晨鸣Ｂ：2019年年度报告（英文版）

Annual Report 2019

March 2020

2019 AnnuAl RepoRt

I Important Notice, Table of Contents and Definitions

The board of directors (the“Board”), the supervisory committee (the“Supervisory Committee”) and the directors (the“Directors”), supervisors (the“Supervisors”) and senior management (the“Senior Management”) of the Company herebywarrant the truthfulness, accuracy and completeness of the contents of the annual report, guarantee that there are no falserepresentations, misleading statements or material omissions contained in this annual report, and are jointly and severallyresponsible for the liabilities of the Company.Chen Hongguo, head of the Company, Dong Lianming, head in charge of accounting and Zhang Bo, head of the accountingdepartment (Accounting Officer), declare that they warrant the truthfulness, accuracy and completeness of the financial reportin the annual report.All directors have attended the board meeting to review this report.Notice of non-standard audit opinion

□ Applicable √ Not applicable

Notice of material deficiencies in internal control

□ Applicable √ Not applicable

Whether the Company needs to comply with the disclosure requirements for specific industriesNoThe Company is exposed to various risk factors such as macro-economic fluctuation, state policies and regulations andcompetition in the industry. Investor should be aware of investment risks. For further details, please refer to the risk factorslikely to be faced and the measures to be taken to address them as set out in the outlook on the future development of theCompany in Discussion and Analysis of Operations.The proposed dividend distribution plan or the proposed plan on conversion of capital reserves into share capital for the reportingperiod was considered and passed by the Board:

√ Applicable □ Not applicable

Whether there is an increase of share capital from reserves

□ Yes √ No

The proposed profit distribution plan of the Company was considered and passed by the Board:

The audited consolidated net profit attributable to equity holders of the Company for 2019 prepared in accordance withAccounting Standards for Business Enterprises by the Company amounted to RMB1,656,566,584.88. When deducting theinterest on perpetual bonds of RMB194,000,000.00 for 2019 and the fixed dividend on preference shares of RMB214,425,000.00,the distributable profit realised for 2019 amounted to RMB1,248,141,584.88.In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of PreferenceShares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2019, a cashdividend of RMB1.5 (tax inclusive) per 10 shares will be distributed to ordinary shareholders, a cash dividend of RMB1.5(tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders ofpreference shares. No bonus shares will be issued and there is no increase of share capital from reserves. A cash dividend ofRMB435,691,230 will be distributed to holders of ordinary shares and a variable cash dividend of RMB174,418,604.70 will bedistributed to holders of preference shares. In other words, a cash dividend of RMB3.87 (tax inclusive) per preference share with anominal value of RMB100 each will be distributed to holders of preference shares.

I Important Notice, Table of Contents and Definitions

Table of contents

IImportant Notice, Table of Contents and Definitions ...... 3

IICompany Profile and Key Financial Indicators ...... 4IIIChairman’s Report ...... 10

IVBusiness Overview ...... 12

VDiscussion and Analysis of Operations ...... 21VIDirectors’ Report ...... 43

VIIMaterial Matters ...... 51

VIIIChanges in Share Capital and Shareholders ...... 79

IXPreference Shares ...... 87

XDirectors, Supervisors and Senior Management and Staff ...... 92

XICorporate Governance ...... 105

XIICorporate Bonds ...... 127

XIIIFinancial Report ...... 131

XIVDocuments Available for Inspection ...... 300

2019 AnnuAl RepoRt

I Important Notice, Table of Contents and Definitions

Definitions

ItemmeansDefinitionCompany, Group, Chenming Group or Chenming Paper

meansShandong Chenming Paper Holdings Limited and its subsidiariesParent Company or Shouguang Headquarters

meansShandong Chenming Paper Holdings LimitedChenming HoldingsmeansChenming Holdings Company LimitedShenzhen Stock ExchangemeansShenzhen Stock ExchangeStock ExchangemeansThe Stock Exchange of Hong Kong LimitedCSRCmeansChina Securities Regulatory CommissionShandong CSRCmeansShandong branch of China Securities Regulatory CommissionZhanjiang ChenmingmeansZhanjiang ChenmingJiangxi ChenmingmeansJiangxi Chenming Paper Co., Ltd.Wuhan ChenmingmeansWuhan Chenming Hanyang Paper Holdings Co., Ltd.Shanghai ChenmingmeansShanghai Chenming Industry Co., Ltd.Huanggang ChenmingmeansHuanggang Chenming Pulp & Paper Co., Ltd.Chenming (HK)meansChenming (HK) LimitedHaiming MiningmeansHaicheng Haiming Mining Company LimitedJilin ChenmingmeansJilin Chenming Paper Co., Ltd.Shouguang MeilunmeansShouguang Meilun Paper Co., Ltd.Chenming Sales CompanymeansShandong Chenming Paper Sales Company LimitedFinance CompanymeansShandong Chenming Group Finance Co., Ltd.Chenming LeasingmeansShandong Chenming Financial Leasing Co., Ltd. and its subsidiariesChenming GDR FundmeansWeifang Chenming Growth Driver Replacement Equity Investment Fund

Partnership (Limited Partnership)Chenrong FundmeansWeifang Chenrong Growth Driver Replacement Equity Investment Fund

Partnership (Limited Partnership)Hongtai Real EstatemeansShanghai Hongtai Real Estate Co., Ltd.reporting period or the yearmeansThe period from 1 January 2019 to 31 December 2019the beginning of the year or the period

means1 January 2019the end of the year or the periodmeans31 December 2019the prior yearmeansThe period from 1 January 2018 to 31 December 2018

II Company Profile and Key Financial Indicators

I. Company profile

Stock abbreviation晨鳴紙業Stock code000488

晨鳴B200488晨鳴優01140003晨鳴優02140004晨鳴優03140005Stock exchanges on which the shares are listedShenzhen Stock ExchangeStock abbreviationChenming PaperShenzhen Stock Exchange01812Stock exchanges on which the shares are listedThe Stock Exchange of Hong Kong LimitedLegal short name in Chinese of the Company山東晨鳴紙業集團股份有限公司Legal short name in Chinese of the Company晨鳴紙業Legal name in English of the Company (if any)SHANDONG CHENMING PAPER HOLDINGS LIMITEDLegal short name in English of the Company (if any)SCPHLegal representative of the CompanyChen HongguoRegistered addressNo. 595 Shengcheng Road, Shouguang City, Shandong ProvincePostal code of registered addres262700Office addressNo.2199 Nongsheng East Road, Shouguang City, Shandong ProvincePostal code of office address262705Website of the Companyhttp://www.chenmingpaper.comEmail [e-mail]

II. Contact persons and contact methods

Secretary to the BoardHong Kong Company SecretaryNameYuan XikunChu Hon LeungCorrespondence AddressNo. 2199 East Nongsheng Road,

Shouguang City, Shandong Province

22nd Floor, World Wide House,Central, Hong KongTelephone(86)-0536-2158008+852-21629600Facsimile(86)-0536-2158977+852-25010028Email [e-mail]@li-partners.com

III. Information disclosure and places for inspectionDesignated media for information disclosureChina Securities Journal, Shanghai Securities News, Securities Times,

Securities Daily and Hong Kong Commercial DailyDesignated websites for the publication of the annual report as approved by CSRC

Domestic: http://www.cninfo.com.cn;

Overseas: http://www.hkex.com.hkPlaces for inspection of the Company’s annual report

Securities investment department of the Company

IV. Change in registrationOrganisation registration code913700006135889860Change of principal activities since its listing (if any)NoChange of the controlling shareholder (if any)No

2019 AnnuAl RepoRt

II Company Profile and Key Financial Indicators

V. Other relevant information

CPAs engaged by the CompanyName of CPAsGrant Thornton (Special General Partnership)CPAs’Office AddressFloor 11, Building No. 4, HuaChuang GuanLi Center, 219 Shunhai Road,

Lixia District, JinanName of the Signing Certified Public Accountants

Hu Naizhong and Liu NanaSponsors engaged by the Company to continuously perform its supervisory function during the reporting period

□ Applicable √ Not applicable

Financial Advisors engaged by the Company to continuously perform its supervisory function during the reporting period

□ Applicable √ Not applicable

VI. Major accounting data and financial indicatorsRetrospective adjustment to or restatement of the accounting data for prior years by the Company

□ Yes √ No

20192018

Increase/decreasefor the year ascompared to theprior year2017Revenue (RMB)30,395,434,073.3528,875,756,163.565.26%29,472,453,563.98Net profit attributable to shareholders of the Company (RMB)1,656,566,584.88 2,509,828,858.47-34.00%3,769,325,450.93Net profit after extraordinary gains or losses attributable to shareholders702,329,086.29 1,953,699,849.75-64.05%3,425,779,016.95Net cash flows from operating activities (RMB)12,232,707,222.9414,099,701,887.04-13.24%23,766,042.93Basic earnings per share (RMB per share)0.330.51-35.29%1.13Diluted earnings per share (RMB per share)0.330.51-35.29%1.13Rate of return on weighted average net assets5.57%8.51%

Decreased by 2.94percentage points15.80%

As at theend of 2019

As at the endof 2018

Increase/decreaseas at the end ofthe year comparedto the end of theprior year

As at the endof 2017Total assets (RMB)97,958,909,935.15 105,318,734,827.82-6.99%105,625,096,076.92Net assets attributable to shareholders of the Company (RMB)25,169,743,863.75 25,048,731,454.790.48%27,778,529,074.90Data specification：

Data specification for basic earnings per share, diluted earnings per share, and rate of return on weighted average netassets: The net profit attributable to shareholders of the Company does not exclude the effect of the interest paymentdeferred and accumulated to subsequent periods for perpetual bonds under other equity instruments and the effect of thedividends on preference shares under other equity instruments that have been considered and approved for distribution.When calculating financial indicators such as earnings per share and rate of return on weighted average net assets, theinterest on perpetual bonds of RMB194,000,000.00 and the dividends on preference shares of RMB493,494,767.52 duringthe reporting period are deducted.

II Company Profile and Key Financial Indicators

VI. Major accounting data and financial indicators(Cont’d)Whether corporate bonds exist

√ Yes □ No

Whether the Company has made losses in recent two years

□ Yes √ No □ Not applicable

VII. Differences in accounting data under domestic and overseas accounting standards

1. Differences between the net profit and net assets disclosed in accordance with international

accounting standards and China accounting standards in the financial report

□ Applicable √ Not applicable

There was no difference between the net profit and net assets disclosed in accordance with international accountingstandards and China accounting standards in the financial report during the reporting period.

2. Differences between the net profit and net assets disclosed in accordance with overseas accounting

standards and China accounting standards in the financial report

□ Applicable √ Not applicable

There was no difference between the net profit and net assets disclosed in accordance with overseas accountingstandards and China accounting standards in the financial report during the reporting period.

2019 AnnuAl RepoRt

II Company Profile and Key Financial Indicators

VIII. Key Financial Indicators by Quarter

Unit: RMBQ1Q2Q3Q4Revenue6,159,836,579.247,188,811,534.468,665,530,249.948,381,255,709.71Net profit attributable to shareholders of the Company38,223,111.21471,572,461.08 557,960,253.43588,810,759.16Net profit after extraordinary gains or losses attributable to shareholders of the Company–23,652,252.85326,797,249.06447,511,508.11-48,327,418.03Net cash flows from operating activities1,424,685,047.041,275,085,844.653,799,453,249.815,733,483,081.44According to the requirements of New Standards for Financial Instruments, out of consideration for the principle ofprudence, the Company made full provision for impairment during the annual audit, including credit impairment loss ofRMB1,033,867,928.73 and loss on impairment of assets of RMB120,991,683.19, which was the primary cause of theQ4 net profit after extraordinary gains or losses attributable to shareholders of the Company being a negative number.Whether the above indicators or their aggregated amounts have any material difference with the respective amounts asdisclosed in the quarterly report or interim report

□ Yes √ No

IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong ListingRules

Unit: RMB’0,000For the year ended 31 December20192018201720162015

BeforeadjustmentAfteradjustment

Beforeadjustment

Afteradjustment

Beforeadjustment

After adjustmentRevenue3,039,5432,887,5762,985,1742,947,2452,290,7112,256,6922,024,1912,019,264Profit before tax204,848320,632453,648453,648258,317258,317141,017141,017Tax29,51864,15877,75277,75256,05662,59743,22436,683Profit for the current period attributable to shareholders of the Company165,657250,983376,933376,933206,399199,858102,122108,663Minority interests9,6735,491–1,036–1,036–4,138–4,138–4,329–4,329Basic earnings per share (RMB/share)0.330.511.131.130.990.950.50.53Rate of return on weighted average net assets (%)5.57%8.51%15.80%15.80%9.59%9.23%6.73%7.17%

Unit: RMB’0,000For the year ended 31 December20192018201720162015

Beforeadjustment

Afteradjustment

Beforeadjustment

Afteradjustment

Beforeadjustment

AfteradjustmentTotal assets9,795,89110,531,87310,562,51010,562,5108,228,5358,228,5357,796,1707,796,116Total liabilities7,161,9147,944,7047,535,0927,535,0925,972,0505,972,0506,070,2776,063,736Minority interests117,00382,296249,565249,56534,60534,60538,74338,743Equity attributable to shareholders of the Company2,516,9742,504,8732,777,8532,777,8532,221,8812,221,8811,687,1491,693,690Net current assets (liabilities)-774,633–1,344,718–783,090–783,090–1,094,182–1,094,182–1,347,029–1,340,488Total assets less current liabilities4,526,0144,390,4054,837,6464,837,6463,557,6713,557,6712,932,7562,939,242

II Company Profile and Key Financial Indicators

X. Items and amounts of extraordinary gains or losses

√ Applicable □ Not applicable

Unit: RMBItemAmount for 2019Amount for 2018Amount for 2017Profit or loss from disposal of non-currentassets (including write-off of provision for assets impairment)135,669,108.8217,149,722.7265,853,273.77Government grants (except for thegovernment grants closely related tothe normal operation of the companyand granted constantly at a fixedamount or quantity in accordance witha certain standard based on statepolicies) accounted for in profit or loss for the current period623,277,014.49535,691,291.26392,774,230.02Gain arising from investment costs foracquisition of subsidiaries, associatesand joint ventures by the corporationbeing less than its share of fair value ofidentifiable net assets of the investees on acquisition364,597,001.77143,867,008.14Profit or loss from debt restructuring-55,792,548.8224,309.62Gains/losses from contingencies irrelevant to the normal operations of the Company-325,259,082.28Except for effective hedging businessconducted in the ordinary course ofbusiness of the Company, gain or lossarising from the change in fair value offinancial assets held for trading, derivativefinancial assets, financial liabilities heldfor trading and derivative financialliabilities, as well as investment gainsfrom disposal of financial assets held fortrading, derivative financial assets,financial liabilities held for trading,derivative financial liabilities and other debt investments61,750,000.0094,000,000.00

2019 AnnuAl RepoRt

II Company Profile and Key Financial Indicators

ItemAmount for 2019Amount for 2018Amount for 2017Gain or loss on external entrusted loans13,312,368.97Gain or loss from changes in fair valueof consumable biological assets andother non-current financial assets subsequently measured at fair value26,692,741.61-21,464,400.65-21,000,042.33Income of entrustment fees from entrusted operationsOther non-operating income and expenses other than the above items24,876,982.3123,291,720.2233,659,216.99Less: Effect of income tax131,148,729.2752,960,460.8250,196,013.15

Effect of minority interests (after tax)33,934,072.327,328,864.013,488,835.77Total954,237,498.59556,129,008.72343,546,433.98Notes for the Company’s extraordinary gain or loss items as defined in the Explanatory Announcement on InformationDisclosure for Companies Offering Their Securities to the Public No.1 – Extraordinary Gains or Losses and the extraordinarygain or loss items as illustrated in the Explanatory Announcement on Information Disclosure for Companies Offering TheirSecurities to the Public No.1 – Extraordinary Gains or Losses defined as its recurring gain or loss items

□ Applicable √ Not applicable

No extraordinary gain or loss items as defined or illustrated in the Explanatory Announcement on Information Disclosure forCompanies Offering Their Securities to the Public No. 1 – Extraordinary Gains or Losses were defined by the Company asits recurring gain or loss items during the reporting period.

X. Items and amounts of extraordinary gains or losses(Cont’d)

III Chairman’s Report

Dear Shareholders,I am pleased to present to all shareholders the report of the Company for the financial year ended 31 December 2019. On behalfof the Board, I express my sincere gratitude to all shareholders for their concern and support rendered to the Company.During the reporting period, facing the complicated and changing domestic and international macroeconomic landscape, thecorporate spirit of“uniting in solidarity, willingness to dedicate, striving for excellence, and working diligently”was manifested atall levels within the Group. Following the guidelines of“innovating management, strengthening skills, making major breakthroughs,and persevering”, the Company overcome all difficulties and mitigated the risks by using every means with strong determination.While the results did turn around. a strategic layout of the pulp and paper integration of the Company was formed, thus furtherconsolidating the Company’s leading position.I. Results of OperationsIn 2019, the Company completed the production of machine-made paper of 5.01 million tonnes and achieved sales of 5.25million tonnes, representing a year-on-year increase of 9.63% and 21.53%, respectively . The Company achieved revenueof RMB30,395 million, representing a year-on-year increase of 5.26%. Total profit and net profit attributable to equityholders of the Company were RMB2,048 million and RMB1,657 million respectively, down by 36.11% and 34.00% year onyear. The Company’s total assets amounted to RMB97,959 million.II. Corporate Governance

During the reporting period, the Company regulated its operation under the requirements of the Companies Law, theSecurities Law, the Code of Corporate Governance for Listed Companies, the Rules Governing Listing of Stocks onShenzhen Stock Exchange, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited andthe related regulations of the China Securities Regulatory Commission. The Company kept on improving and optimisingits legal person governance structure and regulating its operation in practice. The Board considered the status of theCompany’s corporate governance was substantially in compliance with the requirements and requirements of the regulatorydocuments such as the Code of Corporate Governance for Listed Companies.During the reporting period, the Board strived to regulate the operation of the Company by improving its corporategovernance. The Company improved its corporate governance system in a timely manner and amended and improved theamended management systems including the Rules of Procedures for General Meetings, the Rules of Procedures for BoardMeetings, the Rules of Procedures for Supervisory Committee Meetings, and the Articles of Association in accordance withthe regulatory requirements.Strict enforcement of relevant internal control systems has promoted a regulated operation and healthy development of theCompany, thus protecting the legitimate rights and interests of the investors. The overall status of corporate governanceis in compliance with the requirements of the China Securities Regulatory Commission. As the Company’s developmentstrives forward, its regulated operation and internal control will continue to improve.

2019 AnnuAl RepoRt

III Chairman’s Report

III. Dividend Distribution

Consistent with its long-term goal of pursuing the maximisation of corporate values, the Company has always placedmuch emphasis on the benefits of and returns to its shareholders. The audited consolidated net profit attributable to equityholders of the Company for 2019 prepared in accordance with Accounting Standards for Business Enterprises by theCompany amounted to RMB1,656,566,584.88. When deducting the interest on perpetual bonds of RMB194,000,000.00and the fixed dividend on preference shares of RMB214,425,000.00 for 2019, the distributable profit realised for 2019amounted to RMB1,248,141,584.88. In accordance with the requirements of the Articles of Association and the Prospectusof Non-public Issuance of Preference Shares, the proposed profit distribution plan of the Company for 2019 is as follows:

Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2019, a cashdividend of RMB1.5 (tax inclusive) per 10 shares will be distributed to holders of ordinary shares; a cash dividend of RMB1.5(tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders ofpreference shares. No bonus shares will be issued and there is no increase of share capital from reserves. A cash dividendof RMB435,691,230 will be distributed to holders of ordinary shares and a variable cash dividend of RMB174,418,604.70will be distributed to holders of preference shares. In other words, a cash dividend of RMB3.87 (tax inclusive) per preferenceshare with a nominal value of RMB100 each will be distributed to holders of preference shares.IV. Future DevelopmentAlthough the paper making industry has maintained a steady development in recent years, paper making enterprisesexperienced challenges as most brick-and-mortar enterprises in China in the face of the complicated and changingdomestic and international economic landscape. From the fourth quarter of 2018 to the first quarter of 2019, the papermaking industry was not booming in general with a significant decline in paper prices due to the macroeconomic situation.However, since the second quarter, the prices of major paper types of the Company had been on the rise. Moreover, guidedby market demand, the Company continued to strengthen its research and development and innovation in technology andproduct and develop high-margin products. The overall profitability greatly improved. Furthermore, the pulp and paperintegration strategic layout of the Company has basically completed this year. The Company has basically enjoyed paperand pulp self-sufficiency. The gross profit margin of its products significantly improves, further enhancing the profitabilityand risk aversion ability of the Company.Looking forward, the Company will continue to adhere to the main theme of emphasising on environmental protection, lowcarbon, recycling and sustainable development. Following the“Made in China 2025 Plan”and the principles of scientificdevelopment and quality and efficiency enhancement, the Company, will further reorganise methodology and restructure,while comprehensively enhancing quality, efficiency, management level, technology application, sense of happiness andbrand image, and concentrating on its principal activities, pushing the Company to be stronger, better and greater, with aview to becoming a globally competitive world-class paper-making enterprise.Chen HongguoChairman27 March 2020

IV Business Overview

I. Principal activities of the Company during the Reporting PeriodWhether the Company needs to comply with the disclosure requirements of specific industriesNo(I) Principal activities of the Company during the reporting period

1. Business overview

The Company is a large conglomerate principally engaged in pulp production and paper making with synergisticdevelopment in finance, forestry, logistics and construction materials. The Company is the only listed companywith A shares, B shares and H shares in China. Its key indicators in respect of business and economic efficiencyhave been in a leading position in the industry in China for over 20 consecutive years. The machine-madepaper business is the principal activity and the major source of revenue and profit of the Company. During thereporting period, there was no significant change in the principal activity of the Company.The Company has committed itself to implementing a pulp and paper integration strategy, introducedworld-leading pulp production and paper making technology and equipment. Its product series include high-endoffset paper, white paper board, coated paper, light weight coated paper, household paper, electrostatic copypaper and thermal paper, glassine paper, with each major product ranking among the highest in terms of marketshare in China. The Company has scientific research institutions including the national enterprise technologycentre, the postdoctoral working station as well as state certified CNAS pulp and paper testing centre andhas obtained 213 national patents including 18 patents for invention, with 7 products selected as nationalnew products. The Company has obtained 13 science and technology progress awards above the provinciallevel and undertaken five national science and technology projects and 54 provincial technological innovationprojects. The Company has pioneered to obtain the ISO9001 quality certification, ISO14001 environmentalprotection certification and FSC-COC certification among its industry peers.

2019 AnnuAl RepoRt

IV Business Overview

I. Principal activities of the Company during the Reporting Period(Cont’d)(I) Principal activities of the Company during the reporting period(Cont’d)

2. Main products

CategoryMajor brands and typesCharacteristics of productsProduct illustrationRange of applicationCulture paperBIYUNTIAN, CLOUDY

MIRROR, and CLOUDYLEOPARD all-wood pulpoffset paper;“CLOUDYLION”and“CLOUDYCRANE”offset paper; and“CEDAR”and“GREENPINE” light weight paper.

High whiteness, goodstiffness, high intensityindex, smooth surface,accurate registering andclear printing

Suitable for printingpublications, textbooks,magazines, covers,illustrations, notebooks, testpapers, teaching materials,reference books, etc.Coated paper“SNOW SHARK”and“EAGLE”one-sided coatedpaper,“SNOW SHARK”,“EAGLE”,“RABBIT”and“SNOW SWALLOW” double-sided coated paper, andEAGLE, RABBIT and SNOWSWALLOW matte coatedpaper.

Good glossiness and bulk,high stiffness and printingquality grade; even and finecoating, good reductionfor the printing dot andbright colour; and highintensity, good whiteness,strong layering sense andverisimilitude image.

Double-side coated paperis suitable for high qualityprinting, such as high-gradepicture albums, picture,magazines and so on. One-side coated paper is suitablefor large format printing andbusiness printing, such asupscale tobacco packagepaper, adhesive sticker,shopping bags, slipcases,envelopes, gift wrapping andso on.White cardboardWhite cardboard and

ivory cardboard of ZITANseries and POPLAR series,super high bulk cardboard,Chenming cigarettecardboard, fluid inclusioncardboard, and base paperfor mugs.

Consistent substance andcallipers, high bulk withgood stiffness, good die-cutting box performance;high whiteness, stablehue, even and fine coating,Good reproduction ofprinting dot, smooth andfine paper surface, highfolding endurance, in favourof securing bulking withoutdamage.

High-end gift boxes, cosmeticsboxes, tags, shopping bags,publicity pamphlets, high-endpostcards; cigarette packageprinting of medium andhigh quality; milk package,beverage package, disposablepaper cups, milk tea cups, andnoodle bowls.

