139 2017 Annual Report I. Definition 1.Definition In this report, medium, the following words and expressions shall have the following meaning unless otherwise defined: Definition of frequently mentioned words and expressions Company, The Company, We Huangshi Dongbei Electrical Appliance Co., Refers to Ltd. Dongbei Group, Controlling Huangshi Dongbei Electromechanical Group Refers to shareholder Co., Ltd Refrigerator Industry Refers to Huangshi Dongbei Refrigerator Industry Co., Ltd Xingbei Machinery & electric Refers to Huangshi Xingbei Machinery & electric Co., Ltd. Huizhi Partnership Refers to Huangshi Huizhi Investment Partnership (Limited partnership) Daxin, Daxin Certified Public Hubei Daxin Certified Public Accountants Refers to Accountants Co., Ltd. ( Special General Partnership) Report period Refers to 2017 SSE Refers to Shanghai Stock Exchange CSRC Refers to China Securities Regulatory Commission The Securities Law of the People’s Republic The Securities Law Refers to of China The Company Law of the People’s Republic The Company Law Refers to of China The Articles of association of Huangshi Articles, The Articles of association Refers to Dongbei Electrical Appliance Co., Ltd. RMB Yuan , RMB million Yuan,RMB Yuan, Million Yuan, Billion Yuan Refers to Billion Yuan II. Basic Information of the Company and Financial index I.Information of the Company Chinese name of the Company 黄石东贝电器股份有限公司 Abbr. of the Chinese name of the Company 东贝B股 English name of the Company Huangshi Dongbei Electrical Appliance Co.,Ltd English Abbreviation DONGBEI Legal representative of the Company Zhu Jinming II.Contact person and contact manner Board secretary Securities affairs Representative Name Lu Lihua Huang Jie No.6, Jinshan East Road, Economic & Technology No.6, Jinshan East Road, Economic & Technology Contact address Development Zone, Huangshi City, Hubei Development Zone, Huangshi City, Hubei Province. Province. Tel 0714-5415858 0714-5415858 Fax 0714-5415858 0714-5415858 E-mail stock@donper.com stock@donper.com III.Basic Information about the Company No.6, Jinshan East Road, Economic & Technology Development Registered Address: Zone, Huangshi City, Hubei Province. Postal code of Registered address 435000 No.6, Jinshan East Road, Economic & Technology Development Business Address Zone, Huangshi City, Hubei Province. Postal code of Business address 435000 4 / 139 2017 Annual Report Website: http://www.donper.com E-mail stock@donper.com IV.The Place for Placing the Annual Report and the Information Disclosure Newspapers for Information Disclosure Shanghai Securities Daily and Hong Kong Commercial Daily Internet Website for Publishing the Annual Report www.sse.com.cn The Place for Placing the Annual Report Securities Dept. of the Company V.Stock Profile Stock Condition of the Compan Stock Abbreviation Type Stock exchange for listing Stock Abbreviation Stock Code (Before change) B share Shanghai Stock Exchange Dongbei B 900956 VI.Other Relevant Information Name Hubei Daxin Certified Public Accountants Co., Ltd. ( Special General Partnership) Certified public accountants engaged by the Company Office address 16/F, Zhiyin Media Square, No.31, Zhongbei Road, Wuhan (Domestic) Names of the Certified Public Suo Boguo, Zhang Ling Accountants as the signatories Name Sponsor engaged by the Company Office address for performing continuous supervision duties in reporting Sponsor representative period Duration of continuous supervision VII.Main accounting data and financial indicators of the Company in the last three years 1.Main accounting data In RMB Changed Main accounting data 2017 2016 over last 2015 year(%) Operating income 3,789,307,855.30 3,473,518,271.43 9.09 3,420,131,010.98 Net profit attributable to the 83,402,663.88 83,040,363.66 0.44 69,792,841.69 shareholders of the listed company Net profit after deducting of 56,228,437.99 57,867,834.66 -2.83 58,701,752.38 non-recurring gain/loss attributable to the shareholders of listed company Cash flow generated by business 166,782,836.34 -87,308,500.10 Not applica 501,750,054.81 operation, net ble Changed End of End of End of over last 2017 2016 2015 year(%) Net assets attributable to the 1,147,175,783.39 1,087,134,859.75 5.52 1,003,962,628.52 shareholders of the listed company Gross assets 4,701,589,019.10 4,351,074,660.89 8.06 4,441,133,850.47 2.Main Financial Index Main Financial index 2017 2016 Changed over last year(%) 2015 Basic earning per share(RMB/Share) 0.355 0.353 0.57 0.297 Diluted gains per share(RMB/Share) 0.355 0.353 0.57 0.297 Basic earning per share after deducting of non-recurring 0.239 0.246 -2.85 0.250 gains/losses(RMB/Share) 5 / 139 2017 Annual Report Weighted average net asset earning ratio(%) 7.39 7.94 Decreased by 0.55% 7.20 Net income on asset, weighted and deducted 4.98 5.54 Decreased by 0.56% 6.06 non-recurring gain/loss(%) Notes □ Applicable √Not applicable VIII.The differences between domestic and international accounting standards 1.Simultaneously pursuant to both Chinese accounting standards and international accounting standards disclosed in the financial reports of differences in net income and net assets. □ Applicable √Not applicable 2. Differences of net profit and net assets disclosed in financial reports prepared under overseas and Chinese accounting standards. □ Applicable √Not applicable 3.Notes of the differences between domestic and international accounting standards □ Applicable √Not applicable IX.Main Financial Index by Quarters of 2017 In RMB First quarter Second quarter Third quarter Fourth quarter (1-3 Month) (4-6 Month) (7-9 Month) (10-12 Month) Operating income 900,572,653.41 1,057,916,938.91 1,018,869,312.24 811,948,950.74 Net profit attributable to the 6,280,252.54 35,331,530.08 13,799,792.70 27,991,088.56 shareholders of the listed company Net profit after deducting of non-recurring gain/loss attributable 4,363,555.70 22,929,873.84 7,275,407.23 21,659,601.22 to the shareholders of listed company Net Cash flow generated by -96,839,417.65 103,241,515.97 26,320,691.58 134,060,046.44 business operation Quarterly data and Disclosed periodic reports data discrepancies explained □ Applicable √Not applicable X.Items and amount of non-operating gains and losses: √ Applicable □ Not applicable In RMB Items of non-operating gains and losses Amount (2017) Notes (If any) Amount (2016) Amount(2015) Gain/loss form disposal of non-current assets. -11,096,055.52 -7,813,437.33 -462,241.68 Tax rebates, reductions or exemptions due to approval beyond authority or the lack of official approval documents Governmental Subsidy accounted as current 34,318,163.70 38,293,336.06 20,038,689.31 gain/loss, except for those subsidies at with amount or quantity fixed by the national government and closely related to the Company’s business operation. Capital occupation charges on non-financial enterprises that are recorded into current gains and losses Gains due to that the investment costs for the Company to obtain subsidiaries, associates and joint ventures are lower than the enjoyable fair 6 / 139 2017 Annual Report value of the identifiable net assets of the investees when making the investments Gain/loss on non-monetary asset swap Gain/loss on entrusting others with investments or asset management Asset impairment provisions due acts of God such as natural disasters Gains/losses of debt restructure Reorganization expenses, such as expenditure for allocation of employees and integration fee Gains/losses exceeding the fair value arising from transactions with obviously unfair prices Net gain and loss of the subsidiary under the common control and produced from enterprise consolidation from the beginning of the period to the consolidation date Gain and loss anising from contingent matters irrelevant with the Company’s normal operation business Gain and loss from change of the fair value arising from transactional monetary assets, transactional financial liabilities as held as well as the investment income arising from disposal of the transactional monentary assets, transactional financial liabilities and financial assets available for sale excluding the effective hedging transaction in connection with the Company’s normal business Reverse of the provision for impairment of acounts receivable undergoing impairment test individually Gain/loss from external entrusted loan Gain and loss arising from change in the fair value of the investment based real estate measure afterwards by means of fair value mondel Influence upon the current gains and losses from the once-and –for –all adjustment over the current gains and losses according to the taxation and accounting laws and regulations Income from custodian charge obtained from entrusted operation Operating income and expenses other than the 10,872,405.78 6,513,157.81 2,644,433.78 aforesaid items Other gains/losses in compliance with the definition of non-recurring gain/loss Influenced amount of minor shareholders’ equity - 1,506,569.15 -7,250,561.72 -7,250,561.72 Influenced amount of income tax - 5,413,718.92 -4,569,965.82 -3,879,230.38 Total 27,174,225.89 25,172,529.00 11,091,089.31 XI. Fair value measurement □ Applicable √Not applicable XII.Other □ Applicable √Not applicable 7 / 139 2017 Annual Report III. Outline of Company Business I.Main businesses , business mode and industry situation of the company in the reporting period 1. The main business The Company is specialized in R&D and production of high-efficiency, energy-saving and environmentally-friendly refrigeration compressors, it has more than 200 types products ranging in 7 series, and it is the leading company with the largest number of product models, the most abundant specifications and the largest power span in the industry. Also in the industry, the company is the sole enterprise that’s awarded the second prize of national science and technology progress. Business Mode: through the measures of personalized service, the company has established long-term cooperative relationship with a great number of domestic and foreign consumers which also are well-known companies. The company has been always seeking to provide customers with better quality products and better services of pre-sales, sales and after-sales. Furthermore, the company has set up the high-efficient communication mechanism with customers, established strategic partnerships with key customers and constantly pays attention to the customers' satisfaction to the company's product quality and technical services. When the sales department of the company carries out the product marketing, it will, according to different needs and requirements of users, set up the policy of "One user, One Strategy" to provide customers better personalized product and service. Meanwhile, the company has set up user-records and implemented the regular and random visits to customers, established the "One stop nanny service" for quaternity service of quality, technology, service and sales and has shaped a sound service network, thus to improve the customer satisfaction. 2. Industry Description Please refer to the fourth section-Analysis of business information Ⅱ.Major Changes in Main Assets √ Applicable □ Not applicable Monetary funds increased by 46.54% over the same period last year, Mainly due to the increase in net cash inflow from operating activities. Advance payment increased by 42.54% over the same period last year,Mainly due to increased project input. Other receivable account decreased by 70.87% over the same period last year ,mainly due to the expiration of the contract with Far Eastern Finance Leasing Company, and the deposit is due to the rental charge. Inventory increased by 42.06% over the same period last year, Mainly due to the increase in raw material prices and the increase in inventory reserve volume. The construction in process decreased by 93.94% over the same period last year,Mainly due to the 8 / 139 2017 Annual Report transfer of construction projects into fixed assets. Ⅲ.Analysis On core Competitiveness √ Applicable □ Not applicable The company has the core competitiveness formed by five aspects of "constant and sustainable innovation for R&D of new products, diversified matching production capacity, people-oriented team cohesion, sustainable and constant innovation ability and all-round marketing ability", thus to enable a solid foundation for the company's future sustainable development. 1. R & D capabilities and technology The company has the domestic leading R & D capabilities and the R & D platform, the compressor technology center is a national recognized enterprise technology center, the company has set up a post doctoral workstation, Academician workstation and established the research and development center in Europe and The United States. The company has the compressor product technology to meet high or medium or low back pressure and high efficiency compressor type under different working fluids requirements, also, the company has more than 200 items of patents, and the company filed patent application in the foreign countries. Soon after successfully developed the high-efficient, high-level VFL series, the company has successfully developed mini VFA series. The VFA frequency conversion products have been greatly favored by the customers because of the features of "small shape, high efficiency, low noise and high reliability". Mass sales in March 2017, In October 2017, the VFX series of low-speed and high-efficiency inverter compressors successfully held a press conference. 2. The world's advanced compressor production line The company has successively established three manufacturing bases, and it has the world top compressor production line, which can produce R600a, R134a, R22, R404A, R290 and other types refrigerant compressor, with the products having 7 series and 200 specs, and the annual production capacity is 33 million units. Through the tandem-effect of each platform, the products have been sold to more than 30 countries and regions, like China, Asia, Europe and America, and the company's market share has been increased year by year. 3.Frank two-way communication The company’s leaders understand that the effective communication and practice is an effective way to accelerate the staff and the related party to recognize and accept the culture of the company, and the company, through the worker’s congress, special forum and so forth communication platforms, communicated with its employees. Each month, the company holds regular staff recognition conference of ―People-oriented, glory in hard-working‖ for the purpose of motivating the team. 4. Encourage innovation mechanisms The company has established a comprehensive mechanism of innovation management, which mainly includes three parts that are innovation management, technology innovation and daily improvement, and it's a great innovation mode begins from Innovation concept-innovation mechanism-innovation system-innovation category-innovation level -innovation tools to final 9 / 139 2017 Annual Report achievements. The company's innovation work will focus on the long-term planning, thus to ensure the orderly conduct of the work. Furthermore, the company has set up the incentive mechanism of innovation, which will put the innovation work into the daily work system and the appraisal system. It has revised the Innovation Incentive System and the Reward and Punishment System, which better clarified the project establishment, implementation, following-up, evaluation, inspection, assessment, rewards and punishment method and standard for the innovation work, and it adopts a variety of measures in terms of material rewards, spiritual encouragements and job promotions to carry out the incentives. 5. Market expansion According to the customer satisfaction, customer distribution, customer desire and change of market demand for refrigeration compressor in the world, the company carries out the whole-process service of pre-sales, sales and after-sales. Combined with the global economic development and changes in the industry, the company greatly promoted the frequency-conversion matching products and the sales, thus to better adapt to the direction of the industry development; the overseas sales focus on the progress of the project of users in blank part of the market, thus to achieve full coverage of the entire area; the commercial products will par with the top-brand of the industry, with layout of the sales channels and setting up large customer management unit to centre on customers of Pearl River Delta and Yangtze River Delta, thus to realize the gradual increase both in sales and profits. IV. Management’s Discussion and Analysis I.Management’s Discussion and Analysis In 2017, under the background of deepening structural reforms in the supply side in China and facing the severe challenges posed by the unfavorable factors, the Company well managed to meet the needs of users by virtue of the technical advantages, customer advantages, quality advantages, and scale advantages. Via continuous R & D investment and technological innovation, the Company continuously promoted the product technology upgrading, boosted the product structure adjustment and enhanced the profitability of the Company. 1. Precise market positioning and timely adjustment of product structure Facing with the fierce market competition, the Company proceeded from various aspects such as products, markets and marketing, and sought ways to find the breakthrough points to gain the market initiative. Firstly, the company positively adapted to the market trend, adjusted the product structure in a timely manner, strived to seize the market share of the frequency-conversion products, implemented the ―One user, one strategy‖ policy, and fully promoted the VFA and VFL frequency conversion products to enter the market, therefore the annual sales of frequency-conversion compressors soared. Secondly, the Company innovated the customer management model, enhanced the market development capability, implemented the market segmentation strategy for the new sector, carried out the zone-type customer 10 / 139 2017 Annual Report management, and achieved the unification of market management policies and sales channels. Thirdly, the Company actively upgraded the marketing tactics, vigorously snatched the market share, re-divided the commercial and household markets with the orientation of ―Big customers, big channels‖, adjusted the structure of the marketing team, and strengthened the marketing incentive mechanism. 2. Put emphasis on the continuous improvement and comprehensively promote lean management In order to promote the lean management in a down-to-earth manner, the Company further optimized, refined and quantified various management tasks, vigorously carried out lean management activities, and achieved remarkable results in reducing costs, increasing efficiency, reducing labor intensity and improving work efficiency. Firstly, the Company put great efforts in management, actively innovated the management methods, improved the management system, optimized the management process, and comprehensively enhanced the level of production management. Secondly, the company sought ways to reduce the costs, fully considered its own reality to find the problems, actively looked for the deep-seated reasons that restrain the further improvement, focused on the several aspects including labor cost reduction, design cost reduction, procurement cost reduction, energy cost reduction and technical process cost reduction, constantly strengthened the tracking management of various cost indicators and strived to achieve the lean management goals of cost . Thirdly, the Company actively did the good work in the environment, adhered to the guidance of lean management culture, enhanced the building-up of better staffs, and soundly promoted the quality and efficiency of the company. 3. Continuous scientific and technological innovation and vigorous promotion on the transformation of achievements As a powerful driving force for the rapid development of enterprises, technological innovation must follow the market and be rooted in users. The company has increased the development efforts for the R290 commercial refrigeration compressor, and rolled out the VFX series frequency-conversion compressors in October 2017 after the VFA series compressors hit the market in the end of 2016. In the second half of last year, the orders for frequency-conversion compressors showed blowout trends, which fully demonstrated the necessity of leading the market by the technological innovation. Meanwhile, the company focused on the needs of users, and vigorously promoted various technological improvements, which played a powerful role in boosting production and promoting sales. Upon the technology of vibration and noise reduction of frequency conversion compressors, the Company’s products have been sold in large quantities to Haier, Hisense, and Midea. The foundry company developed a total of 163 new products last year, and achieved innovative breakthroughs in the performance of the knuckle materials, which greatly stimulated the market demand, thus the production and sales both achieved big growth. In 2017, the company had 18 items passed the Product Appraisal of Scientific and technological achievements at the Ministerial level, thereinto: 6 were rated as international leading and 8 were rated as internationally advanced. Meanwhile, the Company successfully applied for and received three national honors namely the "National Demonstration Green Factory", the "Service-oriented Collaborative Lean Supply Chain Construction Project" and the "National and Local Joint Engineering Research Center". In 11 / 139 2017 Annual Report addition, the company newly applied for 12 patents in 2017, including 4 invention patents and 8 utility models. 4. All staff participate in quality management and focus on improving quality management In terms of quality management, the company strengthened the whole process of quality control and management. Through the technical transformation of ―informationiaztion, intelligentization and lean management‖ on the production line, the company improved the quality online monitoring, on-line control, and product life cycle quality traceability, and continuously improved the product’s quality and competitiveness. By firmly focusing on the key point of quality improvement, the Company continuously improved the staff’s quality awareness, and developed a group of highly capable and high-quality production specialists through the in-depth activities of ―Creating a team with ingenuity and striving to be an artisan in Dongbei‖, and the Company fully utilized their role in leading others, thus ensued the improvement on the production quality. In 2017, the offline rate of major users of compressors showed a significant downward trend, and the Company passed the annual system audits of key users such as Haier, Hisense, Mabei, GE and Whirlpool, especially the company won the awards including Haier Quality Gold Rubik Award and Epplan Core Award and Whirlpool Outstanding Supplier. A total of 22 achievements entered the QC achievement review throughout the year. Among them, the QC team of the foundry company obtained the honor of ―the national excellent quality management team‖ and the Oubao company's technology group of processing workshop obtained the honor of ―the national quality trustworthy team‖. II. Production and operation In the report period, the Company earned operating income of RMB 3,789,307,855.30, which increased by 9.09% year on year. Net profit attributable to the shareholders of the listed company was RMB 83,402,663.88. which Increased by 0.44% year on year. The compressor output was 28.33 million. which Increased by 10.03% year on year. The compressor sales was 27.44 million , which Increased by 7.4% year on year. (I)Analysis on principal Business Sheet of change analysis of relevant items of profit statement and cash flow statement In RMB Subject Amount in this period Amount in last period Proportion(%) Business income 3,789,307,855.30 3,473,518,271.43 9.09 Business cost 3,226,141,993.06 2,942,880,386.91 9.63 Sales expenses 125,284,709.02 121,943,017.53 2.74 Administrative expenses 264,325,298.20 271,215,165.05 -2.54 Financial expenses 53,795,275.40 41,029,022.62 31.12 Cash flow generated by operation 166,782,836.34 -87,308,500.10 Not applicable activities, net Net cash flow generated by investment -40,629,237.75 -110,535,554.86 Not applicable activities Net cash flow generated by financing 115,443,518.01 -56,590,361.16 Not applicable activities R& D expenses 151,385,325.46 154,818,413.07 -2.22 (1) Analysis of revenue and cost √ Applicable □ Not applicable 12 / 139 2017 Annual Report The Operating income increased by 9.09% over the previous year, Mainly due to the sales increase and optimize product structure. The Operating cost increased by 9.63% over the previous year, Mainly due to the increase in sales volume and the increase in the price of bulk raw materials led to an increase in costs. a.The Status of key business in terms of industry of business , production and area In RMB The Status of key business in terms of industry of business Increase/decre Increase/decre Increase/dec Income from key Cost of key Gross ase of key ase of key rease of On industry business business profit(%) business business cost gross profit turnover(%) (%) (%) Manufacturing 3,722,331,925.90 3,180,830,541.84 14.55 9.17 10.16 Decreased by 0.77% The Status of key business in terms of production of business Increase/decre Increase/decre Increase/dec Income from key Cost of key Gross ase of key ase of key rease of On production business business profit(%) business business cost gross profit turnover(%) (%) (%) 3,302,406,214.13 2,839,800,021.23 14.01 11.15 12.34 Decreased Compressors by 0.91% Auto casting 380,251,764.44 313,076,460.76 17.67 -6.74 -5.88 Decreased and by 0.76% Compressors casting Photovoltaic 39,673,947.33 27,954,059.85 29.54 28.53 3.93 Increased by power 16.68% generation The status of main operation in terms of Area Increase/decre Increase/decre Increase/dec Income from key Cost of key Gross ase of key ase of key rease of On Area business business profit(%) business business cost gross profit turnover(%) (%) (%) Domestic sales 2,789,790,616.42 2,334,176,286.96 16.33 8.90 10.11 Decreased by 0.93% Overseas sales 932,541,309.48 846,654,254.88 9.21 9.98 10.29 Decreased by 0.25% Notes √ Applicable □ Not applicable Explanation of the main business’ branched industry: The current gross profit rate decreases year on year, Mainly due to the increase in the price of bulk materials in the current period, leading to an increase in the cost of main operations. Explanation of the main business’ branched product: The Alashankou project has gradually matured during this period, with a steady increase in power generation and enhanced profitability. Explanation of the main business’ branched region:The gross margins at home and abroad declined during the period, mainly due to the increase in bulk material prices and the increase in material costs of our company. b.Analytical Statement of Production and Sales Volume √ Applicable □ Not applicable Production Production Production Main Product Production Marketing Inventory Gradient Gradient Gradient 13 / 139 2017 Annual Report Year on Year on Year on Year Year (%) Year(%) (%) 28.33 million 27.44 million 1.88 10.28% 7.40% 50.4 Compressors sets sets million sets Auto casting and 89482.31 tons 89482.31 tons 0 21.73% 21.73% 0 Compressors casting Photovoltaic power 54.58 million 54.27 million 0 27.91% 28.48% 0 generation D D c.Cost analysis sheet In RMB The status of key business in terms of industry of business On industry Items Amount in this Proportion Amount in last Increase/ Change of Notes period (%) period decrease key of key business business profit over cost(%) the same period of last year(%) Manufacturi Cost of 3,180,830,541.84 85.78 2,887,447,650.32 84.92 10.16 ng key business The status of key business in terms of production of business On Items Amount in this Proportion Amount in last Increase/ Change production period (%) period decrease of key of key business business profit cost(%) over the Notes same period of last year(%) Compressors Materials 2,839,800,021.23 89.28 2,527,922,880.07 87.55 12.34 , labor costs, etc. Auto casting Materials 313,076,460.76 9.84 332,627,776.65 11.52 -5.88 and , labor Compressors costs, etc. casting Photovoltaic Materials 27,954,059.85 0.88 26,896,993.60 0.93 3.93 power , labor generation costs, etc. Notes √ Applicable □ Not applicable The increase in cost in this period was mainly due to the increase in sales volume and the increase in the price of bulk raw materials. d. Information of sales to major customers, and information of key suppliers √ Applicable □ Not applicable The sales to the company's top five customers is RMB 971.47 million, which accounts for 26.10% of the total annual sales; among them, the sales to the related parties of the top five customers is RMB 0, accounting for o% of total annual sales. The amount of procurement to the company's top five suppliers was RMB 1271.42 million, which accounts for 39.97% of the total annual amount of procurement; among them, the amount of 14 / 139 2017 Annual Report procurement to the related parties of the top five suppliers was RMB 862.3 million, accounting for 27.11% of the total annual amount of procurement. (2)Cost √ Applicable □ Not applicable The selling expense increased by 2.74% year on year, Mainly due to the increase in sales led to the increase in transportation costs. The administrative expenses decreased by 2.54% year on year, Mainly due to corporate management efficiency. The Financial expenses increased by 31.12% year on year, Mainly due to the increase in exchange gains and losses. (3) R& D Expenses R & D table √ Applicable □ Not applicable In RMB Amount of Capitalization Research and Development Investment 151,385,325.46 Amount of Capitalization Research and Development Investment 0 Total of Capitalization Research and Development Investment 151,385,325.46 Proportion of total R&D expenditure to operating income (%) 4.00 Number of Research and Development persons (persons) 420 Proportion of total R&D expenditure to persons (%) 11.00 Proportion of Capitalization Research and Development 0.00 Investment Notes □ Applicable √Not applicable (4)Cash Flow √ Applicable □ Not applicable Items 2017 2016 Increase/Decrease(%) Cash flow generated by operation 166,782,836.34 -87,308,500.10 Not applicable activities, net Net cash flow generated by investment -40,629,237.75 -110,535,554.86 Not applicable activities Net cash flow generated by financing 115,443,518.01 -56,590,361.16 Not applicable activities The cash flow statement in the 2017-annual consolidated financial statements showed: the explanation of change of net cash flow from operating activities: the net cash flow from operating activities increased over the same period last year, Mainly for the decrease of the cash for goods purchase and the payment for labor service receiving The explanation of change of net cash flow from investing activities: the net cash flow from investing activities increased over the same period last year, Mainly due to the decrease in cash paid for the purchase of fixed assets, intangible assets and other long-term assets and investments. The explanation for the change of net cash flow from financing activities: the net cash flow from financing activities increased over the same period last year, Mainly due to the increase in borrowing during the current period. (II)Explanation of the Profit’s Significant Changes generated by the Non-core Business 15 / 139 2017 Annual Report □ Applicable √ Not applicable (III)Analysis on Assets and liabilities √ Applicable □ Not applicable 1.Assets and liabilities statement In RMB Changed Proportion Year-end balance Proportion Notes Name Year-end balance proportion (%) in last period (%) (%) Monetary 628,730,491.66 13.37 429,055,741.89 9.86 46.54 Increase in net Funds cash inflow from operating activities Advance 90,052,403.74 1.92 63,177,349.54 1.45 42.54 Increased payment project investment Other 2,501,172.05 0.05 8,586,619.35 0.20 -70.87 The contract receivable with Yuandong account Finance Leasing Co., Ltd. expires, and the margin is due to rental expenses. Inventory 547,305,010.27 11.64 385,268,984.66 8.85 42.06 Rising material prices and increase in inventory stocking Construction 949,471.84 0.02 15,656,772.91 0.36 -93.94 Achieve the in progress intended use of the state transferred to fixed assets Short-term 815,383,660.00 17.34 587,927,999.83 13.51 38.69 Bank loan loans amount increased Advances 18,526,191.08 0.39 49,836,616.76 1.15 -62.83 Due to the received customer's early payment amount is reduced Interest 1,650,002.38 0.04 5,101,297.79 0.12 -67.66 The interest payable payment method has been adjusted, resulting in reduced interest payable Long-term 17,085,779.67 0.39 -100 Due to payable Yuandong Finance Leasing Company has paid off 2. Information of restrictions of major assets as of the end of the reporting period √ Applicable □ Not applicable In RMB Category Book value at the end of the period Reason for Restriction Acceptance money deposit 207,398,728.18 Financing guarantee Pledged Term Deposit Certificate 9,000,000.00 Financing guarantee 3.Other 16 / 139 2017 Annual Report □ Applicable √ Not applicable (IV)The analysis of business information of the industry √ Applicable □ Not applicable The refrigerator market remained sluggish in 2017. Driven by the export and the freezer market, the overall production and sales volume of compressors increased in 2017. The Industry Online Statistics showed that: In the year of 2017, the production of refrigerator compressors was 151.567 million units, an increase of 9.8% year-on-year; the sales volume was 150.280 million units, an increase of 8.2% year-on-year; the production growth and the sales growth were both lower than in 2016. Market aspect: from the growth perspective, the export growth was higher than the domestic sales growth, and the export of fully-sealed piston compressor was 45.868 million units, a YOY increase of 13% and exported to 176 countries, of which 15 countries reaching the export volume of more than 1 million units and 15 countries