Light weight coated

paper

Jinzhou high-grade lightweight coated paper andrefined light weight coatedpaper

The brightness of productand printing is high, and theprinted products are brightand beautiful; and the paperhas good uniformity, goodbulk, high opacity, and clearprint dot.

Mainly suitable for printingadvertisements, high-endpublications, magazine innerpages, and picture albumssuitable for high-speed sheet-fed press or high-speed rotaryspeed press.

IV Business Overview

CategoryMajor brands and typesCharacteristics of productsProduct illustrationRange of applicationIndustrial paperHigh-grade yellow anti-

sticking base paper, ordinaryyellow/white anti-stickingbase paper, bill base paper,cast coated base paper, PEpaper, stripping base paper,and white kraft paper

Good evenness, highbursting strength, goodsurface smoothness, andcompound and crosscuttingperformance.

Anti-stick base paper is mainlyused for producing the paperbase of stripping paper oranti-sticking base paper. Castcoated base paper is suitablefor producing adhesive paperor playcard compound paperafter coating.Copy paperGOLDEN MINGYANG and

GOLDEN CHENMINGcopy paper, BOYA andBIYUNTIAN copy paper,MINGYANG, LUCKYCLOUDS, BOYANG, andSHANYIN copy paper, andGONGHAO, and TIANJIANcopy paper

Soft whiteness and visuallycomfortable; flat and smoothsurface, and clear writingand vivid colour in printingand copying suitable fordouble-sided use, energysaving and environmentalprotection; and durableprinting and copying effect.

Suitable for printing andcopying business documents,training materials, and writing.

Special paperThermal paper and glassine

paper

High density of colourdevelopment, clearcoloration; made of basepaper of all wood pulp, goodin appearance and texture;strong surface intensity,good adaptability to printingand processing; good wearresistance, non-stick toprinting head, stable quality;smooth and fine surface;and high-grade.

Mainly used in electronics,medicine, food, washingsupplies, supermarket labels,double-sided tape and otherhigh-end adhesive base paper.

Household paperToilet paper, facial tissue,

pocket tissue, napkin, papertowels,“XINGZHILIAN”,“FOREST LOVE”, and“BEIYING”

Fine Wrinkles and goodwater absorption; soft andcomfortable enough formaternal and infant skin;and fine wrinkles, and goodfeeling without scraps afterwiping.

Daily toilet supplies; used inrestaurants and other cateringindustries, and used in publictoilets in hotels, guesthouses,and office buildings, and alsosuitable for home and otherenvironment.

I. Principal activities of the Company during the Reporting Period(Cont’d)(I) Principal activities of the Company during the reporting period(Cont’d)

2. Main products

(Cont’d)

2019 AnnuAl RepoRt

IV Business Overview

I. Principal activities of the Company during the Reporting Period(Cont’d)(I) Principal activities of the Company during the reporting period(Cont’d)

3. Operation model

(1) Purchase model

The Company strives to promote the construction of procurement information systems, establishesan enterprise network bidding platform, improves the contract management module, optimises theSAP three-level authority approval process, and effectively establishes a standardised procurementmanagement system. Meanwhile, the Company cooperates with financial institutions and third parties inthe supply chain financial business to enhance business reputation, establishes synergistic relationships,leverages core enterprise scale advantages, and improves the competitiveness of the supply chain;establishes futures hedging management structures and institutional systems, and formulates hedgingbusiness processes and risk management and control processes; uses futures tools to optimise rawmaterial pricing, prevents price risks, and improves corporate management and anti-risk capabilities.

(2) Production model

The Company strives for a new production model with high technology content, low energy consumptionand less pollution. It puts great efforts in the implementation of green low-carbon strategy. In addition, theCompany endeavours to facilitate business development in line with ecological development, enhance itscompetitiveness in economic development and environmental protection, and establish its economic andecological culture.The Company adheres to the clean production model and relies on advanced production technology andmanufacturing equipment to achieve low emissions with low consumption and achieve the reduction inconsumption through recycling. The Company adheres to energy conservation and emission reduction,and pays close attention to the“three wastes”treatment. The Company has built a wastewater treatmentsystem and middle water reuse system, establishing itself as a resource-saving and environmentallyfriendly benchmarking enterprise. The Company adheres to the pulp and paper integration strategy withthe four major projects put into operation, which effectively alleviates the pressure on raw materials andimproves its core competitiveness.

(3) Marketing model

At present, the Company has a relatively mature sales network, and has set up specialised salescompanies responsible for the development of domestic and overseas markets, product sales, andformulation of sales policies and selling prices. Since 2018, the Company has changed its sales networkfrom regional division to product line division in order to provide more professional sales services. Thesales companies are divided into product companies of cultural paper series, coated paper series andhousehold paper series according to product line. Each product company has its administrative district.A regional general manager is responsible for his administrative district, under which branch companiesare set up. The chief representatives of the branch companies have full authority to deal with branchbusiness.In 2019, the Company innovated a three-level scheduling mechanism for implementation. Branch offices,administrative districts, and sales companies assign specialised personnel to schedule task indicatorsdaily to ensure the effective implementation of the plans.

IV Business Overview

I. Principal activities of the Company during the Reporting Period(Cont’d)

(I) Principal activities of the Company during the reporting period(Cont’d)

3. Operation model

(Cont’d)

(4) Research and Development management model

The Company has strong research and development capabilities and rank among the first in the industry.The Company has set up scientific research institutions including the national enterprise technologycentre, the postdoctoral working station as well as state certified CNAS pulp and paper testing centre.The Company owns a national technology development centre. In addition to its own technologicalinnovation, the Company has also established technology development and talent training cooperationrelationships with domestic and overseas units such as Nanjing Forestry University, China Pulp and PaperResearch Institute and The Dow Chemical Company.The Company has obtained 213 national patents including 18 patents for invention, with 7 productsselected as national new products. The Company has obtained 13 science and technology progressawards above the provincial level and undertaken five national science and technology projects and 54provincial technological innovation projects. The Company has pioneered to obtain the ISO9001 qualitycertification, ISO14001 environmental protection certification and FSC-COC certification among itsindustry peers.

(II) Performance drivers

1. Prominent industry concentration

Environmental protection policies have been issued intensively in recent years, which further phases outoutdated production capacity, and significantly increases industrial concentration. The elimination of outdatedproduction capacity provides scope for concentration among leading enterprises. With strong financial strength,advanced production equipment and economies of scale in production, large paper making enterprises in theindustry continue to increase entry barriers and enjoy huge profits from the industry’s new profit cycle. Theindustry will continue to boom.

2. Perfect marketing model and leading market share in China

The Company has a relatively mature sales network, and has set up specialised sales companies responsible forthe development of domestic and foreign markets, product sales, and formulation of sales policies and sellingprices. Relying on the customer resources established for many years and good sales networks, the Companyhas successfully expanded its overseas markets. The major sales areas include the United States, Hong Kong,Japan, South Africa and other countries and regions.At present, the Company offers the widest product range in the paper making industry, and its major products,including culture paper, electrostatic paper, white paper board and coated paper ranking among the highest interms of market share in China.

2019 AnnuAl RepoRt

IV Business Overview

I. Principal activities of the Company during the Reporting Period(Cont’d)

(II) Performance drivers(Cont’d)

3. Focus on principal activities to achieve perfect complementary pulp and paper production capacity

The paper making industry is a large-scale industry with large inflows and outflows. Whoever controls the rawmaterials has the market initiative. As the chemical wood pulp projects of Huanggang Chenming and ShouguangMeilun commence production, the Company currently has three major pulp mills in Zhanjiang, Huanggang andShouguang. It has become the first domestic paper making enterprise to have fully complementary pulp andpaper production capacity, and has absolute competitiveness in terms of cost.At present, the advantages of the Company’s self-produced pulp have not been fully utilised, and there is stillmuch scope and potential for development. As the market price of wood pulp gradually returns to normal, thecore advantages of the Company’s pulp and paper balance will be further brought into play, and corporateefficiency will be greatly improved.

4. Strong research and development capabilities

The Company had been closely following the economic and market conditions in China and in the industrysince 2019. Driven by customers’demand with a view to enhancing economic benefits, the Companycontinued to put more efforts into technical innovation and developed new technology-based products withmore economic benefits. The Company was also committed to researching and developing for the purposeof product differentiation and refining. 5 R&D projects including the“technology development of highly stiffbook and paper”and“technology development of coated paper for high temperature labels”were listedon the technological innovative project plans of Shandong Province. The Company also collaborated withQilu University of Technology for industry-university innovation, and their organised and declared“KeyTechnology and Application of Green Preparation of High Performance Wood Chemical Pulp”was awardedthe First Prize of Science and Technology Progress Award by the Ministry of Education. The new productsand new achievements including the“high-end social cardboard”and the“baby base paper”were awardedthree Excellent New Product and Outstanding Achievement Second Prizes in the 2019 Shandong ProvinceTechnological Innovation Award. Meanwhile, the Company strengthened the protection of intellectualproperty rights. In 2019, the Company applied for 19 patents and obtained 26 licences, which accelerated therestructuring of its product mix and facilitated the corporate restructuring and upgrade.

5. Strengthening social responsibility works and fulfilling environmental protection obligations

As a leading paper making enterprise in China, the Company has the world’s most advanced paper makingproduction lines. While ensuring production efficiency and product quality, the Company always adheres to theconcept of“placing green development and environmental as the first”and regards environmental protection asa life project. As of the end of 2019, the Company had invested more than RMB8,000 million in environmentalprotection projects. The Group comprehensively implemented environmental protection governance, activelypromoted clean production, vigorously implemented energy conservation and emission reduction, andembarked on the road of green, clean, and low-carbon development. At present, the Company adopts theworld’s most advanced“ultrafiltration membrane+reverse osmosis membrane”technology to complete thereclaimed water recycling membrane treatment project. The reclaimed water recycle rate reaches more than75%. The reclaimed water quality meets drinking water standards, which can save fresh water every day170,000 cubic meters.

IV Business Overview

I. Principal activities of the Company during the Reporting Period(Cont’d)(III) General information of the industries where the Company operated in, business cycle characteristicsand the Company’s position in the industries during the reporting periodAs an important basic raw material industry, the paper making industry plays an important role in the nationaleconomy, and is related to, among others, the economy, culture, production and national defence of a country.Its products are used in various sectors including culture, education, technology and the national economy. Thepaper making industry has the typical characteristics of large-scale industrial production, such as continuous andefficient operation, and significant economies of scale: more raw material requirements, larger equipment investment,and longer industrial chains, involves forestry, agriculture, chemicals, publishing, packaging, printing, machinerymanufacturing, and environmental protection, and is relatively intensive in terms of technology, capital, resources, andenergy.The Chinese government stated in the report delivered at the 19th National Congress that“the focus must beplaced on the real economy and priority must be given to the improvement of the quality of the supply system inthe development of a modernised economy”. Facing this major strategic decision based on the overall current andfuture situation, the paper making industry has to play a role in enhancing Chinese economic quality advantages.However, the development of the paper making industry is obviously characterised by its cyclical nature. Cyclicalmacroeconomic fluctuations will cause fluctuations in the supply and demand of paper products.As a leading player in the paper making industry of China, the Company offers the widest product range in the papermaking industry, and its major products, including culture paper, electrostatic paper, white paper board and coatedpaper rank among the highest in terms of market share in China. At present, the domestic wood pulp productioncapacity is more than 11 million tonnes, and the Company’s pulp production capacity exceeds 4.2 million tonnes. TheCompany’s advantages of pulp and paper integration are obvious. The Company is currently the only paper makingenterprise in China that achieves a complementary paper and pulp production capacity.

II. Material Changes of Major Assets

1. Material Changes of Major Assets

Major assetsDescriptionEquityDuring the reporting period, the Company increased 16.62% equity interest in

Guangdong Nanyue Bank Co., Ltd., 49% equity interest in Shouguang MeiteEnvironmental Technology Co., Ltd. (壽光美特環保科技有限公司), 44.45% equity interestin Weifang Chenrong New and Old Kinetic Energy Conversion Equity Investment FundPartnership (Limited Partnership) (濰坊晨融新舊動能轉換股權投資基金合夥企業（有限合夥)) and 35.43% equity interest in Goldtrust Futures Co., Ltd.Financial leasing assetsDuring the reporting period, the Company continuously reduced the scale of the

financial leasing business, which decreased to 13,600 million, with net recovery ofRMB5.9 billion.Fixed assetsDuring the reporting period, the assets of Shouguang Headquarters cultural paper

transformation project and the Shouguang Meilun 510,000 tonne high-end culturalpaper project and chemical pulp project were transferred.Construction in progressDuring the reporting period, the assets of Shouguang Headquarters cultural paper

transformation project and the Shouguang Meilun 510,000 tonne high-end culturalpaper project and chemical pulp project were transferred.InventoriesDuring the reporting period, the Company strengthened internal management, increased

inventory turnover and reduced capital occupation.

2. Major Assets Overseas

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

IV Business Overview

III. Analysis of Core Competitiveness

Whether the Company needs to comply with the disclosure requirements of specific industriesNoThe Company is a leading player in the paper making industry of China. After innovation and development for more thanhalf a century, it has developed into a large conglomerate principally engaging in pulp production and paper making withsynergistic development in finance, forestry, logistics and construction materials. It is also the first company in the papermaking industry to own a financial company, as well as the only listed company in China with three types of shares in issue,namely A shares, B shares and H shares. Compared with other enterprises in the industry, the Company has the followingadvantages:

1. Advantages of pulp and paper integration

The Company has basically enjoyed wood pulp self-sufficiency due to the completion of the pulp and paperintegration layout during the year. As at the end of 2019, the Company had 4,200,000-tonne wood pulp productioncapacity on its own. Self-produced pulp enjoys significant cost advantage over purchased wood pulp, which enablesthe gross profit of the Company’s paper products to consistently rank among the top of the industry; on the otherhand, the price of wood chips, the raw material for pulp making, is relatively stable. Therefore, the procurementadvantage of bulk supplies and the application of ancillary logistics services have significantly reduced the logisticsand transportation costs of raw material and finished products, considerably increasing the Company’s costadvantage and quality stability

2. Scale advantages

After years of development, the Company, being a leading player in the paper making industry in China, has achievedannual pulp and paper production capacity of over 11 million tonnes and is capable to compete with internationalpaper making enterprises in scale. The large-scale centralised production and operation model has providedthe Company with obvious economic benefits. The Company also has strong market influence over raw materialprocurement, product pricing and industry policymaking.

3. Product advantages

The Company has implemented the“forestry, pulp and paper integration”strategy, introduced world-leading pulpand paper production technology, and set up the largest integrated forestry, pulp and paper project with the mostadvanced technology in the world. The Company is the enterprise that offers the widest product range in the papermaking industry, and its five largest product series include high-end offset paper, white paper board, coated paper,light weight coated paper, household paper, electrostatic copy paper and thermal paper, glassine paper, with eachmajor product ranking among the best in terms of market share.

4. Advantages in technical equipment

Currently, the Company has the largest integrated forestry, pulp and paper project with the most advanced technologyin the world and dozens of pulp and paper production lines of international advanced standards. The Company’soverall technical equipment has reached the advanced international level. The major production equipment has beenimported from internationally renowned manufacturers, including Valmet, Ahlstrom and Metso of Finland, Voith ofGermany and TBC of the United States.The technical equipment used by the Company generally reflects the characteristics of being technology-intensiveand the integration of mechanical and electrical in the paper making industry nowadays. The degassing technology,wet end chemical technology, intelligent sheet lateral control technology, coating preparation technology, free-jetcoating technology, multi-nip pressure balanced calender technology and the technical processes independentlydeveloped by the Company of the pulp systems have all reached the international advanced level.

IV Business Overview

III. Analysis of Core Competitiveness(Cont’d)

5. Advantages in research and innovation and new product development

The Company, Zhanjiang Chenming, Shouguang Meilun, Jiangxi Chenming and Jilin Chenming are high andnew-technology enterprises and are able to give full play to their strong research capability. Supported by the nationalenterprise technology centre and the post-doctoral working station, the Company has established a comprehensiveintellectual property system and put more and more efforts in technical innovation and scientific research anddevelopment to develop new products with high technology contents and high added value as well as proprietarytechnologies. Meanwhile, the technology centre of the Company has actively engaged in technical cooperationwith schools, research institutions and international advanced enterprises. The Company has obtained 213 nationalpatents including 18 patents for invention and 7 products selected as national new products. The Company hasobtained 13 science and technology progress awards above the provincial level and undertaken five national scienceand technology projects and 54 provincial technological innovation projects. The Company has pioneered to obtainthe ISO9001 quality certification, ISO14001 environmental protection certification and FSC-COC certification amongits industry peers. The Company was awarded honours including“China Patent Shandong Star Enterprise”, becomingthe“green engine”of the transformation and upgrading in the paper making industry and leading the direction of thelatest and most advanced technology in the paper making industry in China.

6. Team advantages

The key management members and the core personnel of the Company remain stable. In the business developmentof the Company, an internal corporate culture developed by the stable core staff team favourable to the growth ofthe Company consolidates the management experience specific to the industry, thus resulting in a team advantageblended with management and culture. Meanwhile, the Company has attracted experienced professionals withproduction, sales, financial, legal, financial management backgrounds through its advanced management philosophyand ample room for development. The high quality and professional team secures the sustainable development of theCompany with a solid supply of talents.

7. Advantages in environmental governance capacity

In recent years, the Company and its subsidiaries have constructed the pollution treatment facilities including the alkalirecovery system, middle water treatment system, middle water reuse system, white water recovery system and blackliquor comprehensive utilisation system. The environmental indicators of the Company rank high in the country andin the world. At present, the Company adopts the world’s most advanced“ultrafiltration membrane+reverse osmosismembrane”technology to complete the reclaimed water recycling membrane treatment project. The reclaimed waterrecycle rate reaches more than 75%. The reclaimed water quality meets drinking water standards, which can savefresh water every day 170,000 cubic meters.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

I. Overview

During the reporting period, although the general operation of the Company was in good condition, the Companyexperienced huge challenges as other paper making enterprises in the face of the complicated and changing domesticand international economic landscape. Affected by various factors such as economic downturn, reduced market demand,and tight supply and rising prices of raw materials, the paper making industry experienced a decline in economic returns,increased difficulties in production and operation, and falling paper prices. Accordingly, the Company achieved net profitof only RMB38.22 million in the first quarter. Since the second quarter, the market improved significantly. The prices ofthe major paper types had been on the rise, and the benefits of the paper price rise were obvious. The Shouguang Meilun510,000 tonne high-ended cultural paper project, the Shouguang Headquarters cultural paper transformation project, theShouguang Meilun 1,000,000 tonne chemical pulp project, the Huanggang Chenming chemical pulp project and othersinvested and constructed by the Company were successively put into operation with smooth operation in the secondquarter, and gradually began to play their role. The profitability of the Company improved significantly in the second quarterwith a quarter-on-quarter increase of 1,157.95%.As the traditional peak season in the printing industry in the third and fourth quarter approached, the market demand forpaper further increased. The Company raised the prices and recorded quarter-on-quarter growth in net profit during thethird and fourth quarter.In 2019, the Company produced 5.01 million tonne machine-made paper with sales of 5.25 million tonne, representinga year-on-year increase of 9.63% and 21.53% respectively. The Company recorded revenue of RMB30,395 million,representing a year-on-year increase of 5.26%. Total profit and net profit attributable to equity holders of the Companyamounted to RMB2,048 million and RMB1,657 million respectively, representing a year-on-year decrease of 36.11% and

34.00%. Total asset of the Company amounted to RMB97,959 million. The operation and management results were mainly

reflected in the following aspects:

(I) Strengthening finance management

As affected by financial policies and unsatisfactory results in the first quarter, corporate financing was affected to acertain extent. Under such circumstances, the Company enhanced leadership and management. It adopted effectivemeasures to proactively broaden financing channels. The gearing ratio dropped to 73.11% from 75.43% as at thebeginning of the year. This not only secured the normal operation of the Company but greatly improved its financialposition. Firstly, the Company adjusted and reinforced the financial team. Financial meetings were held on a regularbasis to discuss and formulate financing proposals. Meanwhile, the Company put greater efforts into assessment,and fully revitalised initiative in work. Hence, the management works were further enhanced. Secondly, the Companydeepened its connection with banks, thus creating an excellent financing environment and having a better relationshipwith banks. Thirdly, the scale of leasing business continued to shrink. Net recovery of proceeds realised duringthe year amounted to RMB5,900 million. The scale of the financial leasing business was reduced to approximatelyRMB13.6 billion, which effectively put risk exposures under control.

V Discussion and Analysis of Operations

I. Overview(Cont’d)(II) Innovating sales managementIn 2019, the sales work achieved satisfactory results. Inventories were further reduced and returns were improveddue to the rising prices. A historical highest monthly recovery of proceeds was recorded. The progress was mainlyreflected in the following aspects:

1. The Company proactively implemented the strategy of price rising, enhanced market operation, and rose

prices on a continuous basis. It enhanced customer management and facilitated capital flows. The Companyimplemented new methods for order acceptance, which released the limits in existing order acceptance mode,facilitated business development and deepened the relationship with customers. The Company screened outleading and quality major agencies, and increased its trading volume with them. In addition, the Company putgreater efforts into scheduling management, and implemented three-level scheduling mechanism, thus ensuringeffective implementation of its plans.

2. The Company enhanced team building, and trained and assigned senior positions for young employees, thus

stimulating vitality of its team. The Company reserved stand-by talents at different levels, and eliminatedmediocre employees, thereby establishing a quality marketing team. The Company also put greater effortsinto assessment and incentive, fully implemented regular assessment, and incentivised balanced distribution.The Company implemented numerous incentive assessment measures, which greatly enhanced employees’

initiative in work.(III) Enhancing production managementIn 2019, the production system achieved improvement to a certain extent while generally remained stable, which wasmainly reflected in: stable operation in production, gradual reduction in cost and increasing production volume. Duringthe year, the Company completed the production of machine-made paper of 5.01 million tonnes, which increased bymore than 400,000 tonnes. The Company mainly implemented the following measures:

1. The Company fully implemented major measures at all levels of work. It strictly implemented the assessment

and appraisal measures, thereby promoting employees with excellent performance, improving the performance

of employees with poor performance or eliminating such employees. The Company also optimised and

amended management systems and controlling procedures, thereby making procedures more simple,

effective and easy to implement. The Company conducted comprehensive inspection and optimisation on

production procedures. Hence, the level of production scheduling, management and operation automation and

informationisation were improved.

2. The Company adjusted product structure, and focused on the production of products with high profit margin.

The Company also optimised the proportion of paper pulp, reduced chemical usage, and actively promoted

new technology and raw materials application. The Company strictly implemented production based on orders

made, scientific production and strict control over inventory, thus greatly reducing capital utilisation.

3. During the reporting period, the four major projects were put into production upon construction completion.

The projects in respect of membrane treatment for reclaimed water recycling in Shouguang, Huanggang and

Zhanjiang were put into production, which ensured clean water utilisation remaining basically steady while

adding new projects. The social and economic benefits were obvious.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

I. Overview(Cont’d)(IV) Strictly implementing corporate management

Corporate management is essential. In 2019, the Company further standardised its corporate management, whichmainly reflected in:

1. Basic management further improved: The Company improved its corporate system, making it more simple and

practical. The Company also developed several working procedures, and implemented online operation fortraining examination and assessment, thus greatly improved efficiency. The Company strived to conduct regularmeetings and reschedule key work on weekly basis, thus ensure implementation of various works. Leveragingthe functions of different departments, the Company enhanced supervision and inspection, defined scope ofinspection for different departments, and conducted key inspection on several violations of laws and negligenceof duty, which posted deterrent effects of disciplining.

2. Team building was enhanced: Adhering to the philosophy of

“eliminating employees that are lagged behind,refusing mediocre employees, and incentivising talents”, the Company stimulated the vitality of its managementteam. By introducing quality professions, the Company enriched its technology and management capability.The Company refined standards and focused on appraisal, thus achieving better incentive effects. TheCompany also proactively optimised remuneration system, and put greater efforts into offering incentives, whichsignificantly increased the motivation of senior management.

(V) Significant effects of supply chain management

The Company explored quality customers at source, and established strategic cooperation with quality majorsuppliers, thereby stabilising supply channels of raw materials. The Company closely monitored market conditions,kept an eye on market low, and maintained efficient source procurement. The Company greatly promoted the useof corporate commercial notes and financial institution notes. The Company also put greater efforts in handling idleequipment and overstock. While minimising the effects of tariff rise as a result of the trade war between China and theUnited States, the Company timely optimised and adjusted import channels. The Company studied the new policyof“Simplification of Administrative Procedures, Decentralization of Powers, Combination of Decentralization withAppropriate Control, and Optimization of Services”implemented by the government, and established centralisedcustom monitor model on group basis. Hence, the Company became the first pilot enterprise in Shandong Province.

V Discussion and Analysis of Operations

II. Analysis of principal operations

1. Overview

Please see“I. Overview”under“Discussion and Analysis of Operations” for relevant information.

2. Revenue and cost

(1) Components of revenue

Unit: RMB20192018Increase/

decreaseAmount% of revenueAmount% of revenueTotal revenue30,395,434,073.35100%28,875,756,163.56100%5.26%By industryMachine-made paper25,911,568,864.4785.25%24,303,557,365.1384.17%6.62%Financial leasing1,815,459,714.285.97%2,202,061,690.167.63%-17.56%Construction materials311,264,909.381.02%288,669,257.791.00%7.83%Magnesite mining278,633,403.310.92%416,152,447.971.44%-33.05%Electricity and steam143,725,243.140.47%154,541,407.230.54%-7.00%Chemicals126,550,115.280.42%110,998,714.220.38%14.01%Others1,808,231,823.485.95%1,399,775,281.064.76%29.18%By productDuplex press paper7,728,877,039.0725.43%6,155,644,742.2321.32%25.56%White paper board6,908,899,578.1522.73%6,440,247,745.6622.30%7.28%Coated paper3,779,487,348.4412.43%4,697,177,229.0316.27%-19.54%Electrostatic paper3,270,064,358.5410.76%2,404,374,935.488.33%36.00%Anti-sticking raw paper1,238,578,315.184.07%1,208,193,494.704.18%2.51%Household paper620,993,038.462.04%749,151,937.192.59%-17.11%Other machine-made paper2,364,669,186.647.78%2,648,767,280.849.17%-10.73%Financial leasing1,815,459,714.285.97%2,202,061,690.167.63%-17.56%Construction materials311,264,909.381.02%288,669,257.791.00%7.83%Magnesite mining278,633,403.310.92%416,152,447.971.44%-33.05%Electricity and steam143,725,243.140.47%154,541,407.230.54%-7.00%Chemicals126,550,115.280.42%110,998,714.220.38%14.01%Others1,808,231,823.485.95%1,399,775,281.064.76%29.18%By geographical segmentMainland China26,788,134,394.7688.13%24,560,408,181.9285.06%9.07%Other countries and regions3,607,299,678.5911.87%4,315,347,981.6414.94%-16.41%

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

II. Analysis of principal operations(Cont’d)

2. Revenue and cost

(Cont’d)

(2) Industries, products or regions accounting for over 10% of revenue or operating profit of the Company

√ Applicable □ Not applicable

Whether the Company needs to comply with the disclosure requirements of specific industriesNo

Unit: RMB

RevenueOperating costsGross profit margin

Increase/decreaseof revenue as comparedto the correspondingperiod of the prior year

Increase/decreaseof operating costsas compared to thecorresponding period

of the prior year

Increase/decrease ofgross profit margin ascompared to thecorresponding period

of the prior yearBy industryMachine-made paper25,911,568,864.4719,455,165,308.4024.92%6.62%8.99%-1.64%Financial leasing1,815,459,714.28119,934,602.8793.39%-17.56%-28.56%1.02%By productDuplex press paper7,728,877,039.075,734,589,199.8025.80%25.56%26.91%-0.79%White paper board6,908,899,578.155,755,130,694.5716.70%7.28%6.67%0.47%Coated paper3,779,487,348.442,722,530,177.9627.97%-19.54%-20.09%0.50%Electrostatic paper3,270,064,358.542,295,436,749.0029.80%36.00%59.40%-10.30%Anti-sticking raw paper1,238,578,315.18846,933,499.5031.62%2.51%16.32%-8.12%Financial leasing1,815,459,714.28119,934,602.8793.39%-17.56%-28.56%1.02%By geographical segmentMainland China26,788,134,394.7618,498,557,678.9630.94%9.07%17.54%-4.98%Other countries and regions3,607,299,678.593,275,326,606.439.20%-16.41%-20.27%4.40%Under the circumstances that the statistics specification for the Company’s principal operations dataexperienced adjustment in the reporting period, the principal activity data upon adjustment of the statisticsspecification as at the end of the reporting period in the latest year

□ Applicable √ Not applicable

V Discussion and Analysis of Operations

II. Analysis of principal operations(Cont’d)

2. Revenue and cost

(Cont’d)

(3) Whether revenue from sales in kind is higher than revenue from services

√ Yes □ No

By industryItemUnit20192018

Increase/decreaseMachine-made paperSales’0,000 tonnes52543221.53%Production output’0,000 tonnes5014579.63%Inventories’0,000 tonnes2448-50%Explanation on why the related data varied by more than 30%

√ Applicable □ Not applicable

As at the end of 2019, the inventories of machine-made paper decreased by 50% from 480,000 tonnes to240,000 tonnes at the end of 2018, primarily due to that the Company strengthened internal management andincreased inventory turnover during the reporting period.

(4) Performance of material sales contracts of the Company during the reporting period

□ Applicable √ Not applicable

(5) Composition of operating costs

By industry

Unit: RMB

20192018Increase/

decreaseBy industryItemAmount% of operating costsAmount% of operating costsMachine-made paperRaw materials11,895,067,318.8561.14%10,868,034,213.1860.89%9.45%

Chemicals2,919,986,264.9815.01%2,809,021,253.7815.74%3.95%Energy and power2,258,151,625.6311.61%1,969,433,608.3311.03%14.66%Depreciation998,944,171.585.13%803,728,940.464.50%24.29%Labour costs302,162,995.361.55%252,589,989.301.42%19.63%Other production costs1,080,852,932.005.56%1,147,065,909.506.43%-5.77%Subtotal19,455,165,308.40100.00%17,849,873,914.56100.00%8.99%Power and steamRaw materials93,231,639.9181.42%94,793,908.6081.90%-1.65%

Depreciation8,188,723.617.15%8,307,708.787.18%-1.43%Labour costs3,266,996.702.85%3,443,963.292.98%-5.14%Energy and power3,133,240.962.74%2,875,214.192.48%8.97%Chemicals201,122.010.18%246,573.810.21%-18.43%Other production costs6,485,517.595.66%6,072,545.255.25%6.80%Subtotal114,507,240.78100.00%115,739,913.92100.00%-1.07%Construction materialsRaw materials186,642,183.8073.98%171,263,506.9874.83%8.98%

Energy and power22,421,006.568.89%21,374,540.739.34%4.90%Labour costs15,055,767.955.97%14,460,145.116.32%4.12%Depreciation7,047,835.662.79%6,626,767.962.90%6.35%Other production costs21,130,132.768.38%15,148,057.146.62%39.49%Subtotal252,296,926.73100.00%228,873,017.91100.00%10.23%

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

II. Analysis of principal operations(Cont’d)

2. Revenue and cost

(Cont’d)

(6) Change of scope of consolidation during the reporting period

√ Yes □ No

During the reporting period, the scope of consolidation had 4 newly established subsidiaries, namely ShanghaiSales Co., Ltd., Meilun (BVI) Limited, Guangdong Chenming Panels Co., Ltd. and Weifang Chenming GrowthDriver Replacement Equity Investment Fund Partnership (Limited Partnership).During the reporting period, 3 companies were reduced from the scope of consolidation: The Companydisposed of 60% equity interest in Haicheng Haiming Mining Co., Ltd., 100% equity interest in Beijing ChenmingMeilun Technology Co., Ltd. and 100% equity interest in Wuxi Song Ling Paper Co., Ltd., and such companies,was excluded from the scope of consolidation.

(7) Significant change in or adjustment of the businesses, products or services of the Company during the

reporting period

□ Applicable √ Not applicable

(8) Sales to major customers and major suppliers

Sales to major customers of the CompanyTotal sales to top 5 customers (RMB)3,193,575,635.94Total sales to top 5 customers as a percentage of the total sales for the year10.51%Sales to top 5 customers who are related parties as a percentage of the total sales for the year0.00%Information on top 5 customers of the CompanyNo.Name of customerSales (RMB)

As a percentageof the total salesfor the year (%)1Customer A1,004,528,563.373.30%2Customer B737,221,427.152.43%3Customer C534,837,371.021.76%4Customer D484,962,677.881.60%5Customer E432,025,596.521.42%Total—3,193,575,635.9410.51%Major suppliers of the CompanyTotal purchases from top 5 suppliers (RMB)4,006,266,255.83Total purchases from top 5 suppliers as a percentage of the total purchases for the year18.40%Total purchases from top 5 suppliers who are related parties as a percentage of the total purchases for the year0.00%Information on top 5 suppliers of the CompanyNo.Name of supplierPurchases (RMB)

As a percentage ofthe total purchases

for the year (%)1Supplier A1,264,301,570.065.81%2Supplier B948,050,347.894.35%3Supplier C678,659,115.973.12%4Supplier D577,531,818.772.65%5Supplier E537,723,403.142.47%Total—4,006,266,255.8318.40%

V Discussion and Analysis of Operations

II. Analysis of principal operations(Cont’d)

3. Expenses

Unit: RMB20192018

Increase/Decrease (%)Reasons for material changesSelling and distribution expenses

1,297,196,188.841,190,499,238.498.96%Mainly due to the increase in

employee’s salary during thereporting period.General andadministrative expenses

1,134,725,391.84967,840,641.9017.24%Finance expenses2,916,029,154.372,741,486,438.036.37%Research anddevelopment expenditure

992,312,956.74929,873,688.406.71%

4. Research and development expenditure

√ Applicable □ Not applicable

The Company had been closely following the economic and market conditions in China and in the industry since2019. Driven by customers’demand with a view to enhancing economic benefits, the Company continued to put moreefforts into technical innovation, develop new products with high level of technology applied and more economicbenefits, and proactively enhance the research on product differentiation and refining. In particular, 5 R&D projects,including the“technical development of bulk coated paper for sketching books”and the“technical development ofspecial coated paper for thermostat tags”, were listed on the technological innovative project plans of ShandongProvince. The Company also collaborated with Qilu University of Technology for industry-university innovation, andtheir organised and declared“Key Technology and Application of Green Preparation of High Performance WoodChemical Pulp”was awarded the First Prize of Science and Technology Progress Award by the Ministry of Education.The new products and new achievements including the“high-end social cardboard”and the“baby base paper”wereawarded three Excellent New Product and Outstanding Achievement Second Prizes in the 2019 Shandong ProvinceTechnological Innovation Award. Meanwhile, the Company strengthened the protection of intellectual property rights.In 2019, the Company applied for 19 patents and obtained 26 licences, which accelerated the restructuring of itsproduct mix and facilitated the corporate restructuring and upgrade.Research and development expenditure of the Company

20192018

Percentageof changeR&D headcount1,9251,8633.33%Ratio of R&D personnel14.07%12.26%1.81%R&D expenditure (RMB)992,312,956.74929,873,688.406.71%R&D expenditure to revenue3.26%3.22%0.04%

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

II. Analysis of principal operations(Cont’d)

4. Research and development expenditure

(Cont’d)

Reasons for significant change in total R&D expenditure to revenue

□ Applicable √ Not applicable

Reasons for and reasonableness of the significant change of the capitalisation rate of R&D expenditure

□ Applicable √ Not applicable

5. Cash flows

Unit: RMBItem20192018

Increase/decrease (%)Subtotal of c ash inflows from operating activities41,633,562,986.9539,069,129,483.146.56%Subtotal of cash outflows from operating activities29,400,855,764.0124,969,427,596.1017.75%Net cash flows from operating activities12,232,707,222.9414,099,701,887.04-13.24%Subtotal of cash inflows from investing activities1,135,086,731.002,785,950,020.88-59.26%Subtotal of cash outflows from investing activities3,160,639,742.954,564,941,039.27-30.76%Net cash flows from investing activities-2,025,553,011.95-1,778,991,018.39-13.86%Subtotal of cash inflows from financing activities34,920,351,820.1061,785,793,427.64-43.48%Subtotal of cash outflows from financing activities44,407,779,477.6474,638,951,528.02-40.50%Net cash flows from financing activities-9,487,427,657.54-12,853,158,100.3826.19%Net increase in cash and cash equivalents508,769,784.89-422,850,131.94220.32%Explanation on main effects of material changes in relevant data year-on-year

√ Applicable □ Not applicable

(1) Net cash flows from operating activities decreased by 13.24% as compared to the corresponding period of the

prior year mainly due to decrease in the profit of the Company during the reporting period.

(2) Net cash flows from investing activities decreased by 13.86% as compared to the corresponding period of

the prior year mainly due to the disposal of the equity interest in Guangdong Dejun Investment Co., Ltd. by theCompany during the corresponding period of the prior year.

(3) Net cash flows from financing activities increased by 26.19% mainly due to less reduction of the Company

’sfinancing scale compared with the corresponding period of the prior year.Explanation on reasons leading to the material difference between net cash flows from operating activities during thereporting period and net profit for the year

√ Applicable □ Not applicable

The main reason is the continuous reduction of the scale of the Company’s financial leasing business, with netrecovery of proceeds of RMB5.9 billion.

III. Analysis of non-principal operations

□ Applicable √ Not applicable

V Discussion and Analysis of Operations

IV. Assets and liabilities

1. Material changes of asset items

As of the end of 2019As of the beginning of 2019

Amount

As apercentageof total assetsAmount

As apercentageof total assets

Percentage

changeDescriptionAccounts receivable2,525,083,311.032.58%3,404,487,004.593.23%-0.65%Mainly due to the Company stepping up

its efforts to recover its receivablesand increased its account receivableturnover rate.Prepayments603,573,549.080.62%863,739,020.740.82%-0.20%Mainly due to the decrease of

the Company’s raw materialprepayment.Inventories4,774,430,110.814.87%6,771,488,433.746.43%-1.56%Mainly due to the Company

strengthening internal management,increasing inventory turnover andreducing capital occupation.Non-current assets due

within one year

6,974,539,613.307.12%4,007,503,281.863.81%3.31%Mainly due to the increase in lease

receivables due within one year.Other current assets8,108,707,394.708.28%10,281,312,825.139.76%-1.48%Mainly due to reduction of the scale of

the financial leasing business.Long-term receivables1,200,575,810.951.23%7,926,610,770.867.53%-6.30%Increase in lease receivables due within

one year, and reclassified to non-

current assets due within one year.Long-term equityinvestments

3,606,339,023.743.68%484,674,282.770.46%3.22%Mainly due to the increase in equity

investment of Nanyue Bank and

other companies in the current

period.Construction in progress5,476,122,928.955.59%11,871,350,821.5511.27%-5.68%Mainly due to the assets of Shouguang

Headquarters cultural paper

transformation project and the

Shouguang Meilun 510,000 tonne

high-end cultural paper project

and chemical pulp project being

transferred.Other non-current assets173,875,826.670.18%1,522,493,129.661.45%-1.27%Mainly due to the obtaining of the Reply

on the Qualification of Shareholders

of Zhanjiang Chenming Pulp &

Paper Co., Ltd. (關於湛江晨鳴

漿紙有限公司股東資格的批復》)

from the Guangdong Bureau of

China Banking and Insurance

Regulatory Commission during the

reporting period being approved

and transferred to long-term equity

investments.Contract liabilities968,082,063.130.99%419,540,133.740.40%0.59%Mainly due to the increase in

prepayment for the period.Other payables2,594,249,626.542.65%1,777,718,017.481.69%0.96%Mainly due to the increase infinancial

assistance provided by Chenming

Holdings to the Company during the

reporting period.Other current liabilities222,402,500.000.23%2,816,956,481.682.67%-2.44%Mainly due to the repayment of the

matured short-term commercial

paper.Bonds payable1,258,270,909.491.28%2,097,562,500.001.99%-0.71%Mainly due to the repayment of the

matured corporate bonds.Other non-current

liabilities

3,042,841,328.863.11%2,047,948,069.731.94%1.17%This is mainly due to the issue of

RMB1,200 million of medium-term

notes.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

IV. Assets and liabilities(Cont’d)

2. Assets and liabilities measured at fair value

√ Applicable □ Not applicable

Unit: RMB

ItemOpening balance

Profit or lossfrom change infair value duringthe period

Cumulative fair

value changecharged to equity

Impairmentprovided duringthe period

Increasein breedingduringthe period

Disposalduringthe periodClosing balanceConsumable biological assets measured at fair value1,511,542,610.36-19,752,911.9441,743,320.4179,652,771.1830,437,836.181,541,004,633.42Whether there were any material changes on the measurement attributes of major assets of the Company during thereporting period

□ Yes √ No

3. Restriction on asset rights as at the end of the reporting period

Item

Carrying amount

as at the end

of the yearReasons for such restrictionOther monetary funds16,176,241,805.78As deposits for bank acceptance bills and letters of credit, and

deposit reservesBills receivable/Accounts receivable financial

152,714,290.24As collateral for letters of guarantee and letters of creditFixed assets10,573,696,190.50As collateral for bank borrowings and long-term payablesIntangible assets880,676,428.58As collateral for bank borrowings and long-term payablesInvestment properties4,519,487,976.25As collateral for bank borrowingsTotal32,302,816,691.35

V Discussion and Analysis of Operations

V. Investments

1. Overview

√ Applicable □ Not applicable

Investments during thereporting period (RMB)

Investments during thecorresponding periodof prior year (RMB)Change3,601,194,479.246,770,571,000.00-46.81%

2. Material equity investments during the reporting period

√ Applicable □ Not applicable

Unit: RMB

Name of investeePrincipal activities

Form ofinvestment

InvestmentamountShareholding

Source offundPartner(s)

Period ofinvestmentProduct type

Progress asat the date ofbalance sheet

Estimatedreturn

Profit or lossfrom investment

for the period

Involvementin lawsuitDate ofdisclosure(if any)

Disclosure index(if any)Huanggang ChenmingPulp & Paper Co., Ltd.

Pulp production and papermaking

Capitalincrease

1,000,000,000.00100%Self-owned

funds

Subsidiary26 September 2008

– 26 September2058

Pulp, cogenerationproject, viscosefibre and ancillarychemicals

Completed—-146,423,436.09No22 January 2019http://www.cninfo.com.cnShanghai Pulp & Paper Sales Co., Ltd.

Sales of pulp and paperproducts

Newlyestablished

100,000,000.00100.00%FundsWholly-owned

subsidiary

29 January2019 –Long-term

Sale of pulpproducts

Completed—20,463,811.04No22 January 2019http://www.cninfo.com.cnWeifang ChenmingGrowth DriverReplacement EquityInvestment FundPartnership (Limited Partnership)

Equity investmentNewly

established

158,000,000.0079%Self-owned

funds

Weifang Hengxin CapitalManagement Co.,Ltd., Weifang FinancialHolding Group Co.,Ltd., Shouguang JintouAsset ManagementCo., Ltd. and Chenming(Qingdao) AssetManagement Co., Ltd.

7 March 2019 –6 March 2026

Equity investment,investmentconsultancybusiness

Incomplete—319,602.78No7 March 2019http://www.cninfo.com.cn

Guangdong Nanyue Bank Co., Ltd.

Banking financial servicesAcquisition2,333,194,479.2416.62%Self-owned

funds

Guangdong NanyueBank Co., Ltd., ChinaDelixi Holding GroupCo., Ltd., ShandongHexin Chemical GroupCo., Ltd., Chibi ChenliPaper Co., Ltd., FoshanNanhai Quanhui MetalMaterials Trading Co.,Ltd.

5 May 2018 – nofixed deadline

Banking financialservices

Incomplete—364,597,001.77No19 December 2019http://www.cninfo.com.cn

Gu angdong Chenming

Panels Co., Ltd.(廣東晨鳴板材有限責任公司)

Production and sales of panelsNewly

established

10,000,000.00100.00%Self-owned

funds

A wholly-ownedsubsidiary

Long-termChipboard, furniture,

wood products

Completed1,154,263.89NoNot applicableNot applicable

Total——3,601,194,479.24———————240,111,243.39———

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

V. Investments(Cont’d)

3. Material non-equity investments during the reporting period

√ Applicable □ Not applicable

Unit: RMB

Project name

Form ofinvestment

Fixed assetsinvestment ornot

Industry inwhich theinvestmentprojectoperates

Investmentamountduring thereporting period

Accumulated

actualamount investedas of the end ofreporting periodSource of fundProgressEstimated return

Accumulatedrealisedreturn as ofthe end ofthe reportingperiod

Reasons forfailure in meetingscheduled progressand estimated return

Date ofdisclosureDisclosure indexChemical pulpproject in Huanggang

Self-constructedYesPulp

production

102,758.38460,184.46Self-owned funds

and borrowings

100%RMB400 million/year—Trial production

phase

2 August 2013http://www.cninfo.com.cnTotal———102,758.38460,184.46———————

4. Financial asset investment

(1) Security investments

□ Applicable √ Not applicable

The Company did not have any security investments during the reporting period.

(2) Derivatives investments

□ Applicable √ Not applicable

The Company did not have any derivative investments during the reporting period.

5. Use of proceeds

□ Applicable √ Not applicable

The Company did not use any proceeds during the reporting period.

V Discussion and Analysis of Operations

VI. Disposal of material assets and equity interest

1. Disposal of material assets

□ Applicable √ Not applicable

2. Disposal of material equity interest

√ Applicable □ Not applicable

Counterparty(ies)

Equity interestdisposed ofDisposal date

Transactionconsideration(RMB’0,000)

Net profitcontribution tothe Companyfrom thebeginning of theperiod up to thedisposal date(RMB’0,000)Effect of disposal on theCompany

Net profitcontribution tothe Companyon equitydisposalas a percentageof total netprofit (%)Pricing basis ofdisposal of equityinterest

Related partytransaction ornot

Relationship

withcounterparty(ies)

Relevantasset title fullytransferred ornot

Carried out onschedule ornot, if not, thereasons andmeasures takenby the CompanyDisclosure dateDisclosure indexJiangsu FudaEnterpriseInvestment Co., Ltd.

Haicheng HaimingMining CompanyLimited

31 August 2019

42,100.003,829.45Beneficial for resources

integration of the Company,asset portfolio optimisation,and concentration ofcompetitive edges onprinciple businessesto improve quality andefficiency.

7.35%Appraised valueNoNot related partyYesTransfer

completed

9 August 2019http://.wwwcninfo.com.cn

VII. Analysis of major subsidiaries and investees

√ Applicable □ Not applicable

Major subsidiary and investees accounting for over 10% of the net profit of the Company

Unit: RMBName of companyType of companyPrincipal activitiesRegistered capitalTotal assetsNet assetsRevenueOperating profitNet profitZhanjiang ChenmingPulp & Paper Co., Ltd.

SubsidiaryPr oduction and sale of duplex

press paper, electrostaticpaper, and white paper board

5,550,000,000.0024,415,081,134.288,955,402,187.5910,405,501,722.56944,692,174.891,210,677,444.05Shandong ChenmingGroup Finance Co., Ltd.

SubsidiaryFinancial services5,000,000,000.0013,533,122,320.215,587,449,519.99493,267,441.06315,799,274.74278,016,515.92Shouguang Meilun Paper Co., Ltd.

SubsidiaryPr oduction and sale of coated

paper, cultural paper,household paper and chemicalpulp

3,261,000,000.0021,624,765,003.885,390,385,684.215,199,154,922.05237,079,007.60264,128,840.64Shandong ChenmingFinancial Leasing Co., Ltd.

SubsidiaryFinancial leasing5,872,000,000.0017,078,476,784.939,965,490,962.021,867,418,251.74365,560,396.41326,022,791.24

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

VII. Analysis of major subsidiaries and investees(Cont’d)Acquisition and disposal of subsidiaries during the reporting period

√ Applicable □ Not applicable

Name of company

Methods to acquire anddispose of subsidiaries duringthe reporting period

Impact on overall productionand operation and resultsShanghai Pulp & Paper Sales Co., Ltd.Newly establishedNet profit increased by RMB20.46 million.Meilun BVI Co., Ltd.Newly establishedNet profit increased by RMB4.97 million.Guangdong Chenming Panels Co., Ltd.Newly establishedNet profit increased by RMB1.15 million.Weifang Chenrong New and Old KineticEnergy Conversion Equity Investment Fund Partnership (Limited Partnership)

Newly establishedNet profit increased by RMB0.32 million.Haicheng Haiming Mining Co., Ltd.Transfer of 60% equity interestNet profit increased by RMB121.7502

million.Beijing Chenming Meilun Technology Co., Ltd.

Transfer of 100% equity interestNet profit increased by RMB4.992 million.Wuxi Song Ling Paper Co., Ltd.Transfer of 100% equity interestNet profit increased by RMB5.3176 million.Particulars of major subsidiaries and investees

1. For the integrated forestry, pulp and paper project of Zhanjiang Chenming, the gross profit margin of its main

products, electrostatic paper and culture paper, reached a high level, showing strong profitability.