reaching the export volume of more than 0.1 million units. The export situation of all continents was roughly the same as that of the previous year. Asia was still the main export region of China's fully-sealed piston compressors, accounting for as high as 57 percent according to the data as of November, followed by Europe and America. The overseas markets are more attractive to compressor companies. Product aspect: the frequency conversion and commercial use have become the new growth points. The implementation of new energy efficiency and the popularity of large-capacity refrigerators have led to an explosive growth in frequency conversion products. The Industry Online Data showed that the frequency conversion products have increased by 56% year-on-year. With the fervent trend of unmanned convenience stores and vending machines, it’s shaping a new emerging market. All major fully-sealed piston compressor companies have also focused on the unmanned vending business market. The unmanned vending market has increased by 18.5% from the same period of last year. At present, although the demand of the unmanned vending market cannot be compared with the household market, the unmanned vending business market is definitely another development direction for fully-sealed piston compressors. Profitability: the year of 2017 was a stressful year for the fully-sealed piston compressor industry. The raw material prices rose madly. The cost of labor and logistics continued to increase, and the product cost went up, but the increase in product prices did not keep up with the increase in costs. Therefore, fewer companies gained the growth in operating profit in 2017. The company will pay close attention to the industry trends, continue to optimize the product structure in accordance with changes in the demand of end market, continue to strengthen the scientific and technological innovation and improve the management capabilities, comprehensively manage the R & D, production and quality links, improve the company's operating efficiency, speed up the development of overseas market with the help of the Belt and Road Strategy and expand the Company’s market share. (V)The investment of the Company 1.Investments in external parties □ Applicable √ Not applicable 17 / 139 2017 Annual Report (1) Significant equity investment □ Applicable √ Not applicable (2) Significant non-equity investment □ Applicable √ Not applicable (3)Financial Asset and Liabilities Measured by Fair Value □ Applicable √ Not applicable (VI)The sale of Significant assets and equity □ Applicable √ Not applicable (VII)Analysis on principal controlling companyand Mutual shareholding companies √ Applicable □ Not applicable Registered Sharehold Total assets Net assets Net Profit Capital Name Business Scope ing Ratio (RMB’000 (RMB’00 (RMB’000 (RMB’0 (%) 0) 00) 0) 000) Wuhu Aba Production and sales of refrigeration 5,000 75 162,446.11 643,99.65 4,378.85 ur Mechan compressors, compressor motor; Related ical & to small and medium sized castings, Electrical machinery manufacturing and related Co.,Ltd technology development, consulting. Huangshi 3,281.40 51.28 47,556.32 13,460.37 2,033.00 Casting of small and medium-sized cast Dongbei products, house renting and parking Foundry service. Co., Ltd. Refrigeration compressors, refrigeration 800 100 756.31 751.01 -17.77 equipment, motors, solar energy products, machinery and electrical technology products, electronic components, Dongbei high-tech products, software products, (Wuhan )T refrigeration products and parts, auto echnology parts, new energy products and Innovatio components, optoelectronic products and n Co., Ltd. parts, solar power generation systems and solar off-grid power system technology development, research, consulting and production. Dongbei 20,000 100 55,766.60 13,709.63 31.63 Mechanic Production and sales of refrigeration al & compressors, compressor motor; Electrical high-tech product development, (Jiangsu) production and consulting. Co., Ltd. Huangshi USD 1 100 4,532.60 -479.84 -478.98 Dongbei Sales of Refrigeration Compressor, million Internatio Refrigeration Equipment and Parts , nal Trade Photoelectric products and solar water Co., Ltd. heater ,etc. Alashanko 16,500 80 60,075.60 14,583.70 -1,505.0 u Solar power generation systems and 9 Dongbei off-grid solar power system design, Clean development, production, sales, Energy installation and service. Co., Ltd. Dongbei Sales of refrigeration compressors, 3,000 100 10,367.81 -279.63 -159.72 (Wuhu) refrigeration equipment and components, Electrome photovoltaic products, solar water chanical heaters, etc. Co., Ltd. Huangshi Solar power station, ecological 15,000 75 0 0 0 18 / 139 2017 Annual Report Donglian agriculture investment and development; New energy contract management, new energy Energy technology development, photovoltaic Co., Ltd. power generation system integration, import and export trade of goods(Non state restriction). Fengtai Solar power station, ecological 5,000 75 0 0 0 Donglian agriculture investment and development; New energy contract management, new energy Energy technology development, photovoltaic Technolog power generation system integration, y Co., Ltd. import and export trade of goods. Wutai Solar power station, ecological 20,000 75 0 0 0 Jinhe agriculture investment and development; New energy contract management, new energy Energy technology development, photovoltaic Co., Ltd. power generation system integration, import and export trade of goods. Notes:The holding subsidiary Wuhu Abaur Mechnical & Electrical Co., Ltd. holds a 51.28% stake of Huangshi Dongbei Foundry Co., Ltd; and holds 80% stake of Alashankou Dongbei Energy-saving Co., Ltd.; in the current period there were newly added subsidiaries Huangshi Donglian New Energy Co., Ltd, Fengtai Donglian New Energy Technology Co., Ltd and Wutai Jinhe New Energy Co., Ltd due to the transfer of equity by the related party Hubei Dongbei New Energy Co., Ltd-with that the transfer price was a nominal price of 1 yuan, and all of them did not start normal operations; as of the reporting date, Huangshi Donglian New Energy Co., Ltd and Fengtai Donglian New Energy Technology Co., Ltd are handling the simple cancellation procedure, and Wutai Jinhe New Energy Co., Ltd was cancelled on May 22, 2017. (VIII)The structure of the subject of corporate control □ Applicable √ Not applicable III.Competition and development trends in the industry 1.Competition pattern of pesticide industry √ Applicable □ Not applicable In the future, the competition in the compressor industry will remain fierce. First of all, from the perspective of domestic and foreign markets, with the increasingly saturated domestic market, the development potential in overseas market will increase, and that will gradually become the expanding direction for compressor manufacturers; secondly, as people are more likely to require a higher refrigerator efficiency, the development will head to the lightweight, energy-saving frequency-conversion compressors; furthermore, the commercial compressors have a broader market prospect than the household compressors, so that will become a new development direction for the compressor manufacturers. 2.Development Strategy √ Applicable □ Not applicable In 2018, the world economy will continue to recover, and it’s expected that China's economic growth rate will remain stable. The Company’s business goal of 2018 is: ensure the production and sales in the whole year reaching 28 million units compressors. We will focus on the development concept of 19 / 139 2017 Annual Report ―innovation, coordination, green, openness and sharing‖, adhere to centering on the economic efficiency, deepen the quality reform and efficiency reform, transform business ideas, adjust the product structure, and enhance the development space. 3.Operation Plan √ Applicable □ Not applicable A. Pay close attention to high-quality development and achieve the goal of efficiency In 2018, the company will focus on the efficiency, realize the growth both in profits and sales, strive to achieve the mass production of VFA frequency conversion products, and increase the market share of frequency conversion compressors despite the overall market oversupply situation. The commercial-use products will be repositioned in the market, highlighting the key customers and perfecting the user demand maps. The foreign trade needs to be better refined and the better lay-out, focusing on the market share increments in Europe and Southeast Asia. And we must seize the R600a-switching for enforcing implementation, thus to realize the goal of exporting over 10 million units. B. Stay focus on technological innovation and enhance the core competitiveness First of all, it needs to have an in-depth understanding of users’ needs and pain points, make a profound analysis of all existing and future technologies that may be adopted and establish a technological innovation mechanism of ―The combination of industry, academia and research‖ consisting of technical innovation consulting layer and decision-making layer, research and development layer and production and application layer, thus to provide the institutional guarantee for the sustainable development. Secondly, the company will give a full play to the staff of the company and enhance the ability of independent innovation. By organizing the employees to widely carry out the ―small innovations, gizmos, minor renovations, small designs, and small recommendations‖ activities, the Company will pay attention to the development of knowledge-based, technology-based, and compound-type employees and create a learning organization, so as to greatly improve the skill level of employees and effectively enhance the innovation abilities of employees. Thirdly, the company will continue to utilize the leading role of the technological innovation platforms such as technical R&D centers, academician workstations and university cooperation, spare no efforts to absorb advanced technologies and continue to maintain the leading technological position. With adopting new design and new technology to improve frequency conversion products, the company will actively meet the market demands while reducing the costs. C. Continuously enhance the quality improvement and promote the artisan lead The company will continuously improve the quality awareness, strengthen the guidance and implement the quality standards training. Through the activities of ―Creating a team with ingenuity and strive to be Dongbei Artisan‖, the Company will cultivate a group of competent and high-quality production specialists, give full play to their leading role and ensure the enhancement of production quality. Meantime, we will strengthen the cultivation for senior personnel with rich quality experience and knowledge, so as to undertake and promote the quality management work. 20 / 139 2017 Annual Report Upon strict process control, the company will soundly improve the quality. From suppliers, production process, customer site and end feedbacks, the company will, with the goal of transcending customers’ requirements and zero defects, soundly improve the product qualification ratio and reduce the product off-line rate at the customer site. Meanwhile, the company will implement the costs control of single unit, thus to push the improvement on the whole process of production quality. Adhering to the practical and pragmatic management. The Company will carry out the comprehensive optimization of quality management, sorting-out, integration and unity of the management system, establish the Internet information management mode of quality management, thus to ensure an effective, efficient and practical quality management system. Through the 6S management and QC group activities, it will guide and encourage employees to enhance the awareness of responsibility. With the application of PDCA cycle, the company will improve the product quality and perfect the management methods, so as to shape a virtuous cycle of improvement and result. D. Put emphasis on lean management and stimulate the business motivation In terms of lean production management, the Company will focus on reducing costs and increasing efficiency, using digital, information, and technology means to optimize and integrate logistics flow, capital flow and information flow, and implement the whole-process and whole-system dynamic control of production and business activities. Furthermore, the company will reengineer the management processes, continuously improve the production, eliminate the waste products and reduce the costs. It is very necessary to do a good job in each process, and to meticulously and exquisitely do all things. The Company will strengthen the transformation of management processes centered on financial management, further deepen the overall budget management, truly realize the beforehand preparation for the key business indicators, with in-process control and the whole-process control including the ex post analysis. 4. Potential Risks √ Applicable □ Not applicable 1. Market risk: the company's products are mainly used in the industries which are largely affected by the macroeconomic situation, so if there is a drastic fluctuation in macroeconomic resulting in decline in the demand of the company's products by downstream industries, there will be an impact on the operating performance of the company. 2. Risk of fluctuations in the prices of raw materials: for the company's product of refrigerator compressor, the raw material accounts for a big percentage, so in the future, the fluctuation in the prices of raw materials will directly impact the company's production costs, thus to have an impact on the operating performance of the company. 3. Risk of labor costs: the company is a traditional manufacturing enterprise, so with the continuous rise of every production elements such as labor costs, the company's operating performance will be affected. 5.Other □ Applicable √ Not applicable 21 / 139 2017 Annual Report IV. The explanation and the information about the disclosure not conformed to the Code as the provision of the Code does not applied to the company or because of special reasons □ Applicable √ Not applicable V. Important Events ⅠSpecification of profit distribution of common shares and capitalizing of common reserves 1.Formulation, implementation and adjustment of profit distribution policy of common shares especially cash dividend policy during the reporting period √ Applicable □ Not applicable According to the Notice of Further Implementing the Matters Concerning Distribution of Cash Dividends by Listed Companies (Zheng Jia Fa (2012) No. 37 Document) issued by CSRC on May 4, 2012 and the requirements of Hubei Securities Regulatory Bureau and Shanghai Stock Exchange, the sixth meeting of the fifth board of directors of the Company held examined and adopted the proposal for implementing the dividend distribution document of CSRC and revising the clauses of the Articles of Association of the Company in respect of profit distribution. The adoption of this proposal perfected the Company's profit distribution policy, improved the transparency of profit distribution, protected public investors' lawful rights and interests and enhanced the level of the Company's overall standardized operation. On April 20, 2017, the company held the sixteenth meeting of the sixth Board of Directors to deliberate the "Advance plan for the distribution of profits of the company in 2017", which was submitted to the company's 2017 Annual General Meeting of Shareholders for review on May 24, 2017 with an approval result. On July 13, 2017, the company disclosed the ―Notice about Dividend Distribution for Year 2016‖, the company's 2016-profit distribution plan is: based on the total share capital of 235,000,000 shares, it’s proposed that the company will distribute cash dividend of RMB 1.00 per 10 shares (tax inclusive) to all the shareholders, and the estimated profit distribution will be RMB 23,500,000, while the rest profit of RMB588,190,176.32 will be for future profit allocation; and there are no bonus shares and no increasing shares by converting capital reserves in the current year., and such dividend distribution was implemented on July 28, 2017 2.The Company's plan for preplan for profit distribution or capitalization of capital surplus for the recent three years (including the report period) In RMB 22 / 139 2017 Annual Report Year Number of Net profit Ratio of net profit shares for attributable to Number of Amount of attributable to every 10 Amount of shareholders of bonus shares dividends for shareholders of shares after cash bonus listed company in for every 10 every 10 listed company in capital (Included tax) consolidated shares shares consolidated surplus statement of statement capitalization bonus year 2017 0 0 0 0 83,402,663.88 0 2016 0 1 0 23,500,000 83,040,363.66 28.30 2015 0 0 0 0 69,792,841.69 0 3. Information about the repurchase of shares by cash offer that is included into the cash dividends □ Applicable √ Not applicable 4.In the reporting period, both the Company’s profit and the parent company’s retained earnings were positive however not cash dividend distribution proposal has been put forward. √Applicable □ Not applicable The reasons for not proposing cash dividend distribution plan for common stock for the reporting period having the positive profit The use purpose and use plan of undistributed profits and having the positive profit attributable to the common stock shareholders of the parent company As audited by Daxin Certified Public Accountants Co., Ltd. The competition in the compressor industry has ( Special General Partnership), the net profit attributable to become increasingly fierce. In order to enhance the shareholders of the parent company in 2017 was RMB core competitiveness of the company and increase the 83,402,663.88, plus the undistributed profit of RMB investment in the research and development of 611,690,176.32 at the beginning of the year, with drawing the frequency-conversion compressors, the company surplus reserve amount of RMB 5,581,996.78 and with the needs continuous investment. dividend distributed for common stock was RMB 23,500,000.00, thus the undistributed profit at the end of 2017 was RMB 666,010,843.42. Considering taking into account the company's development and the project's demand for funds, the company's 2017 profit di stribution plan is formulated as: The profit allocation and the capitalization from capital public reserve will not be conducted for the Company in the report period.. 23 / 139 2017 Annual Report II. Performance of commitments 1.The fulfilled commitments in the reporting period and under-fulfillment commitments by the end of the reporting period made by the company, shareholder, actual controller, acquirer, director, supervisor, senior management personnel and other related parities. √ Applicable □ Not applicable Party Whether In the event of who Background Whether there is a strictly In the event of failure failure to perform Commitmen made Commitment time and of the Commitment Content time limit for performed to perform in due time, in a timely manner, t Type the duration Commitment performance in a timely specify the reasons specify the next commi manner step of plan tment Other Relate Xing Bei Electromechanical From July 1, 2016 to No Yes d party committed: "in order to further the committed party ensure the independent operation of opt out Dongbei B Share, the company and its controlled enterprises shall stay independent to Dongbei B Share in terms of aspects such as procurement, production, sales, staff, finance, asset, business and organization with in accordance with relevant laws and the regulations of The regulatory documents. commitments made in the Solving the Relate Refrigerator Industrial, Huizhi From July 1, 2016 to No Yes report of related d party International, Huizhi Partnership and the committed party acquisition transaction Xing Bei Electromechanical opt out or in the respectively committed as follows: " statement of our company will strictly abide by changes in the relevant laws, regulations, equity regulatory documents, Articles of Association of the listed company and the provisions of decision-making system of the related transaction to exercise the rights of shareholders; when the shareholders' general meeting votes for a related transaction that involves our company or our company's controlled enterprises, our company will perform the fair decision-making 24 / 139 2017 Annual Report procedures such as performing the decision of the related transaction and avoiding the voting. 2.our company and our company's controlled enterprises will avoid or reduce the related transaction with the listed company as far as possible; for the related transaction that cannot be avoided or having the reasonable cause, it shall abide by the market principle of impartiality, fairness and openness to carry out the transaction in a fair and reasonable market price and shall sign an agreement in accordance with laws, and shall perform the lawful procedures and the obligation of information disclosure and the applying for approval in accordance with Articles of Association of the listed Company, the relevant laws and regulations and the Listing Rules of Shanghai stock Exchange, thus to ensure that the legitimate rights and interests of the listed company and the other shareholders will not be damaged in the related transactions. 3. Not take advantage of the status and influence of our company in the listed company to give a preference better than the condition offered by a third party or to seek a priority right to reach transaction in business transaction related to the listed company. 4. Our company shall not commit any illegal occupation of the funds or assets of the listed company. If the listed company provides guarantee to our company and our company's controlled enterprises, it shall be in strict accordance with the 25 / 139 2017 Annual Report provisions of laws and regulations to implement the relevant decision-making and information disclosure procedures; 5. If the actual loss caused to the listed company or its controlled enterprise arising from the breach of the above commitments, our company shall bear the liability for compensation.6. The above commitments are effective in the duration that our company directly or indirectly controls the listed company and the company maintains the status of being a listed company." Solving the Relate Refrigerator Industrial, Huizhi horizontal d party International, Huizhi Partnership and competition Xing Bei Electromechanical respectively committed as follows:"1. After the completion of the tender offer, our company will impel our company or our company's controlled enterprises (if any, not contain the listed company or its controlled enterprises, the same below) not to engage in the production or business activities that directly or indirectly compete with the listed company and its controlled enterprises. 2. After the completion of the tender offer, our company will supervise and restrain the production and business activities of our company or our company's controlled enterprises, and in the case that the products or services of our company or our company's controlled enterprises is same or familiar with the products or services of the listed company and its controlled enterprises, our company shall take 26 / 139 2017 Annual Report the following measures to solve it: (1) if our company and our company's controlled enterprises found any new business opportunities that will constitute direct competition with the main business of the listed company or its controlled enterprises, it shall immediately notify the listed company and its controlled subsidiaries in written and spare no effort to promote the business opportunities first provided for the listed company or its controlled enterprises in reasonable and fair terms and conditions. The listed company and its controlled enterprises shall, within 30 days after receiving the notice, have the right to notify our company or our company's controlled enterprises its intention to participate in the above-said opportunities in written, then our company or our company's controlled enterprises shall provide the new business opportunities to the listed company or its controlled enterprise for free. If the listed company and its controlled enterprises decided not to engage in such new business for some reasons, it shall promptly notify our company in writing, and our company or our company's controlled enterprises may operate the related new business on our own. (2) If the listed company and its controlled enterprises give up the afore-said competitive new business opportunities and our company or our company's controlled enterprises engage in such business opportunity that may constitute a new business 27 / 139 2017 Annual Report which directly competes with the main business of the listed company or its controlled enterprises, our company shall give the rights of option to the listed company, that is, under the applicable laws and regulations of the listing rules of the stock exchange, the listed company and its controlled enterprises shall have the right to acquire, at any time, by one time or more times, any equity, assets and other interests of our company or our company's controlled enterprises related to the above-said competitive business, or the listed company or its controlled enterprises may choose operation methods such as entrusted operation or lease or contract management to possess the assets or business in the competitive business belonging to enterprises controlled by our company or our company's controlled enterprises in accordance with the provisions of relevant laws and regulations. If, under the same conditions, a third party, under the relevant laws and the relevant articles of association or the organizational documents, possesses and is about to excises the preemptive rights, then the above commitment is not applicable, but under such situation, our company or our company's controlled enterprises will spare no effort to persuade that third party to give up the preemptive rights. (3) if the Listed Company deems necessary, our company or our company's controlled enterprises will reduce our holding equity, assets and 28 / 139 2017 Annual Report business to the level losing control right (if applicable) or to the level of zero, and the listed company may, in an appropriate manner, have the priority to acquire the equity, assets and business controlled by our company or our company's controlled enterprises. 4) Our company unconditionally accepts other measures that can eliminate the horizontal competition offered by the listed company. (5) Our company committed that it shall not use the status in the listed company or the actual controlling ability (if applicable) to damage the interests of the listed company and other shareholders of the listed company. (6) Since the date of the commitment letter issued, our company committed to make compensation for any actual losses, damages and expenses caused to the listed company incurred by any of the company's breach of the foregoing commitments. (7)The above commitments are effective in the duration that our company directly or indirectly controls the listed company and the company maintains the status of being a listed company." Other Acquir Regarding the repayment plan, the From June 9, 2017 to Yes Yes er acquirer has made the following the completion of arrangements: 1.based on the repayment earnings forecast for the next few years, the Refrigerator Industrial can give the stable profit dividends to investment companies which invest Refrigerator Industrial. 2. Through MBO, the executives of Dongbei B 29 / 139 2017 Annual Report can indirectly hold Dongbei B shares via Dongbei Group, which will enable their interests to be consistent with the listed company, thus to improve the working enthusiasm of executives, reduce management costs and increase the performance of the listed company, so as to make a contribution to the profit of Refrigerator Industrial. 3. If necessary, the shareholders will provide funds to Refrigerator Industrial according to their respective proportion of capital contribution. 30 / 139 2017 Annual Report 2.The existence of the company's assets or projects earnings forecasts and earnings reporting period is still in the forecast period, the company has assets or projects meet the original profit forecast made and the reasons explained Not applicable III.Particulars of fund occupation and progress of debt repayment in the report period □Applicable√Not applicable IV.Explanation by the Board of Directors about the “ non-standard audit report ”. □Applicable√Not applicable V.Explain change of the accounting policies, accounting estimates and measurement methods 1.Explain retrospective restatement due to correction of significant accounting errors √Applicable□Not applicable In 2017, the Ministry of Finance issued the "No. 42 Accounting Standard for Business Enterprises-Non-current Assets for Sale, Disposal Group, and Termination of Operation"-which is effective from May 28th 2017, and that the prospective approach is required for the non-current assets held for sale, disposal group and termination of operation existed on the effective date. In 2017, the Ministry of Finance revised the "No. 16 Accounting Standards for Business Enterprises-Government Grants‖, and the revised standards are effective from June 12, 2017; the prospective approach is required for the treatment of the government grants existed on January 1, 2017; and for the newly added government grants from January 1, 2017 to the effective date, it’s also required to make adjustments according to the revised standards. In 2017, the Ministry of Finance issued the ―Notice on the Issuance of the Revised Format of Financial Statements for General Enterprises‖ (Cai Hui (2017) No. 30). Enterprises that implement the Accounting Standards for Business Enterprises shall prepare the 2017 financial statement and the future financial statement in accordance with the Accounting Standards for Business Enterprises and the requirements of such notice. The main impact of the Company's implementation of the above two criteria and the No. 30 (2017) accounting document is as follows: Prior- The amount Amount of period The amount of Name of reported in the Changes in Accounting report item restate non-operating report item prior period as Policies and Causes affected for the d income reported affected non-operating current period amoun in the prior period expenses t 1.Government grants related to the company's daily Other 13,851,422.70 — 12,612,298.51 — activities are included in income other income 31 / 139 2017 Annual Report 2.The company's analysis and explanation to the causes and influences of the correction of major accounting errors □ Applicable √ Not applicable 3. Information about communication with the former accounting firm □ Applicable √ Not applicable 4.Other notes □ Applicable √ Not applicable VI. Engagement or dismissal of certified public accountants' firm In RMB Now appointing Domestic certified public accountants engaged by the Hubei Daxin Certified Public Accountants Co., Company Ltd.(Special General Partnership) Remuneration for the domestic certified public accountants 45 Recompense by the Company Time for the domestic cetified public accountants serveas 17 by the company Outside accounting firm name Outside accounting firm rewards Outside accounting firm audit years Name Remuneration CPAs firm for the internal control Hubei Daxin Certified Public Accountants Co., 10 Ltd.(Special General Partnership) Financial Adviser Sponsor Dismissal of accounting firms note □ Applicable √ Not applicable Circumstances change during the accounting firm's audit explanation □ Applicable √ Not applicable VII.Risk of suspending or terminating stock listing 1.Reasons for suspending or terminating listing □ Applicable √ Not applicable 2. Measures planned to be adopted by the company □ Applicable √ Not applicable VIII. Situation and reasons for the termination of listing it is facing □ Applicable √ Not applicable IX.Risk of suspending or terminating stock listing □ Applicable √ Not applicable X.Significant lawsuits and arbitrations of the Company □ Applicable √ Not applicable 1. Litigation, arbitration matters that have been disclosed in the temporary announcement but with no subsequent progress □ Applicable √ Not applicable 2. Litigation, arbitration matters that have not been disclosed in the temporary announcement or having subsequent progress □ Applicable √ Not applicable 3.Other □ Applicable √ Not applicable 32 / 139 2017 Annual Report XI. Penalty to the Company and its directors, supervisors and senior executives, controlling shareholder, actual controller or buyer and particulars about rectification □Applicable √ Not applicable XII.Integrity of the company and its controlling shareholders and actual controllers □Applicable √ Not applicable XIII.Implementation of the company’s stock incentive plan, employee stock ownership plan or other employee incentives 1.Related incentives matters that have been disclosed in the temporary announcement but with no subsequent implementation progress or change □Applicable √ Not applicable 2. Information about incentives matters that have not been disclosed in the temporary announcement or having subsequent progress Stock incentive situation □Applicable √ Not applicable Other notes □Applicable √ Not applicable Employee stock ownership plan □Applicable √ Not applicable Other incentive □Applicable √ Not applicable XIV. Significant related-party transactions (I) Related transactions in connection with daily operation 1.Matters that have been disclosed in provisional announcements and there has been no change or develo p of subsequent implementation. □Applicable √ Not applicable 2..Matters that have been disclosed in provisional announcements and there has been no change or develop of subsequent implementation. □Applicable √ Not applicable 3.Information not disclosed in temporary announcement □Applicable √ Not applicable (II) The acquisition of assets or equity, the sale of the occurrence of the associated transactions 1.Matters that have been disclosed in provisional announcements and there has been no change or develop of subsequent implementation. □Applicable √ Not applicable 2.Matters that has been in temporary announcement disclosed, but there is progress in the implementation of the follow-up or change □Applicable √ Not applicable 3.Information not disclosed in temporary announcement □Applicable √ Not applicable 4. If related to a commitment of business performance, it shall disclose the business performance realized in the reporting period □Applicable √ Not applicable (III).Significant related party transactions of common foreign investment 1.Matters that have been disclosed in provisional announcements and there has been no change or develo p of subsequent implementation. □Applicable √ Not applicable 33 / 139 2017 Annual Report 2..Matters that have been disclosed in provisional announcements and there has been no change or develop of subsequent implementation. □Applicable √ Not applicable 3.Information not disclosed in temporary announcement □Applicable √ Not applicable (IV).Related Liabilities 1.Matters that have been disclosed in provisional announcements and there has been no change or develo p of subsequent implementation. □Applicable √ Not applicable 2..Matters that have been disclosed in provisional announcements and there has been no change or develop of subsequent implementation. □Applicable √ Not applicable 3.Information not disclosed in temporary announcement □Applicable √ Not applicable (V)Other □Applicable √ Not applicable XV.Particulars about significant contracts and their fulfillment 1. Particulars about trusteeship, contract and lease (1) Trusteeship □Applicable √ Not applicable (2) Contract □ Applicable √ Not applicable (3) Lease □ Applicable √ Not applicable 2.Guarantees √Applicable□Not applicable In RMB Particulars about the external guarantee of the Company(Barring the guarantee for the controlling subsidiaries) Occurr ence wheth Whether Wheth date er Name of Guarantee Type Wheth guarante Guara er Amount (date Guarantee anti-g guarantee Relati warra the of er e exceed ntee provid Relati of of the starting uarant target on ntee expiration guara termin the demur ed to onship guarantee agreem date ee date ntee ated delinque rage related ent exist ncy date parties signing or not ) Huangshi Huang 3,000.00 2017/11/20 2018/11/20 Guara No No No Yes Dongbei shi ntee Electrical Aibo with The Appliance Techn joint Comp Co., Ltd ology respon any Devel sibilit opme y nt 34 / 139 2017 Annual Report Co., Ltd. Huangshi Huang 5,797.90 2017/6/12 2018/11/6 Guara No No No Yes Dongbei shi ntee Electrical Dong with Appliance bei joint The Co., Ltd Electr respon Comp omech sibilit any anical y Group Co., Ltd. Huangshi Huang 9,315.51 2017/1/24 2018/10/31 Guara No No No Yes Dongbei shi ntee Electrical Dong with The Appliance bei joint Comp Co., Ltd Refrig respon any eratin sibilit g Co., y Ltd. Total amount of guarantee in the report (Barring the 18,113.41 guarantee for the controlling subsidiaries) Total balance of guarantee in the report(A)(Barring the 18,113.41 guarantee for the controlling subsidiaries) Guarantees provided by the Company to its controlled subsidiaries Total amount of guarantees provided to subsidiaries in the report period 171,426.00 Total balance of guarantees provided to subsidiaries at the end of the report 104,775.49 period(B) Total amount of guarantees provided by the company (including the guarantees provided to controlled subsidiaries) 122,888.90 Total amount of guarantee(A+B) Proportion of the total guarantee in the net assets of the Company(%) 107.12 Including: Guarantees provided to the shareholders, substantial controllers and the related 18,113.41 parties(C) Guarantees provided to objects with over70%in liability/capital rate, directly or 76,210.80 indirectly(D) Amount of guarantee over 50% of the net asset(E) 65,530.11 Total of the above (C+D+E) 122,888.90 Explanation of unexpired may commitment joint liability guarantee Guarantee explanation 3.Situation of Entrusting Others for Managing Spot Asset (1)Situation of Entrusted Finance a. Overall information of entrusted wealth-management □ Applicable √ Not applicable Other □ Applicable √ Not applicable b. Information of single-item entrusted wealth-management □ Applicable √ Not applicable Other □ Applicable √ Not applicable c.Provision for impairment of entrusted loans □ Applicable √ Not applicable 35 / 139 2017 Annual Report (2)Situation of Entrusted Loans a.Overall information of entrusted loans □ Applicable √ Not applicable Other □ Applicable √ Not applicable b.Information of single-ttem entrusted loans □ Applicable √ Not applicable Other □ Applicable √ Not applicable c.Provision for impairment of entrusted loans □ Applicable √ Not applicable (3)Other □ Applicable √ Not applicable 4. Other significant contract □ Applicable √ Not applicable XVI.Explanation about other significant matters □ Applicable √ Not applicable XVII. The information of actively fulfilling the social responsibility 1.Overview of the annual targeted poverty alleviation √Applicable □ Not applicable 1. Precision poverty alleviation planning While creating values for shareholders and improving employees’ benefits, the company has been earnestly implementing the spirit of poverty alleviation, actively doing a good job of helping and supporting work, constantly paying attention to the company’s hard-life masses, adhering to the ―people-oriented‖ philosophy, expressing concern and sympathy to the company’s internally distressed employees, and helping to solve real life difficulties. 2. Summary of Annual Precision Poverty Alleviation On the one hand, through the establishment of the Love Fund, the company has been assisting the company's particularly impoverished employees; on the other hand, the company preferentially recruits people from poor areas to join the company; in 2017, the company invested approximately RMB 1.5 million in poverty alleviation funds. 3. Follow-up Precision Poverty Alleviation Plan In 2018, the company will further conscientiously study and actively implement the important spirit of the state on poverty alleviation work, summarize the experience of poverty alleviation work, deeply understand the actual situation of the poor, provide them with necessary living conditions guarantee, and continue to create a good atmosphere for helping them. 2..Information about the work on social responsibility □ Applicable √ Not applicable 36 / 139 2017 Annual Report 3.Environment information 1.If the listed company or its subsidiaries belong to the heavy polluting industry specified by the National Environmental Protection Department, please specify the information of environmental protection. □ Applicable √ Not applicable 2.Companies other than key polluters □ Applicable √ Not applicable 3.Other notes □ Applicable √ Not applicable 4.Other notes □ Applicable √ Not applicable XVIII. Convertible bonds 1. Information about issuance of convertible bonds □ Applicable √ Not applicable 2. Information about the holder and guarantor of convertible bonds in the reporting period □ Applicable √ Not applicable 3. Information about the changes of convertible bonds in the reporting period □ Applicable √ Not applicable Information about cumulative bonds conversion into shares in the reporting period □ Applicable √ Not applicable 4. Information about all the past adjustments of conversion-into-share price □ Applicable √ Not applicable 5.The company's liabilities, changes in credit and cash arrangements for repaying the debt in future years □ Applicable √ Not applicable 6. Explanation of other information of convertible bonds □ Applicable √ Not applicable VI. Change of share capital and shareholding of Principal Shareholders Ⅰ.Changes in share capital 1. Changes in share capital (1)Change in ordinary shares The Company has not changed ordinary shares of the Report period . (2)Description of changes in ordinary shares □ Applicable √ Not applicable 37 / 139 2017 Annual Report (3)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(If any) □ Applicable √ Not applicable (4)Other information necessary to disclose for the company or need to disclosed under requirement from security regulators □ Applicable √ Not applicable 2. Change of shares with limited sales condition □ Applicable √ Not applicable Ⅱ.Issuing and listing 1. Information about the issuance of securities during the reporting period □ Applicable √ Not applicable Description of the situation of issuance of securities during the reporting period (for bonds having different interest within the duration, please respectively specify) □ Applicable √ Not applicable 2. Information about changes in the total number of ordinary shares of the company and shareholder structure and the company's assets and liabilities structure □ Applicable √ Not applicable 3. Information about the existing internal staff shares □ Applicable √ Not applicable 4.Situation Ⅲ.Shareholders and actual controlling shareholder 1.Total shareholders Total number of common 17,913 shareholders at the end of the reporting period Total shareholders at the end of the month from the date of disclosing the annual 17,800 report The total number of preferred shareholders voting rights restored at period-end Total preferred shareholders at the end of the month from the date of disclosing the annual report 2.Number of shareholders and shareholding In shares Particulars about the shareholding of the top ten shareholders Increase Number of Propor Amount of Pledged or frozen Shareholder Shareholder name /decreas shares held at tion(% restricted shares Status Quantity nature e period -end ) held Huangshi Dongbei 0 117,600,000 50.04 117,600,000 94,094,000 Domestic Electromechanical Non-State-o Pledge Group Co., Ltd. wned legal person 38 / 139 2017 Annual Report ISHARES CORE 769,103 1,581,803 0.67 Foreign Unkno MSCI EMERGING Legal wn MARKETS ETF person Sun Menglin 298,301 1,164,851 0.50 omestic Unkno natural wn person Jiangsu Luoke 0 800,000 0.34 800,000 Domestic ElectricGroup Co., Non-State-o No Ltd. wned legal person Lin Yongtian 158,600 658,600 0.28 Domestic Unkno natural wn person Lin Yuyong 406,846 512,746 0.22 Domestic Unkno natural wn person China 30,000 511,864 0.22 Foreign Unkno MerchantsSecutities Legal wn (HK) Co., Ltd. person Yao Weifang 6,200 441,700 0.19 Domestic Unkno natural wn person Oriental Securities 421,035 421,035 0.18 Foreign Unkno (HK) Co., Ltd. Legal wn person Ji Mingyu 61,922 409,900 0.17 Domestic Unkno natural wn person Shareholding of top 10 shareholders of unrestricted shares Quantity of Share type unrestricted Name of the shareholder shares held at the Share type Quantity end of the reporting period ISHARES CORE MSCI EMERGING MARKETS ETF 1,581,803 Foreign shares placed in domestic exchange Sun Menglin 1,164,851 Foreign shares placed in domestic exchange Zhou Xiaohai 896,200 Foreign shares placed in domestic exchange Lin Yongtian 658,600 Foreign shares placed in domestic exchange Lin Yuyong 512,746 Foreign shares placed in domestic exchange China MerchantsSecutities (HK) Co., Ltd. 511,864 Foreign shares placed in domestic exchange Yao Weifang 441,700 Foreign shares placed in domestic exchange Oriental Securities (HK) Co., Ltd. 421,035 Foreign shares placed in domestic exchange Ji Mingyu 409,900 Foreign shares placed in domestic exchange Shao Liping 400,900 Foreign shares placed in domestic exchange 39 / 139 2017 Annual Report Explanation on associated relationship among the aforesaid shareholders Description of the preferred shareholders whose voting rights were restored and their numbers of holding shares Shareholding of top 10 shareholders of Conditional shares √Applicable□Not applicable In Shares Restricted shares can be Quantity of traded on Restricted No Name of the shareholder conditional shares New number Time can conditions held of shares can be traded be traded 1 Huangshi Dongbei Electromechanical 117,600,000 Group Co., Ltd. 2 Jiangsu Luoke ElectricGroup Co., Ltd. 800,000 3 Wuhan Xinhua Hardware Factory 400,000 4 Changshu Tianyin Electromechanical Co., 400,000 Ltd. 5 Zhuji LimingDecoration Engineering Co., 400,000 Ltd. 6 Shaoxing Xingbei Pressing Co., Ltd 400,000 7 8 9 10 Explanation on associated relationship among the aforesaid shareholders 3. Strategic investors or general legal persons due to the placing of new shares to become the top 10 shareholders □ Applicable √ Not applicable IV.Brief introduction of the controlling shareholder and actual controller (1) The controlling shareholder 1. Legal √Applicable□Not applicable Name Huangshi Dongbei Electromechanical Group Co., Ltd Legal representative Yang Baichang Date of incorporation January 18,2002 Principal business activities Production and sales of refrigerating compressors and electrical motors of compressors, development and consultation of high-tech products. Housing rental, car rental, real estate development. Equity of other domestic/foreign listed company with share controlling and share participation by controlling shareholder in reporting period Other explanation 2.Natural person □ Applicable √ Not applicable 3. It does not exist a special explanation of the controlling shareholder by the company 40 / 139 2017 Annual Report □ Applicable √ Not applicable 4. Index and date of change information of the controlling shareholder during the reporting period □ Applicable √ Not applicable 5.The block diagram of the property right and control relationship between the Company and controlling shareholders □ Applicable □ Not applicable (2) Actual controller 1.Legal □ Applicable √ Not applicable 2.Natural person □ Applicable √ Not applicable 3. It does not exist a special explanation of the actual controller by the company √Applicable□Not applicable The company's controlling shareholder is Huangshi Dongbei Electromechanical Group Co.,Ltd, whose controlling shareholder is Huangshi Dongbei Refrigerator Industrial Co., Ltd. In light of that the single shareholder of Huangshi Dongbei Refrigerator Industrial Co., Ltd is Huangshi Huizhi Investment Partnership (limited partnership) which is a limited partnership company and its executive partner-Huangshi Xingbei Electromechanical Co., Ltd has no controlling shareholder and actual controller, thus the company has no actual controller. For details, please see "Huangshi Electric Equipment Co.,Ltd's Suggestive Announcement about Changes in the equity structure of the controlling shareholder and the change of the actual controller".(Announcement No.2016-032) 4. Index and date of change information of the actual controller during the reporting period □ Applicable √ Not applicable 5.The block diagram of the property right and control relationship between the Company and the actual controller □ Applicable √ Not applicable 6.The actual controller controlled the company through trust or other asset management means 41 / 139 2017 Annual Report □ Applicable √ Not applicable (3)Other information about the controlling shareholder and the actual controller □ Applicable √ Not applicable V.Other legal person shareholders holding more than ten percent shares □ Applicable √ Not applicable VI. Description of the situation of limit on reducing shares □ Applicable √Not applicable VII. Situation of the Preferred Shares □ Applicable √Not applicable 42 / 139 2017 Annual Report VIII.Particulars about Directors, Supervisors, Senior Executives and Employees I.Change of shareholding and particulars about remuneration 1. The change of shareholding of directors, supervisors and senior executives who currently hold their posts or left their posts in the report period and particulars about their remuneration √Applicable Not applicable In shares The total amount of The total remuneration remuneration Shares Increase or from Beginning Expiration held at Shares decrease in received from Reason of shareholder or Name Position Sex Age date of office date of the held at the the amount of the Company in the change the report other related term office term year-beg year-end shares for the period -parties in the inning year report period (RMB’0000) (RMB’0000) (Before tax) Zhu Jinming Board Chairman Male 54 2017.5.24 2020.5.24 0 0 0 Ruan Director Male 47 2017.5.24 2020.5.24 0 0 0 Zhengya Zhao Dayou Independent director Male 63 2017.5.24 2018.5.24 0 0 0 5 Yu Yumiao Independent director Male 52 2017.5.24 2020.5.24 0 0 0 5 Xie Jincheng Independent director Male 56 2017.5.24 2020.5.24 0 0 0 5 Lu Lihua Deputy Female 47 2017.5.24 2020.5.24 0 0 0 37.59 General Manager and Secretary to the Board Zhu Yushan Deputy General Male 36 2017.5.24 2020.5.24 0 0 0 32.12 Manager Gao Jianjun Deputy General Male 40 2017.5.24 2018.3.29 0 0 0 52.90 Manager (Have left office) Dou Zuowei Deputy General Male 36 2017.5.24 2020.5.24 0 0 0 45.16 Manager Wang Shiwu Chairman of the board Male 45 2017.5.24 2020.5.24 0 0 0 of supervisors Jiang Min Supervisor Male 49 2017.5.24 2020.5.24 0 0 0 Hu Rongzhi Supervisor Female 42 2017.5.24 2018.3.29 0 0 0 14.93 (Have left office) Lu Yanying Independent director Female 59 2014.5.20 2017.5.24 0 0 0 (Have left office) Lin Yinkun Director, Male 46 2017.5.24 2018.1.4 0 0 0 121.50 43 / 139 2017 Annual Report GeneralManager (Have left office) Total / / / / / / 319.20 / Name Work Experience Zhu Jinming He has served as director and Vice president Manager of Huangshi Dongbei Electromechanical Co., Ltd.From 2002 to May 2010, and he served as Director and President of Huangshi Dongbei Electromechanical Group Co., Ltd.and Director of the Company since May 2010. he served as board chairman of the Company since November 27, 2015. Ruan He served as general manager of Changzhou Luoke Electric Co., Ltd.since 2004, He was served as director of the company since May 2008. Zhengya Zhao Dayou He now serves as director of Tourism Planning, Research and Development Center of Three Gorges University, deputy director of Three Gorges Culture, Economy and Social Development Research Center of Hubei University Culture and Social Science Key Research Base, member of Yichang City Planning Commission and Yichang CPPCC, and academic pacesetter of Three Gorges University for regional economy. Yu Yumiao Had been served as the teaching assistant, lecturer, associate professor in the accounting and auditing department of school of Economics of Wuhan University, professor of accounting department of business school of Wuhan University; currently, serves as professor and doctoral tutor in accounting department of school of economics and management of Wuhan University; since December 15, 2015, has been served as the company’s independent director. Xie Jincheng He once served as Dean and Secretary of the Party Committee of the School of Continuing Education of Zhongnan University of Economics and Law. He is currently a professor at the School of Finance of Zhongnan University of Economics and Law and deputy director of China Investment Research Center of Zhongnan University of Economics and Law. Lu Lihua She served as Director of Fanincial Deptement and assistant of General Manager of Huangshi Dongbei Electrical Appliance Co., Ltd since 2005, She now served as Deputy General Manager ,and Secretary to the Board and Dorector of the Company. Zhu Yushan He once served as deputy director of the company's information center, production department director, assistant general manager, and director, and now serves as deputy general manager of the company. Dou Zuowei He used to be the project manager of LG Electronics Co., Ltd., the head of the new model of the LG Compressor Division, and the head of the development department of the LG Compressor Division. He is now the deputy general manager of the company. Gao Jianjun He used to be the production supervisor of Wuxi Guangyang Bearing Co., Ltd. (Japan company), the senior production supervisor/quality manager of Seagate International Technology Co., Ltd. (US company), and the quality manager of Wuxi Yingdexi Appliance Technology Co., Ltd. (Italian company). He used to be Deputy General Manager of the company. General manager. Wang Shiwu From November 2010 to January 2017, he took the posts of Deputy Director and Director of the Office of the Leading Group in Correcting Unhealthy Winds of the Huangshi City Government, Director of the Office of Optimization of the Economic Development Environment, Director of the Enforcement and Efficiency Supervision Office of the Huangshi City Commission for Discipline Inspection, and the Fourth Disciplinary Inspection of the Huangshi Commission for Discipline Inspection Director of the room, since January 2017 has served as Secretary of the Disciplinary Committee and Chairman of the Labor Union of Huangshi Dongbei Electromechanical Group Co., Ltd. Jiang Min He served as Director of Financial Deptement of Huangshi Dongbei Electromechanical Group Co., Ltd., and now acts as assistant president of Huangshi Dongbei Electromechanical Group Co., Ltd,He served as Supervisor of the Company since May 2011. Hu Rongzhi Worked in Huangshi Dongbei Electrical Appliance Co., Ltd . in 1994, engaged in parts sorting, product design, technical standards, technical management, project declarations and other work, once worked as director of the manager office of Huangshi Dongbei Electric Co., Ltd., currently serving as Huangshi Dongbei Electromechanical Group Co., Ltd. Responsible company management department minister. Lu Yanying She served as Teacher of School of Management, Huazhong University Of Science & Technology and School of Managerment, Wuhan University of Hydraulic and Electrical Engineering,and now acts as professor of Economics and Management School of Wuhan University . Lin Yinkun He served as deputy director of process workshop , director of Manager office , Minister of quality Dept of the Company,General Manager of Wuhu Abaur Mechnical & Electrical Co., Ltd. He now served as director and General Manager of the Company. 44 / 139 2017 Annual Report Other notes □Applicable √Not applicable 2.Directors, supervisors and senior management of equity during the reporting period was granted incentive □Applicable √Not applicable II.Particulars about duty performance of directors, supervisors and senior executives who currently hold their posts or left their posts in the report period 1. Posts held at corporate shareholders √Applicable □Not applicable Name Name of corporate shareholder Position Starting date of term of office Expiry date of term of office Zhu Jinming Dongbei Group President Wang Shiwu Secretary of the discipline Dongbei Group Inspection Commission, Chairman of the Union Jiang Min Dongbei Group Vice president Posts held at corporate shareholders 2.Posts held at other units √Applicable □Not applicable Starting date of term of Expiry date of term of Name Name of other units Position office office Zhao Dayou Three Gorges University Professor Lu Yanying Wuhan University Ph.D.Supervisor ,Accounting professor of economics and management Oceanwide holdings Independent Director Semir Independent Director Jinyu medicine Independent Director Xie Jincheng Zhongnan University of Economics and professor at the School of Finance, Deputy Director Law of China Investment Research Center Lu Yanying Wuhan University Accounting professor of economics and management Shanli Shares Independent Director Posts held at other units III. Remuneration of directors, supervisors and senior executives √Applicable □Not applicable 45 / 139 2017 Annual Report The decision-making procedure for remuneration of directors, supervisors and The shareholders' general meeting decided the remuneration . senior executives: The determine of remuneration of the basis of directors, supervisors and senior According to the early development of various economic indicators to determine the end of the completion executives of the total remuneration Remuneration of directors, supervisors and senior executives As of the date of this report, the remuneration of directors, supervisors and senior management personnel have been paid. Total actual remuneration of all directors, supervisors and senior management in Refer to the chapter (1) The change of hold share and remuneration the end of the report period. IV.Change in directors, supervisors and senior executives √Applicable □Not applicable Name Titles Change situation Reason Lu Yanying Independent director Leave his post Re-election of the Board Wang Shiwu Supervisor Election Re-election of the Board Ma Yanping Supervisor Leave his post Re-election of the Board V. Information about the received punishments from the securities regulatory agencies in the most recent three years □Applicable √Not applicable 46 / 139 2017 Annual Report VI. The structure of employees in the parent Company and the principal subsidiaries (1)Particulars of Employees The number of employees in the parent Company 2,894 The number of employees in the principal subsidiaries 923 Total 3,817 Parent Company and subsidiaries are required to bear the costs of 286 retired employees. Divided by function Type Person Production personnel 3,122 Sales personnel 80 Technical personnel 420 Financial personnel 36 Administrative personnel 159 Total 3,817 Education status Type Total(Person) Junior college and above 1,522 Technical secondary shool and Senior High School 2,295 Total 3,817 (2) Remuneration policy √ Applicable □Not applicable According to business development of company status, developed a level of remuneration and benefits p olicies that adapted to the development stage, is committed to create a happy life for the employees.(3) (3) Training plan √ Applicable □Not applicable Staff training is divided into two blocks: 1. pre-job training: training new employees to achieve three lev el training.So that new employees are familiar with and agree with the corporate culture to adapt to work as soon as possible. 2.job training: to carry out a variety of training in accordance with the annual traini ng plan .Enhance staff skills and qualities to ensure that employees complete tasks. (4)Outsourcing situation □ Applicable √ No Applicable (5)Other □ Applicable √ No Applicable 47 / 139 2017 Annual Report IX. Administrative structure I.Basic state of corporate governance √ Applicable □Not applicable During the report period, the company has strictly fulfilled the requirements of ―Corporate Law‖, ―Securities Law‖, ―Articles of Association‖, China Securities Regulatory Commission, Shanghai Stock Exchange, the relevant laws and regulations and the regular documents, continuously improved the corporate governance structure, strengthened the information disclosure, standardized the company’s operation, and enhanced the governance level of the company. The shareholders meeting, the Board of Directors, the Supervisor Committee and the management of the company shall have clear rights and duties, and the corporate governance structure of the company has basically met the modern enterprise system and the requirements of ―Governance Rules of Listed Companies‖. To continually strengthen the relevant standard governance, the company has issued ―Annual Evaluation Report of Internal Control for Dongbei B Shares ‖, ―Audit Report of Internal Control for Dongbei B Shares‖, ―Management Method of Foreign Investment for Dongbei B Shares‖ and other series of standard governance system of the company according to the relevant laws and regulations of China Securities Regulatory Commission and Shanghai Stock Exchange. The company has abided by ―Registration and Filing System on Learners of Inside Information for Dongbei B Shares‖, ―Confidential System of Inside Information for Dongbei B Shares‖ and ―Registration and Management System on Learners of Inside Information for Dongbei B Shares‖ to conscientiously do the registration and record on learners of inside information well, and timely fill in the registration form of inside information learners.During the reporting period, the company strictly in accordance with the requirements of the above system, strict implementation of the relevant provisions, earnestly inside information insider's registration, filing work to strengthen the confidentiality of inside information, to ensure fair information disclosure. Does there exist any difference in compliance with the corporate governance , the PRC Company Law and the relevant provisions of CSRC,Any discrepancies should explain why □Applicable √Not applicable II. Brief Introduction of Shareholders' General Meeting Sessions Meeting Date Disclosure index Disclosure date Annual Genral Meeting of May 24,2017 www.sse.com.cn May 25,2017 2016 The statement of Shareholders' General Meeting: √ Applicable □Not applicable Proposal on Amending the Articles of Association of the Company; The 2016 Annual General Meeting of Shareholders examined and approved the following proposals: The Work Report of the Board of Directors For 2016; The work Report of the Supervisory Committee for 2016; 48 / 139 2017 Annual Report Annual report for 2016 and its summary; Proposal for the Final Accounting Report for 2016; Proposal for the Preplan for Profit Distribution for 2016; Proposal for Renewing the Engagement of Certified Public Accountants and the Proposal for Internal Audit Institution; Proposal of the company and its subsidiaries' 2017-year applying for a comprehensive credit line and the authorization for providing guarantee to the financing within the comprehensive credit line Proposal on Providing the Guarantee to the Company’s Controlling Shareholder and its Subsidiaries in 2017; Proposal on Providing the Guarantee to Huangshi Aibo Technology Development Co., Ltd; Proposal for The information of Daily Related Transactions of 2016 and Announcement of Expected Daily related transactions in 2017; Proposal for Election of Directors; Proposal for Election of Independent Directors; Proposal for Election Supervisors. III. Routine work of the board of directors (1)Board meetings and resolutions Attendance of the Attendance of board meetings sharehoolders’ general meeting The Whethe attend Whether on r the ance Number the reasons indepen record of why not Name The Attenda dent of meetings personally The attendance supposed nce director shareh attendance Absence attend the record of times of through s oolder by means (times) meeting of the sharehoolders’ attendance agent s’ of board of general meeting this year (times) genera communic director for l ation twice meetin successively. g Zhu No 5 5 3 0 0 No 1 Jinming Lin No 5 5 3 0 0 No 1 Yinkun Ruan No 5 5 3 0 0 No 1 Zhengya Zhao Yes 5 5 3 0 0 No 1 Dayou Yu Yes 5 5 3 0 0 No 1 Yumiao Xie Yes 3 2 3 1 0 No 1 Jincheng Lu Yes 2 2 1 0 0 No 1 Yanying Explanation personally did not attend two consecutive meetings of the Board □Applicable √Not applicable 49 / 139 2017 Annual Report The number of the meetings of the board of directors 5 within the year Of which: Number of field meetings 2 Number of meetings held by means of communication 3 Site and the number of meetings was held of 0 communication (2)Objection of independent directors on some relevant issues □Applicable √Not applicable (3)Other □Applicable √Not applicable IV.Important observations and recommendations in their duties during the reporting period raised under the Special Committee of the Board √ Applicable □Not applicable During the reporting period, the Board of Directors under the special committee are in favor of the bill under consideration in the performance of their duties, have not made other comments and suggestions. V.The Supervisory Committee found that the company's explanation risk √ Applicable □Not applicable During the reporting period, the Supervisory Committee of the company regularly reports, according to the operation, financial condition, as well as related party transactions and other internal control self-assessment report and other work to perform supervisory duties. Supervisory Committee on oversight matters during the reporting period without objection. VI. The company and its controlling shareholder in business, personnel, assets, organization, finance and other aspects of existence does not guarantee the independence, can not maintain the ability to operate independently of note □Applicable √Not applicable The company's countermeasures, work schedule and follow-up work plan to the existed horizontal competition □Applicable √Not applicable VII.Particulars about mechanism of appraisal of senior executives and establishment and implementation of stimulation mechanism in the report period √ Applicable □Not applicable During the reporting period, Dongbei B shares senior management compensation management approach "firm basis for consideration by the Board of Directors and the annual management objectives for senior managers to check and assessment. VIII. Whether disclose the self-assessment report on internal control √ Applicable □ Not applicable The company will disclose the Company’s 2017 Annual Self-assessment Report on Internal Control at the date of disclosing the annual report, for the full text, please see the company’s announcements 50 / 139 2017 Annual Report disclosed on Shanghai Stock Exchange website (www.sse.com.cn). Description of material deficiencies in the internal control during the reporting period □ Applicable √ Not applicable IX. Statement on auditor's report on internal control The Company prepared and disclosed Report on Self-evaluation of Internal Control for 2017. Hubei Daxin Certified Public Accountants Co., Ltd. audited the internal control of the Company and issued Auditor's Report on Internal Control. The full text of the said report was published at the website of Shanghai Stock Exchange (http: / / www.sse.com.cn). Refer to the appendix for details of the auditor's report on internal control. Whether the disclosure of internal control audit report: Yes X.Other □ Applicable √ Not applicable X. Corporation bonds □ Applicable √ Not applicable 51 / 139 2017 Annual Report XI. Financial Report I.Auditor’s Reoprt √ Applicable □ Not applicable Auditor’s Reoprt Da Xin Shen Zi (2018)No.:2-00315 To all shareholders of Huangshi Dongbei Electrical Appliance Co., Ltd. I. Opinion We have audited the financial statements of Huangshi Dongbei Electrical Appliance Co., Ltd. (hereinafter referred to as "the Company"), which comprise the balance sheet as at December 31, 2017, and the income statement, the statement of cash flows and the statement of changes in owners' equity for the year then ended and notes to the financial statements. In our opinion, the attached financial statements are prepared, in all material respects, in accordance with Accounting Standards for Business Enterprises and present fairly the financial position of the Company as at December 31, 2017 and its operating results and cash flows for the year then ended. II. Basis for Our Opinion We conducted our audit in accordance with the Auditing Standards for Certified Public Accountants in China. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. According to the Code of Ethics for Chinese CPA, we are independent of the Company in accordance with the Code of Ethics for Chinese CPA and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. III. KeyAudit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. (A) Recognition of domestic operating income 1. Description of the matter Please refer to the related disclosures of Note 3-(21) and Note 5-(34) of the financial report. The Company's operating income mainly comes from the sales of refrigeration compressor products to refrigeration equipment manufacturers in domestic and overseas markets. According to the company's accounting policy, there are two ways to recognize the income of the domestic business: the first one is recognizing the income upon the purchaser's confirmation of receipt after its use; the second way is recognizing the income when sending out the goods. We focus on the cut-off of the recognition of operating income in the first approach, as there may be a time difference between the timing of the receipt of the product by the domestic refrigeration equipment manufacturer 52 / 139 2017 Annual Report and the time of sales confirmation, leading to that there may be a risk that the sales income is not recognized within the appropriate period. Therefore, we deem the recognition of domestic operating income as a key audit matter. 2. Countermeasures in Audit Our main audit procedures carried out for income recognition are as follows: (1) Understand the internal control loop of sales and payments collection, test and evaluate the effectiveness of the design and implementation of internal controls related to income recognition; (2) Through the interview with the management of the company (hereinafter referred to as ―the management‖) to understand the income recognition policy, check the relevant clauses of the major customers’ contracts, analyze whether the actual implementation of the income recognition policy is appropriate, and review whether the relevant accounting policies are consistently applied; (3) Examine the original documents such as contracts or orders, delivery orders, receipts, shipping documents and so forth of major customers, and verify whether the income recognition is consistent with the disclosed accounting policy; (4) Implement the analysis procedure for the operating income, compare it with the historical gross profit margin, analyze the changes in the gross profit margin, and review the rationality of the income; (5) For the domestic sales business, the documents related to income recognition, such as contracts or orders, signed delivery receipts and billing statements, are checked through sampling; (6) Perform the cut-off test on operating income to confirm whether the income recognition is recorded in the correct accounting period. A comparative analysis of the changes in income shall be carried out to mainly compare the annual income and the income of the short-period near the end of the year with those in the same period in previous years, and the confirmation procedure shall be carried out for the major customers to understand the reasons for the differences, with selecting the customer confirmation receipts before and after the date of the balance sheet for checking the accounting records. (B) The relationship between related parties and the completeness of the transaction 1. Description of the matter Please refer to the relevant disclosures in note7 of the financial report. As of December 31, 2017, the Company had related party transactions involving different types of transactions with related parties, and we make our attention deeming the relationship between related parties and the completeness of the transaction as the key audit matter. 2. Countermeasures in Audit Our main audit procedures for the related parties’ relationship and their related transactions are as follows: (1) Get to know the controls related to the related transaction of related parties, test and evaluate the effectiveness of the design and implementation of internal controls related to related parties’ transaction; (2) Examine the relevant records or documents to determine whether there are related party relationships or related party transactions that the management has not previously identified or disclosed 53 / 139 2017 Annual Report to certified public accountants; (3) During the audit process, be vigilant about the following transactions and consider whether there are related parties that are not identified at the time of the planned audit; 1. Transactions with unusual conditions in price interest rates, guarantees, payments, etc.; 2. Transactions with clear illogic on business grounds; 3. Transactions with that the substance is inconsistent with the form; 4. Transactions handled in an abnormal manner; 5. Large or significant transactions with certain customers or suppliers. IV. Other information The management of the Company is responsible for the other information. The other information comprises information of the Company's annual report in 2017, but excludes the financial statements and our auditor's report. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard V. Responsibilities of Management and Those Charged with Governance for the Financial Statements The Company's management is responsible for preparing the financial statements in accordance with the requirements of Accounting Standards for Business Enterprises to achieve a fair presentation, and for designing, implementing and maintaining internal control that is necessary to ensure that the financial statements are free from material misstatements, whether due to frauds or errors. In preparing the financial statements, management of the Company is responsible for assessing the Company's ability to continue as a going concern, disclosing matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. VI. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the audit standards will always detect a material misstatement when 54 / 139 2017 Annual Report it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: (1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, omissions, misrepresentations, or the override of internal control. (2) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. (3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management of the Company. (4) Conclude on the appropriateness of using the going concern assumption by the management of the Company, and conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern. (5) Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (6) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements and bear all liability for the opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit matters, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation 55 / 139 2017 Annual Report precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Hubei Daxin Certified Public Accountants Co., Ltd. ( Special General Partnership) Chinese C.P.A.: Suo Baoguo(Project Partner) Beijing China Chinese C.P.A.:Zhang Ling March 29, 2018 II.Financial statements Consolidated Balance Sheet December 31,2017 Prepared by: Huangshi Dongbei Electrical Appliance Co., Ltd. In RMB Year-beginning Items Notes Year-end balance balance Current asset: Monetary fund 628,730,491.66 429,055,741.89 Settlement provision Outgoing call loan Financial assets measured at fair value with variations accounted into current income account Derivative financial assets Note receivable 760,479,711.09 670,495,870.59 Account receivable 996,019,110.70 1,036,597,776.58 Prepayments 90,052,403.74 63,177,349.54 Insurance receivable Reinsurance receivable Provisions of Reinsurance contracts receivable Interest receivable Dividend receivable Other account receivable 2,501,172.05 8,586,619.35 Repurchasing of financial assets Inventories 547,305,010.27 385,268,984.66 Assets held for sales Non-current asset due in 1 year Other current asset 82,726,575.63 78,299,066.78 Total of current assets 3,107,814,475.14 2,671,481,409.39 Non-current assets: Loans and payment on other’s behalf disbursed Disposable financial asset Expired investment in possess Long-term receivable Long term share equity investment 7,901,853.76 8,807,441.97 Property investment 3,216,703.28 3,381,747.44 Fixed assets 1,438,011,522.04 1,518,584,062.55 Construction in progress 949,471.84 15,656,772.91 Engineering material 56 / 139 2017 Annual Report Fixed asset disposal Production physical assets Gas & petrol Intangible assets 125,139,532.21 123,019,135.36 R & D petrol Goodwill Long-germ expenses to be amortized 7,802,851.16 9,108,739.38 Differed income tax asset 1,149,509.67 1,035,351.89 Other non-current asset 9,603,100.00 Total of non-current assets 1,593,774,543.96 1,679,593,251.50 Total of assets 4,701,589,019.10 4,351,074,660.89 Current liabilities Short-term loans 815,383,660.00 587,927,999.83 Loan from Central Bank Deposit received and hold for others Call loan received Financial liabilities measured at fair value with variations accounted into current income account Derivative financial liabilities Note payable 1,005,984,488.10 973,506,867.88 Account payable 738,352,039.13 664,618,835.28 Advance payment 18,526,191.08 49,836,616.76 Selling of repurchased financial assets Fees and commissions receivable Employees’ wage payable 24,663,399.95 25,199,143.09 Tax payable 29,107,244.83 28,370,056.54 Interest payable 1,650,002.38 5,101,297.79 Dividend payable 10,009,121.12 10,009,121.12 Other account payable 143,212,173.21 143,440,241.74 Reinsurance fee payable Insurance contract provision Entrusted trading of securities Entrusted selling of securities Liabilities held for sales Non-current liability due in 1 year 37,445,000.00 31,820,000.00 Other current liability Total of current liability 2,824,333,319.80 2,519,830,180.03 Non-current liabilities: Long-term loan 288,140,000.00 331,210,000.00 Bond payable Including:preferred stock Sustainable debt Long-term payable 17,085,779.67 Long-term payable employees’s remuneration Special payable 33,000,000.00 33,000,000.00 Expected liabilities Deferred income 144,271,900.16 115,583,696.86 Deferred income tax liability Other non-current liabilities Total non-current liabilities 465,411,900.16 496,879,476.53 Total of liability 3,289,745,219.96 3,016,709,656.56 Owners’ equity Share capital 235,000,000.00 235,000,000.00 Other equity instruments Including:preferred stock Sustainable debt Capital reserves 190,111,836.26 190,111,836.26 Less:Shares in stock 57 / 139 2017 Annual Report Other comprehensive income 796,147.00 657,887.24 Special reserves Surplus reserves 55,256,956.71 49,674,959.93 Common risk provision Undistributed profit 666,010,843.42 611,690,176.32 Total of owner’s equity belong to the parent company 1,147,175,783.39 1,087,134,859.75 Minority shareholders’ equity 264,668,015.75 247,230,144.58 Total of owners’ equity 1,411,843,799.14 1,334,365,004.33 Total of liabilities and owners’ equity 4,701,589,019.10 4,351,074,660.89 Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li Balance sheet of Parent Company December 31, 2017 Prepared by: Huangshi Dongbei Electrical Appliance Co., Ltd. In RMB Year-beginning Items Notes Year-end balance balance Current asset: Monetary fund 321,873,553.97 225,396,406.02 Financial assets measured at fair value with variations accounted into current income account Derivative financial assets Note receivable 369,888,786.14 348,398,992.67 Account receivable 728,126,242.00 689,089,915.64 Prepayments 98,583,037.30 110,216,234.42 Interest receivable Dividend receivable Other account receivable 327,894.18 134,441.17 Inventories 329,329,383.10 217,842,285.95 Assets held for sales Non-current asset due in 1 year Other current asset 15,427,138.91 2,042,644.38 Total of current assets 1,863,556,035.60 1,593,120,920.25 Non-current assets: Disposable financial asset Expired investment in possess Long-term receivable Long term share equity investment 188,161,074.70 188,161,074.70 Property investment Fixed assets 482,573,300.37 519,881,126.79 Construction in progress 133,333.34 480,079.05 Engineering material Fixed asset disposal Production physical assets Gas & petrol Intangible assets 41,111,546.00 41,673,353.92 R & D petrol Goodwill 58 / 139 2017 Annual Report Long-germ expenses to be amortized 4,258,993.22 5,957,730.82 Deferred income tax asset Other non-current asset 9,603,100.00 Total of non-current assets 725,841,347.63 756,153,365.28 Total of assets 2,589,397,383.23 2,349,274,285.53 Current liabilities Short-term loans 458,383,660.00 247,948,999.83 Financial liabilities measured at fair value with variations accounted into current income account Derivative financial liabilities Note payable 460,809,023.95 462,515,322.64 Account payable 806,055,861.62 301,225,802.55 Advance payment 5,837,906.70 511,643,233.56 Employees’ wage payable 8,379,039.88 9,747,409.36 Tax payable 20,571,977.73 19,567,926.14 Interest payable 606,970.83 2,213,548.96 Dividend payable Other account payable 66,759,498.07 63,810,787.84 Liabilities held for sales Non-current liability due in 1 year Other current liability Total of current liability 1,827,403,938.78 1,618,673,030.88 Non-current liabilities: Long-term loan Bond payable Including:preferred stock Sustainable debt Long-term payable Employees’ wage payable Special payable 33,000,000.00 33,000,000.00 Expected liabilities Deferred income 30,205,402.83 31,133,180.83 Deferred income tax liability Other non-current liabilities Total of Non-current liabilities 63,205,402.83 64,133,180.83 Total of liability 1,890,609,341.61 1,682,806,211.71 Owners’ equity Share capital 235,000,000.00 235,000,000.00 Other equity instrument Including:preferred stock Sustainable debt Capital reserves 90,801,937.51 90,801,937.51 Less:Shares in stock Other comprehensive income Special reserves Surplus reserves 55,256,956.71 49,674,959.93 Undistributed profit 317,729,147.40 290,991,176.38 Total of owners’ equity 698,788,041.62 666,468,073.82 Total of liabilities and owners’ equity 2,589,397,383.23 2,349,274,285.53 Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li 59 / 139 2017 Annual Report Consolidated Income Statement January –December 2017 In RMB Year-end Year-beginning Items Notes balance balance I. Income from the key business 3,789,307,855.30 3,473,518,271.43 Incl:Business income 3,789,307,855.30 3,473,518,271.43 Interest income Insurance fee earned Fee and commission received II. Total business cost 3,708,101,842.52 3,400,348,060.76 Incl:Business cost 3,226,141,993.06 2,942,880,386.91 Interest expense Fee and commission paid Insurance discharge payment Net claim amount paid Insurance policy dividend paid Insurance policy dividend paid Reinsurance expenses Business tax and surcharge 31,209,925.82 18,724,758.10 Sales expense 125,284,709.02 121,943,017.53 Administrative expense 264,325,298.20 271,215,165.05 Financial expenses 53,795,275.40 41,029,022.62 Asset impairment loss 7,344,641.02 4,555,710.55 Add:Gains from change of fir value (―-‖for loss) Investment gain(―-‖for loss) -905,588.21 1,778,523.43 Incl: investment gains from affiliates -905,588.21 1,778,523.43 Assets disposal income Gains from currency exchange(―-‖for loss) Other income 13,851,422.70 III. Operational profit(―-‖for loss) 94,151,847.27 74,948,734.10 Add :Non-operational income 32,075,422.19 45,611,069.89 Less:Non business expenses 11,832,330.93 8,618,013.35 IV.Total profit(―-‖for loss) 114,394,938.53 111,941,790.64 Less:Income tax expenses 13,554,403.48 10,771,360.72 V. Net profit 100,840,535.05 101,170,429.92 V. Net profit 1.Net continuing operating profit 100,840,535.05 101,170,429.92 2.Termination of operating net profit Net profit attributable to the owners of parent company Minority shareholders’ equity 17,437,871.17 18,130,066.26 VI. Other comprehensive income 83,402,663.88 83,040,363.66 Net of profit of other comprehensive income attributable to owners of t 138,259.76 131,867.57 he parent company. (I)Other comprehensive income items that will not be reclassified 138,259.76 131,867.57 into gains/losses in the subsequent accounting period 1.Re-measurement of defined benefit plans of changes in net debt or n et assets 2.Other comprehensive income under the equity method investee can n ot be reclassified into profit or loss. (II) Other comprehensive income that will be reclassified into profit or loss . 1.Other comprehensive income under the equity method investee can b 138,259.76 131,867.57 e reclassified into profit or loss. 2.Gains and losses from changes in fair value available for sale financi 60 / 139 2017 Annual Report al assets 3.Held-to-maturity investments reclassified to gains and losses of avail able for sale financial assets 4.The effective portion of cash flow hedges and losses 5.Translation differences in currency financial statements 6.Other 138,259.76 131,867.57 Net of profit of other comprehensive income attributable to Minority shareholders’ equity VII. Total comprehensive income VII. Total comprehensive income 100,978,794.81 101,302,297.49 Total comprehensive income attributable to the owner of the parent 83,540,923.64 83,172,231.23 company Total comprehensive income attributable minority shareholders 17,437,871.17 18,130,066.26 VIII. Earnings per share (I)Basic earnings per share 0.36 0.35 (II)Diluted earnings per share Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li Income statement of the Parent Company January -December 2017 In RMB Amount of the Report Amount of previous Items Notes period year I. Income from the key business 2,966,805,199.80 3,042,481,779.09 Incl:Business cost 2,688,367,049.23 2,787,965,412.28 Business tax and surcharge 13,138,689.12 7,177,381.01 Sales expense 67,492,384.83 70,759,721.81 Administrative expense 123,419,191.87 134,314,332.62 Financial expenses 20,048,487.07 688,406.12 Asset impairment loss -273,898.02 636,084.09 Add:Gains from change of fir value (―-‖for loss) Investment gain(―-‖for loss) Incl: investment gains from affiliates Assets disposal income Other income 1,832,178.00 II. Operational profit(―-‖for loss) 56,445,473.70 40,940,441.16 Add :Non-operational income 7,207,249.43 8,047,943.76 Less:Non business expenses 7,832,755.33 7,377,623.94 III.Total profit(―-‖for loss) 55,819,967.80 41,610,760.98 Less:Income tax expenses 3,716,807.47 IV. Net profit(―-‖for net loss) 55,819,967.80 37,893,953.51 1.Net continuing operating profit 55,819,967.80 37,893,953.51 2.Termination of operating net profit V.Net of profit of other comprehensive income (I)Other comprehensive income items that will not be reclassified into gains/losses in the subsequent accounting period 1.Re-measurement of defined benefit plans of changes in net debt or net assets 2.Other comprehensive income under the equity metho d investee can not be reclassified into profit or loss. ( II ) 61 / 139 2017 Annual Report Other comprehensive income that will be reclassified i nto profit or loss. 1.Other comprehensive income under the equity metho d investee can be reclassified into profit or loss. 2.Gains and losses from changes in fair value available for sale financial assets 3.Held-to-maturity investments reclassified to gains an d losses of available for sale financial assets 4.The effective portion of cash flow hedges and losses 5.Translation differences in currency financial stateme nts 6.Other VI. Total comprehensive income 55,819,967.80 37,893,953.51 VII. Earnings per share: (I)Basic earnings per share (II)Diluted earnings per share Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li Consolidated Cash flow statement January-December 2017 In RMB Amount of the Amount of Items Notes Report period previous year I.Net cash flow form business operation Cash received from sales of products and providing of services 2,800,254,300.57 2,744,385,266.38 Net increase of customer deposits and capital kept for brother company Net increase of loans from central bank Net increase of inter bank loans from other financial bodies Cash received against original insurance contract Net cash received from reinsurance business Net increase of client deposit and investment Net increase of trade financial asset disposal Cash received as interest, processing fee, and commission Net increase of inter bank fund received Net increase of repurchasing business Tax returned 113,612,159.78 112,928,926.23 Other cash received from business operation 45,726,450.69 37,538,744.06 Subtotal of cash inflow from business activities 2,959,592,911.04 2,894,852,936.67 Cash paid for purchasing of merchandise and services 2,097,750,457.72 2,356,090,130.42 Net increase of client trade and advance Net increase of savings in central bank and brother company Cash paid for original contract claim Cash paid for interest, processing fee and commission Cash paid for policy dividend Cash paid to staffs or paid for staffs 351,279,133.25 339,660,734.12 Taxes paid 93,297,343.62 61,943,010.32 Other cash paid for business activities 250,483,140.11 224,467,561.91 Subtotal of cash outflow from business activities 2,792,810,074.70 2,982,161,436.77 Cash flow generated by business operation, net 166,782,836.34 -87,308,500.10 II. Cash flow generated by investing 62 / 139 2017 Annual Report Cash received from investment retrieving Cash received as investment gains 27,395,464.63 Net cash retrieved from disposal of fixed assets, intangible assets, and 418,106.00 54,459.00 other long-term assets Net cash received from disposal of subsidiaries or other operational units Other investment related cash received 41,169,600.00 17,380,000.00 Subtotal of cash inflow due to investment activities 41,587,706.00 44,829,923.63 Cash paid for construction of fixed assets, intangible assets and other 82,216,943.75 155,365,478.49 long-term assets Cash paid at investment Net increase of loan against pledge Net cash received from subsidiaries and other operational units Other cash paid for investment activities Subtotal of cash outflow due to investment activities 82,216,943.75 155,365,478.49 Net cash flow generated by investment -40,629,237.75 -110,535,554.86 III.Cash flow generated by financing Cash received as investment Incl: Cash received as investment from minor shareholders Cash received as loans 1,126,687,380.00 944,221,000.00 Cash received from bond placing Other financing –related cash received 146,000,000.00 Subtotal of cash inflow from financing activities 1,126,687,380.00 1,090,221,000.00 Cash to repay debts 909,194,200.00 946,395,080.17 Cash paid as dividend, profit, or interests 102,031,328.93 54,414,049.82 Incl: Dividend and profit paid by subsidiaries to minor shareholders Other financing –related cash received 18,333.06 146,002,231.17 Subtotal of cash outflow due to financing activities 1,011,243,861.99 1,146,811,361.16 Net cash flow generated by financing 115,443,518.01 -56,590,361.16 IV. Influence of exchange rate alternation on cash and cash equivalents -1,955,462.28 2,333,306.96 V.Net increase of cash and cash equivalents 239,641,654.32 -252,101,109.16 Add:Balance of cash and cash equivalents at the beginning of term 301,740,407.38 553,841,516.54 VI. Balance of cash and cash equivalents at the end of term 541,382,061.70 301,740,407.38 Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li Parent Company Cash flow statement January –December 2017 In RMB Amount of the Report Amount of previous Items Notes period year I.Cash flow from operating activities Cash received from sales of goods or rending of services 2,249,873,364.05 1,915,256,810.24 Refunded taxes and levies 107,537,659.78 93,765,940.68 Other cash receipts related to operating activities 18,198,715.15 12,062,922.97 Subtotal of cash inflow 2,375,609,738.98 2,021,085,673.89 Cash paid for purchasing commodities and accepting labor 2,060,571,813.53 1,686,034,617.03 Cash paid to staffs or paid for staffs 151,779,119.22 147,245,419.10 Taxes paid 12,703,551.92 13,193,155.76 Other cash paid for business activities 138,302,989.37 144,330,888.59 Sub-total of cash outflow 2,363,357,474.04 1,990,804,080.48 Cash flow generated by business operation, net 12,252,264.94 30,281,593.41 II.Cash flow generated by investing Cash received from investment retrieving Cash received as investment gains 27,395,464.63 Net cash retrieved from disposal of fixed assets, intangible 265,106.00 54,459.00 63 / 139 2017 Annual Report assets, and other long-term assets Net cash received from disposal of subsidiaries or other operational units Other investment-related cash received 600,000.00 Sub-total of cash inflow 865,106.00 27,449,923.63 Cash paid for construction of fixed assets, intangible assets and 37,133,146.25 36,146,499.91 other long-term assets Cash paid as investment Net cash received from subsidiaries and other operational units Other cash paid for investment activities Sub-total of cash outflow 37,133,146.25 36,146,499.91 Net cash flow generated by investment -36,268,040.25 -8,696,576.28 III.Cash flow generated by financing Cash received as investment Cash received as loans 715,687,380.00 569,742,000.00 Cash received from bond placing Other financing –related cash received Subtotal of cash inflow from financing activities 715,687,380.00 569,742,000.00 Cash to repay debts 506,770,200.00 669,575,400.17 Cash paid as dividend, profit, or interests 51,487,427.78 15,683,233.27 Other financing –related cash received Subtotal of cash outflow due to financing activities 558,257,627.78 685,258,633.44 Net cash flow generated by financing 157,429,752.22 -115,516,633.44 IV. Influence of exchange rate alternation on cash and cash -2,093,722.04 2,208,124.01 equivalents V.Net increase of cash and cash equivalents 131,320,254.87 -91,723,492.30 Add: balance of cash and cash equivalents at the beginning of 179,977,299.10 271,700,791.40 term VI ..Balance of cash and cash equivalents at the end of term 311,297,553.97 179,977,299.10 Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li 64 / 139 2017 Annual Report Consolidated Statement on Change in Owners’ Equity January-December 2017 In RMB Amount in this period Owner’s equity Attributable to the Parent Company Other Equity Capital Less Minor Items instrusment reserves Spec Com Total of : Other shareholders’ Shar Comprehe ializ Surplus mon Attributable owners’ equity Share Capital preferr ed risk equity Sustai Othe es in nsive reserves profit ed reser prov nable r stoc Income stock ve ision debt k 235,000,000.0 190,111,836.2 657,887.2 49,674,959. 611,690,176.3 247,230,144.5 1,334,365,004. I.Balance at the end of last year 0 6 4 93 2 8 33 Add: Change of accounting policy Correcting of previous errors Merger of entities under common control Other II.Balance at the beginning of 235,000,000.0 190,111,836.2 657,887.2 49,674,959. 611,690,176.3 247,230,144.5 1,334,365,004. current year 0 6 4 93 2 8 33 138,259.7 5,581,996.7 54,320,667.10 17,437,871.17 77,478,794.81 III.Changed in the current year 6 8 ( 1 ) Total comprehensive 138,259.7 83,402,663.88 17,437,871.17 100,978,794.8 income 6 1 (II)Investment or decreasing of capital by owners 1.Ordinary Shares invested by hareholders 2.Holders of other equity instr uments invested capital 3.Allotment to the owners (or shareholders) 4.Other 65 / 139 2017 Annual Report (III)Profit allotment 5,581,996.7 -29,081,996.7 -23,500,000.0 8 8 0 5,581,996.7 -5,581,996.78 1.Providing of surplus reserves 8 2.Providing of common risk -23,500,000.0 -23,500,000.0 provisions 0 0 3.Allotment to the owners (or shareholders) 4.Other (IV) Internal transferring of owners’ equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3.Making up losses by surplus reserves. 4.Other (V). Special reserves 1. Provided this year 2.Used this term (VI)Other 235,000,000.0 190,111,836.2 796,147.0 55,256,956. 666,010,843.4 264,668,015.7 1,411,843,799. IV. Balance at the end of this 0 6 0 71 2 5 14 term Amount in last year Owner’s equity Attributable to the Parent Company Other Equity Minor Items instrusment Spec Comm Total of owners’ Less: Other shareholders’ ializ on equity Capital Shares Comprehe Surplus Attributable equity Share Capital preferr Ot ed risk Sustai reserves in nsive reserves profit ed he reser provis nable stock Income stock r ve ion debt 235,000,000.0 190,111,836.2 526,019.6 45,885,564. 532,439,208.0 229,100,078.3 1,233,062,706.8 I.Balance at the end of last year 0 6 7 58 1 2 4 Add: Change of accounting policy 66 / 139 2017 Annual Report Correcting of previous errors Merger of entities under common control Other 235,000,000.0 190,111,836.2 526,019.6 45,885,564. 532,439,208. 229,100,078.3 1,233,062,706.8 II.Balance at the beginning of 0 6 7 58 01 2 4 current year 131,867.5 3,789,395.3 79,250,968.31 18,130,066.26 101,302,297.49 III.Changed in the current year 7 5 ( 1 ) Total comprehensive 131,867.5 83,040,363.66 18,130,066.26 101,302,297.49 income 7 (II)Investment or decreasing of capital by owners 1.Ordinary Shares invested by hareholders 2.Holders of other equity instr uments invested capital 3.Allotment to the owners (or shareholders) 4.Other (III)Profit allotment 3,789,395.3 -3,789,395.35 5 3,789,395.3 -3,789,395.35 1.Providing of surplus reserves 5 2.Providing of common risk provisions 3.Allotment to the owners (or shareholders) 4.Other (IV) Internal transferring of owners’ equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3.Making up losses by surplus reserves. 4.Other (V). Special reserves 1. Provided this year 67 / 139 2017 Annual Report 2.Used this term (VI)Other 235,000,000.0 190,111,836.2 657,887.2 49,674,959. 611,690,176.3 247,230,144.5 1,334,365,004.3 IV. Balance at the end of this 0 6 4 93 2 8 3 term Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li Statement of change in owner’s Equity of the Parent Company January-December 2017 In RMB Amount in this period Other Equity instrusment Less: Other Items Capital Specialized Surplus Attributable Total of owners’ Share capital preferr Shares in Comprehensiv Sustai Othe reserves reserve reserves profit equity ed stock e Income nable r stock debt 235,000,000.0 90,801,937.51 49,674,959.93 290,991,176.38 666,468,073.82 I.Balance at the end of last year 0 Add: Change of accounting policy Correcting of previous errors Other 235,000,000.0 90,801,937.51 49,674,959.93 290,991,176.38 666,468,073.82 II.Balance at the beginning of 0 current year 5,581,996.78 26,737,971.02 32,319,967.80 III.Changed in the current year ( 1 ) Total comprehensive 55,819,967.80 55,819,967.80 income (II)Investment or decreasing of capital by owners 1.Ordinary Shares invested by 68 / 139 2017 Annual Report hareholders 2.Holders of other equity instr uments invested capital 3.Allotment to the owners (or shareholders) 4.Other (III)Profit allotment 5,581,996.78 -29,081,996.78 -23,500,000.00 1.Providing of surplus reserves 5,581,996.78 -5,581,996.78 2.Allotment to the owners (or -23,500,000.00 -23,500,000.00 shareholders) 3.Other (IV)Internal transferring of owners’ equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3.Making up losses by surplus reserves. 4. Other (V) Special reserves 1. Provided this year 2.Used this term (VI)Other 235,000,000.0 90,801,937.51 55,256,956.71 317,729,147.40 698,788,041.62 IV. Balance at the end of this 0 term Amount in last year Other Equity instrusment Less: Other Specia Items Capital Shares Compre lized Total of owners’ Share Capital preferre Surplus reserves Attributable profit Sustaina Other reserves in hensive reserv equity d stock stock Income e ble debt 235,000,000.0 90,801,937.51 49,674,959.93 290,991,176.38 666,468,073.82 I.Balance at the end of last year 0 Add: Change of accounting policy 69 / 139 2017 Annual Report Correcting of previous errors Other 235,000,000.0 90,801,937.51 49,674,959.93 290,991,176.38 666,468,073.82 II.Balance at the beginning of 0 current year III.Changed in the current year ( 1 ) Total comprehensive income (II)Investment or decreasing of capital by owners 1.Ordinary Shares invested by hareholders 2.Holders of other equity instr uments invested capital 3.Allotment to the owners (or shareholders) 4.Other (III)Profit allotment 1.Providing of surplus reserves 2.Allotment to the owners (or shareholders) 3.Other (IV)Internal transferring of owners’ equity 1. Capitalizing of capital reserves (or to capital shares) 2. Capitalizing of surplus reserves (or to capital shares) 3.Making up losses by surplus reserves. 