2. The Finance Company, as the financial institution serving the Group

’s companies, saved financial costs for theCompany and recorded sound profitability.

3. Shouguang Meilun is responsible for the production and sales of coated paper and culture paper, and its profitability

will further improve after its 1,000,000 tonne chemical pulp project commences operation.

4. The Financial Leasing Company strengthened its business management with stable profitability.

VIII. Structured entities controlled by the Company

□ Applicable √ Not applicable

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(I) Competition overview and development trend of the industryChina is the world’s largest producer of paper and board, as well as the world’s largest consumer. Despite thestrong overall demand, the concentration of the domestic paper making industry is still significantly lower than thatof developed countries in Europe and the United States. With reference to the historical development and currentsituation of the paper making industry in developed markets such as Europe and the United States, the domesticpaper making enterprises still enjoy economies of scale. However, the supply of pulp, a raw material, is an obviousshortcoming which prevents a paper making behemoth to emerge in China.On the other hand, the supply-side reform prompts the market to phase out outdated production capacity andaccelerate the elimination of redundant production capacity. With the implementation of more stringent environmentalprotection measures, the licensing system for pollutant discharge and the external waste control policy, the pollutioncontrol of the paper making industry is strengthened from various aspects. Relevant policies on the supply side of theindustry remained tight in 2019. Due to continuous investments in environmental protection and advantages in rawmaterial cost and production scale, large factories will become more competitive, which can promote the centralisedmanagement and scale of enterprises, and accelerate the concentration of production capacity.With the completion of the pulp and paper integration strategy, the Company’s self-sufficiency rate of wood pulpwill be further increased, which will reduce production costs significantly, address the constraints of raw materials,enhance the core competitiveness of the Company, and provide strong support and safeguarding for the Company’sfuture development.(II) Development strategyThe Company will adhere to the main theme of emphasising on environmental protection, low carbon, recycling andsustainable development. Following the“Made in China 2025 Plan”and the principles of scientific developmentand quality and efficiency enhancement, the Company will comprehensively improve its quality and efficiency,management level, technology application, sense of happiness and brand image through the incorporation of smarttechnology into its industrial activities, reorganised methodology and restructuring so as to expand and improve itselfand strive to become one of the world-class companies with the highest growth rate.Transformation and upgrade strategy: The Company will comprehensively improve the industrial structure and regionallayout; emphasise on the development of its leading businesses, namely, among other things, pulp production, papermaking and forestry; and construct an efficient industrial system with synergies.Green development strategy: Remaining steadfast in the operation philosophy of“pulp and paper integration”; withtechnical progress, advanced equipment and strict and prudent management, the Company will promote cleanproduction and recycling economy, become a low-energy consumption and environmentally-friendly enterprise. TheCompany seeks for development while protecting the environment and maintains higher environmental protectionstandards while seeking for scientific development, thus achieving a“win-win”situation in economic developmentand environmental protection.International operation strategy: The Company, based in China with a global reach, will follow the national strategy ofthe“Belt and Road”initiative, accelerate its pace of“going global”, reinforce global exchanges and communicationand gradually expand its overseas market.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(Cont’d)(II) Development strategy (Cont’d)Operational excellence strategy: By adhering to the management policy of“efficient management, structuraladjustment, market development and risk control”, the Company will constantly heighten its whole processmanagement including production and operation, marketing, financial costs and project construction, effectivelyintegrate its systems and resources, and strive to upgrade the Company’s management capacity and profitability.Strengthening the Company through talent strategy: By improving talent development, introduction, application andincentive mechanisms, and nurturing high-end, versatile, innovative and international talents, Chenming will becomeone of the world-class companies with the highest growth rate.Harmonious development strategy: By comprehensively enhancing enterprise culture building, caring for theemployees, acting on its corporate social responsibilities, and elevating its integrated value-creating ability in terms ofeconomy, society and environment, Chenming will create a positive corporate image for itself and strive to become aharmonious enterprise.(III) Operation plans for 2020

2020 is a turning point year for the development of the Company. Through cultivating the new operating philosophyof“maintaining steady operation and quality development”across the Company, adhering to the working direction of“innovating management, strengthening skills, making major breakthroughs, and persevering”, and carrying forwardits corporate style of“tackling problems once discovered”, the Company will focus on fundamental management, fullyenhance corporate management and strive to create a new chapter for quality corporate development. The specificmeasures are as follows:

1. Further enhance financial segment management

Firstly, the Company will enhance credit management and deepen its cooperation with banks, especially thecooperation with policy banks, state-owned banks and joint-stock banks. Secondly, the Company will optimisefinancing structure, reduce gearing ratio, implement debt-to-equity swaps and GDR Fund, and continue toreduce the scale of the financial leasing business. Thirdly, the Company will enhance capital plan management,thereby improving capital utilisation efficiency. Fourthly, the Company will strengthen team building and training,recruit talents, and broaden financing channels, thus improving business standard of the whole team andensuring orderly performance of various works.

2. Further improve sales quality

Adhering to the new operation management concept of“achieving targets, setting time schedule, definingresponsibility, and focusing on implementation”, the Company will enhance scheduling functions, improvebusiness skills, optimise appraisal incentives, and further revitalise initiative of all employees. Firstly, theCompany will optimise appraisal allocation, define appraisal directions, and conduct appraisal on key indicators.Secondly, the Company will improve the scheduling standards, and treat 3-level scheduling mechanism asan important mean for business enhancement indicator. Thirdly, the Company will focus on key businesses,further facilitate the plant-trader-bank business, and increase business cooperation. Fourthly, the Company willstrengthen team building, and duly conduct talent appraisal and allocation. Fifthly, the Company will increasetraining on risk and legal knowledge, thereby enhancing risk control capability.

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(Cont’d)(III) Operation plans for 2020(Cont’d)

3. Further enhance production management level

For production system, the Company will strictly implement the concept of“stabilising operation, increasingproduction capability, improving quality and reducing costs”. The Company will focus on basic management,and improve skills of its employees, thus ensuring significant improvement in production managementstandards. Firstly, the Company will strengthen its basic management, strictly control management at differentlevels of the Company, and define scope of duty. Secondly, the Company will follow the standards of leadinginternational peers. Through enhancing the level of automation and informationisation of equipment, theCompany will consolidate job duties, thereby reducing labour cost. Thirdly, the Company will strengthenbusiness skills, and focus on training on production operation, cost auditing, production quality, paper printingand other aspects. Fourthly, the Company will strengthen its safety and environmental friendly works, enhanceoperation and management of environmental friendly equipment, and strictly conduct hazard inspection,ratification and assessment, thus ensuring zero environment-related accident. Fifthly, the Company will focuson effective management, optimise product portfolio, and produce high value-added products.

4. Further improve corporate management efficiency

Targeting on current management problems, we will adhere to the management philosophy of“strengtheningfundamentals, strictly focusing on appraisal, enhancing skills and coordinating services”, and fully enhancethe level of corporate management. Firstly, the Company will focus on basic management, and conductcomprehensive optimisation on corporate systems, aiming to achieve simple, effective management. Secondly,the Company will improve appraisal and incentive mechanism, and optimise the performance appraisalmeasures for different business units. Thirdly, the Company will strengthen service coordination, enhanceemployees’awareness on management coordination, and conduct works actively and in a responsible manner.Fourthly, the Company will introduce talents and enhance its staff trainings.

5. Further enhance supply chain management

Adhering to the supply chain management philosophy of“strengthening fundamentals, improving skills,maintaining effective services, and reducing costs while enhancing efficiency”, the Company will focus onsupply chain construction, expand business scope and improve service quality, thus creating benefits. Firstly,the Company will enhance basic management, and put greater efforts on facilitating procurement informationsystem construction, thereby effectively establish standardised procurement management system. Thirdly, theCompany will innovate procurement model. It will conduct supply chain financing business cooperation withfinancial institutions, give play to core corporate scaling edges, and enhance competiveness of supply chain.Fourthly, the Company will control key business, focus on procurement at source, optimise supplier team andprocurement channels, and reduce procurement cost. Fifthly, the Company will enhance logistic management,and expand multi-model transportation business. Leveraging the edges on self-owned resources, the Companywill explore in-depth logistic cooperation.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(Cont’d)(IV) Future capital requirements, source of funds and plan for useThe Company has established itself as a large conglomerate principally engaged in pulp production and paper makingwith synergistic development in finance, forestry, logistics and construction materials. With the further development ofthe existing principal businesses of the Company, the future capital requirements of the Company will be: consistentinvestment in the existing production facilities because of technological transformation or production expansion; andbusiness expansion and general working capital requirements.In order to meet the business development requirements of the Company and further extend and expand the industrychain, the Company will establish diversified financing channels, enhance credit management, deepen cooperationwith banks and increase the proportion of refinancing. The Company will also enrich its financing channels andimprove its debt structure through diversified financing channels such as corporate bonds, perpetual bonds,short-term commercial paper, cross-border financing, GDR Fund and introduction of third-party strategic investors,thus providing stable financial support for the operation and development of the Company.(V) Risk factors likely to be faced and the measures to be taken

1. Policy risk

Paper making industry is a basic raw materials industry and its growth has been faster than the averagegrowth of the national economy in recent years. However, the paper making industry’s profitability is closelycorrelated to the economic cycle, and the industry is therefore a cyclical industry fluctuating with the nationalmacroeconomic performance, which will further affect the profitability of the Company.Hence, following the principles of scientific development and quality and efficiency enhancement, the Companywill comprehensively improve its industrial structure and regional layout through incorporation of smarttechnology into its industrial activities. The Company will emphasise on the development of leading businessesincluding pulp production and paper making, so as to construct an efficient industrial system with synergies.

2. Market fluctuation risk

With the rapid growth of the national economy, economic globalisation and China’s accession to the WTO,China’s paper making industry has been facing increasingly fierce competition. Leveraging on the strength andcapital accumulated over the years, domestic enterprises have further expanded their size and improved theirtechnological levels and product quality. Well-known paper making enterprises overseas have also directly setup production bases in China through sole proprietorship or joint ventures so as to participate in the domesticmarket competition by virtue of their advantages in size and technology. Besides, tariff reduction on China afteraccession to the WTO has also further intensified the impact on the international market.Hence, the Company will strive to enhance the quality of paper products and achieve the target of establishinga layout for high-end paper industry so as to increase the proportion of high-end paper. In recent years,the Company has been expanding its business size while optimising its product mix and has set up a fewproduction lines for high-end paper. A diversified and high-end product mix enables the Company to spreadmarket risk and strengthen the resistance towards market volatility. Besides, as high-end products have betterprofit margins, the Company can increase the proportion of high-end products through consistent improvementin product mix, thereby enhancing its profitability and comprehensive competitiveness.

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(Cont’d)(V) Risk factors likely to be faced and the measures to be taken(Cont’d)

3. Risk of overcapacity and slowdown in demand

Overcapacity is a prominent problem in the paper making and paper product industry in China such thatthere has been fierce competition among enterprises. Since 2013, affected by slowdown in macroeconomicgrowth, the demand in paper making industry has been weak. At the same time, China has been encouragingenergy conservation and emission reduction. The outdated production capacity will be phased out, and thusthe new projects will be on a large scale. By virtue of the economies of scale in the paper making industry,the production capacity of individual paper making projects which are under construction or planning forconstruction in China is large, which affects the demand and supply relationship in the whole paper makingindustry.Hence, the Company will make advancements in equipment and technological level, expand its product mix,improve the grading of products and focus on the research and development of high-end products so as toimprove competitiveness.

4. Risk of price fluctuation of raw materials

Wood pulp is a major raw material in the Company. The market price of wood pulp fluctuates significantly.The market price fluctuation of raw material has significantly affected the production costs of the Company. Inaddition to intensified market competition resulting from surging capacity in the industry in recent years, theincreases in prices of a number of paper products were not in line with the increases in prices of raw materials.The market price fluctuation of raw materials will have an impact on the performance of the Company.Hence, the Company will remain steadfast in the pulp and paper integration development path and focuson the construction of the Zhanjiang Chenming pulp project, the Huanggang Chenming pulp project and theShouguang Meilun chemical pulp project, thereby eliminating the limitations of raw materials on the Company’sdevelopment and enhancing the Company’s sustainable development.

5. Risk of change in environmental protection policies

China has been raising the standards for environmental protection in recent years. More stringent environmentalprotection policies have been implemented in the paper making industry with successive implementation ofenvironmental inspections and licensing system for pollutant discharge. A multi-pronged approach has beenadopted to promote industrial restructuring, and the paper making industry has entered into an importanttransitional period of development. A higher emission standard is bound to increase the environmentalprotection costs in the industry and a high entry standard may result in the slowdown of scale expansion.The Company always strives to achieve harmonious development with energy conservation and emissionreduction. The Company will endeavour to develop the recycling economy through waste exchange andrecycling and strive to maximise its resource utilisation. Meanwhile, the Company will make greater effortsto construct environmentally friendly projects and strive to achieve its waste emission target. At present, theCompany adopts the world’s most advanced“ultrafiltration membrane+reverse osmosis membrane”technologyto complete the reclaimed water recycling membrane treatment project. The reclaimed water recycle ratereaches more than 75%. The reclaimed water quality meets drinking water standards, which can save freshwater every day 170,000 cubic meters.

2019 AnnuAl RepoRt

V Discussion and Analysis of Operations

IX. Outlook on the future development of the Company(Cont’d)(V) Risk factors likely to be faced and the measures to be taken(Cont’d)

6. Risk on financial leasing business

The Company may suffer from loss if the lessees of its financial leasing business cannot make full rentalpayment on time due to any reason and there are abuses on equipment or any other short-term behaviour.Although the risk of such rental being unrecoverable is minimal, the Company will also make bad debt provisionas required under its accounting policy. If such amounts cannot be recovered on time, the Company may beexposed to risk of bad debts.The stringent risk management measures of Chenming Leasing provide comprehensive risk prevention andmanagement for the Company’s projects. Besides, the Company has strong risk resistance and low risk ofdefault. Chenming Leasing will strengthen risk management so as to enhance risk resistance and maintainhigh-quality services.At present, Financial Leasing Company has changed its general operation strategies and continued to reduce itsbusiness scale. Its business scale has reduced to approximately RMB13.6 billion, with net recovery of proceedsof RMB5.9 billion realized in 2019, which effectively put risk exposures under control.X. Reception of research investigations, communications and interviews

1. Reception of research investigations, communications and interviews during the reporting period

□ Applicable √ Not applicable

During the reporting period, the Company did not conduct any research investigation, communication or interview.

VI Directors’ Report

The Directors (the“Directors”) of the Company hereby present the annual report and the audited consolidated financial statementsof the Company and the Group for the year ended 31 December 2019.I. Principal activitiesPlease refer to section IV“Business Overview”, and“I. Principal operations of the Company during the Reporting Period”

and“II. Analysis of principal operations”under section V“Discussion and Analysis of Operations”for details of principalactivities of the Company.II. Results and profit distributionPlease refer to section XIII“Financial Report” for the results of the Group for the year ended 31 December 2019.

III. DividendsAfter the end of the reporting period, the Board proposed to pay a final dividend for the year ended 31 December 2019 (“finaldividend”) of RMB1.5 in cash for every 10 Shares (tax inclusive) (2018: dividend of RMB2.4 in cash for every 10 Shares (taxinclusive)) to the ordinary shareholders of the Company, subject to approval of shareholders at the forthcoming AnnualGeneral Meeting (“AGM”) of the Company held on 19 June 2020. Upon approval of shareholders of the Company at theAGM, the Company is expected to pay the final dividend on or by 19 August 2020 to shareholders whose names appear onthe register of members of the Company on 24 June 2020.In accordance with the Corporate Income Tax Law of the PRC and its implementation rules effective on 1 January 2008,where a PRC domestic enterprise distributes dividends for financial periods beginning from 1 January 2008 to non-residententerprise shareholders, it is required to withhold 10% corporate income tax for such non-resident enterprise shareholders.Therefore, as a PRC domestic enterprise, the Company will, after withholding 10% of final dividends as corporate incometax, distribute the final dividends to non-resident enterprise shareholders, i.e. any shareholders who hold the Company’sShares in the name of non-individual shareholders, including but not limited to HKSCC Nominees Limited, or othernominees, trustees, or holders of H Shares registered in the name of other organisations and groups.Due to changes in the PRC tax laws and regulations, according to the Announcement on the List of Fully and PartiallyInvalid and Repealed Tax Regulatory Documents issued by the State Administration of Taxation (《關於公佈全文失效廢止﹑部份條款失效廢止的稅收規範性文件目錄的公告》) on 4 January 2011, individual Shareholders who hold the Company’s HShares and whose names appeared on the H Share Register of the Company can no longer be exempted from individualincome tax pursuant to the Notice of the State Administration of Taxation Concerning the Taxation of Gains on Transfer andDividends from Shares (Equities) Received by Foreign Investment Enterprises, Foreign Enterprises and Foreign Individuals(Guo Shui Fa [1993] No. 045) (《關於外商投資企業﹑外國企業和外籍個人取得股票（股權) 轉讓收益和股息所得稅收問題的通知》(國稅發[1993]045號)) issued by the State Administration of Taxation, whilst pursuant to the letter titled Tax Arrangementson Dividends Paid to Hong Kong Residents by Mainland Companies issued by the Stock Exchange to the issuers on 4July 2011 and the Notice on Matters Concerning the Levy and Administration of Individual Income Tax after the Repeal ofGuo Shui Fa [1993] No. 045 of State Administration of Taxation (Guo Shui Han [2011] No. 348) (《國家稅務總局關於國稅發[1993]045號文件廢止後有關個人所得稅徵管問題的通知》 (國稅函[2011]348號)), it is confirmed that the overseas residentindividual shareholders holding shares of domestic non-foreign invested enterprises issued in Hong Kong are entitled tothe relevant preferential tax treatments pursuant to the provisions in the tax arrangements between the countries wherethey reside and the PRC or the tax arrangements between the PRC and Hong Kong (Macau). Therefore, the Company willwithhold 10% of the dividend as individual income tax, unless it is otherwise specified in the relevant tax regulations and taxagreements, in which case the Company will withhold individual income tax of such dividends in accordance with the taxrates and according to the relevant procedures as specified by the relevant regulations.

2019 AnnuAl RepoRt

VI Directors’ Report

IV. Closure of register of membersThe register of members of the Company will be closed from 12 June 2020 (Friday) to 19 June 2020 (Friday), (both daysinclusive), during which no transfer of shares of the Company will be registered. In order to be eligible to attend andvote at the annual general meeting to be held on 19 June 2020 (Friday), all share transfer documents accompanied bythe corresponding share certificates must be lodged with the Company’s Hong Kong share registrar and transfer office,Computershare Hong Kong Investor Services Limited at shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s RoadEast, Wan Chai, Hong Kong for registration not later than 4:30 p.m. on 11 June 2020 (Thursday).V. Five-year financial summaryPlease refer to“IX. Five-year financial summary under paragraph 19 of appendix 16 of the Hong Kong Listing Rules”

under section II“Company Profile and Key Financial Indicators”for the financial summary of the Company for the past fivefinancial years.VI. DonationsDuring the year, the Company donated RMB11,947,836.00 (2018: RMB8,740,500.00) to non-profit making organisations.VII. SubsidiariesPlease refer to“VII. Analysis of major subsidiaries and investees”under section V“Discussion and Analysis of Operations”

and“XX. Matters of significant of subsidiaries of the Company”under section VII“Material Matters”for the details ofacquisition and disposal of subsidiaries by the Company during the year.VIII. Property, plant and equipmentPlease refer to“II. Financial Statements 1. Consolidated Balance Sheet”under section XIII“Financial Report”for the detailsof changes in property, plant and equipment of the Group for the year ended 31 December 2019.IX. Share capitalPlease refer to“I. Changes in shares”under section VIII“Changes in Share Capital and Shareholders”for details of changesin share capital of the Company for the year ended 31 December 2019.

X. Pre-emptive rights

In accordance with the Articles of Association and the PRC laws, there are no rules requiring the Company to grant existingshareholders pre-emptive rights on newly issued shares of the Company in proportion to their shareholdings.

VI Directors’ Report

XI. Transfer into reservesThe Company’s contributed surplus is distributable to shareholders in accordance with the Companies Law. As at 31December 2019, the Company’s reserves available for cash distribution and/or distribution in specie, including contributedsurplus of the Company, amounted to RMB9,792,126,677.35 (2018: RMB9,530,159,552.96) as set out in“II. FinancialStatements 1. Consolidated Balance Sheet”under section XIII“Financial Report”.

XII. DirectorsAs at 31 December 2019, the Directors of the Company were:

1. Executive Directors

Mr. Chen HongguoMr. Hu ChangqingMr. Li Xingchun

2. Non-executive Directors

Mr. Han TingdeMr. Li Chuanxuan

3. Independent Non-executive Directors

Ms. Yin MeiqunMr. Yang BiaoMr. Sun JianfeiAccording to the Articles of Association of the Company, all Directors, including non-executive Directors, have beenelected at the general meetings with a term of three years from June 2019 to June 2022. They may be re-elected foranother term upon expiry of tenure.

2019 AnnuAl RepoRt

VI Directors’ Report

XIII. Directors’ service contracts

All Directors have entered into service contracts with the Company for a term from 11 June 2019 to 11 June 2022.None of the Directors who have offered themselves for re-election at the forthcoming AGM have entered into any servicecontract with the Company or any of its subsidiaries which cannot be terminated by the Group within one year withoutpayment of compensation other than statutory compensation.

XIV. Directors and Senior Management’s remuneration and the five highest paid individualsDetails of Directors and the Senior Management’s remuneration and the five highest paid individuals of the Company or/andits subsidiaries are set out in“V. Personnel of the Company”in section X“Directors, Supervisors and Senior Managementand Staff”and“XII Related parties and related party transactions”in section XIII“Financial Report”.In 2019, the Company had 22 Senior Management members in total, which included directors, supervisors and the SeniorManagement. The remuneration of the Senior Management falls within the following ranges:

Range of remuneration (RMB)Number

4.8 million to 5.2 million2

3.6 million to 4.0 million0

3.2 million to 3.6 million0

2.8 million to 3.2 million1

2.4 million to 2.8 million1

2.0 million to 2.4 million2

1.6 million to 2.0 million3

1.2 million to 1.6 million0

0.8 million to 1.2 million2Below 0.8 million21

XV. Independent Non-executive DirectorsThe Company has received from each of the independent non-executive Directors a confirmation of independence for theyear pursuant to Rule 3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors tobe independent during the year.

VI Directors’ Report

XVI. Securities interests held by Directors, Supervisors and Chief Executives

As at 31 December 2019, interests of the Company or its associated corporations (within the meaning of Part XV of SFO)held by each of the Directors, Supervisors and Chief Executives of the Company under section 352 of the SFO are set outas follows:

Associated corporations

NamePosition

Number of shares

(A shares) heldas at the end ofthe reporting period

(shares)DirectorsChen Hongguo (Note 1)Chairman11,080,044Hu ChangqingExecutive Director and Vice Chairman42,857Li XingchunExecutive Director and Vice Chairman–Han TingdeNon-executive Director–Li ChuanxuanNon-executive Director–Sun JianfeiIndependent non-executive Director–Yin MeiqunIndependent non-executive Director–Yang BiaoIndependent non-executive Director–SupervisorsLi DongSupervisor75,000Pan AilingSupervisor–Zhang HongSupervisor–Li XingguiSupervisor–Qiu LanjuSupervisor–Associated corporations

NamePosition

Name of associatedcorporations

Number of shares

held at thebeginning of thereporting period

(shares)

Change during

the period +/-

Number of shares

held at the endof the reportingperiod (shares)Chen HongguoChairmanShouguang Henglian

Enterprise Investment Co. Ltd. (Note 2)

231,000,000—231,000,000

Note 1: Save for the 11,080,044 A shares held personally, Chen Hongguo is deemed to be interested in the 861,322 A shares held by his spouse, Li

Xueqin.Note 2: Chen Hongguo and his spouse, Li Xueqin, collectively hold 76.79% equity interests in Shouguang Henglian Enterprise Investment Co.

Ltd., (hereinafter referred to as“Shouguang Henglian”), as a result, Shouguang Henglian is deemed to be controlled by Chen Hongguo. As

a result, the 231,000,000 shares in Chenming Holdings (approximately 18.65% of the total share capital of Chenming Holdings) held by

Shouguang Henglian is also deemed to be held by Chen Hongguo.