4.Other (V) Special reserves 1. Provided this year 2.Used this term (VI)Other IV. Balance at the end of this 235,000,000.0 90,801,937.51 49,674,959.93 290,991,176.38 666,468,073.82 term 0 70 / 139 2017 Annual Report Legal Representative: Zhu Jinming Person in charge of accounting:Lu Lihua Accounting Dept Leader: Ma Li 71 / 139 2017 Annual Report III.Basic Information of the Company I.Company profile √ Applicable □ Not applicable 1. Enterprise registration address, organization mode and headquarter address. Huangshi Dongbei Electrical Appliance Co., Ltd. (hereinafter referred to as the "Company" or the "Company") March 10, 1999 registered in Hubei Province Administration for Industry and Commerce, on July 15, 1999 are traded on the Shanghai Stock Exchange. Companies registered capital of RMB 235 million, equity amounted to 235 million shares, par value of 1 yuan. Of which 117.60 million shares of state-owned legal person shares, held by Huangshi Dongbei Electromechanical Group Co., Ltd ; 2.4 million for corporate shares, by Changzhou Zhongke Electrical Manufacturing Co., Ltd., Changshu Tianyin Electromechanical Co., Ltd., Zhejiang Lisheng Electromechanical Manufacturing Co., Ltd., Shaoxing Xingbei Pressing Co., Ltd., Wuhan Xinhua Pressing Co., Ltd. five promoters hold; 115 million shares of B shares outstanding. Registered Address: No.6, Jinshan East Road, Economic & Technology Development Zone, Huangshi City, Hubei Province. Unified social credit code : 91420000710920880L Registered Capital : RMB 235 million Legal Representative:Zhu Jinming 2.The nature of the company's business and main business activities. The company's main business for refrigeration compressors, compressor motor production and sales. Major customers for refrigerators, freezers and other refrigeration products manufacturer. Business scope: Production and sales of refrigeration compressors and compressor motors; development, production and consultation of high-tech products; sales of compressor parts and components; leasing of personal property and real estate; providing of high-tech product inspection and test & inspection services; warehousing services. (Projects that are subject to approval according to the law can only be carried out after approval by the relevant department) II. Consolidated financial statements √ Applicable □ Not applicable The company will be fully owned subsidiary included in the consolidated financial statements, including Wuhu Abaur Mechnical & Electrical Co., Ltd., Huangshi Dongbei Foundry Co., Ltd,. Dongbei Electromechanical (Jiangsu) Co., Ltd., Dongbei(Wuhan) Technology Innovation Co., Ltd., Alashankou Dongbei Clean Energy Co., Ltd. ,Dongbei International Trade Co., Ltd..,Dongbei (Wuhu) Electromechanical Co., Ltd.,Huangshi Donglian New Energy Co., Ltd., Fengtai Donglian New Energy Co., Ltd.,Wutai Jinhe New Energy Co., Ltd.Thereinto, Huangshi Donglian New Energy Co., Ltd, Fengtai Donglian New Energy Technology Co., Ltd and Wutai County Jinhe New Energy Co., Ltd are 72 / 139 2017 Annual Report the newly added second-tier subsidiaries in the year and have not started normal operations; as of the date of the report, Huangshi Donglian New Energy Co., Ltd and Fengtai Donglian New Energy Technology Co., Ltd are handling the simple cancellation procedure, and Wutai County Jinhe New Energy Co., Ltd was cancelled on May 22, 2017. IV. Basis for the preparation of financial statements 1.Basis for the preparation The preparation of financial statements of the company based on continuous operation.Base on actual transactions and events occurring, according to the ministry of finance issued ―Accounting Standards for Enterprises - Basic Standards‖ specific accounting standards, application guidelines of accounting standards which was promulgated after, accounting standards interpretation and other requirements (hereafter named ―Enterprise Accounting Standard‖), based on the significant accounting policies described below, and will have the preparation to the accounting estimation. 2.Continuous operation. √ Applicable □ Not applicable The Company since 12 months after the reporting period does not exist on the company's continued viab ility of significant concern events or circumstances. V.Significant accounting policies and accounting estimates Specific accounting policies and accounting estimates tips: □Applicable√Not applicable 1.Statement for complying with the accourting standard The financial statements prepared by the Company comply with the requirements of corporate accounting standards. They truly and completely reflect the financial situations, operating results and other relevant information of the company. 2.Fiscal Year The Company adopts the Gregorian calendar year commencing on January 1 and ending on December 31 as the fiscal year. 3.Operating cycle √ Applicable □ Not applicable The company has a 12 -month operating cycle, and its assets and liabilities as liquidity criteria for the classification. 4.Standard currency for bookkeeping The Company takes RMB as the standard currency for bookkeeping. 5.Accounting treatment for corporate merger under the same control or different control √ Applicable □ Not applicable 1. corporate merger under the same control For the merger of enterprises under the same control, if the consideration of the merging is that it 73 / 139 2017 Annual Report makes payment in cash, transfers non-cash assets or bears its liabilitys, we will, on the date of merger, regard the share of the book value of the merged party’s net assets in its owner’s consolidated financial statement as the initial cost of the long-term equity investment. If the consideration of the merging party is that it issues equity instruments, he total face value of stocks issued will be regarded as the capital stock. The difference between the initial cost of the long-term equity investment and book value of consideration (or the face value of stocks issued) shall offset against the capital reserve. If the capital reserve is insufficient to dilute, the retained earnings shall be adjusted. 2. corporate merger under different control For the merger under different control, the merger cost is the total fair value of the assets paid, liability incurred or bored, and equity securities issued by the merging party to acquire the control right of the merged party on the date of merger. Acquired identifiable asset, liability or contingent assets that conform to conditions will be calculated by fair value on the date of merger. The balance of the merger cost over the merged party’s fair value of identifiable net asset usually accounts for the value of goodwill. If the merger cost is lower than the merged party’s fair value of identifiable net asset, and remains so after review, the balance accounts for the non-operating revenue. 6.Preparation of consolidated financial statement √ Applicable □ Not applicable 1. Scope of consolidated financial statement We include all subsidiaries (including independent entity under our control) into the scope of consolidated statement, including enterprises under our control, separable parts of investment recipients and structure entity. 2.Unify the accounting policies, balance sheet and accounting period of parent company and subsidiaries. Subsidiaries and the company adopted accounting policies or be inconsistent in the accounting period, in preparing Consolidation financial statements, in accordance with the company accounting policies or has the necessary adjustments to financial statements of the subsidiary during the accounting period. 3. Offset items in consolidated financial statement Based on the balance sheet of parent company and subsidiaries, the consolidated financial statement already offsets internal transaction between the parent company and subsidiaries or between subsidiaries. The owners’ equity of subsidiaries that does not belong to the share of the parent company, as the equity of minority shareholders, will be listed as the ―Minority Shareholder Equity‖ under the item ―owners’ equity‖ in the consolidated balance sheet. Long-term equity investment of the parent company held by the subsidiary will be regarded as the treasury stock of the business group, and as the deduction item of owners’ equity, will be listed as ―deduction: treasury stock‖ under the item ―owners’ equity‖ in the consolidated balance sheet. 4. Accounting treatment of merged subsidiaries For subsidiary obtained by merger under the same control, it is regarded that the merger already 74 / 139 2017 Annual Report happens when the final controller begin the real-time control, its asset, liability, record of performance and cash flow will be included in the consolidated financial statement since the beginning of merger period; for the subsidiary obtained by merger under different control, when preparing the consolidated financial statement, individual financial sheets need to be adjusted on the basis of the fair value of identifiable net asset on the day of merger. 7.Classification of joint arrangements and accounting treatment for joint operation □Applicable√Not applicable 8. The determination standard in cash and cash equivalents The cash has been confirmed when the company drew up the cash flow sheet, it referred to the cash can be used to pay the deposit at any time the cash listed in the cash flow statement refers to the cash in store and the cash can be obtained at any time. Cash equivalent means the holding period of the company is 9.The foreign currency business and the translation of foreign currency financial statement √ Applicable □ Not applicable (1)The foreign currency translation services The company with the foreign occurring currency transactions, which used the standard money by the spot exchange rate on the transaction date to enter an item in an account. The balance sheet date, For monetary items of foreign currency, the spot exchange rate at the date of balance sheet shall be used in conversion. The exchange balance due to the difference between the spot exchange rate at the date of balance sheet and the spot exchange rate at initial confirmation or at the date of previous balance sheet shall be attributed to the profit and loss of current period, except the exchange balance due to the special loans of foreign currency meeting the conditions of capitalization shall be attributed to the cost of related assets based on capitalization during the capitalization.For the non-monetary items of foreign currency measured with historical cost, still the spot exchange rate at the date of transaction shall be used, and the amount of recording currency shall not be changed. For the non-monetary items of foreign currency measured with fair value, the spot exchange rate at the date of the fair value confirmation shall be used in conversion, the difference between the amount of recording currency after conversion and that of initial recording currency is made as the change of fair value, which shall be attributed to the profit and loss of current period or confirmed as other composite income and attributed. (2)The foreign currency financial statements The company with the subsidiaries, joint ventures and integrated enterprises and so on, will use the different functional currency account after the conversion by the foreign currency financial statements, and will have an accounting practice and an editing to the combined financial statements. The assets in the balance sheet and liabilities items, by using the spot exchange rate on the balance sheet date, all equity projects except the item of ―Undistributed Profits‖, other items were calculated by the spot exchange rate. With the income and expense items, it was determined by a systematic and rational approach, and calculated by the approximate exchange rate of the spot exchange rate to convert on the 75 / 139 2017 Annual Report transaction date. The converting differences generated by the foreign currency financial statements, and all equity items in the balance sheet are listed separately.The foreign currency cash flows are determined in accordance with systematical and reasonable way, and calculated by the spot exchange rate on the approximate exchange rate. The impact of the changing exchange rate to the cash amount, is shown separately in the cash flow statement .In disposal of overseas operation, the conversion difference of the foreign currency statements related the overseas operation shall be transferred into the profit and loss of current period in whole or as per the ratio in disposal of the overseas operation. 10.Financial instruments √ Applicable □ Not applicable (1)The classification of financial instruments and recognition The financial instruments classified as financial assets or financial liabilities. The company became a party in the financial instrument contract; it was recognized as the financial asset or the financial liability. The financial assets at the initial recognition are classified as: by measuring at the fair value and its alternation are reckoned into the financial assets of the profit or loss (included trading financial assets and the fair value and its alternation are designated into the financial assets of the profit or loss), the held-to-maturity investment, receivables, and available-for-sale financial assets. Except the receivables beyond the financial assets classification, which depend on the company and their subsidiaries have the intention and ability to hold on. Financial asset calculated by fair value and whose change is included in profit/loss of current period includes the financial asset for short-term sale. Receivable is non-derivative financial asset that has no quotation in the active market and has recognized or recognizable recovering amount. Salable financial asset includes non-derivative financial asset defined as salable type when confirmed initially and financial assets not classified as other types. Held-to-maturity investment refers to non-derivative financial asset with recognized due date, recognized or recognizable recovering amount, and of which the management level has clear purpose and capability to hold to the call date. The financial liabilities at the initial recognition are classified as: by measuring at the fair value and its alternation are reckoned into the financial liabilities of the profit or loss. (2)Measurement of financial instruments The financial assets or financial liabilities are initially recognized as the fair value of the company. The subsequent measurement shall be disposed by classification: the financial assets measured with fair value and having its change attributed to the profit and loss of current period, the salable financial assets and the financial liabilities measured with fair value and having its change attributed to the profit and loss of current period, Held-to-maturity investment, loan, receivable and other financial liability will be calculated by amortized cost; equity instrument investment with no quotation in the active market and whose fair value cannot be reliably measured, and derivative financial assets or liabilities that are connected with the said equity investment and need to be settled by delivering it, will be calculated by 76 / 139 2017 Annual Report cost. The profits and losses arising from the change in the fair value of a financial asset or financial liability shall be dealt with according to the following provisions, unless it is related to hedging: ①The profits and losses, arising from the change in the fair value of the financial asset or financial liability which is measured at its fair value and of which the change is recorded into the profits and losses of the current period, shall be recorded into the profits and losses of the current period; ②The profits and losses arising from the change in the fair value of a sellable financial asset shall be included into other consolidated income . (3)Recognition of the fair value of financial assets and liabilities For financial instrument with active market, its fair value is recognized by the quotation in the active market. For financial instrument without active market, its fair value is recognized by the value appraisal techniques, which mainly includes the market approach, income approach and cost approach. (4)The confirmation of the transferring in financial assets and measurement When the ownership of financial assets is transferring almost all of the risks and rewards, neither transferring nor retaining them, but give up the control of financial assets, and should terminate and recognize it as financial capital . the financial assets satisfied the termination conditions, it should be transferred by measuring; it meant the transferring of the book value in financial assets and consideration received from the transferring, and the balance in the changing amount of fair value which directly included in capital surplus, then reckoned in the profit and loss. If the transfer of partial financial asset satisfies the conditions to stop the recognition, the entire book value of the transferred financial asset shall, between the portion whose recognition has been stopped and the portion whose recognition has not been stopped, be apportioned according to their respective relative fair value. When the existing obligations of the financial liabilities have been fully or partly lifted, it should be terminated and confirmed the financial liabilities or a part of it. (5)The impairment of financial assets Where a financial asset measured on the basis of post-amortization costs is impaired, an impairment provision shall be made according to the difference of the book value over current value of the predicted future cash flow. If there is any objective evidence proving that the value of the said financial asset has been restored, and it is objectively related to the events that occur after such loss is recognized, the impairment-related losses as originally recognized shall be reversed and be recorded into the profits and losses of the current period. If there is any objective evidence proving that a sellable financial asset is impaired, the accumulative losses arising from the decrease of the fair value of the shareholder’s equity which was directly included shall be transferred out and recorded into the impairment losses. For the sellable debt instruments whose impairment losses have been recognized, if the fair value has risen subsequently and are related to the subsequent events that occur after the originally impairment losses were recognized, the originally recognized impairment losses shall be reversed and be recorded into the profits and losses of the current period. For a sellable equity instrument investment whose impairment losses have been 77 / 139 2017 Annual Report recognized, if the fair value has risen subsequently, it shall be included directly into the shareholder’s equity. For the equity instrument investment, we define the ―significant‖ or ―prolonged‖ decline of fair value, calculate cost, recognize the final fair value and define steady decline period according to following standards: Significant decline of fair value The decline of final fair value against cost reaches or exceeds 50% Prolonged decline of fair value decline for 12 consecutive months Total of valuable consideration (deduct announced but not issued Cost calculation cash dividends or due bond interest that hasn’t been drawn) and related transaction fee For financial instrument with active market, its fair value is recognized by the quotation in the active market. For financial Recognition of final fair value instrument without active market, its fair value is recognized by the value appraisal techniques Decline continuously or bound range during the decline tendency Steady decline period sustaining period being lower than 20%, and the bound sustaining period not exceeding 6 months 11.Account receivables (1)Account receivable belong t individual significance and individually assessed for impairment √ Applicable □ Not applicable Judgment criteria or amount standard of material specific The receivable with single amount exceeding RMB 5 amount or amount criterial million (including RMB 5 million) shall be confirmed as the receivable with significant single amount. Provision method with material specific amount and The depreciation loss test is conducted separately, and if provision of specific bad debt preparation an objective evidence indicates depreciation of the receivable, the company shall confirm the depreciation losses and appropriate the depreciation provisions according to the difference by which the current value of future cash flow is lower than its book value. (2)Provision for credit risk characteristics portfolio of bad debts: √ Applicable □ Not applicable Credit risk characteristics of the provision for bad debts method (aging analysis, balance percentage method, other methods) Group basis Items with significant single amount but no need single bad debt provision and items without significant single amount and big risk A method of provision for bad debts provision in Group Group 1 Aging analysis method Appropriate provisions for doubtful accounts according to aging analysis method in group √Applicable □Not applicable Appropriation Ratio of Appropriation Ration of Other Account Age Receivables (%) Receivables (%) Within 1 year(Including 1 year) 2 2 Including:Subitem within 1 year 1-2 years 5 5 2-3 years 30 30 Over 3 years 3-4 years 60 60 78 / 139 2017 Annual Report 4-5 years Over 5 years Over 4 years 100 100 Appropriate provisions for doubtful accounts according to aging analysis method in group □Applicable√Not applicable Appropriate provisions for doubtful accounts according to Other analysis method ingroup □ Applicable √ Not applicable (3)Account receivable with non-material specific amount but specific bad debt preparation √ Applicable □ Not applicable Reason for bad debt provision Difficultly recoverable receivables estimated The depreciation loss test is conducted separately, and if an objective evidence indicates depreciation of the receivable, the company shall confirm the depreciation Method of appropriation of bad debt provision losses and appropriate the depreciation provisions according to the difference by which the current value of future cash flow is lower than its book value. 12.Inventories √ Applicable □ Not applicable (1)Category of inventories Inventories refers to finished goods or merchandise the company holds for sale during its daily operation, work in process, materials consumed during the process of production or services etc. It mainly include raw materials, materials for cyclic use, materials for consigned processing, packaging materials, low-value consumables, work in process, self-made unfinished goods, finished goods (merchandise inventories) etc. (2)Accounting for outgoing inventories When the inventory is delivered, the weighted average method is adopted to determine the actual cost. (3)Inventory and method of appropriating provisions for inventories write-down In the date of balance sheet of assets and liabilities, the provision for depreciation of inventories shall be valuated and appropriated as per the lower between the cost and net realizable value of individual inventory; but for the inventories big quantity and varieties and lower unit price, appropriated as per the type of the inventory. (4)Inventories system The company implements the perpetual inventories system. (5) Amortization of low cost and short lived articles and packing Packaging materials, low-value consumables and other materials for cyclic use are amortized by use of the one-off amortization method. 79 / 139 2017 Annual Report 13.Asset held for sale □Applicable√Not applicable 14.Long-term equity investments √ Applicable □ Not applicable 1.Determining initial investment cost The initial investment cost of a long-term equity investment acquired through business combination under common control is determined at the book value of the acquired equity while in the case of business combination not under common control the combination costs is taken as the initial investment cost; The initial investment cost of a long-term equity investment acquired by cash is the paid purchasing price;For long-term equity investments acquired by issuing equity securities, the initial investment cost is the fair value of the issued equity securities;Long-term equity investment obtained through debt restructuring, the initial investment cost shall be in accordance with "Accounting Standards for Enterprises No. 12 - Debt restructuring" of the relevant provisions; For investments acquired through exchange of non-monetary assets or debt restructuring, the initial investment cost is determined in accordance with relevant rules and regulations. 2.Subsequent measurement and recognition of profit and loss A long-term equity investment of an investing enterprise that is able to control the invested enterprise should be calculated by the cost approach. The long-term equity investment of associated enterprise and joint venture enterprises should be calculated by the equity approach. For investing enterprise’s equity investment to the associated enterprise, if part of it is held indirectly by venture capital institution, mutual foundation, trust company, investment linked insurance foundation or similar entities, no matter those entities have significant influence on this part of investment or not, the investing enterprise should calculate this part of investment by fair value and include its change in the profits and losses according to Accounting Standards for Enterprises No. 22 Recognition and Measurement of Financial Instruments, and calculate the rest part of investment by equity approach. 3.Basis for determining common control or significant influence over invested business Having joint control over invested enterprise indicates that any activity that has significant influence on the return of a certain arrangement shall not be decided until agreed by parties sharing the control right, including the selling and buying of goods or labor service, management of financial assets, purchase and disposal of assets, R&D and financing activities. Significant influence on invested enterprise refers to holding a voting equity of 20% to 50% of invested enterprise. Or, though the voting equity accounts less than 20% but one of following conditions is met: have representative in the board of directors of similar authority of the invested enterprise; participate in the policy formulation of invested enterprise; assign management personnel for invested enterprise; invested enterprise relies on the technology or technical material of the investing enterprise; important transaction has been made with the invested enterprise. 15.Investing real estate 80 / 139 2017 Annual Report (1)Section I: If using the cost of metering mode: Depreciation or amortization method There are several types of the company’s investing real estate: land use rights for lease, buildings for lease and land use rights held for transfer after value being added.The investing real estate of the company is measured at cost initially and then by use of the cost model subsequently. The lease-out buildings among the investing real estate of the company is depreciated by use of the life averaging method. The detailed accounting policy is the same as that for fixed assets.Depreciation perod follows: Residual value rate Annual depreciation rate Classification Lifetime(years) (%) (%) House and Building 40 5 2.375 The investing real estate of the company is measured at cost initially and then by use of the cost model subsequently. 16.Fixed assets (1)Recognition conditions √ Applicable □ Not applicable Fixed assets refer to as the tangible assets possessed for producing goods, providing labor, lease or management with more than one fisical year of service life. Fixed assets are recognized when satisfying the following conditions.The economic benefits related to such fixed assets can flow into the enterprise.The cost of such fixed assets can be measured reliably. (2)Depreciation method √ Applicable □ Not applicable Annual depreciation Residual value rate Classification Depreciation method Lifetime(years) rate (%) (%) Houses and straight-line method 10-20 5 9.5-4.75 buildings Machinery straight-line method 5-10 5 19-9.5 equipments Transportation straight-line method 4-8 5 23.75-11.88 equipments Other equipments straight-line method 3-5 5 31.67-19.00 (3)The financing leased fixed assets recognized basis, pricing and depreciation method √ Applicable □ Not applicable The basis for determining a fixed asset under a financing lease is that all the risks and rewards related to 81 / 139 2017 Annual Report the ownership of the fixed asset have been transferred substantively in the lease. A fixed asset under a financing lease is valued initially at the asset’s fair value or the present value of the minimum lease payment as of the lease commencement date, whichever is lower. It is also the book entry value of the asset.For subsequent valuation of a fixed asset under a financing lease, depreciation and impairment provisions are appropriated in accordance with the depreciation policy the same as that for self-owned fixed assets. 17.Construction in progress √ Applicable □ Not applicable There are two categories of construction in progress in the company: self-operated construction and subcontracted-out construction. The company converts its construction in progress into fixed assets when the construction is competed for the intended use. To be eligible for the intended use, the construction in progress must satisfy one of the following conditions:The physical construction (including installation) of the fixed asset has been completed or completed substantially;Trial production or operation has been run and proved that the asset can normally operate or steadily produce qualified products, or the trial operation results show that the asset can normally work or be open for business;Expenses on the constructed fixed asset seldom or almost no longer arise;The purchased or constructed fixed asset has met or substantially matched the design or contract requirements. 18.Borrowing costs √ Applicable □ Not applicable (1)Recognition criteria for borrowing costs capitalization The borrowing costs of the company, which can be directly attributed to acquisition, construction or production of capitalization eligible assets, are capitalized and counted in the cost of the relevant asset while other borrowing costs are recognized as expenses when incurred and counted in the profit and loss of a current accounting period. Capitalization eligible assets refer to fixed assets, investing real estate, inventory etc., which need to attain the intended use or sale through acquisition, construction or production activities over a long period. (2)Calculation of capitalized amount A capitalization period refers to the period from the commencement to the termination of the capitalization of borrowing costs, which excludes the suspension period of the borrowing costs capitalization.A capitalization suspension period means that the acquisition, construction or production is abnormally interrupted for consecutive three months so the capitalization of the borrowing costs should be suspended. Calculation of a capitalized amount: for a special borrowing, it is determined at the interest expenses of the special borrowing arising in a current period less the interest income from the credit line balance being deposited in a bank or the income from temporary investment of the balance; for the assets using general borrowings, the capitalized amount is determined by the weighted average excess of the assets’ accumulated expenses over their special borrowings multiplying the capitalization rate of the used general borrowings while the capitalization rate is determined by calculating the weighted average 82 / 139 2017 Annual Report interest rate of general borrowings; for a borrowing at a discount or premium, the actual interest rate method is used to determine amortization for each accounting period and adjust interest amount of each period. The actual interest rate method is a method of calculating unextinguished discounts or premiums or interest expenses at the actual interest rate. The actual interest rate is the rate used to derive the present book value of the borrowing from discounting of the prospective cash flows arising throughout the expected duration of the borrowing. 19.Biological assets □Applicable√Not applicable 20.Oil-gas assets □Applicable√Not applicable 21. .Intangible assets 1. Valuation method, service life, impairment test √ Applicable □ Not applicable (1)Measurement of intangible assets The company measures its intangible assets initially at cost. A purchased intangible asset has the actual paid price and relevant expenses as its actual cost. For the intangible assets contributed by the investors, the actual cost is the value set by the investment contract or agreement but if the contract or agreement value is not fair, the actual cost is determined at fair value. The cost of the intangible assets developed in house is the total expenses incurred to attain the intended use. Subsequent measurements are performed on intangible assets in the following ways: for an intangible asset with a finite useful life, the company adopts the straight-line method for its amortization, and the useful life and the amortization method are reviewed at the end of each fiscal year and will be adjusted accordingly if they are different from the original estimates. Intangible assets with an indefinite useful life are not amortized but a review will be conducted so if there are concrete evidences indicating that the useful life is finite, such assets will have an estimated useful life and be amortized by use of the straight-line method. (2)Recognition of an indefinite useful life The company is unable to foresee the period that an intangible asset can bring the company economic benefits, or the useful life of the asset is uncertain. Such an asset can be recognized as an intangible asset with an indefinite useful life.Recognition of an indefinite useful life is based on: contractual rights or other legal rights but there are no contractual or legal provisions limiting the service life; the fact that it is impossible to determine the economic life of the intangible asset even when the conditions of the same industry or relevant experts’ opinions are taken into account. At the end of each year, the indefinite useful life of an intangible asset is reviewed upward from the level of the department that uses the asset, which conducts a basic review, to assess whether there are changes in the basis for recognizing an indefinite useful life. 83 / 139 2017 Annual Report 2.Internal research and development √ Applicable □ Not applicable The expenses of an in-house R & D project during the research phase are counted in the profit and loss of a current accounting period when incurred,Those being confirmed in meeting the conditions of the intangible assets shall be transferred to the accounting of intangible assets. Specific standards for dividing the research stage and the development stage of internal research&development projects: Any ongoing planned survey stages for acquiring new technology and knowledge should be identified as the research stage, whose characteristic is planned and exploratory. Any stages where research achievement or other knowledge are applied to certain plans or designs to produce new or materially improved materials, devices and products when the commercial production is ongoing or before utilizing should be identified as the development stage, whose characteristic is pertinent and more possible to form an achievement. 