2019 AnnuAl RepoRt

VI Directors’ Report

XVI. Securities interests held by Directors, Supervisors and Chief Executives(Cont’d)Save as disclosed above, as at 31 December 2019, none of the Directors, Supervisors or chief executives of the Companyhad any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associatedcorporations which were required to be filed in the register of the Company required to be maintained pursuant to section352 of the SFO or which were required to be notified to the Company and Hong Kong Stock Exchange pursuant to theModel Code for Securities Transactions by Directors of Listed Issuers as contained in Appendix 10 to the Rules Governingthe Listing of Securities on Hong Kong Stock Exchange (hereinafter referred to as the“Hong Kong Listing Rules”).As at 31 December 2019, none of the Directors, Supervisors or chief executives or their respective spouses or childrenunder the age of 18 held or exercised any rights to subscribe for the share capital or debentures of the Company or itsassociated corporations.

XVII. Interests and short position of substantial shareholders in shares and underlying sharesAs at 31 December 2019, the following shareholders (other than the Directors, Supervisors or chief executives of theCompany) had interests or short positions in the Company’s shares and underlying shares as shown in the share registermaintained by the Company in accordance with Section 336 of the SFO (Chapter 571 of the Laws of Hong Kong):

Name

Number ofshares held (shares)

Approximate shareholding

as a percentage ofTotal sharecapital (%)

Class ofshares (%)Chenming Holdings Co., Ltd.445,396,128 A shares (L)15.3326.67Chenming Holdings (Hong Kong) Limited210,717,563 B shares (L)7.2529.83Chenming Holdings (Hong Kong) Limited153,414,000 H shares (L)5.2829.04The National Social Security Fund Council40,614,750 H shares (L)1.407.69(L) – Long position(S) – Short position(P) – Lending poolSave as disclosed above, as at 31 December 2019, no other person had interests or short positions in the Company’sshares or underlying shares as recorded in the register maintained under section 336 of the SFO.

XVIII. Relationship with employees, customers and suppliers

Please refer to“V. Personnel of the Company”under section X“Directors, Supervisors and Senior Management and Staff”, 2.

(8) Sales to major customers and major suppliers

”of“II. Analysis of principal operations”under section V“Discussion andAnalysis of Operations” for details of the relationship between the Company and its employees, customers and suppliers.

XIX. Directors’ interests in material contracts and indemnity provisionNone of the Company or any of its subsidiaries entered into any material contracts, in which Directors had significantinterests (either directly or indirectly), that subsisted at the end of the financial year or at any time during the reportingperiod. The Company did not have any indemnity provision in favour of any Director.

VI Directors’ Report

XX. Interests in competing business

None of the Directors or controlling shareholders of the Company was interested in any business which competes or islikely to compete with the businesses of the Company and any of its subsidiaries.XXI. Directors’ rights to purchase shares or debentures

At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the Directorsto acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.XXII. Preference sharesPlease refer to section IX“Preference Shares” for details of the issue of preference shares of the Company.

XXIII. Management contractsNo contracts concerning the management and administration of the whole or any substantial part of the business of theCompany were entered into or existed in 2019.XXIV. Major risk factors

Please refer to“(V) Risk factors likely to be faced and the measures to be taken”of“IX. Outlook on the future developmentof the Company”under section V“Discussion and Analysis of Operations” for details of major risk factors of the Company.XXV. Material matters

Please refer to section VII“Material Matters” for details of material matters of the Company.XXVI. Future developmentPlease refer to“(I) Competition overview and development trend of the industry”,“(II) Development strategy”,“(III) Operatingplan for 2020”and“(IV) Future capital requirements, source of funds and plan for use”of“IX. Outlook on the futuredevelopment of the Company”under section V“Discussion and Analysis of Operations”for details of future development ofthe Company.

XXVII. Environment, social and governance report and social responsibilityPlease refer to XVIII. Fulfilment of Social Responsibility under section VII“Material Matters”for details of fulfilment of socialresponsibility. Please refer to the environment, social and governance report as required by the Hong Kong Listing Rules,which will be issued separately by the Company before 29 June 2020.XXVIII. Purchase, sale and redemption of shares

The Company and its subsidiaries did not purchase, sell or redeem any listed securities of the Company during the reportingperiod.XXIX. Sufficiency of public float

During the reporting period, based on the information that is publicly available to the Company and within the knowledge ofthe Directors, the Company has maintained a sufficient prescribed amount of public float as required under the Hong KongListing Rules.

2019 AnnuAl RepoRt

VI Directors’ Report

XXX. Review of the Audit Committee

The audited consolidated financial statements of the Company for the year ended 31 December 2019 has been reviewed bythe Audit Committee of the Company.XXXI. Gearing ratioAs at 31 December 2019, the Company’s gearing ratio (including minority interest) was 62.16%, representing a decreaseof 0.45% from 62.61% for 2018, mainly due to the increase of long-term borrowings and short-term borrowings of theCompany.The ratio was calculated as: total borrowings/total assets (whereas total borrowings represent borrowings due within oneyear, borrowings due after one year, short-term commercial paper and medium and long-term notes and others).XXXII. Going Concern BasisThe Company is a large conglomerate principally engaged in pulp production and paper making with synergisticdevelopment in finance, forestry, logistics and construction materials. It is also the first company in the paper makingindustry to own a financial company, as well as the only listed company in China with three types of shares in issue, namelyA shares, B shares and H shares. The Group has production bases in Shandong, Guangdong, Hubei, Jiangxi, Jilin andothers, which deliver annual pulp and paper production capacity of over 11,000,000 tonnes.The Company has good sustainable profitability. In 2019, the Company achieved revenue of RMB30,395 million, net profitof RMB1,753 million and net cash inflows from operating activities of RMB41,634 million. Meanwhile, the Company alwaysplaces emphasis on the interests of and return to shareholders, and has paid generous cash dividends for several years.With the commencement of operation of several major pulp production projects during and subsequent to the reportingperiod, the future performance of the Company is worth looking forward to.The auditor of the Company has prepared the 2019 annual financial report on a going concern basis, and has issued astandard unqualified audit opinion (see Financial Report section).Therefore, the Board believes the Company has the ability to continue as a going concern.

XXXIII. Connected TransactionsDuring the year ended 31 December 2019, the Group did not conduct any connected transaction as defined in the ListingRules of the Stock Exchange.

VI Directors’ Report

XXXIV. Major Investment, Acquisition and DisposalDuring the year ended 31 December 2019, the Group entered into the following major transaction agreements.

1. Entering into of limited partnership agreement for the establishment of investment fund

On 6 March 2019, the Company (as a limited partner) has entered into the Limited Partnership Agreement withChenming (Qingdao) Asset Management Co., Ltd. (as the general partner), Weifang Hengxin Capital ManagementCo., Ltd. (as a limited partner), Weifang Financial Holding Group Co., Ltd. (as a limited partner) and Shouguang JintouAsset Management Co., Ltd. (as a limited partner) for the establishment of the investment fund. For details, pleaserefer to the announcements of the Company dated 6 March 2019 and 10 March 2019.

2. Disposal of 60% equity interest in Haicheng Haiming Mining Company Limited

On 16 August 2019 (after trading hours), the Company and Jiangsu Fuda Enterprise Investment Company Limitedentered into the Equity and Loan Transfer Agreement, pursuant to which, the Company conditionally agreed tosell, and Jiangsu Fuda Enterprise Investment Company Limited conditionally agreed to acquire the 60% equityinterest in aggregate in Haiming Mining held by the Company and the loan due from Haiming Mining amounting toRMB1,527,670,000 in aggregate held by the Company at a total consideration of RMB1,948,670,000. For details,please refer to the announcements of the Company dated 19 August 2019, 21 August 2019 and 3 September 2019.

3. Progress of major transaction: the subscription of shares in Guangdong Nanyue Bank Co., Ltd. and

the share transfer of Guangdong Nanyue Bank Co., Ltd.The industrial and commercial registration of 356,000,000 shares in Guangdong Nanyue Bank Co., Ltd. subscribed byZhanjiang Chenming Pulp & Paper Co., Ltd. under private placement has completed. The Guangdong Bureau of ChinaBanking and Insurance Regulatory Commission issued the Reply on the Qualification of Shareholders of ZhanjiangChenming Pulp & Paper Co., Ltd. (Yue Yin Bao Fu [2019] No. 1002) (《關于湛江晨鳴漿紙有限公司股東資格的批復》(粵銀保監複[2019]1002 號)), approving the transfer by Zhanjiang Chenming of 953,405,634 shares of Nanyue Bank held bycertain shareholders including China Delixi Holding Group Co., Ltd. (中國德力西控股集團有限公司). For details, pleaserefer to the announcement of the Company dated 18 December 2019.

2019 AnnuAl RepoRt

VII Material Matters

I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into

share capitalFormulation, implementation or adjustment of profit distribution policy for ordinary shares, especially thecash dividend during the reporting period

√ Applicable □ Not applicable

The Company implemented its profit distribution policy in strict compliance with the Articles of Association. Its cashdividend policy was formulated and implemented in compliance with the requirements of the Articles of Association and theresolution of the general meeting with well-defined and clear dividend distribution criteria and proportion. The legal interestsof the small shareholders were fully protected as the related decision-making process and mechanism were in place,the duties of independent Directors were well-defined so that they played a role, and the small shareholders were givenopportunities to sufficiently voice their opinion and make requests.Implementation of the 2018 profit distribution plan for ordinary shareholders: Based on the number of the ordinary sharesas at the dividend distribution registration date of 2,904,608,200 shares, a cash dividend of RMB2.4 (tax inclusive) was paidto ordinary shareholders for every 10 shares held and there was no increase of share capital from reserves. The total cashdividend distributed amounted to RMB697,105,968. The dividend distribution was implemented and completed on 9 August2019. For details, please refer to the Payment of Final Dividend and Withholding and Payment of Enterprise Income Tax forNon-resident Enterprise Shareholders published on Hong Kong Stock Exchange on 4 August 2019, and the Announcementon the Implementation of the 2019 Profit Distribution Plan for A Shares and B Shares published on CNINFO on 5 August2019.

Particulars of Cash Dividend PolicyWas it in compliance with the requirements of the Articles of Association and the resolutions of the general meeting?YesWere the dividend distribution criteria and proportion well-defined and clear?YesWere the related decision-making process and mechanism in place?YesDid independent Directors fulfil their duties and play their role?YesWere the minority shareholders given opportunities to sufficiently voice their opinion and make requests and were the legal interests of the minority shareholders fully protected?YesWere conditions and procedures legal and transparent in respect of cash dividend policy with adjustments and changes?YesThe dividend distribution plans for ordinary shares (proposed) and the proposals on conversion of capitalreserves into share capital (proposed) over the past three years (the reporting period inclusive)

(1) The 2019 profit distribution plan for ordinary shares

On 27 March 2020, the Company convened the fourth meeting of the ninth session of the Board, at which theproposed 2019 profit distribution plan was considered and approved. Based on the total number of ordinary sharesof the Company as at the end of 2019 of 2,904,608,200 shares, a cash dividend of RMB1.5 (tax inclusive) was to bepaid to ordinary shareholders for every 10 shares held. No bonus shares would be issued and there was no increaseof share capital from reserves. The cash dividend distributed to ordinary shareholders amounted to RMB435,691,230.

VII Material Matters

I. Profit distribution for ordinary shares of the Company and conversion of capital reserves into

share capital(Cont’d)The dividend distribution plans for ordinary shares (proposed) and the proposals on conversion of capitalreserves into share capital (proposed) over the past three years (the reporting period inclusive)(Cont’d)

(2) The 2018 profit distribution plan for ordinary shares

On 11 June 2019, the Company convened the 2018 annual general meeting, at which the 2018 profit distribution planwas considered and approved: based on the number of the shares as at the end of 2018 of 2,904,608,200 shares, acash dividend of RMB2.4 (tax inclusive) was to be paid to all ordinary shareholders for every 10 shares held. The totalcash dividend distributed to ordinary shareholders amounted to RMB697,105,968 (tax inclusive) in 2018.

(3) The 2017 profit distribution plan for ordinary shares

On 13 June 2018, the Company convened the 2017 annual general meeting, at which the 2017 profit distribution planwas considered and approved: based on the number of the shares as at the dividend distribution registration dateof 1,936,405,467 shares, a cash dividend of RMB6.00 (tax inclusive) was to be paid to all ordinary shareholders forevery 10 shares held, and a capitalisation issue made out of the capital reserves of 5 shares for every 10 shares heldwill be distributed to ordinary shareholders. The total cash dividend distributed to ordinary shareholders amounted toRMB1,161,843,280.20 (tax inclusive) in 2017.Cash dividends for ordinary shares of the Company over the past three years (the reporting period inclusive)

Unit: RMB

Year of distribution

Amount ofcash dividends (tax inclusive)

Net profitattributable toordinaryshareholders ofthe Company inthe consolidatedfinancialstatementsduring the yearof distribution

Amount of cashdividend as apercentage of netprofit attributableto ordinaryshareholders ofthe Company inthe consolidated

financialstatements

Amount ofcash dividends

distributionthrough other

means such

as share

repurchase

Ratio of cash

Dividendsdistributionthrough othermeans in netprofit attributable

to ordinaryshareholders ofthe Company inthe consolidated

financial

statements

Total cash

dividend(including

throughother means)

Total cash

dividend(including through

other means)as a percentage

of net profitattributableto ordinaryshareholders ofthe Company inthe consolidated

financialstatements2019435,691,230.001,656,566,584.8826.30%0.000.00%435,691,230.0026.30%2018697,105,968.002,509,828,858.4727.78%0.000.00%697,105,968.0027.78%20171,161,843,280.203,769,325,450.9330.82%0.000.00%1,161,843,280.2030.82%The Company made a profit and had positive retained profit available for ordinary shareholders of parent companyduring the reporting period without cash dividend for ordinary shares being proposed

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

VII Material Matters

II. Proposals on profit distribution and conversion of capital reserves into share capital during

this reporting period

√ Applicable □ Not applicable

Numbers of bonus share per 10 shares (share(s))0Dividend distribution per 10 shares (RMB) (tax inclusive)Cash dividend of RMB1.5 (tax inclusive) per 10

shares to ordinary shareholders and cash dividendof RMB1.5 (tax inclusive) per 10 simulated sharesconverted from preference shares into ordinary shares

to holders of preference sharesConversion per 10 shares (share(s))No increase of share capital from reservesShare base of the distribution proposal (shares)2,904,608,200 ordinary shares and 1,162,790,698

simulated shares converted from preference shareson a conversion ratio of 1 preference share valued atRMB3.87; the share base of the distribution proposal

was 4,067,398,898 shares.Cash dividend (RMB) (tax inclusive)610,109,834.70Amount of cash dividend distribution through other means suchas share repurchase (RMB)

0.00

Total cash dividend including other means (RMB)610,109,834.70Distributable profits (RMB)9,306,269,617.38Percentage of cash dividend (including other means) to totalprofits distribution

100%Cash dividend policyFor profit distribution of companies which are fully developed with significant capital expenditure arrangement, thepercentage for cash dividend shall represent at least 40% of the profits distribution for the current yearParticulars of profit distribution and conversion of capital reserves into share capitalThe audited consolidated net profit attributable to shareholders of the Company for 2019 prepared in accordance withAccounting Standards for Business Enterprises by the Company amounted to RMB1,656,566,584.88. When deducting theinterest on perpetual bonds of RMB194,000,000.00 and fixed dividend on preference shares of RMB214,425,000.00 for2019, the distributable profit realised for 2019 amounted to RMB1,248,141,584.88.In accordance with the requirements of the Articles of Association and the Prospectus of Non-public Issuance of PreferenceShares, based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2019, a cashdividend of RMB1.5 (tax inclusive) per 10 shares will be distributed to ordinary shareholders; a cash dividend of RMB1.5(tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed to holders ofpreference shares. No bonus shares will be issued and there is no increase of share capital from reserves. A cash dividendof RMB435,691,230 will be distributed to ordinary shareholders and a variable cash dividend of RMB174,418,604.70 will bedistributed to holders of preference shares. In other words, a cash dividend of RMB3.87 (tax inclusive) per preference sharewith a nominal value of RMB100 each will be distributed to holders of preference shares.

VII Material Matters

III. Performance of undertakings

1. Undertakings made by parties involved in undertakings including the Company

’s beneficial controllers,shareholders, related parties, bidders and the Company during the reporting period or prior periods butsubsisting to the end of the reporting period

√ Applicable □ Not applicable

Undertaking

Party involved

in undertaking

Type ofundertakingDetails of undertaking

UndertakingdateTerm

Particulars onthe performanceUndertaking onshareholding structure reformationUndertaking made inoffering documents orshareholding alternation documentsUndertaking made during asset reconstructionUndertaking made oninitial public offering or refinancing

ChenmingHoldings

Co., Ltd

Non-competitiveundertaking

(1) Chenming Holdings Co., Ltd. (

“Chenming Holdings”) shall notengage, whether solely, jointly, or by representing itself or anyother persons or companies, and shall not procure its associates(as defined in The Listing Rules of Hong Kong Stock Exchange) toengage, in any business which competes with the business of theCompany and its subsidiaries (“Chenming Group”or“we”) directlyor indirectly, in any country and region which our business exists (orany part of the world if in any form of electronics business), or in anybusiness that directly or indirectly competes with Chenming Group’sbusiness which we operate from time to time (including but not limitedto any business in the form of sole proprietorship, joint venturesor acquisitions, or holding interests directly or indirectly in suchenterprises, or by any other means); (2) in the event that ChenmingHoldings is required by its business to, whether solely, jointly, or byrepresenting itself or any other persons or companies, engage inbusiness which directly or indirectly competes against the business ofChenming Group, or obtain any business opportunity which directlyor indirectly competes against the business of Chenming Group, itshall endeavour to procure that Chenming Group shall have priority toobtain the right to operate such business or to obtain such businessopportunity; (3) if Chenming Holdings is in breach of the above-mentioned undertakings, it shall indemnify the Company for anyloss caused by such breach and the Company shall have the rightto acquire all businesses of Chenming Holdings, which directly orindirectly compete with the businesses of our Group, at market priceor cost price (whichever price is lower); (4) Chenming Holdings shallnot make use of its position as the controlling shareholder (as definedin The Listing Rules of Hong Kong Stock Exchange) of our Group tojeopardise the legal interests of Chenming Group and its shareholderswith other persons or companies or on their behalf

22 May 2008During the period

when ChenmingHoldings was themajor shareholderof the Company

Implementing

as normal

2019 AnnuAl RepoRt

VII Material Matters

Undertaking

Party involved

in undertaking

Type ofundertakingDetails of undertaking

UndertakingdateTerm

Particulars onthe performanceChenmingHoldings Co.,Ltd.

Defectiveproperties

(1) According to the plan on defective properties of the Company,

Chenming Holdings Co., Ltd. (“Chenming Holdings”) has guaranteedand undertaken that: according to the application of the Company,for defective property(ies) owned by the Company and its holdingsubsidiary company which situated in the administrative area ofShouguang city, Chenming Holdings will purchase it (them) and haveit(them) being transferred to itself pursuant to the law in accordancewith the result of the related asset valuation if the Company decidesto transfer and dispose of it(them) and there is no other transferee;

(2) before the Company transfers and disposes of the defective

properties pursuant to the law, if the Company suffers any economiclosses due to the defects of the title (including but not limited todamages, penalties and relocation costs), Chenming Holdings willbear such economic losses; (3) during the regulatory process takento the defective properties of buildings and land of subsidiaries of theCompany situated outside the local areas (outside the administrativearea of Shouguang city), the economic losses such as penalties orrelocation costs imposed by competent administrative authorities tobe borne by the subsidiaries arising from defects of insufficient titledocuments shall be paid pursuant to the law by Chenming Holdingsafter verification.

16 January2008

During the periodwhen ChenmingHoldings was themajor shareholderof the Company

Implementing asnormal

ShandongChenming

Paper HoldingsLimited

Specific

remedialmeasures fornon-publicissuance ofpreferenceshares

In view of the impacts on dilution of current returns for ordinaryshareholders under the preference shares issuance, and in orderto implement the Notice of the General Office of the State Councilon Further Strengthening Protection of the Lawful Rights of SmallInvestors in Capital Markets, protect the interests of ordinaryshareholders and provide remedies for the possible dilution on currentreturns as a result of preference shares issuance, the Company hasundertaken that it will implement various measures to ensure theeffective utilisation of proceeds raised, which can prevent dilution oncurrent returns effectively, thereby enhancing future returns.

25 March 20169999-12-31Implementing as

normal

Equity incentive undertakingsWhether undertakings performed on time

Yes

2. Description on the Company

’s assets and items in meeting original profit forecast and its explanation asthere is profit forecast for assets and items of the Company and the reporting period is still within the profitforecast period

□ Applicable √ Not applicable

III. Performance of undertakings(Cont’d)

1. Undertakings made by parties involved in undertakings including the Company

’s beneficial controllers,shareholders, related parties, bidders and the Company during the reporting period or prior periods butsubsisting to the end of the reporting period(Cont’d)

VII Material Matters

IV. Appropriation of funds of the Company by the controlling shareholder and its related partiesfor non-operating purposes

□ Applicable √ Not applicable

There was no appropriation of funds of the Company by the controlling shareholder and its related parties for non-operatingpurposes during the reporting period.V. Opinions of the Board, the Supervisory Committee and independent Directors (if any)regarding the“modified auditor’s report” for the reporting period issued by the accountants

□ Applicable √ Not applicable

VI. Reason for changes in accounting policies, accounting estimates and accounting methods

as compared to the financial report for the prior year

√ Applicable □ Not applicable

Change in accounting policies due to implementation of new standards

On 13 December 2018, the Ministry of Finance issued the Notice on Printing and Distributing the Amendments (Cai Kuai[2018] No. 35), which amended the Accounting Standard for Business Enterprises No. 21 – Leases. Such amendments shallbe implemented from 1 January 2019 for the enterprises listed both domestically and overseas, as well as the enterpriseslisted overseas and adopting the International Financial Reporting Standards or the Accounting Standards for BusinessEnterprises to prepare their financial statements, and from 1 January 2021 for other enterprises adopting the AccountingStandards for Business Enterprises. On 30 April 2019, the Ministry of Finance issued the Notice on Amending, Printing andDistributing the General Format of the Financial Statements of Enterprises for 2019 (Cai Kuai [2019] No. 6), which amendedthe general format of the financial statements of enterprises, required non-financial enterprises adopting the AccountingStandards for Business Enterprises to prepare their interim financial statements and annual financial statements for 2019and the financial statements for subsequent periods in accordance with the Accounting Standards for Business Enterprisesand Cai Kuai [2019] No. 6. On 9 May 2019, the Ministry of Finance issued the Notice on Printing and Distributing theAmendments (Cai Kuai [2019] No. 8), which amended the Accounting Standard for Business Enterprises No. 7 – Exchangeof Non-monetary Assets. Such amendments shall be implemented from 10 June 2019 for the enterprises adopting theAccounting Standards for Business Enterprises. On 16 May 2019, the Ministry of Finance issued the Notice on Printingand Distributing (Cai Kuai [2019] No. 9), which amended the Accounting Standard for Business Enterprises No. 12 – DebtRestructuring. Such amendments shall be implemented from 17 June 2019 for the enterprises adopting the AccountingStandards for Business Enterprises. As approved at the eleventh meeting of the eighth session of the Board of the Companyon 25 October 2018, the Company began to adopt the above accounting standards within the timeframe as required by theMinistry of Finance.

VII. Reason for retrospective restatement to correct major accounting errors during the reportingperiod

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

VII Material Matters

VIII. Reason for changes in scope of the consolidated financial statements as compared to thefinancial report for the prior year

√ Applicable □ Not applicable

During the reporting period, the scope of consolidation had 4 newly established subsidiaries, namely Shanghai Sales Co.,Ltd., Meilun (BVI) Limited, Guangdong Chenming Panels Co., Ltd. and Weifang Chenming Growth Driver ReplacementEquity Investment Fund Partnership (Limited Partnership).During the reporting period, 3 companies were reduced from the scope of consolidation: The Company disposed of 60%equity interest in Haicheng Haiming Mining Co., Ltd., 100% equity interest in Beijing Chenming Meilun Technology Co.,Ltd. and 100% equity interest in Wuxi Song Ling Paper Co., Ltd., and such companies, was excluded from the scope ofconsolidation.

IX. Engagement or dismissal of accounting firmsCurrent accounting firm engagedName of the domestic accounting firm

Grant Thornton(Special General Partnership)Remuneration of the domestic accounting firm (RMB’0,000)330Continued term of service of the domestic accounting firm1Name of certified public accountants of the domestic accounting firmHu Naizhong and Liu NanaContinued term of service of certified public accountants of the domestic accounting firm

Whether to appoint another accounting firm during the period

√ Yes □ No

Whether to appoint another accounting firm during the audit period

□ Yes √ No

Whether the change of accounting firm was implemented according to the approval procedures

√ Yes □ No

Details on the reappointment and change of accounting firmThe Resolution on Change of the Auditor was approved at the fourth extraordinary meeting of the ninth session of theBoard and the second extraordinary meeting of the ninth session of the Supervisory Committee of the Company held on 16September 2019. The Board proposed to reappoint Grant Thornton (Special General Partnership) (“Grant Thornton”) as theauditor for the financial audit and internal control of the Company for 2019.Ruihua Certified Public Accountants (“Ruihua”), the former auditor of the Company, had consecutively provided auditingservice for the Company for many years. In the course of practice, it adhered to the principle of independent auditing,objectivity, fairness, and justness, reflecting the Company’s financial position, and earnestly performed its duties as theauditor.