22. Impairment of long-term assets √ Applicable □ Not applicable Long-term assets like long-term equity investment, investment real estate calculated by cost approach, fixed assets, project under construction and intangible assets who have impairment on the day of balance sheet should go through impairment test. If the impairment test result shows that the recoverable amount of the asset is lower than its book value, impairment provision shall be made according to the difference and recorded into the impairment losses. Recoverable amount is the higher one of the net amount of fair value after deducting disposal fee and the prospective cash flow of asset. Asset impairment provision is calculated and recognized on the basis of a single asset. If it is difficult to estimate the recoverable amount of a single asset, the recoverable amount of the asset group which this asset belongs can be calculated. Asset group is the smallest asset mix that can produce cash inflow independently. Goodwill separately listed in the financial statement shall be tested for impairment at least annually, regardless of whether there is any indication of impairment. During the impairment test, the book value of the goodwill is apportioned to the asset group or combination of asset groups that are expected to benefit from the synergies of the business combination. If the test result shows that the recoverable amount of the asset group or combination of asset groups that includes the allocated goodwill is lower than its book value, it shall recognize the corresponding impairment loss. The amount of impairment loss is first set off against the book value of the goodwill allocated to the asset group or group of asset groups, and then is proportionately set off against the book value of other assets other than the goodwill in the asset group or group of asset groups. Once the above asset impairment loss is confirmed, the value restored part will not be reversed thereafter. 23. Amortization method of long-term deferred expenses 84 / 139 2017 Annual Report √ Applicable □ Not applicable The long-term expenses to be amortized of the company refer to all the expenses paid but the benefiting period of which is over one year (not including one year). They are mainly parking fee, housing decoration expenses etc. The long-term expenses to be amortized are amortized over the benefiting period of expense items. For the long-term expenses to be amortized that cannot be benefiting in future accounting periods, the amortized value of the expense items are all counted in the profit and loss of a current accounting period. 24. Payroll (1) Accounting treatment of short-term compensation √ Applicable □ Not applicable During the accounting period of an employee providing services to the company, the short-term compensation is recognized as liabilities, and included in the profits and losses of the current period, except that it is required or allowed by the accounting standards to be included in the asset cost. Welfare expenses for the employees will be included in the profits and losses or related asset cost according to the actual amount. If the welfare expense is nonmonetary, it will be calculated according to the fair value. For social insurances like medical insurance, work injury insurance, maternity insurance and housing accumulation fund paid by the company for employees, as well as labor union expenditure and employee education expenses drawn according to stipulation, during the accounting period of an employee providing services to the company, the corresponding employee compensation will be recognized according to stipulated base and proportion, and corresponding liabilities will be recognized and included into the profits and losses of current period or related asset cost. (2)Accounting treatment of the welfare after demission √ Applicable □ Not applicable During the accounting period of an employee providing services to the company, the payable amount calculated according to Defined Contribution Plan is recognized as the liabilities, and will be included in the profits and losses of the current period or related asset cost. The formula defined through prospective accumulated unit-of-welfare approach will regard the welfare obligation produced by Defined Benefit Plan as the period of employee providing services, and include it into the profits and losses of the current period or related asset cost. (1) Accounting treatment of the demission welfare √ Applicable □ Not applicable When the Company provides dismiss welfare for the employee, it should recognize the employee compensation liabilities produced by dismiss welfare on the earlier of the following two dates: when the enterprise cannot withdraw the dismiss welfare provided by labor relationship plan or redundancy proposal; when the enterprise recognizes the cost or fee related to reorganization involving paying dismiss welfare. (2) Accounting treatment of the welfare of other long-term staffs 85 / 139 2017 Annual Report √ Applicable □ Not applicable Other long-term employee welfare provided by the Company to employees, if meeting Defined Contribution Plan conditions, should be treated according to related stipulations of Defined Contribution Plan. Besides, the net liability or net asset of the other long-term employee welfare should be recognized and calculated according to related stipulations of Defined Benefit Plan. 25. Estimated liabilities □Applicable√Not applicable 26. Share-based payment □Applicable√Not applicable 27. Other financial instruments such as preferred shares and perpetual capital securities □Applicable√Not applicable 28.Revenue √ Applicable □ Not applicable (1)Sales of Goods Goods sales revenues are recognized according to the contractual or agreement price received or receivable from the purchasing party when the Goods the company sells satisfy the following conditions: ① the main risks and rewards of the ownership of Goods have been transferred to the purchasing party; ② the company neither reserves the continuing control right related to the ownership nor exert effective control over the sold merchandise; ③ the received amount can be measured reliably; ④ the relevant economic benefits are probable to flow into the company; ⑤ and the relevant costs incurred or to be incurred can be measured reliably. The detailed principles for the recognition of revenue from selling goods are: ① the goods have been delivered by the Company, installed and verified by the purchaser, the amount of revenue is already confirmed, the payment for goods has been received or is anticipated to be recoverable, and the cost can be measured reliably; ② the goods have been delivered by the Company, verified, signed and received by the purchaser, the amount of revenue is already confirmed, the payment for goods has been or is anticipated to be recoverable, and the cost can be measured reliably; ③ for revenue from exporting goods, the Company have gone through declaration procedures according to requirements in the contract signed with client and the order, the amount of revenue is already confirmed, the payment for goods has been received or is anticipated to be recoverable, and the cost can be measured reliably. (2)Alienation of asset use rights The company recognizes the revenues from alienation of asset use rights when the economic benefits related to the alienation can flow in and the received amount can be measured reliably. 29. Government subsidies Government grants measured in accordance with the amount receivable shall be confirmed when there is conclusive evidence at the end of the period that they can meet the relevant conditions stipulated in the financial support policy and it’s expected to receive financial support funds. Except for 86 / 139 2017 Annual Report government grants measured according to the amount of receivables, the government grants are recognized when the grants are actually received. (1) Judgment basis and accounting treatment of government subsidies related to assets √ Applicable □ Not applicable Government grants related to assets are recognized as deferred income. The amount recognized as deferred income shall be recorded into the gains and losses of the current period in accordance with the reasonable and systematic method within the use life of the relevant assets. Among them, those related to the company's daily activities shall be included in other income, and those unrelated to the company's daily activities shall be included in the non-operating income. The government subsidies that are obtained by the company used for purchase or construction, or forming long-term assets by other ways are defined as government subsidies pertinent to assets. Government grants measured at nominal amounts shall be directly included into the current gains and losses. (2) Judgment basis and accounting treatment of government subsidies related to profits √ Applicable □ Not applicable Government grants related to income shall be treated as follows: for those are used to compensate related expenses or losses of the enterprise in the future, they shall be recognized as deferred income and shall be recorded into the current gains and losses during the period when the related expenses are recognized; for those are used to compensate the related expenses or losses that have been incurred by the enterprise, they shall be directly included into the current gains and losses, with that when included into the current gains and losses, the government grants related to the company's daily activities are included into other income and the government grants that are not related to the company's daily activities are included into non-operating income. The government subsidies other than those pertinent to assets are recognized as the subsidies pertinent to income. If the object of the grants is not explicitly specified in the government document, the government grants shall be divided into asset-related or income-related upon the following judgment basis: Where the government document explicitly specifies the particular project for which the subsidy is directed, it shall be divided according to the relative proportion of the expenditure amount of the formed assets expected in the budget and the expenditure amount included in the expenses of such particular project, and such dividing proportion needs to be reviewed on each balance sheet date, and if necessary, it shall make changes accordingly; 2. Where the government document only make a general statement on the use and does not direct for a particular project, then it shall be deemed as the government grants related to income. 30. Deferred income tax assets/deferred income tax liabilities √ Applicable □ Not applicable (1)Based on the difference between the book value of assets and liabilities and the taxable base (for items not recognized as assets or liabilities while their taxable base can be determined in accordance with the provisions of the tax law, the taxable base is the difference), the company calculates and recognizes deferred income tax assets or liabilities at the tax rate applicable when it is time to recover 87 / 139 2017 Annual Report the assets or liquidate the liabilities. (2)Deferred income tax assets are recognized to the limit of taxable income, which can be achieved probably and be utilized to offset deductible temporary differences. If there are concrete evidences indicating that sufficient taxable income can be achieved probably in a future period to offset deductible temporary differences as of the balance sheet date, then the company will recognize the deferred income tax asset that were not recognized in a previous period. If not, the company will write down the book value of deferred income tax assets. (3)For the deductible temporary differences related to the investments on the subsidiaries and associate enterprises, deferred income tax liabilities are recognized unless the company can control the reversal time of the temporary differences and such differences probably will not be reversed in the foreseeable future. Deferred income tax assets will be recognized for the deductible temporary differences related to the investments on the subsidiaries and associate enterprises when such differences can be reversed probably in the foreseeable future and it is probable to achieve taxable income in the future, which can be utilized to offset the deductible temporary differences. 31. Lease 1.Accounting treatment of operating lease √ Applicable □ Not applicable Payments made under operating leases straight-line basis over the lease term costs related assets or profit or loss. 2.Accounting treatments of financial lease √ Applicable □ Not applicable The lower of the fair value of leased asset and the current value of lowest lease payment will be regarded as the entry value of leased assets. The difference between the entry value of the leased assets and the lowest lease payment will be regarded as the unsettled financing expense and be amortized by real interest method. The balance of the lowest lease payment deducing unsettled financing expense will be listed as long-term payables. 32. Other significant accounting policies and estimates □Applicable√Not applicable 33. Significant change of accounting policies and estimates (1) Change of accounting policies √Applicable □ Not applicable Remarks (name and Approval Changes in Accounting Policies and Causes amount of significantly procedure affected report item) In 2017, the Ministry of Finance issued the "No. 42 Accounting Standard for See other instructions Business Enterprises-Non-current Assets for Sale, Disposal Group, and for details Termination of Operation"-which is effective from May 28th 2017, and that the prospective approach is required for the non-current assets held for sale, disposal group and termination of operation existed on the effective date. In 2017, the Ministry of Finance revised the "No. 16 Accounting Standards for See other instructions 88 / 139 2017 Annual Report Business Enterprises-Government Grants‖, and the revised standards are for details effective from June 12, 2017; the prospective approach is required for the treatment of the government grants existed on January 1, 2017; and for the newly added government grants from January 1, 2017 to the effective date, it’s also required to make adjustments according to the revised standards. In 2017, the Ministry of Finance issued the ―Notice on the Issuance of the See other instructions Revised Format of Financial Statements for General Enterprises‖ (Cai Hui for details (2017) No. 30). Enterprises that implement the Accounting Standards for Business Enterprises shall prepare the 2017 financial statement and the future financial statement in accordance with the Accounting Standards for Business Enterprises and the requirements of such notice. Other The main impact of the Company's implementation of the above two criteria and the No. 30 (2017) accounting document is as follows: The amount Prior-pe The amount of reported in Name of Amount of report Changes in Accounting riod non-operating the prior report item item affected for Policies and Causes restated income reported period as affected the current period amount in the prior period non-operati ng expenses 1.Government grants related to the company's daily Other income 13,851,422.70 — 12,612,298.51 — activities are included in other income (2) Change of main accounting estimates □ Applicable √ Not applicable 34.Other □ Applicable √ Not applicable VI. Taxation 1. Main taxes and tax rate √ Applicable □ Not applicable Cagegory of taxes Tax basis Tax rate VAT By the difference between the output tax less deductible VAT 6%、11%、13%、17% input provision and pay Consumption tax Business tax 7% Tax for city Should be accounted and paid according to 7% of the payable maintenance and current taxes. construction: 15%、25% Enterprise income tax Should be accounted and paid according of payable income tax. 3% Should be accounted and paid according to 3% of payable current Fees for education: taxes. Notes :Wholly owned subsidiary of Dongbei International Trade Co., Ltd. registered in the British Virgin Islands, no tax liability. Notes of the disclosure situation of the taxpaying bodies with different enterprises income tax rate □ Applicable √ Not applicable 89 / 139 2017 Annual Report 2. Tax preference √ Applicable □ Not applicable (1)VAT The company exports products to implement value-added tax "exemption, credit, refund" policy, our products export tax rebate rate of 17%. (2) Enterprise income tax The company and its subsidiaries Wuhu Abaur Mechanical & Electrical Co.,Ltd.and Huangshi Dongbei Foundry Co., Ltd.,m Dongbei Mechanical & Electrical(Jiangsu) Co., Ltd. reviewed by the relevant departments, have been identified as high-tech enterprises, the current corporate income tax rate is 15%. 3.Other □Applicable√Not applicable VII. Notes on major items in consolidated financial statements 1. Monetary funds √ Applicable □ Not applicable In RMB Items Closing balance Opening balance Cash on hand 1,311.83 1,310.84 Bank deposit 412,330,451.65 215,594,966.82 Other monetary funds 216,398,728.18 213,459,464.23 Total 628,730,491.66 429,055,741.89 Indluding:The total amount of deposit abroad 25,865,330.12 10,485,841.07 2. Financial assets measured by fair value and the changes be included in the current gains and losses □ Applicable √ Not applicable 3. Derivative financial assets □ Applicable √ Not applicable 4.Note receivable (1) Note receivable listed by category √Applicable□Not applicable In RMB Items Closing balance Opening balance Bank acceptance bill 570,493,946.74 560,737,893.44 Trade acceptance bill 189,985,764.35 109,757,977.15 Total 760,479,711.09 670,495,870.59 (2) Notes receivable pledged by the Company at the period-end □ Applicable √ Not applicable (3) Notes receivable which had endorsed by the Company or had discounted and had not due on the balance sheet date at the period-end √Applicable□Not applicable In RMB’0000 Items Amount of recognition termination at Amount of not terminated recognition the period-end at the period-end Bank acceptance bill 33,785.95 Trade acceptance bill Total 33,785.95 90 / 139 2017 Annual Report (4) Notes transferred to accounts receivable because drawer of the notes fails to executed the contract or agreement □ Applicable √ Not applicable Other notes The amount of the bill receivable which has been discounted but undue for the balance sheet date is RMB 339.4741 million. 5. Accounts receivable (1) Accounts receivable disclosed by category √ Applicable □ Not applicable In RMB Closing balance Opening balance Classification Book Balance Bad debt provision Book Balance Bad debt provision Book Book Amount Proportion(% Amount Proport value Amount Proportion Amount Proport value ) ion(%) (%) ion(%) Accounts receivable of individual significance and subject to individual impairment assessment Accounts 1,038,347,9 100.00 42,328,86 4.08 1,072,235,126. 100.00 35,637,35 3.32 receivable 80.08 9.38 74 0.16 subjecttoimpair ment assessment by credit risk characteristics of a portfolio Accounts receivable of individual insignificance but subject ot individual impairment assessment 1,038,347,9 / 42,328,86 / 1,072,235,126. / 35,637,35 / Total 80.08 9.38 74 0.16 Accounts receivable with significant single amount for which bad debt provision separately accrued at the period-end □ Applicable √ Not applicable In the groups, accounts receivable adopting aging analysis method to accrue bad debt provision: √Applicable□Not applicable In RMB Closing balance Aging Account receivable Bad debt provision Withdrawal proportion Within 1 year Including :Subitem within 1 year Within 1 year 958,956,726.79 19,114,305.26 2 Subtotal within 1 year 958,956,726.79 19,114,305.26 2 1-2 years 37,391,979.10 1,869,598.96 5 2-3 years 29,110,512.31 8,733,153.69 30 Over 3 years 91 / 139 2017 Annual Report 3-4 years 692,376.03 415,425.62 60 Over 4 years 12,196,385.85 12,196,385.85 100 4-5 years Over 5 years Total 1,038,347,980.08 42,328,869.38 In the groups, accounts receivable adopting balance percentage method to withdraw bad debt provision □Applicable √ Not applicable In the groups, accounts receivable adopting other methods to accrue bad debt provision: □ Applicable √ Not applicable (2)Accounts receivable withdraw, reversed or collected during the reporting period The withdrawal amount of the bad debt provision during the reporting period was of RMB42,328,869.38; Of which the significant amount of the reversed or collected part during the reporting period was: √Applicable□Not applicable (3) The actual write-off accounts receivable □ Applicable √ Not applicable (4) Top 5 of the closing balance of the accounts receivable colleted according to the arrears party √Applicable□Not applicable Name Closing balance Proportion (%) Bad debt prosion 1.Client 1 126,073,742.27 12.14 2,521,474.85 2.Client 2 90,273,965.94 8.69 8,944,488.11 3.Client 3 88,445,827.29 8.52 1,768,916.55 4.Client 4 51,974,494.94 5.01 1,039,489.90 5.Client 5 42,530,459.45 4.10 850,609.19 Total 399,298,489.89 38.46 15,124,978.60 (5) Account receivable which terminate the recognition owning to the transfer of the financial assets: □Applicable√Not applicable (6) The amount of the assets and liabilities formed by the transfer and the continues involvement of accounts receivable □Applicable√Not applicable Other notes: □Applicable√Not applicable 6. Prepayment (1) List by aging analysis: √ Applicable □ Not applicable In RMB Closing balance Opening balance Aging Amount Proportion(%) Amount Proportion(%) 92 / 139 2017 Annual Report 81,182,854.12 90.15 42,842,092.47 67.81 Within 1 year 3,658,766.54 4.06 6,239,827.10 9.88 1-2 years 4,882,383.08 5.42 14,095,429.97 22.31 2-3 years 328,400.00 0.37 Over 3 years 90,052,403.74 100.00 63,177,349.54 100.00 Total Notes of the reasons of the prepayment ages over 1 year with significant amount but failed settled in time: Closing Reason for not Creditor unit Debt unit Aging balance settle Huangshi Dongbei Electrical Beijing Lizhun Machinery 2,574,000.00 1-2 years Under Appliance Co., Ltd. manufacturing Co., Ltd. Fulfillment Huangshi Dongbei Electrical Maer Trade (Shanghai) Co., Ltd. 1,920,000.00 1-2 years Under Appliance Co., Ltd. Fulfillment (2) Top 5 of the closing balance of the prepayment colleted according to the prepayment target √ Applicable □ Not applicable Name Closing balance Proportion(%) 1. Baosteel Huangshi Coated plate Co., Ltd. 30,944,178.93 34.36 2. Wuhan iron & steel co., Ltd. 5,704,120.98 6.33 3. China Shipbuilding heavy Industry Pengli 4,138,400.00 4.60 (Nanjing) Intelligent equipment system Co., Ltd. 4.Changzhou Faderke Clay sand foundry 2,910,000.00 3.23 machinery co., Ltd 5.Hubei Provincial Complete Tendering Co., Ltd. 2,673,185.70 2.97 Total 46,369,885.61 51.49 Other notes: □Applicable√Not applicable 7. Interest receivable (1)Classification of interest receivable □ Applicable √ Not applicable (2)Important overdue interest □ Applicable √ Not applicable Other notes: □Applicable√Not applicable 8.Dividend receivable (1)Dividend receivable □Applicable√Not applicable (2) Significant dividend receivable aged over 1 year □Applicable√Not applicable Other notes: □Applicable√Not applicable 9. Other accounts receivable (1) Other accounts receivable disclosed by category √ Applicable □ Not applicable 93 / 139 2017 Annual Report In RMB Closing balance Opening balance Classification Book Balance Bad debt provision Book Balance Bad debt provision Book Book Amount Proporti Amount Proporti Amount Proport Amount Proport value value on(%) on(%) ion(%) ion(%) Other accounts receivable of individual significance and subject to individual impairment assessment Other 2,745,467.58 85.25 244,295.53 8.90 8,652,647.66 100.00 66,028.31 0.76 accounts receivable subjecttoi mpairment assessment by credit risk characteris tics of a portfolio Other 474,854.58 14.75 474,854.58 100.00 accounts receivable of individual insignificanc e but subject ot individual impairment assessment Total 3,220,322.16 / 719,150.11 / 8,652,647.66 / 66,028.31 / Other accounts receivable with significant single amount for which bad debt provision separately accrued at the period-end □ Applicable √ Not applicable In the groups, other accounts receivable adopting aging analysis method to accrue bad debt provision: √Applicable□Not applicable In RMB Closing balance Aging Other account receivable Bad debt provision Withdrawal proportion(%) Withn 1 year Incluidng:Subitem withn 1 year Withn 1 year 1,812,803.90 36,256.10 2 Subtotal within 1 year 1,812,803.90 36,256.10 2 1-2 years 287,038.68 14,351.93 5 2-3 years 645,625.00 193,687.50 30 Over 3 years 3-4 years Over 4 years 4-5 years Over 5 years 2,745,467.58 244,295.53 Total In the groups, other accounts receivable adopting balance percentage method to withdraw bad debt 94 / 139 2017 Annual Report provision □ Applicable √ Not applicable In the groups, other accounts receivable adopting other methods to accrue bad debt provision: □ Applicable √ Not applicable (2)Accounts receivable withdraw, reversed or collected during the reporting period The amount of the reversed or collected part during the reporting period was of RMB 719,150.11. Of which the significant amount of the reversed or collected part during the reporting period was of RMB 000: □ Applicable √ Not applicable (3) The actual write-off other accounts receivable □ Applicable √ Not applicable The important other receivables verification □ Applicable √ Not applicable Other account receivables actually cancel after wtite-off: □ Applicable √ Not applicable (4) Other accounts receivable classified by the nature of accounts √Applicable□Not applicable In RMB Nature Closing book balance opening book balance Petty cash 361,166.52 597,840.30 Deposit 2,193,668.29 7,213,112.30 Current account 665,487.35 841,695.06 Total 3,220,322.16 8,652,647.66 (5) Top 5 of the closing balance of the other accounts receivable colleted according to the arrears party √Applicable□Not applicable In RMB Proportion of the total Closing Closing year end balance of balance of Name Nature Aging balance the accounts bad debts receivable(%) provision 1.Ningbo Korea Electric Co., Ltd. Deposit 1,000,000.00 Within 1 31.05 20,000.00 year 2. Wuhu Zhongran City Development Deposit 488,650.00 2-3 years 15.17 146,595.00 Co., Ltd. 3.Anhui Xinyang Electronics Co., Ltd. Current 474,854.58 3-4 years 14.75 474,854.58 account 4. Nanjing SKYWORTH home Current 200,000.00 1-2 years 6.21 10,000.00 appliance Co., Ltd. account 5.State GRAD Hubei Electric Power Deposit 100,000.00 Within 1 3.11 2,000.00 Co.,Ltd.Huangshi Power Supply year Company Total / 2,263,504.58 / 70.29 653,449.58 (6) Accounts receivable involved with government subsidies □ Applicable √ Not applicable (7) Other account receivable which terminate the recognition owning to the transfer of the financial assets □ Applicable √ Not applicable (8) The amount of the assets and liabilities formed by the transfer and the continues involvement of other accounts receivable Other notes □ Applicable √ Not applicable 95 / 139 2017 Annual Report 10.Inventories (1)Inventories types √ Applicable □ Not applicable In RMB Closing balance Opening balance Book balance Provis Book value Book balance Provisi Book value Items ion for on for bad bad debts debts Raw materials 45,157,464.03 45,157,464.03 32,002,197.56 32,002,197.56 Processing products 194,021,643.99 194,021,643.99 154,754,456.04 154,754,456.04 Stock goods 308,125,902.25 308,125,902.25 198,512,331.06 198,512,331.06 Turnover materials Consumptive biological assets Construction cont ract has been com pleted unsettled a ssets Total 547,305,010.27 547,305,010.27 385,268,984.66 385,268,984.66 (2) Inventory depreciation reserve □ Applicable √ Not applicable (3) Explanation on inventories with capitalization of borrowing costs included at ending balance □ Applicable √ Not applicable (4) Assets unsettled formed by construction contract which has completed at period-end □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 11. Holding assets for sale □ Applicable √ Not applicable 12. Non-current assets due within 1 year □ Applicable √ Not applicable 13. Other current assets √ Applicable □ Not applicable In RMB Items Closing balance Opening balance VAT input tax 82,726,575.63 78,299,066.78 Total 82,726,575.63 78,299,066.78 14. Available-for-sale financial assets (1) Available-for-sale financial assets □ Applicable √ Not applicable 96 / 139 2017 Annual Report (2) Available-for-sale financial assets measured at fair value at period-end □ Applicable √ Not applicable (3) Changes of the impairment of the available-for-sale financial assets during the reporting period □ Applicable √ Not applicable (4)Relevant description of the end of the fair value of the equity instruments at the end of a serious decline in fair value or non temporary decline but not related to impairment provision □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 15. Held-to-maturity investment (1) Held-to-maturity investment □ Applicable √ Not applicable (2) Important held-to-maturity investment at period-end □ Applicable √ Not applicable (3) Reclassify of held-to-maturity investment in the period □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 16. Long-term account receivables (1)Long-term account receivables □ Applicable √ Not applicable (2) Long-term account receivables recognition terminated due to transfer of financial assets □ Applicable √ Not applicable (3) Long-term account receivables transferred and assets & liability formed by its continuous involvement □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 17. Long-term equity investment √ Applicable □ Not applicable In RMB 97 / 139 2017 Annual Report Increase /decrease Invest ment Adjust Closin gains ment Cash g Additi Withdr Openin and of bonus balanc Decre Chang awal of Closin g onal losses other or e of Investee ase es of impair g balanc recogni compr profits Other impair invest other ment balance e invest zed ehensi announ ment ment equity provisi under ve ced to provisi ment on the incom issue on equity e method I. Joint ventures Subtotal II. Associated enterprises Huangs 6,098, -914,9 5,183, hi Aibo 462.24 55.03 507.21 Propert y Co.,Ltd. Hubei 2,708, 9,366. 2,718, Jinling 979.73 82 346.55 Precisio n Agricult ure Co., Ltd. Subtotal 8,807, -905,5 7,901, 441.97 88.21 853.76 8,807, -905,5 7,90 441.97 88.21 1,853. Total 76 18. Investment property Measurement model of investment real estate (1) Investment property adopted the cost measurement mode In RMB Items Houses and Land use right Construction in Total building progress I.Originalbookvalue 1. Year-beginning balance 6,934,630.00 6,934,630.00 2. Increased at this period (1)Outsourcing (2)Inventory /Fixed assets/ project under construction (3)The merger of enterprises increase 3. Decrease at this period (1)Disposition (2)Other Out 4.Closing balance 6,934,630.00 6,934,630.00 II.Total accumulated depreciation accumulated amortization 1. Year-beginning balance 3,552,882.56 3,552,882.56 2. Increased at this period 165,044.16 165,044.16 (1) Withdrawal 165,044.16 165,044.16 3. Decrease at this period (1)Disposition 98 / 139 2017 Annual Report (2)Other Out 4. Year-end balance 3,717,926.72 3,717,926.72 III. Impairment allowance 1. Year-beginning balance 2. Increased at this period (1) Withdrawal 3. Decrease at this period (1)Disposition (2)Outsourcing 4. Year-end balance IV.Book value 1. Closing book value 3,216,703.28 3,216,703.28 2. Book value at year beginning 3,381,747.44 3,381,747.44 (2) Details of investment property failed to accomplish certification of property □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 19. Fixed assets (1) List of fixed assets √ Applicable □ Not applicable In RMB Items House and Machinery Transporation Other Total building equipment eqiupment equipment I.Originalbookvalue 1. Year-beginning balance 674,777,390.23 1,589,632,148.64 24,380,543.01 41,573,476.23 2,330,363,558.11 2. Increased at this period 23,747,557.77 65,782,622.82 4,003,536.75 435,457.73 93,969,175.07 (1)Purchase 17,756,535.35 53,524,369.96 4,003,536.75 435,457.73 75,719,899.79 ( 2 ) Transferred from construction in -progress 5,991,022.42 12,258,252.86 18,249,275.28 The merger of enterprises increase 3. Decreased at this period 78,187,869.23 2,142,821.57 780,487.53 81,111,178.33 (1)Disposal or scrap 78,187,869.23 2,142,821.57 780,487.53 81,111,178.33 4 Year-end balance 698,524,948.00 1,577,226,902.23 26,241,258.19 41,228,446.43 2,343,221,554.85 II. Accumulated depreciation 1. Year-beginning balance 178,366,300.38 581,549,460.33 20,455,759.07 31,407,975.78 811,779,495.56 2. Increased at this period 34,503,923.89 120,755,493.56 1,279,492.08 4,692,370.95 161,231,280.48 (1) Withdrawal 34,503,923.89 120,755,493.56 1,279,492.08 4,692,370.95 161,231,280.48 3.Decreased at tthis period 65,419,453.39 1,685,188.30 696,101.54 67,800,743.23 (1)Disposal or scrap 65,419,453.39 1,685,188.30 696,101.54 67,800,743.23 4. Year-end balance 212,870,224.27 636,885,500.50 20,050,062.85 35,404,245.19 905,210,032.81 III. Impairment allowance 1. Year-beginning balance 2. Increased at this period 99 / 139 2017 Annual Report (1) Withdrawal 3. Decreased at this period (1)Disposal or scrap 4. Year-end balance IV.Book value 1. Closing book value 485,654,723.73 940,341,401.73 6,191,195.34 5,824,201.24 1,438,011,522.04 2. Book value at year beginning 496,411,089.85 1,008,082,688.31 3,924,783.94 10,165,500.45 1,518,584,062.55 (2) List of temporarily idle fixed assets □ Applicable √ Not applicable (3) Fixed assets leased in from financing lease □ Applicable √ Not applicable (4) Fixed assets leased out from operation lease □ Applicable √ Not applicable (5) Details of fixed assets failed to accomplish certification of property □ Applicable √ Not applicable Other notes: □ Applicable √ Not applicable 20. Construction in progress (1) List of construction in progress √Applicable□Not applicable In RMB Balance in year-end Balance in year-begin Items Bad debt Book Value Bad debt Book Value Book balance Book balance povision povision Equipment installation 653,874.35 653,874.35 10,305,737.37 10,305,737.37 Alashankou plant and 4,917,170.04 4,917,170.04 supporting facilities projects Software installation 133,333.34 133,333.34 433,865.50 433,865.50 engineering Foundry Luoqiao Phase 162,264.15 162,264.15 IV Construction Project Total 949,471.84 949,471.84 15,656,772.91 15,656,772.91 100 / 139 2017 Annual Report (2) Changes of significant construction in progress √Applicable□Not applicable In RMB Capitalisation of Including:Current Amount at Other Balance Capitalization Increase at Transferred to Proportion Progress interest amount of Name Budget year decreas in rate of Sources of funds this period fixed assets (%) of work accumulated capitalization of beginning e year-end interest(%) balance interest Equipment 10,305,737.37 2,647,066.2 11,798,309.62 500,619. 653,874.35 installation 6 66 Alashankou plant 4,917,170.04 1,533,795.6 6,450,965.66 - - and supporting 2 facilities projects Software installation 433,865.50 374,920.19 675,452. 133,333.34 engineering 35 Foundry Luoqiao - 162,264.15 - 162,264.15 Phase IV Construction Project 15,656,772.91 4,718,046.2 18,249,275.28 1,176,07 949,471.84 / / / / Total 2 2.01 101 / 139 2017 Annual Report (3) List of the withdrawal of the impairment provision of the construction in progress □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 21. Engineering material □ Applicable √ Not applicable 22. Liquidation of fixed assets □ Applicable √ Not applicable 23. Productive biological assets (1) Measured by cost □ Applicable √ Not applicable (2) Measured by fair value □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 24. Oil-and-gas assets □ Applicable √ Not applicable 25.Intangible assets (1)List of intangible assets √ Applicable □ Not applicable In RMB Non-patent Items Land use right Patent Software Total Technology I. Original price 1.Opening balance 137,611,542.75 5,482,816.36 143,094,359.11 2.Increased amount 5,778,978.08 1,397,716.51 7,176,694.59 ofthe period 5,778,978.08 1,261,867.45 7,040,845.53 (1) Purchase (2)Internal Development (3)Increased of Enterprise Combination (4) Transfer to 135,849.06 135,849.06 construction project 3.Decreased amount of the period 102 / 139 2017 Annual Report (1)Disposition 4. Closing balance 143,390,520.83 6,880,532.87 150,271,053.70 II.Accumulated amortization 1. Balance in year-begin 17,122,037.20 2,953,186.55 20,075,223.75 2.Increased amount of 3,697,728.27 1,358,569.47 5,056,297.74 the period (1)Withdrawal 3,697,728.27 1,358,569.47 5,056,297.74 3. Decreased amount of the period (1) Disposition 20,819,765.47 4,311,756.02 25,131,521.49 4. Closing balance III. Provision for impairment 1. Balance in year-begin 2.Increased amount of the period (1)Withdrawal 3. Decreased amount of the period (1) Disposition 4. Closing balance IV. Book value 1. Book value of the 122,570,755.36 2,568,776.85 125,139,532.21 period-end 2. Book value of the 120,489,505.55 2,529,629.81 123,019,135.36 period-begin The intangible assets by the end of the formation of the company's internal R & D accounted for 0.00% of the proportion of the balance of intangible assets (2) Details of fixed assets failed to accomplish certification of land use right □Applicable√Not applicable Other notes □ Applicable √ Not applicable 26. R&D expenses □Applicable√Not applicable 27. Goodwill (1) Original book value of goodwill □Applicable√Not applicable Notes of the testing process of goodwill impairment, parameters and the recognition method of goodwill impairment losses: □Applicable√Not applicable Other notes □Applicable√Not applicable 103 / 139 2017 Annual Report 28.Long-term amortization expenses √ Applicable □ Not applicable In RMB Items Opening balance Increase Amortization Decrease Closing balance amount Afforestation 5,636,381.18 239,805.83 2,069,509.95 3,806,677.06 fees Decoration fees 3,472,358.20 609,352.04 2,863,006.16 Mold usage fee 1,152,374.18 19,206.24 1,133,167.94 Total 9,108,739.38 1,392,180.01 2,698,068.23 7,802,851.16 29. Deferred income tax assets/deferred income tax liabilities (1) Deferred income tax assets had not been off-set √Applicable□Not applicable In RMB Closing balance Opening balance Items Deductible Deferred income Deductible Deferred income tax temporary tax assets temporary assets difference difference Assets impairment 7,663,397.83 1,149,509.67 6,902,345.93 1,035,351.89 provision Insider trading unrealized profit Deductible loss Total 7,663,397.83 1,149,509.67 6,902,345.93 1,035,351.89 (2) Deferred income tax liabilities had not been off-set □Applicable√Not applicable (3) Deferred income tax assets or liabilities listed by net amount after off-set □Applicable√Not applicable (4) List of unrecognized deferred income tax assets √Applicable□Not applicable In RMB Items Year-end balance Year-beginning balance Deductible temporary difference 35,384,621.66 28,801,032.54 Deductible losses 28,039,641.82 9,926,766.35 Total 63,424,263.48 38,727,798.89 (5) Deductible losses of unrecognized deferred income tax assets will due the following years √Applicable□Not applicable In RMB Notes Year Year-end balance Year-beginning balance 2019 2,101,105.36 2,101,105.36 2020 7,499,449.92 7,499,449.92 2021 326,211.07 326,211.07 2022 18,112,875.47 Total 28,039,641.82 9,926,766.35 / Other notes □ Applicable √ Not applicable 30. Other non-current assets √Applicable □ Not applicable In RMB 104 / 139 2017 Annual Report Items Closing balance Opening balance Purchase of house 9,603,100.00 Total 9,603,100.00 31. Short-term loans (1) Category of short-term loans √Applicable□Not applicable In RMB Items Closing balance Opening balance Impawn loan Mortgage loan 815,383,660.00 587,927,999.83 Guaranteed loan Credit loan Total 815,383,660.00 587,927,999.83 (2) List of the short-term loans overdue but not return □Applicable√Not applicable Situation of Overdue Outstanding Short-Term Borrowing □Applicable√Not applicable Other notes □ Applicable √ Not applicable 32. Financial liabilities measured at fair value through current profit and loss □ Applicable √ Not applicable 33. Derivative financial liabilities □ Applicable√ Not applicable 34. Note payable √ Applicable □ Not applicable In RMB Items Closing balance Opening balance Trade acceptance 225,299,336.97 77,161,138.00 Bank acceptance 741,685,151.13 886,345,729.88 L/C 39,000,000.00 10,000,000.00 Total 1,005,984,488.10 973,506,867.88 35. Accounts payable (1) List of accounts payable √Applicable□Not applicable In RMB Items Closing balance Opening balance Within 1 year(Including 1 year) 694,016,181.10 634,753,293.91 Over 1 year 44,335,858.03 29,865,541.37 Total 738,352,039.13 664,618,835.28 (2) Notes of the accounts payable aging over one year √Applicable□Not applicable 105 / 139 2017 Annual Report In RMB Items Closing balance Reasons for outstanding or carry-over 1. Wuhan Jinding heavy Industry Co., Ltd. 3,785,007.00 Contract is in-process of execution 2.Jinan Gengchen Iron & Steel Co., Ltd. 3,730,695.00 Contract is in-process of execution 3.Hubei Jianbang Foundry Material Co., Ltd. 3,573,921.70 Contract is in-process of execution 4.Linzhou Hexin Casting Co., Ltd. 2,554,812.75 Contract is in-process of execution 5.Yicheng Tianli Ferroalloy Co., Ltd. 2,424,200.00 Contract is in-process of execution 6.Qingyuan Yijie(Xiamen) New Energy Engineering 2,311,213.65 Contract is in-process of execution Co., Ltd. 7.Zhejiang Free Frade Zone Rongheng 1,871,310.00 Contract is in-process of execution RegenerationResources Technology Co., Ltd. 8.Nanchang Sanfeng Automation Co., Ltd. 1,586,714.53 Contract is in-process of execution 9.Hubei Sanfeng Intelligent Transportation 1,299,145.29 Contract is in-process of execution Equipment Co., Ltd. Total 23,137,019.92 / Other notes □ Applicable √ Not applicable 36. Advance from customers (1) List of advance from customers √Applicable□Not applicable In RMB Items Closing balance Opening balance Within 1 year(Including 1 year) 18,361,176.03 49,147,880.67 Over 1 year 165,015.05 688,736.09 Total 18,526,191.08 49,836,616.76 (2) Significant advance from customers aging over one year □Applicable√Not applicable (3) Particulars of settled but unfinished projects formed by construction contract at period-end. □Applicable√Not applicable Other notes □ Applicable √ Not applicable 37. Payroll payable (1) List of Payroll payable √Applicable□Not applicable In RMB Items Year-beginning Increase in the Decrease in the Year-end balance balance current period current period I. Short-term salary 25,199,143.09 322,823,465.45 323,359,208.59 24,663,399.95 II. Post-employment benefits 25,941,089.62 25,941,089.62 III. Termination benefits 1,978,835.04 1,978,835.04 IV.Other welfare within 1 year Total 25,199,143.09 350,743,390.11 351,279,133.25 24,663,399.95 (2) List of Short-term salary √Applicable□Not applicable In RMB Balance in Increase at this Decrease at this Balance in Items year-begin period period year-end 1.Wages, bonuses, allowances 22,480,711.67 269,094,269.63 268,913,246.84 22,661,734.46 and subsidies 2.Employee welfare 22,499,523.13 22,499,523.13 3. Social insurance premiums 18,617,588.83 18,617,588.83 Including:Medical insurance 17,039,137.93 17,039,137.93 Work injury insurance 969,086.05 969,086.05 Maternity insurance 609,364.85 609,364.85 4. Public reserves for housing 10,619,487.05 10,619,487.05 106 / 139 2017 Annual Report 5.Union funds and staff 2,718,431.42 1,992,596.81 2,709,362.74 2,001,665.49 education fee 6. Short-term paid absences 7.Short-term profit-sharing plan Total 25,199,143.09 322,823,465.45 323,359,208.59 24,663,399.95 (3) List of drawing scheme √Applicable□Not applicable In RMB Items Year-beginning Increase in the Decrease in the Year-end balance balance current period current period 1. Basic old-age insurance 25,077,409.51 25,077,409.51 premiums 2.Unemployment insurance 863,680.11 863,680.11 3. Annuity payment Total 25,941,089.62 25,941,089.62 Other notes □ Applicable √ Not applicable 38. Taxes payable √ Applicable □ Not applicable In RMB Items Year-end balance Year-beginning balance VAT 628,209.05 Consumption tax Business tax 49,982.56 Enterprises income tax 24,490,472.88 24,101,136.03 Personal income tax 360,479.02 466,033.66 Urban maintenance and construction 985,391.66 624,993.83 tax Property tax 881,293.65 757,954.45 Land use tax 894,318.88 881,177.58 Education surcharge 285,808.94 131,352.70 Other 1,209,479.80 729,216.68 Total 29,107,244.83 28,370,056.54 39. Interest payable √Applicable□Not applicable In RMB Items Year-end balance Year-beginning balance Installments of long-term interest-bearing loan 1,059,536.19 2,672,932.58 interest and Interest on short-term loans payable principal at maturity Corporate bond interest Interest on short-term loans payable 590,466.19 1,673,036.46 The preference shares are classified as financial liabilities \ perpetual debt interest Interest on loans to non-financial institutions 755,328.75 Total a 1,650,002.38 5,101,297.79 Particulars of significant overdue unpaid interest: □Applicable√Not applicable Other notes: □Applicable√Not applicable 40. Dividends payable 107 / 139 2017 Annual Report √Applicable□Not applicable In RMB Items Closing balance Opening balance Common stock dividends 10,009,121.12 10,009,121.12 Preference shares classified as equity instruments \ perpetual debt dividend Preference shares\Perpetual debt dividend-XXX Preference shares\Perpetual debt dividend-XXX Dividends payable-XXX Dividends payable-XXX Total 10,009,121.12 10,009,121.12 41. Other accounts payable (1) Other accounts payable listed by nature of the account √Applicable□Not applicable In RMB Items Closing balance Opening balance Unit account 92,105,791.25 82,385,907.50 Petty cash 23,215.72 261.38 Deposit 2,026,638.35 1,754,599.34 Provisional account payable 49,056,527.89 59,299,473.52 Total 143,212,173.21 143,440,241.74 (2) Other significant accounts payable with aging over one year □Applicable√Not applicable Other notes □Applicable√Not applicable 42. Holding unsold liabilities □Applicable√Not applicable 43. Non-current liabilities due within 1 year √ Applicable □ Not applicable In RMB Items Closing balance Opening balance Long-term loans due 1 year 37,445,000.00 31,820,000.00 Long-term bond payable due 1 year Long-term payable due 1 year Total 37,445,000.00 31,820,000.00 44.Other current liabilities Other current liabilities □Applicable√Not applicable Changes on short term bonds payable: □Applicable√Not applicable Other notes □Applicable√Not applicable 45. Long-term loan (1) Category of long-term loan √Applicable□Not applicable In RMB Items Closing balance Opening balance Pledge loan Mortgage loan 270,450,000.00 302,270,000.00 Guarantee loan 16,250,000.00 27,500,000.00 Credit loan 1,440,000.00 1,440,000.00 108 / 139 2017 Annual Report Total 288,140,000.00 331,210,000.00 Other notes □Applicable√Not applicable 46. Bonds payable (1) Bonds payable □Applicable√Not applicable (2) Changes on bonds payable (not including other financial instrument classified as preferred stock and perpetual capital securities of financial liabilities) □Applicable√Not applicable (3) Note to conditions and time of share transfer of convertible bonds □Applicable√Not applicable (4)Other financial instruments that are classified as financial liabilities The issuance of preferred stock and other financial instruments such as perpetual debt □Applicable√Not applicable Table of changes in financial instruments such as preferred stock and perpetual debt □Applicable√Not applicable Other financial instruments are classified as financial liabilities □Applicable√Not applicable Other notes □Applicable√Not applicable 47. Long-term payable (1) Long-term payable listed by nature of the account √ Applicable □ Not applicable In RMB Items Opening balance Closing balance Money should be paid to Yuandong 17,085,779.67 0 International Leasing Limited Other notes □Applicable√Not applicable 48. Long term payroll payable □Applicable√Not applicable 49. Special payable √ Applicable □ Not applicable In RMB Opening balance Opening Decrease at this Opening balance Reason Items balance period Huangshi Municipal Finance 33,000,000.00 33,000,000.00 Bureau entrusted loan Total 33,000,000.00 33,000,000.00 / 50. Accrued liabilities □Applicable√Not applicable 51. Deferred income Deferred income √ Applicable □ Not applicable In RMB Items Opening balance Increase Decrease Closing balance Formation reasons 109 / 139 2017 Annual Report Government 115,583,696.86 41,169,600.00 12,481,396.70 144,271,900.16 subsidy Total 115,583,696.86 41,169,600.00 12,481,396.70 144,271,900.16 / (2) Details of government subsidies √ Applicable □ Not applicable In RMB Amount Beginning of New subsidy in transferred to Other Asset-related or Items End of term term current period non-operational changes income-related income Refrigeration c 3,767,291.67 267,492.00 3,499,799.67 Asset-related ompressor ind ustrial transformation of special fun ds Major special f 3,168,750.00 225,000.00 2,943,750.00 Asset-related unds Compressor 12,912,232.62 916,848.00 11,995,384.62 Asset-related industrial projects Huangshi City, 544,906.54 38,688.00 506,218.54 Asset-related construction o f affordable hou sing subsidies Daye Luo 802,393.33 104,664.00 697,729.33 Asset-related bridge new plant construction subsidies Technology 4,900,000.00 700,000.00 4,200,000.00 Asset-related projects subsidies land 2,995,248.00 126,564.00 2,868,684.00 Asset-related compensation fee The special 2,700,000.00 300,000.00 2,400,000.00 Asset-related funds of Special Power Supply Line Construction Period III The subsidy of 20,542,208.03 1,700,794.03 18,841,414.00 Asset-related financial infrastructure The Subsidy 41,666,666.67 40,000,000.00 7,644,539.67 74,022,127.00 Asset-related funds for machinery and equipment Finance 10,619,000.00 229,600.00 10,389,400.00 Asset-related Bureau subsidy PDM data 225,000.00 99,993.00 125,007.00 Asset-related center management system to the public Industrial 10,740,000.00 44,750.00 10,695,250.00 Asset-related transformation and upgrading of the project subsidy funds 110 / 139 2017 Annual Report Fixed asset 600,000.00 35,000.00 565,000.00 Asset-related investment plan for 2017 Compressor 569,600.00 47,464.00 522,136.00 Asset-related parts revamping project Total 115,583,696.86 41,169,600.00 12,481,396.70 144,271,900.16 / Other notes □Applicable√Not applicable 52. Other non-current liabilities □Applicable√Not applicable 53. Share capital √ Applicable □ Not applicable In RMB Changed(+,-) Balance in year- Issuance Capitalizat Balance in beginning Bonus year-end of new ion of Other Subtotal shares share public reserve Total of 235,000,000.00 235,000,000.00 capital shares 54. Other equity instruments (1) Basic information of preferred stock, perpetual capital securities and other financial instruments outstanding issued at period-end □Applicable√Not applicable (2) Change list of preferred stock, perpetual capital securities and other financial instruments outstanding issued at period-end □Applicable√Not applicable Changes, reason of change and basis of relevant accounting treatment of other equity instruments in reporting period: □Applicable√Not applicable Other notes □Applicable√Not applicable 55. Capital reserves √ Applicable □ Not applicable In RMB Items Opening balance Increase Decrease Closing balance Capital premium 180,001,555.45 180,001,555.45 Other capital reserves 10,110,280.81 10,110,280.81 Total 190,111,836.26 190,111,836.26 56. Treasury stock □Applicable√Not applicable 57. Other comprehensive income √Applicable□Not applicable In RMB Items Occurred current term End of term Beginning 111 / 139 2017 Annual Report of term Less: Accounted Amount as other Attributabl occurred Less: Attributable gains e to before Income to the parent previously minority income tax tax Company but shareholde of the expenses after tax transferred rs after tax period to gain/loss this period 1.Other comprehensive income that will not be reclassified subsequently to profit or loss Indluding:Change as a result of remeasuremen t of the net defined benefit plan liability or asset Share of other comprehensive income of the investee underthe equity method that will not be reclassified to profit or loss II. Other 657,887.24 138,259.76 138,259.76 796,147.00 Comprehensive income that will be reclassified subsequently to profit or loss Indluding:Share of other comprehensive income of the investee under the 112 / 139 2017 Annual Report equity method that w8ill be reclassified to profit or loss Gains or losses on changes in fair value of available-for-sale financial assets Gains or losses on reclassification of held-to-maturityinv estments to available-for –sale financial assets Effective portion of gains or losses on cash flow hedges 657,887.24 138,259.76 138,259.76 796,147.00 Translation differences of financial statements denominated in foreign currencies Total of other 657,887.24 138,259.76 138,259.76 796,147.00 comprehensive income 58. Special reserves □Applicable√Not applicable 59. Surplus reserves √ Applicable □ Not applicable In RMB Items Opening balance Increase Decrease Closing balance Statutory surplus 49,674,959.93 5,581,996.78 55,256,956.71 reserves Discretional surplus reserves Reserve funds Enterprise development funds Other Total 49,674,959.93 5,581,996.78 55,256,956.71 113 / 139 2017 Annual Report 60.Retained profits √ Applicable □ Not applicable In RMB Items Amount of this period Amount of last period 611,690,176.32 532,439,208.01 Before adjustment: Retained profits at the end of priodyear Adjustment: Total retained profits at the beginning of year 611,690,176.32 532,439,208.01 After adjustment: Retained profits at the beginning of year 83,402,663.88 83,040,363.66 Add:Net profit attributable to shareholders of the parent Company for the period 5,581,996.78 3,789,395.35 Less:Appropriation to statutory surplus reserve Appropriation to discretionary surplus reserve Appropriation to general risk reserve 23,500,000.00 Ordinary shares’ dividends payable Ordinary shares’ dividends converted into share capital Retained profits at the end of the period 666,010,843.42 611,690,176.32 61. Business income, Business cost √ Applicable □ Not applicable In RMB Amount of current period Amount of previous period Items Income Cost Income Cost Income from 3,722,331,925.90 3,180,830,541.84 3,409,757,876.03 2,887,447,650.31 Main Business Other Business 66,975,929.40 45,311,451.22 63,760,395.40 55,432,736.60 income Total 3,789,307,855.30 3,226,141,993.06 3,473,518,271.43 2,942,880,386.91 62.Business tax and subjoin √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Consumption tax 316,966.15 Business tax 7,723,779.39 4,498,400.93 City maintenance and construction tax Education surtax 3,310,184.94 1,927,886.05 Resource tax House tax 6,222,185.95 2,390,542.87 Land use tax 8,215,238.86 5,422,040.60 Vehicle and vessel usage tax 58,386.02 49,240.32 Stamp tax 2,716,823.93 2,091,703.67 Other 79,938.78 Water Construction Fund 1,096,607.28 882,759.07 Local education surcharges 1,786,780.67 1,145,218.44 114 / 139 2017 Annual Report Total 31,209,925.82 18,724,758.10 63.Sales expenses √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Transport costs 62,218,590.50 48,428,267.95 Travel expenses 4,491,371.57 3,991,352.05 Wege 24,137,669.84 19,692,382.12 Warranty expenses 24,089,140.10 28,247,203.38 Other 10,347,937.01 21,583,812.03 Total 125,284,709.02 121,943,017.53 64.Administrative expenses √ Applicable □ Not applicable Items Amount of current period Amount of previous period Wage 73,433,333.46 72,591,459.42 Travel expenses 14,160,547.17 12,818,185.95 Depreciation 9,759,390.72 10,345,756.27 Repair fees 1,385,312.31 1,518,814.43 Taxes 5,261,995.44 R& D expenses 151,385,325.46 154,818,413.07 Other 14,201,389.08 13,860,540.47 Total 264,325,298.20 271,215,165.05 65. Financial expenses √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Interest expense 75,835,362.27 67,720,748.91 Less: Incoming interests -31,637,104.31 -18,366,785.37 Exchange gains/losses 6,523,695.44 Less :exchange gains -10,960,460.65 3,073,322.00 2,635,519.73 Handling charges Total 53,795,275.40 41,029,022.62 66. Asset impairment loss √Applicable□Not applicable In RMB Items Amount of current period Amount of previous period 7,344,641.02 4,555,710.55 I .Losses for bad debts II. Losses for falling price of inventory III. Losses of available for sale financial assets impairment IV.Impairment on held-to-mathurity investments V.Impairment on long-term equity investment 115 / 139 2017 Annual Report VI.Impairment on investment properties VII.Impairment on fixed assets VIII. Impairment on construction materials IX. Impairment on construction in progress X. Impairment on bearer biological assets XI. Impairment on oil and gas assets XII. Impairment on intangible assets XIII. Impairment on goodwill XIV.Other 7,344,641.02 4,555,710.55 Total 67. Gains on the changes in the fair value □Applicable√Not applicable 68.Investment income √Applicable□Not applicable In RMB Items Amount of current period Amount of previous period Long-term equity investment income under equity method -905,588.21 1,778,523.43 Investment loss through disposal of long-term equity investment Income from financial assets measured by fair value with changes in fair value recognised in profit or loss Investment income from disposal of financial assets measured by fair value with changes in fair value recognised in profit or loss Investment income received from holding of held-to-maturity investments during holding period Investment income received from available for sale financial assets during holding period Investment income from disposal of available for sale financial assets Investment income from the remaining equity recalculated by fair value after losing control Total -905,588.21 1,778,523.43 69.Non-operating gains Non-operating gains √ Applicable □ Not applicable In RMB Items Amount of current Amount of previous Recorded in the amount of period period the non-recurring gains and losses Total gains from disposal of non-current assets Including:Gains from disposal of fixed assets Gains from disposal of intangible assets 1,487,009.27 1,487,009.27 Gains from debt restructuting Non-monetary assets exchangegains 116 / 139 2017 Annual Report Accepting donations Government grants 20,466,741.00 38,293,336.06 20,466,741.00 Quality claims and other 8,710,344.80 5,064,646.84 8,710,344.80 fine income 211,010.73 1,775,863.91 211,010.73 Waste income 82,230.79 135,382.51 82,230.79 Electricity allowance 987,007.05 987,007.05 Other 131,078.55 341,840.57 131,078.55 Total 32,075,422.19 45,611,069.89 32,075,422.19 Government subsidy reckoned into current gains/losses √ Applicable □ Not applicable In RMB Amount of this Items Amount of last period Assets-related/income -related period Tax return 6,074,500.00 19,162,985.55 Related to income Support Fund for the Development of 4,645,100.00 Related to income Intelligent Home Appliances Industry Strong provincial subsidy 2,660,000.00 Related to income Technological Center Capacity Building 1,747,700.00 1,252,500.00 Related to income Project Industrial development subsidy 1,434,000.00 Related to income Science and technology awards categories of 1,247,441.00 Related to income government grants Special funds for foreign economic & trade 1,058,000.00 500,000.00 Related to income Development subsidies for high - tech enterprises 810,000.00 Related to income Provincial science and technology innovation 790,000.00 4,641,000.00 Related to income and development of special funds Auto special project award 124,552.00 Related to income Patent subsidy fund 669,776.00 Related to income Talent subsidy fund 355,000.00 Related to income Stabilization subsidy 345,250.00 2,717,638.00 Related to income Staging included in deferred income 12,481,396.70 9,894,660.51 Related to income Total 34,318,163.70 38,293,336.06 / Other notes □Applicable√Not applicable 70.Non-Operation expense √ Applicable □ Not applicable In RMB The amount of Amount of current period Amount of previous Items non-operating gains & lossed period Total of non-current asset Disposition loss Incl: loss of fixed assets disposition loss of intangible assets disposition Loss on debt reconstruction 127,275.59 127,275.59 Non-monetary asset exchange losses Foreign donations 165,000.00 230,000.00 165,000.00 Waste loss 11,178,286.31 7,948,819.84 11,178,286.31 Other 361,769.03 439,193.51 361,769.03 Total 11,832,330.93 8,618,013.35 11,832,330.93 71. Income tax expense 117 / 139 2017 Annual Report (1) Lists of income tax expense √ Applicable □ Not applicable In RMB Items Report period Same period of the previous year Current income tax expense 13,668,561.26 7,310,935.93 Deferred income tax expense -114,157.78 3,460,424.79 Total 13,554,403.48 10,771,360.72 (2) Adjustment process of accounting profit and income tax expense √ Applicable □ Not applicable In RMB Items Report period Total profits 114,394,938.53 Current income tax expense accounted by tax and relevant 14,699,129.15 regulations Effect of different tax rates applicable to subsidiaries Income tax adjustments on prior periods Impact of non-taxable income 135,838.23 Impact of non-deductible costs, expenses and losses 9,464,087.95 Affect the use of deferred tax assets early unconfirmed deductible losses This issue does not affect the deferred tax assets 2,119,751.09 recognized deductible temporary differences or deductible loss Additional impact of research and development expenses -12,864,402.93 deduction Income tax expenses 13,554,403.49 Other notes □Applicable√Not applicable 72. Other comprehensive income √ Applicable □ Not applicable Refer to the notes 73. Supplementary information to cash flow statement (1) Other cash received relevant to operating activities √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Other Unit 3,513,821.62 2,460,754.58 Fine and Quality compensation 6,082,313.43 7,182,351.31 Interest income 3,296,920.13 4,454,413.35 Rent and utilities 17,071,128.51 14,205,534.82 Govemment Subsidy 15,762,267.00 9,235,690.00 Total 45,726,450.69 37,538,744.06 (2)Other cash paid relevant to operating activities √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Office ,transportation andother 107,964,592.46 97,626,917.46 Water and electricity 944,355.80 1,028,567.46 Technology Development costs 77,214,340.83 72,864,227.79 118 / 139 2017 Annual Report Other Current account 64,359,851.02 52,947,849.20 Total 250,483,140.11 224,467,561.91 (3) Other cash received relevant to investment activity √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Government grants related to assets received 41,169,600.00 17,380,000.00 Total 41,169,600.00 17,380,000.00 (4) Other cash paid relevant to Investment financing activity □Applicable√Not applicable (5) Other cash paid relevant to financing activity √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Including: Loans to non-financial institutions 146,000,000.00 Total 146,000,000.00 (6)Other Cash payable related to Financing activities √ Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Including: Customer service leasing assets cash 2,231.17 payments 18,333.06 Repayment of loans to non-financial 146,000,000.00 institutions Total 18,333.06 146,002,231.17 74. Supplement Information for cash flow statement (1)Supplement Information for cash flow statement √ Applicable □ Not applicable In RMB Amount of current period Amount of previous Supplement Information period I. Adjusting net profit to cash flow from operating activities Net profit 100,840,535.05 101,170,429.92 Add: Impairment loss provision of assets 7,344,641.02 4,555,710.55 Depreciation of fixed assets, oil and gas assets and 161,396,324.64 151,926,802.14 consumable biological assets Amortization of intangible assets 5,056,297.74 4,868,321.59 Amortization of Long-term deferred expenses 2,698,068.22 2,620,526.93 Loss on disposal of fixed assets, intangible assets and other long-term deferred assets Loss from scrapping of fixed assets 11,096,055.52 7,813,437.33 Loss from fair change Financial cost 75,835,362.27 53,808,376.89 Loss on investment 905,588.21 -1,778,523.43 Decrease in deferred income tax assets -114,157.78 3,460,424.79 Increased of deferred income tax liabilities Decrease of inventories -162,036,025.61 21,978,972.51 Decease of operating receivables 56,566,899.10 -168,794,334.07 119 / 139 2017 Annual Report Increased of operating Payable -92,806,752.04 -268,938,645.25 Other Net cash flows arising from operating activities 166,782,836.34 -87,308,500.10 II. Significant investment and financing activities that without cash flows: Transferring debts to capital Convertible corporate bond to mature within one year Leasing fixed assets through financing III.The information of net increase of cash and cash equivalent Balance of cash at the End of the period 541,382,061.70 301,740,407.38 Less: Balance of cash at the beginning of the period 301,740,407.38 553,841,516.54 Add: Balance of cash equivalent at the end of the period Less: Balance of cash equivalent at the beginning of the period Net increase in cash and cash equivalents 239,641,654.32 -252,101,109.16 (2) Net Cash paid of obtaining the subsidiary □Applicable√Not applicable (3) Net Cash receive of disposal of the subsidiary □Applicable√Not applicable (4) Cash and cash equivalents √ Applicable □ Not applicable In RMB Items Closing balance Opening balance 1.Cash 541,382,061.70 301,740,407.38 Including:cash at hand 1,311.83 1,310.84 Demand bank deposit 412,330,451.65 215,594,966.82 Demand other monetary funds 129,050,298.22 86,144,129.72 Usable money in Central Bank Money saved in associated financial bodies Money from associated financial bodies II. Cash equivalents Of which: bond investment which will due in three months III. Closing balance of cash and cash 541,382,061.70 301,740,407.38 equivalents Including: Cash and cash equivalents of parent company or subsidiaries with use restrictions Other notes √ Applicable □ Not applicable Notes : The balance of cash in the balance of more than three months due to the deposit margin of RMB78.3484 million. The deposit certificate pledged of RMB 9 million . 