VII Material Matters

IX. Engagement or dismissal of accounting firms(Cont’d)

Based on the business development and audit needs of the Company, and upon due and careful consideration, the AuditCommittee of the Board of the Company, proposed to appoint Grant Thornton licensed to engage in securities business asthe auditor for the financial audit and internal control of the Company for 2019 for a term of one year.On 23 October 2019, the resolution in respect of the engagement of Grand Thornton was considered and approved at theCompany’s 2019 second extraordinary general meeting.Particulars on recruitment of accounting firms, financial consultants or sponsors for internal control and auditing purposes

√ Applicable □ Not applicable

The Company engaged Grand Thornton as the auditor for internal control of the Company for 2019. The Company paidRMB800,000 as internal control audit fees during the period.X. Suspension in trading or delisting upon publication of annual report

□ Applicable √ Not applicable

XI. Matters related to bankruptcy and reorganisation

□ Applicable √ Not applicable

There was no matter related to bankruptcy and reorganisation during the reporting period.

XII. Material litigation and arbitration

□ Applicable √ Not applicable

The Company was not involved in any material litigation and arbitration during the reporting period.Other litigations

□ Applicable √ Not applicable

XIII. Punishment and rectification

√ Applicable □ Not applicable

NameTypeReason

Investigation andpunishment typeConclusion, if anyDisclosure dateDisclosure indexJiangxi Chenming PaperCo., Ltd.

SubsidiaryExcessive discharge of

water pollutants and airpollutants

Generaladministrativepenalties

In 2019, Nanchang Ecological EnvironmentBureau conducted on-site sampling atthe main water drain and unorganisedexhaust emission at Jiangxi Chenming.The monitor report indicated that thesuspended solid concentration in thedischarge water and odor concentration ofJiangxi Chenming exceeded the limit, andfine a total of 1.304 million RMB.JiangxiChenming had conductedrectificationbased on the rectificationnotices andhad good results.

Not applicableNot applicable

Rectification

√ Applicable □ Not applicable

2019 AnnuAl RepoRt

VII Material Matters

XIII. Punishment and rectification(Cont’d)

1. Jiangxi Chenming conducted the following rectifications regarding the issue of excessive suspended solid

concentration in the discharge water:

(1) Since January 2019, Jiangxi Chenming adjusted its water treatment technique, refined dosing operation,

increased sludge press quality, and established, among others, monitoring response mechanism for waterquantity and water standard at the middle water section designed to respond to changes in BTMP ingredientratio and load. As a result, Jiangxi Chenming proved qualified on all indicators during two spontaneoussampling inspections conducted by Nanchang Ecological Environment Bureau and the environmental monitorstation as well as a scheduled sampling inspection conducted by a third party. Based on such results,Nanchang Ecological Environment Bureau determined in June 2019 that the rectification for out-of-limit wastewater (SS standard) of Jiangxi Chenming had been completed, and conducted post-inspection withdrawal forthe non-compliance.

(2) In July 2019, after installing 50 surface aerators at the south and north aeration tanks, Jiangxi Chenming further

installed 10 jet aeration devices for both tanks in order to increase dissolved oxygen, which was completedin early August. Testing indicated that effluent COD of the two tanks dropped to approximately 60, andfluctuations of suspended solid concentration of discharge water at the main water drain significantly improved.

(3) Since 26 August 2019, Jiangxi Chenming began to carry out in-depth technical modifications to the aeration

tanks to increase efficient jet aeration. The modifications were completed by 9 December 2019. All indicatorswere above-standard after multiple sampling and monitoring, and the rectifications received good results.

2. Jiangxi Chenming conducted the following rectifications regarding the issue of excessive odor concentration:

(1) Each shift shall check the addition amount of caustic soda in the odor treatment system, ensuring that the PH

value remained between 11 and 12, in order to maximise the removal and absorption of odor components.

(2) The bacterial activity in the odor biological filter box was monitored each quarter to ensure maximum absorption

of odor components.

(3) The odor treatment facilities (fans, pipes, alkaline towers, biological filters, etc.) were inspected every two hours

to ensure that the odor treatment system operates normally and compile inspection records.

(4) Management and technical measures such as packing replacement for the anaerobic odor treatment system

were carried out. All indicators were above-standard after multiple sampling and monitoring by the municipalenvironment monitoring station, and the rectifications received good results.XIV. Credibility of the Company, its controlling shareholders and beneficial controllers

□ Applicable √ Not applicable

XV. Implementation of the equity incentive plan, employee shareholding plan or other employeeincentive measure of the Company

□ Applicable √ Not applicable

There was no implementation of the equity incentive plan, employee shareholding plan or other employee incentive measureof the Company during the reporting period.

VII Material Matters

XVI. Significant related party transactions

1. Related party transactions associated with day-to-day operation

√ Applicable □ Not applicable

Related party

Related partyrelationship

Types of therelated partytransactions

Subjectmatter of therelated partytransactions

Pricingbasis of therelated partytransaction

Relatedpartytransactionprice

Amount ofrelated partytransactions(RMB’0,000)Percentageas theamountof similartransactions

Amount oftransactionsapproved(RMB’0,000)

Whetherexceedingapprovedcap

Settlementof relatedpartytransactions

Market priceof availablesimilartransaction

Disclosuredate

DisclosureindexJiangxi JiuyuEnergy Co., Ltd.

Director and seniormanagement of the Companyserved as the director andsenior managementof the company during the past twelve months

ProcurementNatural gas,

heavy oil, etc.

Market priceMarket price38,112.421.75%60,000.00NoBank acceptance and

telegraphic transfer

Notapplicable

20 July 2019http://www.

cninfo.com.cn

Particulars on refund of bulk saleNot applicable

2. Related party transaction in connection with purchase or sale of assets or equity interest

□ Applicable √ Not applicable

3. Related party transaction connected to joint external investment

□ Applicable √ Not applicable

There was no related party transaction of the Company connected to joint external investment during the reportingperiod.

4. Related creditors

’ rights and debts transactions

√ Applicable □ Not applicable

Were there any non-operating related creditors’ rights and debts transaction?

√ Yes □ No

Debts payable to any related party:

Related party

Relationshipwith the CompanyReason

Openingbalance(RMB’0,000)

Amountincreasedduring thecurrent period(RMB’0,000)

Amountrecoveredduring thecurrent period

(RMB’0,000)Interest rate

Interest for thecurrent period

(RMB’0,000)

Closing balance

(RMB’0,000)CHENMING HOLDINGS COMPANY LIMITED

The controlling shareholderof the Company

Financial support37,600140,190.51106,946.62market rate2,790.5170,844.09Effect of related debts onthe operating results andfinancial position of the Company

Financial support is provided by Chenming Holdings without requiring any pledge or guarantee, which is a testament to its support and confidence in the futuredevelopment of the Company, and helps the Company promote project construction and satisfy its needs for working capital.

2019 AnnuAl RepoRt

VII Material Matters

XVI. Significant related party transactions(Cont’d)

5. Other significant related party transactions

□ Applicable √ Not applicable

There was no other significant related party transaction of the Company during the reporting period.

XVII. Material contracts and implementation

1. Custody, contracting and leasing

(1) Custody

□ Applicable √ Not applicable

There was no custody of the Company during the reporting period.

(2) Contracting

□ Applicable √ Not applicable

There was no contracting of the Company during the reporting period.

(3) Leasing

□ Applicable √ Not applicable

There was no leasing of the Company during the reporting period.

2. Significant guarantees

√ Applicable □ Not applicable

(1) Guarantees

During the reporting period, the Company provided guarantee to subsidiaries and the guarantee amountincurred was RMB8,587.4904 million. The subsidiaries provided guarantee to their subsidiaries and theguarantee amount incurred was RMB1,286.9090 million.As at 31 December 2019, the balance of the external guarantee provided by the Company (including theguarantee to its subsidiaries by the Company and the guarantee provided to subsidiaries by subsidiaries)amounted to RMB12,912.2032 million, representing 51.30% of the equity attributable to shareholders of theCompany as at the end of 2019.The Company did not provide any guarantee to external parties (excluding the guarantee provided to itssubsidiaries and share participating companies and the guarantee provided to subsidiaries by subsidiaries) anddid not provide any guarantee against the rules and regulations.

VII Material Matters

XVII.Material contracts and implementation(Cont’d)

2. Significant guarantees

(Cont’d)

(1) Guarantees

(Cont’d)

Unit: RMB’0,000External guarantees of the Company and its subsidiaries (excluding guarantees to subsidiaries)Name of obligee

Date of the relatedAnnouncementdisclosing theguarantee amount

Amount ofguaranteeGuarantee date

GuaranteeprovidedType of guaranteeTerm

Fulfilled

or not

Guaranteeto related

partiesor notWeifang Sime Darby West Port Co., Ltd24 July 201717,50020 December 201713,500General guarantee10 yearsNoNoTotal external guarantees approved during the reporting period (A1)0Total actual external guarantees during the reporting period (A2)0Total external guarantees approved at the end of the reporting period (A3)17,500Balance of total actual guarantees at the end of the reporting period (A4)13,500

Guarantees between the Company and its subsidiariesName of obligee

Date of the relatedAnnouncementdisclosing theguarantee amount

Amount ofguaranteeGuarantee date

GuaranteeprovidedType of guaranteeTerm

Fulfilledor notGuaranteeto related

partiesor notZhanjiang Chenming Pulp & Paper Co., Ltd.14 June 2018200,00027 July 2018429,063.93General guarantee3 yearsNoNoZhanjiang Chenming Pulp & Paper Co., Ltd.30 March 20191,088,000General guarantee5 yearsNoNoShandong Chenming Group Finance Co., Ltd.30 March 2019500,000General guarantee5 yearsNoNoShandong Chenming Paper Sales Co., Ltd.30 March 2019600,00029 May 2019172,423.65General guarantee5 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.26 March 2015500,00021 September 20177,500General guarantee7 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.30 March 2016300,000General guarantee7 yearsNoNoShandong Chenming Financial Leasing Co., Ltd.14 February 2018150,000General guarantee3 yearsNoNoShanghai Chenming Financial Leasing Co., Ltd.14 February 2018400,000General guarantee3 yearsNoNoQingdao Chenming Nonghai Financial Leasing Co., Ltd.14 February 2018250,000General guarantee3 yearsNoNoGuangzhou Chenming Financial Leasing Co., Ltd.14 February 2018200,000General guarantee3 yearsNoNoShandong Chenming Commercial Factoring Co., Ltd.14 February 2018200,000General guarantee3 yearsNoNoHuanggang Chenming Pulp & Paper Co., Ltd.26 March 2015400,00024 June 201684,967.34General guarantee7 yearsNoNoHuanggang Chenming Pulp & Paper Co., Ltd.30 March 2016550,000General guarantee7 yearsNoNoJiangxi Chenming Paper Co., Ltd.14 June 201850,000General guarantee3 yearsNoNoJiangxi Chenming Paper Co., Ltd.30 March 2019350,0007 January 2019153,919.55General guarantee5 yearsNoNoShouguang Meilun Paper Co., Ltd.16 December 2010600,0006 August 201975,107.26General guarantee10 yearsNoNoShouguang Meilun Paper Co., Ltd.30 March 2019100,000General guarantee5 yearsNoNoWuhan Chenming Hanyang Paper Holdings Co., Ltd.18 October 2019100,000General guarantee3 yearsNoNoChenming (HK) Limited14 June 2018250,00026 March 2019101,625.22General guarantee3 yearsNoNoChenming (HK) Limited30 March 2019500,000General guarantee5 yearsNoNoShouguang Chenming Import and Export Trade Co., Ltd30 March 201950,000General guarantee5 yearsNoNoJilin Chenming Paper Co., Ltd.30 March 2019150,0003 September 201913,802.50General guarantee5 yearsNoNoZhanjiang Chenming Arboriculture Development Co., Ltd30 March 201910,000General guarantee5 yearsNoNoNanchang Chenming Arboriculture Development Co., Ltd.15 August 201710,000General guarantee3 yearsNoNoShandong Chenming Panels Co., Ltd.14 June 20183,000General guarantee3 yearsNoNoShanghai Chenming Industrial Co., Ltd.11 October 2018400,000General guarantee3 yearsNoNoShanghai Chenming Pulp & Paper Sales Co., Ltd.30 March 2019300,00027 December 20193,000General guarantee5 yearsNoNoTotal amount of guarantee provided for subsidiaries approved during the reporting period (B1)

3,748,000Total amount of guarantee provided for subsidiaries approved as at the end of the reporting period (B3)

858,749.04Total amount of guarantee provided for subsidiaries during the reporting period (B2)

8,211,000Total balance of guarantee provided for subsidiaries as at the end of the reporting

period (B4)

1,041,409.46

2019 AnnuAl RepoRt

VII Material Matters

Guarantees between subsidiariesName of obligee

Date of the relatedAnnouncementdisclosing theguarantee amount

Amount of

guaranteeGuarantee date

GuaranteeprovidedType of guaranteeTerm

Fulfilledor notGuaranteeto related

partiesor notChenming (HK) Limited30 March 2019200,0002 April 2019199,789.51General guarantee5 yearsNoNoChenming (HK) Limited30 March 2019100,00030 July 201924,521.34General guarantee5 yearsNoNoZhanjiang Chenming Pulp & Paper Co., Ltd.27 June 201912,00027 June 201912,000General guarantee1 yearNoNoTotal amount of guarantee provided for subsidiaries approved during the reporting period (C1)

312,000Total amount of guarantee provided for subsidiaries during the reporting period (C2)128,690.90Total amount of guarantee provided for subsidiaries approved as at the end of the reporting period (C3)

312,000Total balance of guarantee provided for subsidiaries as at the end of the reporting period (C4)

236,310.86Total amount of guarantee provided (i.e. sum of the above three guarantee amount)Total amount of guarantee approved during the reporting period (A1+B1+C1)4,060,000Total amount of guarantee during the reporting period (A2+B2+C2)987,439.94Total amount of guarantee approved as at the end of the reporting period (A3+B3+C3)

8,540,500Total balance of guarantee as at the end of the reporting period (A4+B4+C4)1,291,220.32The percentage of total amount of guarantee provided (i.e. 4+B4+C4) to the net assets of the Company51.30%

Of which:

Balance of guarantee provided for shareholders, beneficial controllers and its related parties (D)0Balance of guarantee directly or indirectly provided for obligors with gearing ratio over 70% (E)586,327.08Total amount of guarantee provided in excess of 50% of net assets (F)32,733.13Sum of the above three amount of guarantee (D+E+F)619,060.21

(2) External guarantees against the rules and regulations

□ Applicable √ Not applicable

There was no external guarantee provided by the Company which was against the rules and regulations duringthe reporting period.

3. Entrusted cash and asset management

(1) Entrusted wealth management

□ Applicable √ Not applicable

The Company did not have any entrusted wealth management during the reporting period.

(2) Entrusted loans

□ Applicable √ Not applicable

The Company did not have any entrusted loans during the reporting period.

XVII.Material contracts and implementation(Cont’d)

2. Significant guarantees

(Cont’d)

(1) Guarantees

(Cont’d)

VII Material Matters

XVII.Material contracts and implementation(Cont’d)

4. Other material contracts

□ Applicable √ Not applicable

XVIII. Fulfilment of Social Responsibility

1. Fulfilment of social responsibility

The state is the strongest support for the development of Chenming, while society is the greatest origin forChenming’s development and growth. During its development for more than half a century, the Company has alwaysadhered to its philosophy of“building the country through industry development and paying back to society”. It hasvoluntarily performed its social responsibility, and cultivated the“tree of responsibility”, which has already achievedfruitful results.The Company has established its corporate governance structure in accordance with the requirements of theCompanies Law, Securities Law, Articles of Association and other relevant laws and regulations and the actualsituation of the Company. There is a clear separation of powers and responsibilities between the general meeting,the Board, the Supervisory Committee and the management which is accountable to the general manager. Themanagement system under the structure is characterised by a mechanism of checks and balances of a legal personwith separation of ownership and operation, separation of the decision-making, execution and supervisory powers,as well as the co-existence of the general meeting, the Board and the Supervisory Committee. Strict provisions onthe rights, duties and responsibilities of the general meeting, the Board, the Supervisory Committee and generalmanagers have been stipulated. The Company has placed great emphasis on fulfilment of social responsibility andgoes beyond the concept of“profit as the only goal”. While creating value for shareholders during the process ofproduction, operation and business development, the Company, in line with the development of the State and thesociety, has strived to reach a compromise between economic benefits and social benefits, short-term benefits andlong-term benefits, as well as corporate development and social development, with the aim to achieve a healthy andharmonious development between the Company and its employees, the Company and the society, and the Companyand the environment.Centering on the corporate spirit of“Learning, Surpass and Leading”, Chenming Group comprehensively elevates thecorporate management capacity and operation quality, with a view to becoming a globally competitive world-classenterprise.The Company strives to the development path of new type industrialisation with high technology content, lowenergy consumption and less pollution. It puts great efforts in the implementation of green low-carbon strategy. Inaddition, the Company endeavours to facilitate business development in line with ecological development, enhanceits competitiveness in economic development and environmental protection, and establish its economic andecological culture. It also seeks for development while protecting the environment and maintains higher environmentalprotection while seeking for scientific development, thus achieving“win-win”situation in economic developmentand environmental protection. The Company has strictly in compliance with relevant environmental protectionpolicies, laws and regulations in China. It has mitigated the impact on environment through industrial optimisationand upgrade, reduced resources utilisation through innovative operation, and implemented strict management withthe concept of environmental protection and safety operation being penetrated into every procedure in productionand operation, thereby promoting the harmonious development between the people and the Company, as well asthat of the Company and the environment. The Company is the first in the industry in China which passes ISO14001environmental management system certification. The Company has been named the environmental friendly enterprise,the recycling economy exemplary enterprise, the outstanding water efficiency unit and the outstanding unit incomprehensive utilisation of resources of Shandong province.

2019 AnnuAl RepoRt

VII Material Matters

XVIII.Fulfilment of Social Responsibility(Cont’d)

1. Fulfilment of social responsibility

(Cont’d)Leveraging its advanced production technology and manufacture equipment, extensive experience in waste treatmentand various comprehensive treatment systems, the Company strives to implement horizontal and vertical controlthroughout its production processes, thus achieving low carbon emission through low energy consumption, as wellas reduction of use of resources through recycling. The Company has passed the clean production assessmentorganised by United Nations Development Programme in May 1999. The Company focuses on its works in variousaspects, including the establishment of eco-friendly energy consumption system, implementation of on-site 6Smanagement, launch of environmental protection and hazard inspection works, wide application of new energyconservation and emission reduction technology, promotion of key energy conservation and emission reductionprojects, enhancement of innovative technology, promotion of the industrialisation of comprehensive resourcesutilisation, implementation of scientific proposal on“multi-usage of water”based on the quality, quantity and workingprocedure, as well as strengthening of the awareness on energy saving and environmental protection of all staff andhabit building. Hence, the Company has achieved whole process control and management over clean and efficientproduction.The Company has strictly implemented in-depth corporate governance. It has put great efforts and huge investmentsin promoting the management of“the three kinds of waste”so as to facilitate energy conservation and emissionreduction, aiming to become a low energy consumption and environment-friendly enterprise. In respect of wastewatertreatment, the Company has established world-class wastewater treatment system. It has over 10 wastewatertreatment facilities for various purposes, including the“ultrafiltration membrane+reverse osmosis membrane”

technology to complete the reclaimed water recycling membrane treatment project. The reclaimed water recycle ratereaches more than 75%. The reclaimed water quality meets drinking water standards, which can save fresh waterevery day 170,000 cubic meters. In respect of solid waste treatment, the Company has discontinued the traditionallandfilling treatment. It has enhanced its technology innovation, strengthened comprehensive resources utilisation, aswell as expanded its industrial chain, thereby achieving recycling and harmless utilisation of solid waste. In respectof waste gas treatment, the Company has introduced advanced international environmental protection equipmentand technology for desulphurisation, denitrification and de-dusting, smelly gas treatment and closure of coal plants.It has adopted scientific waste gas treatment to ensure its waste gas emission is in compliance with all relevantenvironmental protection standards and requirements in China.The Company strives to create a wealthy society. It has offered more job vacancies, thereby contributing more taxesto the government, and sharing the achievements of the Company with its staff and society. While caring for itsstaff sincerely and building up a harmonious relationship with the staff, the Company also greatly supports differentcharity programmes. Over the past few years, the Company has donated tens of millions to Shouguang EducationFund, Shouguang Charity Federation, Weifang Venture Association, Shandong Red Cross and districts suffered fromearthquake, which reflects the outstanding contribution of the Company to building a harmonious society in China.The Company has been honoured with the title of“Most Caring Donating Enterprise”by Weifang and ShouguangMunicipal Committee and Municipal Government for serval times, while the chairman Mr. Chen Hongguo has beenhonoured with the title of“Most Caring Person”.

2. Fulfilment of social responsibility regarding targeted poverty relief

The Company did not commence any work regarding targeted poverty relief.

VII Material Matters

XVIII.Fulfilment of Social Responsibility(Cont’d)

3. Environmental protection matters

Are the Company and its subsidiaries classified as key pollutant discharging unit as specified by environmentalprotection authority?YesName of companyor subsidiary

Name of majorpollutants andspecific pollutants

Way ofemission

Number ofemissionoutletsDistribution ofemission outlets

Emissionconcentration

Pollutantemissionstandardsimplemented

Totalemissions

Approved totalemissions

ExcessiveemissionsHuanggang Chenming Pulp & Paper Co., Ltd.

SmokeContinuous2Within factory areaAlkali furnace: 10.68 mg/m?

Lime kiln: 7.24 mg/m?

Alkali furnace: 30 mg/m?Lime kiln: 200 mg/m?

Alkali furnace: 5.59tLime kiln: 2.74t

Alkali furnace: 124.357 tLime kiln: 26.44 t

NoSulphur dioxideContinuous2Within factory areaAlkali furnace: 4.05 mg/m?

Lime kiln: 51.07 mg/m?

Alkali furnace: 200 mg/m?Lime kiln: 850 mg/m?

Alkali furnace: 3.595tLime kiln: 13.7 t

Alkali furnace: 321.193 tLime kiln: 158.304 t

NoNitrogen oxideContinuous1Within factory area164.55 mg/m?200 mg/m?117.75t950.882 tNoCODContinuous1Within factory area50.66 mg/m?150 mg/L45.75t563.72 tNoAmmonia nitrogenContinuous1Within factory area0.809 mg/m?14 mg/L1.92t40.12 tNoShandong Chenming Paper Holdings Limited

CODOrganised

emission

2Within ChenmingIndustrial Park

153mg/m?300mg/L3254t6510.74tNoAmmonia nitrogenOrganised

emission

2Within ChenmingIndustrial Park

5.59mg/m?30mg/L130.7t650.7tNoSulphur dioxideOrganised

emission

2Within Chenming

Industrial Park

Power plant: 4.58mg/m?

Alkali recovery: 3.99mg/m?

Power plant: 35mg/m?Alkali recovery: 200mg/m?

Power plant: 3.29tAlkali recovery: 0.94t

Power plant: 160.32tNoNitrogen oxideOrganised

emission

2Within Chenming

Industrial Park

Power plant: 39.05mg/m?Alkali recovery: 101mg/m?

Power plant: 100 mg/m?Alkali recovery: 300mg/m?

Power plant: 31.7t Alkalirecovery: 24.2t

Power plant: 458.05t

Alkali recovery: 236t

NoSmokeOrganised

emission

2Within Chenming

Industrial Park

Power plant: 0.82mg/m?Alkali recovery: 9.4mg/m?

Power plant: 10mg/m?Alkali recovery: 20mg/m?

Power plant: 0.63tAlkali recovery: 2.07t

Power plant: 45.81tNoShouguang Meilun Paper Co., Ltd.

Sulphur dioxideOrganised

emission

4Within Chenming

Industrial Park

Power plant: 6.9mg/m?Alkali recovery: 1.44mg/m?Lime kiln: 7.79mg/m?

Power plant: 35mg/m?Alkali recovery: 50mg/m?Lime kiln: 50mg/m?

Power plant: 69.1tAlkali recovery: 4.58tLime kiln: 2.61t

Power plant: 303.6t

Alkali recovery: 119.51t

NoNitrogen oxideOrganised

emission

4Within ChenmingIndustrial Park

Power plant: 36.55mg/m?Alkali recovery: 78.9mg/m?Lime kiln: 16.2mg/m?

Power plant: 50mg/m?Alkali recovery: 100mg/m?Lime kiln: 100 mg/m?

Power plant: 382tAlkali recovery: 261tLime kiln: 5.23t

Power plant: 618.64tAlkali recovery: 747.57t

NoSmokeOrganised

emission

4Within Chenming

Industrial Park

Power plant: 0.84mg/m?Alkali recovery: 1.56mg/m?Lime kiln: 2.2mg/m?

Power plant: 5mg/m?Alkali recovery: 10mg/m?Lime kiln: 10mg/m?

Power plant: 7.7tAlkali recovery: 5.17tLime kiln: 0.554t

Power plant: 64.69tAlkali recovery: 73.37t

No

2019 AnnuAl RepoRt

VII Material Matters

Name of companyor subsidiary

Name of majorpollutants andspecific pollutants

Way ofemission

Number ofemissionoutlets

Distribution ofemission outlets

Emissionconcentration

Pollutantemissionstandardsimplemented

Totalemissions

Approved totalemissions

ExcessiveemissionsWuhan ChenmingHanyang Paper Holdings Co., Ltd.

CODOrganised

emission

1East of the factory

area

42mg/l80mg/L33.96t184.30tNoAmmonia nitrogenOrganised

emission

1East of the factory

area

3.17mg/l8 mg/L1.37t17.30tNoSulphur dioxideOrganised

emission

2Within Qianneng

thermal power plantarea

130t/h furnace:

24.8mg/m?75t/h

Furnace: 29.7mg/m?

50mg/m?6.4t102.58tNoNitrogen oxideOrganised

emission

2Within Qianneng

thermal power plant area

130t/h furnace: 27.8mg/m?75t/h furnace: 58.1mg/m?

100 mg/m?42.62t205.16tNoSmokeOrganised

emission

2Within Qianneng

thermal power plantarea

130t/h furnace: 12.2mg/m?75t/h furnace: 10.5mg/m?

20mg/m?5.6t41.03tNoJiangxi Chenming Paper Co., Ltd.

CODOrganised

emission

1At the boundary of

factory area

42.75mg/L90mg/L184.904t1260tNoAmmonia nitrogenOrganised

emission

1At the boundary of

factory area

2.25mg/L8mg/L8.772t112tNoSulphur dioxideOrganised

emission

2Within factory area0200mg/m

310.327t806tNoNitrogen oxideOrganised

emission

2Within factory area102.41mg/m

200 mg/m

390.018t806tNoSmokeOrganised

emission

2Within factory area11.05mg/m

30mg/m

35.992t135tNoJilin Chenming Paper Co., Ltd.

CODOrganised

emission

1At the boundary offactory area

53.4mg/L90mg/L313.83t357tNoAmmonia nitrogenOrganised

emission

1At the boundary of

factory area

1.45mg/L8mg/L17.83t34tNoSulphur dioxideOrganised

emission

1Within factory area3.75mg/m

100mg/m

2.883t97tNoNitrogen oxideOrganised

emission

1Within factory area36.9mg/m

100mg/m

21.813t213tNoSmokeOrganised

emission

1Within factory area13.02mg/m

30mg/m

8.895t51.66tNoZhanjiang Chenming Pulp & Paper Co., Ltd.

CODOrganised

emission

1Within factory area35.57mg/L90mg/L860.03t1943tNo

XVIII.Fulfilment of Social Responsibility(Cont’d)

3. Environmental protection matters

VII Material Matters

Name of companyor subsidiary

Name of majorpollutants andspecific pollutants

Way ofemission

Number ofemissionoutlets

Distribution ofemission outlets

Emissionconcentration

Pollutantemissionstandardsimplemented

Totalemissions

Approved totalemissions

ExcessiveemissionsAmmonia nitrogenOrganised

emission

1Within factory area1.01mg/L90mg/L28.49t43.90tNoSulphur dioxideOrganised

emission

6Within factory areaLime kiln: 5.44mg/m

Alkali recovery:

124mg/m

Power plant 1#:

60.91mg/m

Power plant 2#:

50.55mg/m

Power plant 3#:

56.89mg/m

Power plant 4#:

17.97mg/m

Lime kiln: 400mg/m

Alkali recovery: 200mg/m3 1#, 2# & 3# circulatingfluidised bed boilers:

100mg/m

4# circulatingfluidised bed boilers:

35mg/m

317.26t620tNo

Nitrogen oxideOrganised

emission

6Within factory areaLime kiln: 154.75mg/m

Alkali recovery:

154.75mg/m

Power plant 1#:

14.26mg/m

Power plant 2#:

10.71mg/m

Power plant 3#:

10.22mg/m

Power plant 4#:

12.57mg/m

Lime kiln: 300mg/m

Alkali recovery: 200mg/m

1#, 2# & 3# circulatingfluidised bed boilers:

100mg/m

4# circulatingfluidised bed boilers:

50mg/m

1634.36t2169.70tNo

XVIII.Fulfilment of Social Responsibility(Cont’d)

3. Environmental protection matters

(Cont’d)

2019 AnnuAl RepoRt

VII Material Matters

XVIII.Fulfilment of Social Responsibility(Cont’d)

3. Environmental protection matters

(Cont’d)Construction and operation of facilities for pollution prevention and control

(1) The Company and its subsidiaries strictly comply with laws, regulations and relevant rules regarding environmental

protection of the central and local government. The construction of projects strictly adheres to the“threesimultaneities”on environmental protection. In order to ensure pollutants are discharged strictly in accordance withthe requirements under laws and regulations and disposed properly, production and operation strictly comply with thenational Law on the Prevention and Control of Environmental Pollution, Law on the Prevention and Control of WaterPollution, Law on the Prevention and Control of Air Pollution, Action Plan for Prevention and Control of Water Pollutionand Law on the Prevention and Control of Environmental Pollution by Solid Waste and other laws.

(2) Both the Company and its subsidiaries are equipped with comprehensive environmental protection treatment

facilities. The pre-treatment-aerobic-anaerobic-in-depth treatment technology is the major technology for watertreatment, which can achieve standardised discharge of wastewater. Moreover, subsidiaries are equipped withrecycling system for process effluent, and reuse treated wastewater to the greatest extent in order to minimisepollution. The Company has constructed a total of 9 water treatment plants, with daily treatment capacity of 350,000m3. In addition, governmental authority will regularly visit the Company to conduct comparison of online monitoringdata every quarter. All data meets the standards.

(3) Each subsidiary

’s organised emission outlets are equipped with an online monitoring system for real-time monitoring.All subsidiaries have their own power plants. Each self-owned plant has its own environmental protection facilitiesfor de-dusting, desulphurisation and denitrification. Denitrification is conducted through SCR or SNCR, whiledesulphurisation is primarily conducted through gypsum desulphurisation (ammonia desulphurisation is adopted in theself-owned plant of Jiangxi Chenming). Substantially all of the emissions indicators are below the national and localexecution standards. Other alkali recovery boilers and lime kilns are also in compliance with the emission standards.Environmental impact assessment of construction projects and other environmental protection administrativelicensingThe Company has strictly complied with the environmental laws and regulations all along to carry out environmentalimpact assessment of construction projects. The construction projects are all subject to environmental impactassessment. During the construction process, a reasonable environmental protection project construction plan isformulated and strictly implemented. The environmental protection facilities and the main project are designed,constructed and put into operation at the same time. At present, all construction projects put into production haveobtained environmental impact assessment approvals and acceptance approvals.In June 2017, the Company and its subsidiaries completed the formalities for new discharge permits in accordancewith the Measures for the Administration of Pollutant Discharge Permits of the Ministry of Environmental Protection,and the discharge permits of the new projects were renewed according to the environmental protection requirementsin a timely manner.

VII Material Matters

XVIII.Fulfilment of Social Responsibility(Cont’d)

3. Environmental protection matters

(Cont’d)Emergency plan for emergency environmental incidentsThe Company has strictly implemented emergency regulations for emergency environmental incidents, and formulatedvarious emergency plans for emergency environmental incidents according to the technical requirements in the“Technical Guidelines for Emergency Environmental Pollution Accidents”. The plans are reviewed by and filed with theEnvironmental Protection Bureau, and regular emergency training and emergency drills are conducted. Emergencymeasures in relation to dangerous chemicals are formulated in accordance with the environmental protectionrequirements. At the same time, necessary emergency supplies are provided with regular inspections and updates.Environmental self-monitoring programmeThe Company has strictly complied with self-monitoring laws and regulations, and conducted self-monitoring inaccordance with the environmental protection requirements to establish and perfect the corporate environmentalmanagement ledgers and materials. At present, self-monitoring is a combination of manual monitoring and automaticmonitoring. At the same time, qualified units are engaged to conduct regular monitoring. Automatically monitoreditems include: total wastewater discharge (COD, ammonia nitrogen, flow rate, total phosphorus, total nitrogen andPH); power plant, alkali recovery boilers and lime kiln exhaust emissions (sulphur dioxide, nitrogen oxide and smoke).Manually monitored items include: daily monitoring of COD, ammonia nitrogen, SS, chroma, PH, total phosphorusand total nitrogen indicators. Sewage and other monitoring items, unorganised exhaust emission, solid waste, andnoise at the plant boundary, are monitored on a monthly or quarterly basis by qualified units engaged in accordancewith the local environmental protection requirements in relation to each subsidiary.The self-monitoring data and environmental monitoring programmes for pollutants discharge of various subsidiariesare published on the national key pollution source information disclosure website and the provincial key pollutionsource information disclosure websites.Other environmental information to be disclosedThe relevant environmental protection information of the pollutant discharge permit information and the pollutantdischarge permit requirements is announced on the national sewage discharge permit management informationplatform.Other environmental protection related informationOther environmental protection related information is announced on the Company’s website.

2019 AnnuAl RepoRt

VII Material Matters

XIX. Other matters of significance

√ Applicable □ Not applicable

1. Issue of medium-term notes with a total amount of RMB1,200 million

The public issue of the 2019 first tranche of medium-term notes in the national inter-bank bond market was launchedby the Company on 15 July 2019. The amount of the issue was RMB700 million with a nominal value of RMB100 eachat the interest rate of 6.50%.The public issue of the 2019 second tranche of medium-term notes in the national inter-bank bond market waslaunched by the Company on 9 August 2019. The amount of the issue was RMB500 million with a nominal value ofRMB100 each at the interest rate of 6.50%.For details, please refer to the relevant announcements (announcement no.: 2019-068 and 2019-087) of the Companypublished on CNINFO on 19 July 2019 and 15 August 2019, respectively.

2. Re-elections of the Company

The 37th extraordinary meeting of the eighth session of the Board and the 13th extraordinary meeting of the eighthsession of the Supervisory Committee held on 20 May 2019 considered and passed the resolution in relation to there-election of the Board and the resolution in relation to the re-election of the Supervisory Committee. The aboveresolutions in relation to the re-elections were considered and approved at the annual general meeting convened on11 June 2019. The new session of the Board and the new session of the Supervisory Committee will serve for a termof three years.On 11 June 2019, the ninth session of the Board considered and passed the resolution in relation to the election ofthe chairman, vice chairman, general manager, secretary to the Board and the senior management of the Company.The ninth session of the Supervisory Committee considered and passed the resolution in relation to the election of thechairman of the Supervisory Committee.For details, please refer to the relevant announcements (announcement no.: 2019-039, 2019-040, 2019-055, 2019-056and 2019-057) of the Company published on CNINFO on 21 May and 12 June 2019.

VII Material Matters

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

Announcement No.Subject matterDate of publicationPublication website and index2019-001Announcement on Result of the Issue of 2018 Second Tranche of

Medium-term Notes

3 January 2019http://www.cninfo.com.cn2019-002Announcement on the Receipt of the Decision on the

Administrative Supervision Measures of the ShandongSecurities Regulatory Commission of the China Securities Regulatory Commission

7 January 2019http://www.cninfo.com.cn2019-003Announcement on the Acquisition of Mining License by Haiming

Mining, a Subsidiary of the Company

7 January 2019http://www.cninfo.com.cn2019-004Announcement on Signing Strategic Cooperation Agreement with

Great Wall Glory Securities

17 January 2019http://www.cninfo.com.cn2019-005Announcement in respect of Resolutions of the Thirty-fifth

Extraordinary Meeting of the Eighth Session of the Board of Directors

22 January 2019http://www.cninfo.com.cn2019-006Announcement on External Investment (I)22 January 2019http://www.cninfo.com.cn2019-007Announcement on Huanggang Chenming’s Application for Bank Loan and Provision of Guarantee and Asset Pledge

22 January 2019http://www.cninfo.com.cn2019-008Announcement on External Investment (II)22 January 2019http://www.cninfo.com.cn2019-009Announcement on Result of the Issue of 2019 First Tranche of

Super & Short-term Commercial Paper

22 January 2019http://www.cninfo.com.cn2019-010Announcement in respect of Resolutions of the Thirty-Sixth

Extraordinary Meeting of the Eighth Session of the Board of Directors

7 March 2019http://www.cninfo.com.cn2019-011Announcement on Cooperation on the Initiation of the

Establishment of Weifang Chenming Growth Driver Replacement Equity Investment Fund

7 March 2019http://www.cninfo.com.cn2019-012Announcement on the Progress of Initiation of the

Establishment of Weifang Chenming Growth Driver Replacement Equity Investment Fund

11 March 2019http://www.cninfo.com.cn2019-013Announcement on the Progress of Intended Increase in

Shareholding by the Company’s Largest Shareholder

11 March 2019http://www.cninfo.com.cn2019-014Announcement on the Distribution of Dividend of

Preference Share

12 March 2019http://www.cninfo.com.cn2019-015Announcement on Resignation of Senior Management16 March 2019http://www.cninfo.com.cn2019-016Announcement on Obtaining High-tech Enterprise Certificates

by the Company and its wholly-owned subsidiaries

19 March 2019http://www.cninfo.com.cn2019-017Announcement on Pledge of Shares held by Shareholders

and the Release of Pledge of Part of the Shares

19 March 2019http://www.cninfo.com.cn2019-018Announcement on payment of 2019 interest with respect

to the first tranche of corporate bonds publicly issued to qualified investors in 2018

26 March 2019http://www.cninfo.com.cn2019-019Announcement on Pledge of Shares held by Shareholders

and the Release of Pledge of Part of the Shares

26 March 2019http://www.cninfo.com.cn2019-020Announcement in respect of Resolutions of the

Twelfth Meeting of the Eighth Session of the Board of Directors

30 March 2019http://www.cninfo.com.cn2019-0212018 Annual Report Summary30 March 2019http://www.cninfo.com.cn

2019 AnnuAl RepoRt

VII Material Matters

Announcement No.Subject matterDate of publicationPublication website and index2019-022Announcement in Respect of Resolutions of the

Thirteenth Meeting of the Eighth Session of the Supervisory Committee

30 March 2019http://www.cninfo.com.cn2019-023Announcement on Provision of Guarantees for General Facilities of

Relevant Subsidiaries by the Company

30 March 2019http://www.cninfo.com.cn2019-024Announcement on Correction of Previous Accounting Errors and

Retrospective Restatement

30 March 2019http://www.cninfo.com.cn2019-025Announcement on the Appointment of the Auditor for 201930 March 2019http://www.cninfo.com.cn2019-026Announcement on the Commencement of Financial

Leasing Business

30 March 2019http://www.cninfo.com.cn2019-027Notice of 2018 Annual General Meeting30 March 2019http://www.cninfo.com.cn2019-028Announcement on Result of the Issue of 2019 Third Tranche of

Super & Short-term Commercial Paper

30 March 2019http://www.cninfo.com.cn2019-029Announcement on Receipt of Government Subsidy by

Wholly-owned Subsidiaries of the Company

2 April 2019http://www.cninfo.com.cn2019-030Announcement on Pledge of Shares held by Shareholders11 April 2019http://www.cninfo.com.cn2019-031Announcement on Estimated Results for First Quarter of 201915 April 2019http://www.cninfo.com.cn2019-032Announcement on Release of Pledge of Shares held by

Shareholders

19 April 2019http://www.cninfo.com.cn2019-033Announcement in respect of Resolutions of the Thirteenth

Meeting of the Eighth Session of the Board of Directors

30 April 2019http://www.cninfo.com.cn2019-0342019 First Quarterly Report30 April 2019http://www.cninfo.com.cn2019-035Announcement on the Commencement of Financial Leasing

Business of Subsidiary

30 April 2019http://www.cninfo.com.cn2019-036Announcement on Receipt of Government Subsidy by

Subsidiaries of the Company

6 May 2019http://www.cninfo.com.cn2019-037Announcement on Result of the Issue of 2019 Fourth

Tranche of Super & Short-term Commercial Paper

6 May 2019http://www.cninfo.com.cn2019-038Announcement on Progress of external investment and Operation

Commencement of Shouguang Meilun chemical pulp project

13 May 2019http://www.cninfo.com.cn2019-039Announcement in Respect of Resolutions of the Thirty-Seven

Extraordinary Meeting of the Eighth Session of the Board of Directors

21 May 2019http://www.cninfo.com.cn2019-040Announcement in respect of Resolutions of the Thirteenth

Meeting of the Eighth Session of the Supervisory Committee

21 May 2019http://www.cninfo.com.cn2019-041Declaration by Candidate for Independent Director (Sun Jianfei)21 May 2019http://www.cninfo.com.cn2019-042Declaration by Candidate for Independent Director (Yang Biao)21 May 2019http://www.cninfo.com.cn2019-043Declaration by Candidate for Independent Director (Yin Meiqun)21 May 2019http://www.cninfo.com.cn2019-044Declaration by Nominator of Independent Director21 May 2019http://www.cninfo.com.cn2019-045Announcement on the Issue of Commercial Mortgage Backed

Securities Backed by an Office Property of a Subsidiary

21 May 2019http://www.cninfo.com.cn2019-046Announcement on the Commencement of Equipment Financing

Business of Subsidiaries

21 May 2019http://www.cninfo.com.cn2019-047Announcement on Additional Resolutions Proposed at the

2018 Annual General Meeting

21 May 2019http://www.cninfo.com.cn

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

(Cont’d)

VII Material Matters

Announcement No.Subject matterDate of publicationPublication website and index2019-048Supplementary Notice of 2018 Annual General Meeting21 May 2019http://www.cninfo.com.cn2019-049Second Supplementary Notice of 2018 Annual General Meeting24 May 2019http://www.cninfo.com.cn2019-050Announcement on Supplemental Pledge of Shares held by

Shareholders and Business Continuation

25 May 2019http://www.cninfo.com.cn2019-051Announcement on Result of the Issue of 2019 Fifth Tranche of

Super & Short-term Commercial Paper

28 May 2019http://www.cninfo.com.cn2019-052Announcement on Intended Increase in Shareholding by the

Directors, Supervisors and Senior Management

29 May 2019http://www.cninfo.com.cn2019-053Announcement on Release of Pledge of Shares and Supplemental

Pledge of Shares held by Shareholders

30 May 2019http://www.cninfo.com.cn2019-054Announcement on Intended Increase in Shareholding by the

Chairman of the Company

7 June 2019http://www.cninfo.com.cn2019-055Poll Results Announcement of the 2018 Annual General Meeting12 June 2019http://www.cninfo.com.cn2019-056Announcement on Resolutions of the First Meeting of the Ninth

Session of the Board of Directors

12 June 2019http://www.cninfo.com.cn2019-057Announcement on Resolutions of the First Meeting of the Ninth

Session of the Supervisory Committee

12 June 2019http://www.cninfo.com.cn2019-058Announcement on the Re-election of Employee Representative

Supervisor

12 June 2019http://www.cninfo.com.cn2019-059Announcement on Pledge of Shares held by Shareholders21 June 2019http://www.cninfo.com.cn2019-060Announcement on Progress of the acquisition of 45% of

equity interest in Goldtrust Futures

26 June 2019http://www.cninfo.com.cn2019-061Announcement in respect of Guarantee in Favour of Subsidiaries

for their Bank Loans by the Wholly-owned Subsidiaries of the Company

27 June 2019http://www.cninfo.com.cn2019-062Announcement on Estimated Interim Results for 20194 July 2019http://www.cninfo.com.cn2019-063Announcement on Receipt of Government Subsidy5 July 2019http://www.cninfo.com.cn2019-064First Indicative Announcement on the Adjustment of Coupon

Rate of“17 Chenming Bond 01”and Repurchase Measure for Bondholders

10 July 2019http://www.cninfo.com.cn2019-065Second Indicative Announcement on the Adjustment of Coupon

Rate of“17 Chenming Bond 01”and Repurchase Measure for Bondholders

11 July 2019http://www.cninfo.com.cn2019-066Third Indicative Announcement on the Adjustment of Coupon

Rate of“17 Chenming Bond 01”and Repurchase Measure for Bondholders

15 July 2019http://www.cninfo.com.cn2019-067Announcement on Repurchase Report of Investor of“17 Chenming Bond 01”

18 July 2019http://www.cninfo.com.cn2019-068Announcement on Result of the Issue of 2019 First Tranche of

Medium-term Notes

19 July 2019http://www.cninfo.com.cn2019-069Announcement in Respect of Resolutions of the First Extraordinary

Meeting of the Ninth Session of the Board of Directors

20 July 2019http://www.cninfo.com.cn2019-070Announcement on the Daily Business Transactions and

Related Party Transaction of Subsidiary

20 July 2019http://www.cninfo.com.cn

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

(Cont’d)

2019 AnnuAl RepoRt

VII Material Matters

Announcement No.Subject matterDate of publicationPublication website and index2019-071Announcement on Receipt of Financial Support and

Related Party Transaction

20 July 2019http://www.cninfo.com.cn2019-072Notice of 2019 First Extraordinary General Meeting20 July 2019http://www.cninfo.com.cn2019-073Supplemental Announcement on the Daily Business

Transactions and Related Party Transaction of Subsidiary

23 July 2019http://www.cninfo.com.cn2019-074Announcement on Pledge of Shares and Partial Release of

Pledge of Shares by Shareholders

25 July 2019http://www.cninfo.com.cn2019-075Announcement on Result of the Issue of 2019 Sixth Tranche of

Short-term Commercial Paper

2 August 2019http://www.cninfo.com.cn2019-076Indicative Announcement on the Issue of USD Bonds by an

Overseas Subsidiary

2 August 2019http://www.cninfo.com.cn2019-077Announcement on the Implementation of Dividend Distribution to

Holders of A Shares and B Shares for 2018

5 August 2019http://www.cninfo.com.cn2019-078Announcement on the Implementation of the Distribution of

Residual Profits of 2018 to Preference Shareholders

5 August 2019http://www.cninfo.com.cn2019-079Announcement on Release of Pledge of Shares held by

Shareholders

7 August 2019http://www.cninfo.com.cn2019-080Announcement on Provision of Pledge and Guarantee for the

Financing of Subsidiary

7 August 2019http://www.cninfo.com.cn2019-081Announcement on the Progress of Issue of USD Bonds by

Overseas Subsidiary

7 August 2019http://www.cninfo.com.cn2019-082Announcement in Respect of Resolutions of the Second

Extraordinary Meeting of the Ninth Session of the Board of Directors

8 August 2019http://www.cninfo.com.cn2019-083Announcement on Public Tender of Equity of Subsidiary8 August 2019http://www.cninfo.com.cn2019-084Announcement on the Distribution of Dividend for Second

Tranche of Preference Share

9 August 2019http://www.cninfo.com.cn2019-085Supplemental Announcement on Public Tender of

Equity of Subsidiary

9 August 2019http://www.cninfo.com.cn2019-086Supplemental Announcement on Public Tender of

Equity of Subsidiary

10 August 2019http://www.cninfo.com.cn2019-087Announcement on Result of the Issue of 2019 Second Tranche of

Medium-term Notes

15 August 2019http://www.cninfo.com.cn2019-0882019 Interim Report Summary16 August 2019http://www.cninfo.com.cn2019-089Second Supplemental Announcement of the 2019

First Extraordinary General Meeting

16 August 2019http://www.cninfo.com.cn2019-090Announcement on the Progress of Public Tender of

Equity and Loan of Subsidiary

17 August 2019http://www.cninfo.com.cn2019-091Announcement on the 2019 Interest Payment of Corporate Bonds

(Phase I)

19 August 2019http://www.cninfo.com.cn2019-092Announcement on Repurchase Report of Investor of

“17 Chenming Bond 01”

19 August 2019http://www.cninfo.com.cn2019-093Announcement on the Progress of Public Tender of Equity of

Subsidiary

22 August 2019http://www.cninfo.com.cn2019-094Poll Results Announcement of the 2019 First Extraordinary

General Meeting

4 September 2019http://www.cninfo.com.cn

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

(Cont’d)