75. Note of statement of changes in the owner's equity Explain "other" project name and adjustment amount of the adjustment of closing balance in previous year, etc.: 120 / 139 2017 Annual Report □Applicable√Not applicable 76. The assets with the ownership or use right restricted √Applicable□Not applicable In RMB Items Closing book value Restricted reason 216,398,728.18 To issue bank acceptance draft, L /C, time deposit Monetary capital certificate pledge Note receivable Inventory Fixed assets 432,069,811.15 For loan mortgage Intangible assets Total 648,468,539.33 / 77. Foreign currency monetary items (1) Foreign currency monetary items √Applicable□Not applicable In RMB Closing foreign currency Closing convert to RMB Items Exchange rate balance balance Monetary capital Indluding:USD 8,544,912.34 6.5342 55,834,166.21 Euro 5,100,981.52 7.8023 39,799,388.11 HKD RMB RMB Account receivable Including:USD 25,118,430.26 6.5342 164,128,847.00 Euro 3,396,855.82 7.8023 26,503,288.19 HKD RMB RMB Long-term loans Including:USD Euro HKD RMB RMB Foreign currency accounting-XXX RMB RMB Short-term loans Including:USD 27,300,000.00 6.5342 178,383,660.00 (2) Note to oversea entities including: for significant oversea entities, shall disclose main operating place, recording currency and selection basis, if there are changes into recording currency, shall also disclose the reason. □Applicable√Not applicable 78.Arbitrage □Applicable√Not applicable 79.Government subsidy 1. Basis situation √Applicable□Not applicable In RMB Amount of profits and Type Amount Items losses for the current period 121 / 139 2017 Annual Report The Subsidy funds for machinery and 40,000,000.00 Deferred income equipment Fixed asset investment plan for 2017 600,000.00 Deferred income Compressor parts revamping project 569,600.00 Deferred income Tax return 6,074,500.00 Non-operating 6,074,500.00 income Support Fund for the Development of 4,645,100.00 Non-operating 4,645,100.00 Intelligent Home Appliances Industry income 2,660,000.00 Non-operating 2,660,000.00 Strong provincial subsidy income Technological Center Capacity Building 1,747,700.00 Non-operating 1,747,700.00 Project income 1,434,000.00 Non-operating 1,434,000.00 Industrial development subsidy income Science and technology awards categories of 1,247,441.00 Non-operating 1,247,441.00 government grants income Special funds for foreign economic & trade 1,058,000.00 Non-operating 1,058,000.00 Development income subsidies for high - tech enterprises 810,000.00 Non-operating 810,000.00 income Provincial science and technology innovation 790,000.00 Non-operating 799,000.00 and development of special funds income Refrigeration compressor industrial 267,492.00 Other income 267,492.00 transformation of special funds Major special funds 225,000.00 Other income 225,000.00 Compressor industrial projects 916,848.00 Other income 916,848.00 Huangshi City, construction of 38,688.00 Other income 38,688.00 affordable housing subsidies Daye Luo bridge new plant construction 104,664.00 Other income 104,664.00 subsidies Technology projects subsidies 700,000.00 Other income 700,000.00 land compensation fee 126,564.00 Other income 126,564.00 The special funds of Special Power Supply 300,000.00 Other income 300,000.00 Line Construction Period III The subsidy of financial infrastructure 1,700,794.03 Other income 1,700,794.03 The Subsidy funds for machinery and 7,644,539.67 Other income 7,644,539.67 equipment Finance Bureau subsidy 229,600.00 Other income 229,600.00 PDM data center management system to the 99,993.00 Other income 99,993.00 public Subsidy fund for industrial transformation 44,750.00 Other income 44,750.00 and upgrading project Fixed asset investment plan for 2017 35,000.00 Other income 35,000.00 Compressor parts revamping project 47,464.00 Other income 47,464.00 Patent subsidy fund 669,776.00 Other income 669,776.00 Talent subsidy fund 355,000.00 Other income 355,000.00 Stabilization subsidy 345,250.00 Other income 345,250.00 2. Information about refunding government grants □Applicable√Not applicable 80.Other □Applicable√Not applicable VIII. Changes of merge scope 1. Business merger not under same control □Applicable√Not applicable 2. Business combination under the same control □Applicable√Not applicable (1) The Merger of enterprises under the same control that occurred in the current period □Applicable√Not applicable 122 / 139 2017 Annual Report (2) Combined cost □Applicable√Not applicable (3) Book value of assets and liabilities of the merged party on the merger date □Applicable√Not applicable Other notes □Applicable√Not applicable 3.Counter purchase □Applicable√Not applicable 4.The disposal of subsidiary Whether there a single disposition loses control of a subsidiary's investment □ Applicable √ Not applicable Other notes □Applicable√Not applicable Whether there are multiple transactions step by step dispose the investment to subsidiary and lost control in reporting period □ Applicable √ Not applicable 5. Other reasons for the changes in combination scope Notes to reasons for the changes in combination scope (Newly established subsidiary and subsidiary of liquidation) and relevant information □Applicable√Not applicable 6.Other □ Applicable √ Not applicable IX. Equity in other entities 1. Equity in subsidiary (1) The structure of the enterprise group\ √Applicable□Not applicable Main Proportion of shareholding(%) Name of the Registration Nature of operating Way of gaining subsidiary place business Directly Indirectly place Wuhu Abaur 75.00 Investment Mechanical Manufacturing Wuhu Wuhu & Electrical Co., Ltd.. Huangshi 38.46 Under the same Dongbei Manufacturing control business Huangshi Huangshi Founry Co., combination Ltd. Huangshi 100.00 Under the same Dongbei control business International Huangshi BVI Trading combination Trade Co., Ltd. Dongbei 100.00 Investment Electromech Manufacturing anical Suqian Suqian (Jiangsu) Co., Ltd. Dongbei(Wu 100.00 Investment han) Wuhan Wuhan R&D Centre Technology 123 / 139 2017 Annual Report Innovation Co., Ltd. Alashankou 80.00 Investment Dongbei Power Alashankou Alashankou Greenergy Generation Co., Ltd. Dongbei Wuhu Wuhu Trading 100.00 Investment (Wuhu) Electromec hanical Co., Ltd. Huangshi Huangshi Huangshi Unoperated 75.00 Under the same Donglian control business New Energy combination Co., Ltd. Fengtai Huainan Unoperated 75.00 Under the same Donglian control business New Energy combination Technology Co., Ltd. Wutai Jinhe Wutai Unoperated 75.00 Under the same New control business Energy Co., combination Ltd. Notes:The holding subsidiary Wuhu Abaur Mechanical & Electrical Co., Ltd.. holds a 51.28% stake of Huangshi Dongbei Foundry Co., Ltd; and holds 80% stake of Alashankou Dongbei Energy-saving Co., Ltd.; in the current period there were newly added subsidiaries Huangshi Donglian New Energy Co., Ltd, Fengtai Donglian New Energy Technology Co., Ltd and Wutai County Jinhe New Energy Co., Ltd due to the transfer of equity by the related party Hubei Dongbei New Energy Co., Ltd-with that the transfer price was a nominal price of 1 yuan, and all of them did not start normal operations; as of the reporting date, Huangshi Donglian New Energy Co., Ltd and Fengtai Donglian New Energy Technology Co., Ltd are handling the simple cancellation procedure, and Wutai County Jinhe New Energy Co., Ltd was cancelled on May 22, 2017. (2) Significant not wholly owned subsidiary √ Applicable □ Not applicable In RMB Shareholding Declaring The profits and losses Balance of minority proportion of dividends distribute Subsidiary arbitrate to the shareholder at minority to minority minority shareholders closing period shareholder shareholder Wuhu Abaur Mechanical & 25.00 10,543,254.60 169,921,674.96 Electrical Co., Ltd.. Huangshi Dongbei Founry 48.72 9,904,788.73 65,578,932.62 Co., Ltd. Holding proportion of minority shareholder in subsidiary different from voting proportion: □ Applicable √ Not applicable Other notes: □ Applicable √ Not applicable (3) The main financial information of significant not wholly owned subsidiary √ Applicable □ Not applicable 124 / 139 2017 Annual Report In RMB’0000 Year-end balance Year-beginning balance Non Non Name Non Current curren Total Non Current Total Current Total Current Total current current Liabilit t liabiliti current Liabiliti liabilitie assets assets assets assets liabilitie assets ies liabilit es assets es s s ies Wuhu 128,872 33,573. 162,446 97,626. 420. 98,046. 126,104 36,291. 162,395 101,884 490.0 102,374 Abaur .23 88 .11 47 00 47 .20 23 .43 .63 0 .63 Mech anical & Electr ical Co., Ltd.. Huan 30,722. 16,834. 47,556. 33,642. 453. 34,095. 28,180. 18,082. 46,262. 32,632. 2,202. 34,835. gshi 19 13 32 18 77 95 12 48 60 41 82 23 Dong bei Founr y Co., Ltd. Amount of current period Amount of previous period Total Cash flows Total Cash flows Busines Name Net Compreh from Business Net Compreh from s profit ensive operating income profit ensive operating income income activities income activities Wuhu Abaur 151,008 4,378.85 4,378.85 15,898.44 127,836. 5,777.48 5,777.48 -10,284.13 Mechanical & .24 89 Electrical Co., Ltd.. Huangshi Dongbei 52,481. 2,033.00 2,033.00 -536.66 42,520.8 1,014.21 1,014.21 -3,066.59 Founry Co., Ltd. 27 2 (4) Significant restrictions of using enterprise group assets and pay off enterprise group debt □ Applicable √ Not applicable (5) Provide financial support or other support for structure entities incorporate into the scope of consolidated financial statements □ Applicable √ Not applicable Other notes: □ Applicable √ Not applicable 2. The transaction of the Company with its owner’s equity share changed but still controlling the subsidiary □ Applicable √ Not applicable (1) Note to owner’s equity share changed in subsidiary √ Applicable □ Not applicable 3. Equity in joint venture arrangement or associated enterprise √ Applicable □ Not applicable In RMB Accounting treatment Main Registra Proportion(%) of the investment of Name operating tion Business nature Direct Indirec joint venture or place place ly tly associated enterprise Huangshi Aibo Property Co., Huangshi Huangs Real estate 24.00 Equity method Ltd. hi Hubei Jinling Fine Huangshi Huangs Development of 24.00 Equity method Agriculture Co., Ltd hi the agricultural products 125 / 139 2017 Annual Report (2) Main financial information of significant joint venture □ Applicable √ Not applicable (3) Summary financial information of insignificant joint venture or associated enterprise □ Applicable √ Not applicable (4) Note to the significant restrictions of the ability of joint venture or associated enterprise transfer funds to the Company □ Applicable √ Not applicable (5) The excess loss of joint venture or associated enterprise □ Applicable √ Not applicable (6) The unrecognized commitment related to joint venture investment □ Applicable √ Not applicable (7) Contingent liabilities related to joint venture or associated enterprise investment □ Applicable √ Not applicable (8) Significant common operation □ Applicable √ Not applicable 4. Equity of structure entity not including in the scope of consolidated financial statements Related notes to structure entity not including in the scope of consolidated financial statements 6.Other □ Applicable √ Not applicable X. The risk related financial instruments □ Applicable √ Not applicable XI. The disclosure of the fair value 1. Closing fair value of assets and liabilities calculated by fair value □ Applicable √ Not applicable 2. Market price recognition basis for consistent and inconsistent fair value measurement items at level 1 □ Applicable √ Not applicable 3. Valuation technique adopted and nature and amount determination of important parameters for consistent and inconsistent fair value measurement items at level 2 □ Applicable √ Not applicable 4. Valuation technique adopted and nature and amount determination of important parameters for consistent and inconsistent fair value measurement items at level 3 □ Applicable √ Not applicable 5. Sensitiveness analysis on unobservable parameters and adjustment information between opening and closing book value of consistent fair value measurement items at level 3 □ Applicable √ Not applicable 6. Explain the reason for conversion and the policy governing when the conversion happens if conversion happens among consistent fair value measurement items at different levels □ Applicable √ Not applicable 126 / 139 2017 Annual Report 7. Changes in the valuation technique in the current period and the reason for change □ Applicable √ Not applicable 8. Fair value of financial assets and liabilities not measured at fair value □ Applicable √ Not applicable 9.Other □ Applicable √ Not applicable XII. Related party and related party transactions 1. Parent company information of the enterprise √ Applicable □ Not applicable In RMB’0000 The parent The parent Register company of the company of the Regisrated Name ed Natrue capital Company's Company’s vote address shareholding ratio ratio Huangshi Dongbei Huangs Manufactur 24,184.00 50.04 50.04 Electromechanical Group Co., Ltd. hi ing Notes Huangshi Dongbei Electromechanical Group Co.,Ltd was incorporated on January 18, 2002; registered address: No. 5, Wu Huang Road, Tieshan district Huangshi City, Hubei Province; legal representative: Yang Baichang; registered capital: RMB 241.8429 million; company type: other limited liability company; business scope: production and sales of refrigeration compressors, refrigeration equipment and spare parts, maintenance of refrigeration equipment, high-tech development, consulting; rental housing, car rental, real estate development.( if involves licensed operating items, it shall obtain permissions from relevant department before operation).Its holding stake of the company: 50.04%. Final controlling party: Nil Other notes: Nil 2. Subsidiaries of the Company See details to Notes IX.. √ Applicable □ Not applicable 3. Information on the joint ventures and associated enterprises of the Company The details to Notes of significant joint venture and associated enterprise of the Company □ Applicable √ Not applicable Other notes □ Applicable √ Not applicable 4.Information on other related parties √Applicable□ Not applicable Name Relationship with the Company 127 / 139 2017 Annual Report Huangshi Dongbei Refrigerating Controlled by the parent company Huangshi Dongbei Electromechanical Group Co., Ltd. Co., Ltd. One of the shareholders of the parent Company Huangshi Dongbei Huangshi Aibo Technology Electromechanical Group Co., Ltd., Trust holdings shares of Huangshi Dongbei Development Co., Ltd. Group Employees. Wuhu Farici Investment Co., Ltd. Other Hubei Xingdong Investment Co., Other Ltd. Jiangsu Luoke Electrical Group One of the shareholders of the parent Company Huangshi Dongbei Co., Ltd. Electromechanical Group Co., Ltd. Huangshi Chenxin Photoelectric Wuhu Farici Investment Co., Ltd. holding subsidiaries Co., Ltd. Hubei Dongbei New Energy Co., Huangshi Aibo Technology Development Co., Ltd. holding subsidiaries Ltd. Dongbei New Energy(Wuhu)Co., Huangshi Aibo Technology Development Co., Ltd. holding subsidiaries Ltd. Hubei Jinling Fine agricultural Huangshi Aibo Technology Development Co., Ltd. holding subsidiaries Linyang Co., Ltd. Hubei Jinling Fine agricultural Co., Huangshi Aibo Technology Development Co., Ltd. holding subsidiaries Ltd. Huangshi Jinbei Dairy Co., Ltd. Huangshi Aibo Technology Development Co., Ltd. holding subsidiaries Huangshi Huangshi Director Wuhu Farici Investment Co., Ltd. holding subsidiaries Dongxing Petty Loan Co., Ltd. Huangshi Dongbei Refrigerator Huangshi Dongbei Electromechanical Group Co., Ltd.’s parent company industry Co., Ltd. Lin Yinkun Director, General Manager Lu Lihua Deputy General Manager and Secretary of the board Zhu Yushan Deputy General Manager Gao Jianjun Deputy General Manager Dou Zuowei Deputy General Manager Ma Yanping Supervisor Hu Rongzhi Supervisor Huangshi Dongbei Electronic Controlled by the parent company Huangshi Dongbei Electromechanical Group Commerce Co., Ltd. Co., Ltd. Jiangsu Dongbei Machinery Co., Controlled by the parent company Huangshi Dongbei Electromechanical Group Ltd. Co., Ltd. Wuhu Abaur Real estate Co., Ltd. Other 5.Related-party transactions (1) Information on acquisition of goods and reception of labor service Acquisition of goods and reception of labor service √Applicable□ Not applicable In RMB’0000 Related-party Content Amount of this period Amount of last period Huangshi Dongbei Refrigerating Co., 3.21 Compressor parts Ltd. Jiangsu Luoke Electric Group Co., Ltd. Compressor parts 35,684.31 31,026.44 Huangshi Aibo Technology 65,204.84 54,705.85 Compressor parts Development Co., Ltd. Huangshi Dongbei Electromechanical 4,567.96 2,704.53 Compressor parts Group Co., Ltd. Huangshi Jinbei Dairy Co., Ltd. Agricultural products 335.05 316.73 Hubei Jinling Fine Agriculture Co., Ltd. Agricultural products 96.32 84.57 Huangshi Chenxin Optoelectronic Co., Inspection equipment 294.06 Ltd. Hubei Dongbei New Energy Co., Ltd. Compressor parts 1,673.37 Hubei Dongbei New Energy Co., Ltd. Photovotaic 40,455.39 Huangshi Dongbei Electromechanical Guarantee 200.00 Group Co., Ltd. 128 / 139 2017 Annual Report Information of sales of goods and provision of labor service √ Applicable □ Not applicable In RMB’0000 Amount of last Related-party Content Amount of this period period Huangshi Dongbei Refrigerating Co., Ltd. Compressor 2,265.29 1,153.53 Hubei Dongbei New Energy Co., Ltd. Compressor parts 9.21 10.92 Huangshi Aibo Technology Development Charge for electricity, 1,109.59 3.55 Co., Ltd. materials for sale Huangshi Chenxin Optoelectronic Co., Ltd. Charge for electricity 296.79 Huangshi Dongbei Electromechanical Compressor parts 16.51 Group Co., Ltd. Jiangsu Luoke Electric Group Co., Ltd. Storage fee 23.08 9.51 Huangshi Dongbei Electronic Commerce Compressor 71.64 Co., Ltd. Huangshi Jinbei Dairy Co., Ltd. Charge for electricity 70.12 Huangshi Aibo Technology Development Guarantee 18.07 Co., Ltd. Notes □ Applicable √ Not applicable (2)Related trusteeship or contracting Lists of entrust/contractee □ Applicable √ Not applicable Notes □ Applicable √ Not applicable The company commissioned the management / package list □ Applicable √ Not applicable Notes □ Applicable √ Not applicable (3)Information of related lease The Company was lessor √Applicable□ Not applicable In RMB Cagegory of leased The lease incme The lease income Name of lessee assets confirmed in this year confirmed in last year Huangshi Dongbei Electromechanical 300,132.00 300,132.00 House Group Solar energy Co., Ltd. Hubei Dongbei New Energy Co., Ltd. House 861,973.92 861,973.92 Huangshi Dongbei Refrigerating Co., Ltd. House 6,331,839.84 6,331,839.84 Huangshi Jinbei Dairy Co., Ltd. House 148,680.00 148,680.00 Jiangsu Luoke Electrical Group Co., Ltd. House 308,940.00 308,940.00 Wuhu Abaur Real estate Co., Ltd. House 3,000.00 6,000.00 Jiangsu Luoke Electrical Group Co., Ltd. House 208,770.00 182,580.00 The company was lessee: √Applicable□ Not applicable In RMB Category of leased The lease income The lease incoe confirmed in Lessor assets confirmed in this year last year Huangshi Dongbei Electromechanical Land 36,000.00 36,000.00 Group Co., Ltd. Huangshi Aibo Technology Development House 525,830.40 Co., Ltd. Notes □ Applicable √ Not applicable (4) Related-party guarantee 129 / 139 2017 Annual Report The company was guarantor: √Applicable□ Not applicable In RMB’0000 Execution Guarantee Guarantor Start date End date accomplished or amount not Alashankou Dongbei Clean Co., Ltd. 35,000.00 2015/5/28 2027/11/17 No Wuhu Abaur Mechanical & Electrical Co., 43,678.10 2017/1/13 2018/12/13 No Ltd. Dongbei Electromechanical (Jiangsu) Co., 13,092.34 2015/12/17 2020/12/31 No Ltd. Huangshi Aibo Technology Development 3,000.00 2017/11/20 2018/11/20 No Co., Ltd. Huangshi Dongbei Electromechanical 5,797.90 2017/6/12 2018/11/6 No Group Co., Ltd. Huangshi Dongbei Refrigerating Co., 9,315.51 2017/1/24 2018/10/31 No Ltd. Huangshi Dongbei Founry Co., Ltd. 13,005.05 2017/1/17 2018/10/23 No The Company was secured party √Applicable□ Not applicable In RMB’0000 Execution Guarantee Guarantor Start date End date accomplished amount or not Huangshi Dongbei Electromechanical 68,168.17 2016/7/14 2019/7/14 No Group Co., Ltd. Wuhu Abaur Mechanical & Electrical Co., 19,051.37 2017/1/13 2018/5/14 No Ltd. Wuhu Abaur Mechanical & Electrical Co., 3,000.00 2017/5/12 2018/5/11 No Ltd. And Equipment mortgage Notes □ Applicable √ Not applicable (5)Inter-bank lending of capital of related parties √Applicable□ Not applicable □ Applicable √ Not applicable (6) Related party asset transfer and debt restructuring √Applicable□ Not applicable In RMB Amount of current Related party Content Amount of previous period period Hubei Dongbei New Energy Co., Ltd. Stock equity transfer 1.00 Huangshi Aibo Technology Fixed assets transfer 330,341.88 Development Co., Ltd Huangshi Chenxin Optoelectronic Fixed assets transfer 2,513,333.33 Co.,Ltd. (7)Rewards for the key management personnel √Applicable □ Not applicable In RMB Items Amount of current period Amount of previous period Rewards for the key management 3,192,042.69 2,440,650.56 personnel 130 / 139 2017 Annual Report (8)Other related-party transactions □ Applicable √ Not applicable 6. Receivables and payables of related parties (1)Receivable √Applicable □ Not applicable In RMB Items Related parties Bad debt Items Related parties Bad debt reserve Book balance reserve Book balance Other Huangshi Jinbei Dairy Co . , Ltd . 28,595.40 571.91 receivable Account Huangshi Dongbei Refrigerating 3,082,257.23 4,391,107.06 receivable Co., Ltd. Account Huangshi Dongbei Electronic 159,206.70 3,184.13 receivable Commerce Co., Ltd Huangshi Dongbei 6,700,254.35 9,161,889.64 Prepayment Electromechanical Group Co., Ltd. Total 9,970,313.68 3,756.04 13,552,996.70 (2) Payables √Applicable □ Not applicable In RMB Items Related party Book Balance at period Book Balance at period beginning end Huangshi Dongbei New Energy Co., 12,754,019.17 14,548,473.46 Account payable Ltd Other account Hubei Dongbei New Energy Co., Ltd. 440,000.00 130,000.00 payable Huangshi Aibo Technology 110,891,997.92 62,401,194.23 Account payable Development Co., Ltd. Other account Huangshi Aibo Technology 3,010,000.00 6,000,000.00 payable Development Co., Ltd. Huangshi Dongbei Electromechanical 301,005.00 302,005.00 Account payable Group Solar Energy Co., Ltd. Other account Jiangsu Luoke Electrical Group Co., 2,154,470.00 2,000,000.00 payable Ltd. Jiangsu Luoke Electrical Group Co., 45,336,865.54 23,281,869.78 Account payable Ltd. Jiangsu Luoke Electrical Group Co., 33,663.76 Advance Payments Ltd. 7. Related party commitment □ Applicable √ Not applicable 8.Other □ Applicable √ Not applicable XIII. Stock payment 1. The stock payment overall situation □ Applicable √ Not applicable 2.The stock payment settled by equity □ Applicable √ Not applicable 3. The stock payment settled by cash □ Applicable √ Not applicable 4. Modification and termination of the stock payment. □ Applicable √ Not applicable 5.Other □ Applicable √ Not applicable 131 / 139 2017 Annual Report XIV. Commitments 1. Significant commitments √Applicable □ Not applicable Nature and amount of significant commitments to externals existed on the balance sheet date and such commitments As of the reporting date, the company did not have material events after the balance sheet date, and/or material commitments and/or contingencies needing to be disclosed. 2. Contingency (1) Significant contingency at balance sheet date □ Applicable √ Not applicable (2) The Company have no significant contingency to disclose, also should be stated □ Applicable √ Not applicable (3)Other □ Applicable √ Not applicable XV. Enents after balance sheet date 1. Significant events had not adjusted □ Applicable √ Not applicable 2. Profit distribution □ Applicable √ Not applicable 3. Sales return □ Applicable √ Not applicable 4. Notes of other significant events □ Applicable √ Not applicable XVI.Other significant events 1. The accounting errors correction in previous period (1)Retrospective restatement □ Applicable √ Not applicable (2)Prospective application □ Applicable √ Not applicable 2. Debt restructuring □ Applicable √ Not applicable 3. Replacement of assets (1)Non-monetary assets exchange □ Applicable √ Not applicable 132 / 139 2017 Annual Report (2)Other assets replacement □ Applicable √ Not applicable 4. Pension plan □ Applicable √ Not applicable 5. Discontinuing operation □ Applicable √ Not applicable 6.Segment information (1) Recognition basis and accounting policies of reportable segment □ Applicable √ Not applicable (2) The financial information of reportable segment □ Applicable √ Not applicable (3) There was no reportable segment, or the total amount of assets and liabilities of each part of reportable segment, shall disclose the reason. □ Applicable √ Not applicable (4)Other notes □ Applicable √ Not applicable 7. Other important transactions and events have an impact on investors’ decision-making □ Applicable √ Not applicable 8.Other □ Applicable √ Not applicable XVII. Notes s of main items in financial reports of parent company (1)Account receivable 1.Classification accojunt receivables. √ Applicable □ Not applicable In RMB Year-end balance Year-beginning Provision for bad Provision for bad Book balance Book balance Classificat debts debts ion Pro Pro Balance Prop Balance value Prop port port value Amount ortio Amount Amount ortio Amount ion( ion( n(%) n(%) %) %) 133 / 139 2017 Annual Report Receivabl 102,289,188.9 13.5 102,289,188.9 38,563,613.96 5.40 38,563,613.9 es with 4 8 4 6 major individual amount and bad debt provision provided individuall y 2. Other 650,970,345.4 86.4 25,133,292.4 3.8 625,837,053.0 675,938,358.5 94.6 25,412,056.8 3.7 650,526,301. Receivabl 9 2 3 6 62 0 4 6 68 es provided bad debt provision in groups Other Account receivable with minor individual amount but bad debtprovis ion is provided 753,259,534.4 / 25,133,292.4 / 728,126,242.0 714,501,972.4 / 25,412,056.8 / 689,089,915. Total 3 3 08 4 64 Receivable accounts with large amount individually and bad debt provisions were provided □ Applicable √ Not applicable In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision: √ Applicable □Not applicable In RMB Balance at year-end Aging Account receivable Provision for bad debts Proportion% Within 1 year Including:Subitem within 1 year Subtotal within 1 year 636,617,251.98 12,732,345.04 2 1-2 years 868,572.81 43,428.64 5 2-3 years 1,610,002.78 483,000.83 30 Over 3 years 3-4 years Over 4 years 11,874,517.92 11,874,517.92 100 4-5 years Over 5 years Total 650,970,345.49 25,133,292.43 In the groups, other accounts receivable adopting balance percentage method to withdraw bad debt provision: □ Applicable √ Not applicable In the groups, accounts receivable adopting other methods to withdraw bad debt provision: □ Applicable √ Not applicable (2) Account receivables actually written-off during the reporting period The withdrawal amount of the bad debt provision during the reporting period was of RMB25,133,292.43; Of which the significant amount of the reversed or collected part during the reporting period was: □ Applicable √ Not applicable 134 / 139 2017 Annual Report (3) The actual write-off accounts receivable □ Applicable √ Not applicable Of which: significant actual verification of accounts receivable □ Applicable √ Not applicable (4) Top five of account receivable of closing balance collected by arrears party √ Applicable □ Not applicable Name Closing balance Proportion (%) Bad debt prosion 1.Client 1 126,073,742.27 16.74 2,521,474.85 2.Client 2 88,445,827.29 11.74 1,768,916.55 3.Client 3 51,974,494.94 6.90 1,039,489.90 4.Client 4 50,923,986.48 6.76 5.Client 5 46,953,694.14 6.23 Total 364,371,745.12 —— 5,329,881.29 (5) Account receivable which terminate the recognition owning to the transfer of the financial assets: □ Applicable √ Not applicable (6) The amount of the assets and liabilities formed by the transfer and the continues involvement of accounts receivable □ Applicable √ Not applicable Other notes: □ Applicable √ Not applicable 2. Other accounts receivable (1) Other accounts receivable disclosed by category √ Applicable □ Not applicable In RMB Closing balance Opening balance Bad debt Bad debt Book Balance Book Balance Classification provision provision Amount Proporti Amount Propo Book value Amount Proport Amount Propor Book value on(%) rtion( ion(%) tion(% %) ) Other accounts receivable of individual significance and subject to individual impairment assessment Other 335,504.27 100.00 7,610.09 2.27 327,894.18 137,184.87 100.00 2,743.70 2.00 134,441.17 accounts receivable subjecttoi mpairment assessment by credit risk characteris tics of a portfolio 135 / 139 2017 Annual Report Other accounts receivable of individual insignificanc e but subject ot individual impairment assessment Total 335,504.27 / 7,610.09 / 327,894.18 137,184.87 / 2,743.70 / 134,441.17 Other accounts receivable with significant single amount for which bad debt provision separately accrued at the period-end □ Applicable √ Not applicable In the groups, other accounts receivable adopting aging analysis method to accrue bad debt provision: √Applicable□Not applicable In RMB Closing balance Aging Other account Withdrawal Bad debt provision receivable proportion(%) Withn 1 year Incluidng:Subitem withn 1 year Subtotal within 1 year 305,504.27 6,110.09 2 1-2 years 30,000.00 1,500.00 5 2-3 years Over 3 years 3-4 years Over 4 years 4-5 years Over 5 years 335,504.27 7,610.09 Total In the groups, other accounts receivable adopting balance percentage method to withdraw bad debt provision □ Applicable √ Not applicable In the groups, other accounts receivable adopting other methods to accrue bad debt provision: □ Applicable √ Not applicable (2)Accounts receivable withdraw, reversed or collected during the reporting period the amount of the reversed or collected part during the reporting period was of RMB7,610.09. Of which the significant amount of the reversed or collected part during the reporting period was of RMB 000: □ Applicable √ Not applicable (3) The actual write-off other accounts receivable □ Applicable √ Not applicable (4) Other accounts receivable classified by the nature of accounts √Applicable□Not applicable In RMB Nature Closing book balance Pening book balance Current account 80,270.67 30,318.66 Petty cash 255,233.60 106,866.21 Total 335,504.27 137,184.87 (5) Top 5 of the closing balance of the other accounts receivable colleted according to the arrears party □ Applicable √ Not applicable (6) Accounts receivable involved with government subsidies □ Applicable √ Not applicable 136 / 139 2017 Annual Report (7) Other account receivable which terminate the recognition owning to the transfer of the financial assets □ Applicable √ Not applicable (8) The amount of the assets and liabilities formed by the transfer and the continues involvement of other accounts receivable □ Applicable √ Not applicable Other notes: □ Applicable √ Not applicable 3.Long-term equity investment √Applicable □ Not applicable In RMB Closing balance Opening balance Items Bad debt Bad debt Book balance Book value Book balance Book value provision provision Investment to the subsidiary 188,161,074.70 188,161,074.70 188,161,074.70 188,161,074.70 Investment to joint ventures and associated enterprises Total 188,161,074.70 188,161,074.70 188,161,074.70 188,161,074.70 (1)Investment to the subsidiary √Applicable □ Not applicable In RMB Withdraw n impairme Closing Increa Decre nt balance of Name Opening balance Closing balance se ase provision impairmen in the t provision reporting period Wuhu Abaur Mechnical & 33,339,800.00 33,339,800.00 Electrical Co., Ltd. Dongbei International Trade Co., 6,821,274.70 6,821,274.70 Ltd. Dongbei(Wuhan) Technology 8,000,000.00 8,000,000.00 Innovation Co., Ltd. Dongbei Electromechanical 140,000,000.00 140,000,000.00 (Jiangsu) Co., Ltd. Total 188,161,074.70 188,161,074.70 (2)Investment to joint ventures and associated enterprises □ Applicable √ Not applicable 4.Business income and Business cost √ Applicable □ Not applicable In RMB Report period Same period of the previous year Items Income Cost Income Cost Main Business 2,883,187,268.48 2,644,138,044.01 2,763,681,193.75 2,544,379,077.57 Other Business 83,617,931.32 44,229,005.22 278,800,585.34 243,586,334.71 Total 2,966,805,199.80 2,688,367,049.23 3,042,481,779.09 2,787,965,412.28 5.Investment income □ Applicable √ Not applicable 137 / 139 2017 Annual Report 6.Other □ Applicable √ Not applicable XVIII. Supplement Information 1.Non-recurring gains and losses of current year √ Applicable □ Not applicable In RMB Items Amount Notes Non-current asset disposal gain/loss -11,096,055.52 Tax refund, deduction and exemption that is examined and approved by authority exceeding or has no official approval document. Governmental Subsidy accounted as current gain/loss, except for 34,318,163.70 those subsidies at with amount or quantity fixed by the national government and closely related to the Company’s business operation. Capital occupation fee collected from non-financial organizations and accounted as current gain/loss. Income from the exceeding part between investment cost of the Company paid for obtaining subsidiaries, associates and joint-ventures and recognizable net assets fair value attributable to the Company when acquiring the investment Gains and losses from exchange of non-non-monetary assets Gains and losses from assets under trusted investment or Management Asset impairment provisions for force major such as natural disasters Gain/loss from debt reorganization Enterprise reorganization expenses, such as payment to stuff placement and consolidation expenses Gain/loss from trades obviously departed from fair value Net gain/loss of current term from consolidation of subsidiaries under common control from beginning of term to the consolidation date Gain/loss from debt forcasting without connection to the main business operation In addition to normal business with the company effective hedging related business, holders of tradable financial assets, transactions and financial liabilities arising from changes in fair value gains and losses, as well as the disposal of trading of financial assets, trading financial liabilities and available-for-sale financial assets gains return on investment; Single impairment test for impairment of receivables transferred back to preparation Gains and losses obtained from external trusted loans The use of fair value measurement model of follow-up to the fair value of real estate investment gains and losses arising from changes According to tax, accounting and other laws, regulations, the requirements of the current Gain/loss for a one-time adjustment of the impact of the current Gain/loss; Entrusted with the operating of the trust to obtain fee income Net amount of non-operating income and expense except the 10,872,405.78 aforesaid items Other non-recurring Gains/loss items .Amount of influence of income tax - 5,413,718.92 Amount of influence of minority interests - 1,506,569.15 Total 27,174,225.89 For the Company’s non-recurring gain/loss items as defined in the Explanatory Announcement No.1 on information disclosure for Compaines Offering their Securities to the Public-Non-recurring Gains and Losses and its non-recurring gain/loss items as illustrated in the Explanatory Announcement No.1 on information Disclosure for Companies offering their securities to the public-non-recurring Gains and losses which have been defined as recurring gains and losses, it is necessary to explain the reason. 138 / 139 2017 Annual Report □Applicable√Not applicable 2.Return on equity(ROE)and earnings per share(EPS) √ Applicable □ Not applicable Earnings per share Weighted average Profit of the reporting period Basic earnings per return on equity(%) Diluted earnings per share share Net profit attributable to common 7.39 0.355 shareholders of the Company Net profit attributable to common 4.98 0.239 shareholders of the Company after deduction of non-recurring profit and loss 3.Differences between accounting data under domestic and overseas accounting standards □ Applicable √ Not applicable 4.Other □ Applicable √ Not applicable XII. Documents Available for Inspection Documents Available for Accounting statements carried with personal signatures and seals of legal representative, Inspection Chief Financial officer and Financial Principal. Documents Available for Original of Auditors’ Report carried with the seal of Certified Public Accountants as well Inspection as personal signatures of certified Public accountants. Documents Available for The texts of all the Company's documents publicly disclosed on the newspapers and Inspection periodicals designated by China Securities Regulatory Commission in the report period. Chairman of the board of directors: Zhu Jinming Issue day approved by the Board of Directors:March 29, 2018 Revised information □Applicable√Not applicable 139 / 139