VII Material Matters

Announcement No.Subject matterDate of publicationPublication website and index2019-095Announcement on the Progress of Public Tender of Equity of

Subsidiary

4 September 2019http://www.cninfo.com.cn2019-096Announcement in respect of Resolutions of the Third Extraordinary

Meeting of the Ninth Session of the Board of Directors

7 September 2019http://www.cninfo.com.cn2019-097Announcement in respect of Resolutions of the First Extraordinary

Meeting of the Ninth Session of the Supervisory Committee

7 September 2019http://www.cninfo.com.cn2019-098Announcement on Delay in Increase of Shares of the Company

by the Controlling Shareholder

7 September 2019http://www.cninfo.com.cn2019-099Notice of 2019 Second Extraordinary General Meeting7 September 2019http://www.cninfo.com.cn2019-100Announcement on Pledge of Shares held by Shareholders and the

Release of Pledge of Part of the Shares

7 September 2019http://www.cninfo.com.cn2019-101Announcement on the Distribution of Dividend for

Third Tranche of Preference Share

16 September 2019http://www.cninfo.com.cn2019-102Announcement on Pledge of Shares by Shareholders16 September 2019http://www.cninfo.com.cn2019-103Announcement in respect of Resolutions of the Fourth

Extraordinary Meeting of the Ninth Session of the Board of Directors

17 September 2019http://www.cninfo.com.cn2019-104Announcement in respect of Resolutions of the Second

Extraordinary Meeting of the Ninth Session of the Supervisory Committee

17 September 2019http://www.cninfo.com.cn2019-105Announcement on the Use of Accounts Receivable

By Subsidiary for Financing Purpose

17 September 2019http://www.cninfo.com.cn2019-106Announcement on the Change of Auditor17 September 2019http://www.cninfo.com.cn2019-107Announcement on Additional Resolutions Proposed at the 2019

Second Extraordinary General Meeting

17 September 2019http://www.cninfo.com.cn2019-108Supplementary Notice of 2019 Second Extraordinary

General Meeting

17 September 2019http://www.cninfo.com.cn2019-109Announcement on Release of Pledge of Shares Held by

Shareholders

25 September 2019http://www.cninfo.com.cn2019-110Announcement in respect of Provision of Guarantee in Favour of

Wholly-owned Subsidiary for Financing

30 September 2019http://www.cninfo.com.cn2019-111Announcement on Pledge of Shares held by Shareholders8 October 2019http://www.cninfo.com.cn2019-112Second Supplementary Notice of the 2019 Second Extraordinary

General Meeting

8 October 2019http://www.cninfo.com.cn2019-113Announcement on Estimated Results for the First Three

Quarters of 2019

9 October 2019http://www.cninfo.com.cn2019-114Announcement in respect of Resolutions of the Fifth Extraordinary

Meeting of the Ninth Session of the Board of Directors

18 October 2019http://www.cninfo.com.cn2019-115Announcement in respect of Provision of Guarantee in Favour of

Subsidiary

18 October 2019http://www.cninfo.com.cn2019-116Notice of 2019 Third Extraordinary General Meeting18 October 2019http://www.cninfo.com.cn2019-117Announcement in respect of Resolutions of the 2019 Second

Extraordinary General Meeting

24 October 2019http://www.cninfo.com.cn2019-118Announcement in respect of Resolutions of the Third Meeting

of the Ninth Session of the Board of Directors

26 October 2019http://www.cninfo.com.cn

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

(Cont’d)

2019 AnnuAl RepoRt

VII Material Matters

Announcement No.Subject matterDate of publicationPublication website and index2019-119Announcement in respect of Resolutions of the Third Meeting

of the Ninth Session of the Supervisory Committee

26 October 2019http://www.cninfo.com.cn2019-1202019 Third Quarterly Report26 October 2019http://www.cninfo.com.cn2019-121Announcement on Changes in Accounting Policies26 October 2019http://www.cninfo.com.cn2019-122Announcement on Receipt of Financial Support and

Related Party Transaction

26 October 2019http://www.cninfo.com.cn2019-123Announcement on Additional Resolutions Proposed at the 2019

Third Extraordinary General Meeting

26 October 2019http://www.cninfo.com.cn2019-124Supplemental Notice of 2019 Third Extraordinary General Meeting26 October 2019http://www.cninfo.com.cn2019-125Announcement in respect of Resolutions of the Sixth Extraordinary

Meeting of the Ninth Session of the Board of Directors

7 November 2019http://www.cninfo.com.cn2019-126Announcement on the Change and Rotation of the

General Manager

7 November 2019http://www.cninfo.com.cn2019-127Announcement on Additional Resolutions Proposed at the 2019

Third Extraordinary General Meeting

7 November 2019http://www.cninfo.com.cn2019-128Supplementary Notice of 2019 Third Extraordinary General Meeting7 November 2019http://www.cninfo.com.cn2019-129Second Supplementary Notice of 2019 Third Extraordinary

General Meeting

16 November 2019http://www.cninfo.com.cn2019-130Announcement on Receipt of Government Subsidy27 November 2019http://www.cninfo.com.cn2019-131Announcement on the Commencement of Equipment Financing

Business

28 November 2019http://www.cninfo.com.cn2019-132Announcement on the Resignation of Director3 December 2019http://www.cninfo.com.cn2019-133Announcement in respect of Resolutions of the 2019 Third

Extraordinary General Meeting

4 December 2019http://www.cninfo.com.cn2019-134Announcement on Release of Pledge of Shares Held by

Shareholders

7 December 2019http://www.cninfo.com.cn2019-135Announcement on the Receipt of Government Subsidy by a

Subsidiary

14 December 2019http://www.cninfo.com.cn2019-136Announcement on the Progress of External Investment19 December 2019http://www.cninfo.com.cn2019-137Announcement on Release of Pledge of Shares Held by

Shareholders

20 December 2019http://www.cninfo.com.cn2019-138Announcement in respect of Provision of Pledge and

Guarantee in Favour of Huanggang Chenming by Wuhan Chenming for Loan

25 December 2019http://www.cninfo.com.cn2019-139Announcement on Release of Pledge of Shares Held

by Shareholders

31 December 2019http://www.cninfo.com.cn2019-140Announcement on Capital Increase and Introduction of Strategic

Investor by a Wholly-owned Subsidiary

31 December 2019http://www.cninfo.com.cn2019-141Announcement on the Receipt of Government Subsidy

by a Subsidiary

31 December 2019http://www.cninfo.com.cn

XIX. Other matters of significance(Cont’d)

3. Information disclosure index for 2019

(Cont’d)

VII Material Matters

XX. Matters of significant of subsidiaries of the Company

√ Applicable □ Not applicable

1. Establishment of Shanghai Chenming Pulp & Paper Sales Co., Ltd. through External Investment

In order to make full use of the advantages of Shanghai as a financial centre, expand and enhance the Shanghaiplatform, put great efforts into market development, and enhance the Company’s overall strength and comprehensivecompetitiveness, the company intended to set up Shanghai Chenming Pulp & Paper Sales Co., Ltd. in HongkouDistrict, Shanghai.For details, please refer to the relevant announcement (announcement no.: 2019-008) of the Company published onCNINFO on 22 January 2019.

2. Operation Commencement of Shouguang Meilun Chemical Pulp Project

The proposal on the construction of a bleached sulphate chemical wood pulp in Shouguang of Shouguang Meilun,a wholly-owned subsidiary of the Company, was considered and approved at the 2013 annual general meeting ofthe Company. During the process of project construction, given the high dependence of China’s wood pulp importsand the impact of waste paper import policies, waste paper prices in the domestic market rose sharply, which led tothe increase in wood pulp prices. In order to solve the problem of raw materials of the Company, make full use of thecost advantage of self-made pulp and improve economic efficiency, the Company adjusted the annual productionof 400,000 tonnes of bleached sulphate chemical wood pulp to annual production of 1 million tonnes of bleachedsulphate chemical wood pulp and put it into production smoothly.For details, please refer to the relevant announcement (announcement no.: 2019-038) of the Company published onCNINFO on 13 May 2019.

3. Issue of USD Bonds by an Overseas Subsidiary

Meilun (BVI) Limited, an overseas subsidiary of the Company, issued a total of USD163 million USD bonds on HongKong Stock Exchange with a term of less than 3 years.For details, please refer to the relevant announcement (announcement no.: 2019-076) of the Company published onCNINFO on 2 August 2019.

2019 AnnuAl RepoRt

VIII Changes in Share Capital and Shareholders

I. Changes in shares

1. Changes in shares

Unit: shareOpening balanceChange during the reporting period (+/-)Closing balanceAmountPercentageNew issueBonus issue

Convertedfrom reservesOthersSubtotalAmountPercentageI. Restricted shares11,982,6420.41%000-1,402,118-1,402,11810,580,5240.36%Shares held by other domestic investors11,982,6420.41%000-1,402,118-1,402,11810,580,5240.36%Shares held bydomestic natural persons11,982,6420.41%000-1,402,118-1,402,11810,580,5240.36%II. Non-restricted shares2,892,625,55899.59%0001,402,1181,402,1182,894,027,67699.64%

1. RMB ordinary shares1,658,004,34257.08%0001,332,8181,332,8181,659,337,16057.13%

2. Domestic listed

foreign shares706,315,96624.32%00069,30069,300706,385,26624.32%

3. Overseas listed

foreign shares528,305,25018.19%00000528,305,25018.19%III. Total number of shares2,904,608,200100.00%000002,904,608,200100.00%The reasons for such changes

√ Applicable □ Not applicable

According to the Practice Guidance for the Company’s Shares Held by the Directors, Supervisors and SeniorManagement of the Listed Companies of Shenzhen Stock Exchange, during the reporting period, 2,782,845 restrictedRMB ordinary shares (A shares) held by Directors and senior management who resigned became non-restrictedshares; 69,300 restricted domestic listed foreign shares (B shares) held by senior management who resignedbecame unrestricted shares; and 1,450,027 unrestricted RMB ordinary shares (A shares) additionally acquired by theCompany’s Directors, Supervisors and senior management became restricted shares.Approval of changes in shareholding

□ Applicable √ Not applicable

VIII Changes in Share Capital and Shareholders

I. Changes in shares(Cont’d)

1. Changes in shares

(Cont’d)

Transfer of shares arising from changes in shareholding

□ Applicable √ Not applicable

Progress of share repurchase

□ Applicable √ Not applicable

Progress of decrease in the holding of repurchased shares by way of bidding

□ Applicable √ Not applicable

The effects of changes in shareholding on financial indicators such as basic earnings per share, diluted earnings pershare and net assets per share attributable to ordinary shareholders of the Company for the latest year and the latestperiod

□ Applicable √ Not applicable

Other information considered necessary by the Company or required by the securities regulatory authorities to bedisclosed

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

VIII Changes in Share Capital and Shareholders

I. Changes in shares(Cont’d)

2. Changes in restricted shares

√ Applicable □ Not applicable

Unit: shareName of shareholders

Restricted sharesat the beginningof period

Restricted sharesreleased duringthe period

Restricted sharesincreased during

the period

Restricted sharesat the endof periodReason for restrictionDate of release from restrictionChen Hongguo7,608,3330701,7008,310,033Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementHu Changqing1,392030,75132,143Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementGeng Guanglin492,113045,599537,712Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementLi Feng530,7940148,726679,520Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementLi Dong11,250045,00056,250Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementLi Weixian3,599057,30160,900Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementLi Xueqin483,0160162,975645,991Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementLi Zhenzhong0084,75084,750Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementYuan Xikun0033,52533,525Locked up by directors,

supervisors and seniormanagement

Under relevant requirementsfor shares held by directors,supervisors and senior managementYin Tongyuan2,726,5952,726,59500Resignation18 November 2019Xiao Peng125,550125,55000Resignation18 November 2019Chen Gang00139,700139,700Resignation11 December 2022Total11,982,6422,852,1451,450,02710,580,524——

VIII Changes in Share Capital and Shareholders

II. Issuance and listing of securities

1. Changes in the total number of shares and structure of shareholders and the structure of the assets

and liabilities of the Company

□ Applicable √ Not applicable

2. Issuance of securities (excluding preference shares) during the reporting period

□ Applicable √ Not applicable

3. Existing staff shares

□ Applicable √ Not applicable

III. Shareholders and beneficial controllers

1. Total number of shareholders and shareholdings

Unit: shareTotal number of ordinaryshareholders as at the endof the reporting period

120,766, of which100,644 were holders ofA shares, 19,752 wereholders of B shares and370 were holders of Hshares

Total number of ordinaryshareholders as at theend of the month prior tothe publication date ofthis annual report

119,658, of which99,635 were holders ofA shares, 19,658 wereholders of B shares and365 were holders of Hshares

Total number of holdersof preference shareswith restored votingright as at the end of thereporting period

0Total number of holdersof preference shareswith restored votingright as at the end ofthe month prior to thedisclosure date of theannual report

Shareholdings of shareholders interested in more than 5% of the shares of the Company or Top 10 shareholders

Name of shareholdersNature of shareholders

Percentage ofshareholding

Number ofshares held atthe end of thereporting period

Changes(increase or

decrease)

during the

Reporting

period

Number ofrestrictedshares held

Number ofnon-restrictshares heldShare pledged or locked-up

Status of sharesNumberCHENMING HOLDINGS COMPANY LIMITEDState-owned legal person15.33%445,396,1281,250,000—445,396,128Pledge261,670,000HKSCC NOMINEES LIMITEDOverseas legal person12.85%373,163,875–124,000—373,163,875——CHENMING HOLDINGS (HONG KONG) LIMITEDOverseas legal person12.54%364,131,563——364,131,563——CENTRAL HUIJIN ASSET MANAGEMENT LTD.State-owned legal person2.07%60,206,850——60,206,850——AGRICULTURAL BANK OF CHINA LIMITED – CHINA CSI 500 ETF

Others0.46%13,483,150–683,300—13,483,150——HONG KONG SECURITIES CLEARING COMPANY LIMITEDOverseas legal person0.46%13,238,4638,749,612—13,238,463——VANGUARD EMERGING MARKETS STOCK INDEX FUNDOverseas legal person0.44%12,912,357——12,912,357——VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUNDOverseas legal person0.43%12,615,1701,617,762—12,615,170——Chen HongguoDomestic nature person0.38%11,080,044935,6008,310,0332,770,011——Chen SuiqiangDomestic nature person0.38%11,010,2001,109,050—11,010,200——Related party relationship or acting in concert among the above shareholders

A shareholder, Chenming Holdings (Hong Kong) Limited, which is an overseas legal person, is a wholly-owned subsidiary of a shareholder, Shouguang Chenming

Holdings Company Limited, which is a state-owned legal person. A shareholder, Chen Hongguo, is the legal representative, chairman and general manager of Chenming

Holdings Company Limited. Save for the above, it is not aware that any other shareholders of tradable shares are persons acting in concert. It is also not aware that any

other shareholders of tradable shares are related to each other.

2019 AnnuAl RepoRt

VIII Changes in Share Capital and Shareholders

III. Shareholders and beneficial controllers(Cont’d)

1. Total number of shareholders and shareholdings

(Cont’d)Shareholdings of the top ten shareholders of non-restricted shares

Name of shareholders

Number of non-restricted sharesheld as at the end ofthe reporting periodClass of shares

Class of sharesNumberCHENMING HOLDINGS COMPANY LIMITED445,396,128RMB ordinary shares445,396,128HKSCC NOMINEES LIMITED373,163,875Overseas listed

foreign shares

373,163,875CHENMING HOLDINGS (HONG KONG) LIMITED364,131,563Domestic listed

foreign shares

210,717,563Overseas listedforeign shares

153,414,000CENTRAL HUIJIN ASSET MANAGEMENT LTD.60,206,850RMB ordinary shares60,206,850AGRICULTURAL BANK OF CHINA LIMITED – CHINA CSI 500 ETF

13,483,150RMB ordinary shares13,483,150HONG KONG SECURITIES CLEARING COMPANY LIMITED

13,238,463RMB ordinary shares13,238,463VANGUARD EMERGING MARKETS STOCK INDEX FUND

12,912,357Domestic listed

foreign shares

12,912,357VANGUARD TOTAL INTERNATIONAL STOCK INDEX FUND

12,615,170Domestic listed

foreign shares

12,615,170Chen Suiqiang11,010,200RMB ordinary shares11,010,200Jin Xing10,856,000Domestic listed

foreign shares

10,856,000Related party relationship or acting in concert among the top ten shareholders of non-restricted shares, and between the top tenshareholders of non-restricted shares and the top ten shareholders

A shareholder, Chenming Holdings (Hong Kong) Limited, whichis an overseas legal person, is a wholly-owned subsidiary of ashareholder, Shouguang Chenming Holdings Company Limited,which is a state-owned legal person. Save for the above, it is notaware that any other shareholders of tradable shares are personsacting in concert. It is also not aware that any other shareholdersof tradable shares are related to each other.Securities margin trading of top 10 ordinary shareholders, if any (see Note 4)

Chenming Holdings Company Limited held 445,396,128 RMBordinary shares, of which 402,196,128 shares were held throughordinary account and 43,200,000 shares were held through creditguarantee security account.Chen Suiqiang held 11,010,200 RMB ordinary shares, of which 0share was held through ordinary account and 11,010,200 shareswere held through credit guarantee security account.

VIII Changes in Share Capital and Shareholders

III. Shareholders and beneficial controllers(Cont’d)

1. Total number of shareholders and shareholdings

(Cont’d)Whether an agreed repurchase transaction was entered into during the reporting period by the top 10 ordinaryshareholders and top 10 shareholders of non-restricted shares of the Company

□ Yes √ No

The top 10 ordinary shareholders and top 10 shareholders of non-restricted shares

2. Controlling shareholders of the Company

Nature of controlling shareholder: regional state-owned enterpriseType of controlling shareholder: legal personName of controllingshareholders

Legalrepresentative/Person in chargeof the unit

Date ofestablishmentEnterprise codePrincipal businessCHENMING HOLDINGS COMPANY LIMITED

Chen Hongguo30 December

2005

91370783783485189Q Investment in paper

making, electricity, heat and arboriculture by its own capitalShareholdings of controlling shareholders whohave control or hold shares in other domesticor overseas listed companies during the reporting period

Save for the Company, Chenming Holdings Company Limiteddoes not have control over or hold any equity interest of otherdomestic or overseas listed companies.Change of controlling shareholders during the reporting period

□ Applicable √ Not applicable

There was no change in the controlling shareholders of the Company during the reporting period.

2019 AnnuAl RepoRt

VIII Changes in Share Capital and Shareholders

III. Shareholders and beneficial controllers(Cont’d)

3. Beneficial controller of the Company and persons acting in concert

Nature of the beneficial controller: Regional state-owned assets administration authorityType of the beneficial controller: legal person

Name of beneficial controller

Legalrepresentative/Person in chargeof the unit

Date ofestablishmentEnterprise codePrincipal businessState-owned AssetsSupervision andAdministration Bureau of Shouguang City

Not applicable1 August 1991None Responsible for the

management andcapital operation of thestate-owned assets ofenterprises and businessunits in Shouguang cityShareholdings of beneficialcontroller who has controlor holds shares in otherdomestic or overseas listedcompanies during the reporting period

Save for the Company, State-owned Assets Supervision and Administration Officeof Shouguang City does not have control over or hold any equity interest of otherdomestic or overseas listed companies.

VIII Changes in Share Capital and Shareholders

III. Shareholders and beneficial controllers(Cont’d)

3. Beneficial controller of the Company and persons acting in concert

(Cont’d)Change of beneficial controller during the reporting period

□ Applicable √ Not applicable

There was no change in the beneficial owner of the Company during the reporting period.Chart illustrating the relationship between the Company and the beneficial controller

100.00%

100.00%

15.33%

12.54%

45.21%

State-owned Assets Supervision andAdministration Commission of People’s Government ofShouguang City and Weifang City in Shandong Province

Shandong Shouguang Jinxin Investment

Development Holdings Group Co., Ltd.

Chenming Holdings Limited

Shandong Chenming Paper Holdings Limited

Chenming Holdings(Hong Kong) Limited

Beneficial controller controlling the Company through trust or other asset management method

□ Applicable √ Not applicable

4. Other legal person shareholders interested in over 10% of the shares of the Company

□ Applicable √ Not applicable

5. Restrictions on decrease in shareholding by controlling shareholders, beneficial controller,

reorganising party and other undertaking parties

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

IX Preference Shares

√ Applicable □ Not Applicable

I. Issue and listing of preference shares during the past three years at the end of the reporting

period

√ Applicable □ Not Applicable

MethodIssue date

Issue price(RMB/share)

Coupon

rate

Issue size(share)Listing date

With listingpermission(share)Delisting date

Information ofuse of proceeds

Informationof changes toproceedsPrivate16 March 20161004.36%22,500,0008 April 201622,500,000Not applicablehttp://www.cninfo.com.cnNot applicablePrivate16 August 20161005.17%10,000,00012 September 201610,000,000Not applicablehttp://www.cninfo.com.cnNot applicablePrivate21 September 20161005.17%12,500,00024 October 201612,500,000Not applicablehttp://www.cninfo.com.cnNot applicable

II. Holders of preference shares and their shareholdings

Unit: shareTotal number of holders ofpreference shares as at the end of the reporting period

8Total number of holders ofpreference shares as at the end ofthe month prior to the publication date of this annual report

Holders holdings more than 5% of the preference shares of the Company or top ten holders of preference shares

Name of shareholders

Nature ofshareholders

Percentage ofshareholding

Number ofshares heldat the end ofthe reporting

period

Changes(increaseor decrease)

during thereporting

period

Number ofrestrictedshares held

Number ofnon-restricted

shares heldShare pledged or locked-up

Status of sharesNumberBEIJING YIBEN ZHONGXING INVESTMENT MANAGEMENT CO., LTD.

Domestic non-state-owned legal person

27.78%12,500,00012,500,000Pledged12,500,000BANK OF COMMUNICATIONSINTERNATIONAL TRUST CO., LTD. – HUILI NO.167 SINGLE CAPITAL TRUST

Others22.44%10,100,00010,100,000––BANK OF COMMUNICATIONSINTERNATIONAL TRUST CO., LTD. – HUILI NO.136 SINGLE CAPITAL TRUST

Others14.22%6,400,0006,400,000––QILU BANK CO., LTD. – QILU BANK QUANXIN WEALTH MANAGEMENT PRODUCT SERIES

Others13.33%6,000,0006,000,000––HENGFENG BANK CO., LTD.Domestic non-state-

owned legal person

11.11%5,000,0005,000,000––SHANGHAI STATE-OWNED ASSETS OPERATION CO., LTD.

State-owned legalperson

4.44%2,000,000-1,000,0002,000,000––NCF – MINSHENG BANK – CHINA FORTUNEINTERNATIONAL TRUST – CHINAFORTUNE TRUST?MIN XIN NO. 11 SINGLE CAPITAL TRUST

Others4.44%2,000,0002,000,000––SHANGHAI SHIJIE BUSINESS CONSULTING CO., LTD.

Domestic non-state-

owned legal person

2.22%1,000,0001,000,000–1,000,000––Related party relationship or acting in concertamong the top ten holders of preference shares,and between the top ten holders of preference shares and the top ten holders of ordinary shares

The aforesaid holders of preference shares,“BANK OF COMMUNICATIONS INTERNATIONAL TRUST CO., LTD. – HUILI NO.167 SINGLE CAPITALTRUST”and“BANK OF COMMUNICATIONS INTERNATIONAL TRUST CO., LTD. – HUILI NO.136 SINGLE CAPITAL TRUST”, are persons acting inconcert. Save for the above, it is not aware that the remaining holders of preference shares are persons acting in concert. It is also not aware that thetop ten holders of preference shares and the top ten holders of ordinary shares are related to each other.

IX Preference Shares

III. Profit distribution for preference shares

√ Applicable □ Not Applicable

Profit distribution for preference shares during the reporting period

√ Applicable □ Not Applicable

Date of Distribution

Dividend

Ratio

Distributedamount (RMB)(tax inclusive)

Whether it is incompliance withthe conditionsand the relevantprocedures ofdistribution

Way ofdividendpayment

Whetherit was anaccumulateddividend

Whether itparticipates indistribution ofremaining profit18 March 20194.36%98,100,000.00YesCashNoYes9 August 20196.20%279,069,767.52YesCashNoYes16 August 20195.17%51,700,000.00YesCashNoYes23 September 20195.17%64,625,000.00YesCashNoYes

2019 AnnuAl RepoRt

IX Preference Shares

III. Profit distribution for preference sharesCont’d

Distribution for preference shares of the Company for the past three years

Unit: RMB

Year of distribution

Distributed

amount(tax inclusive)

Net profitattributable toshareholders oflisted companyunder theconsolidated

financialstatementsfor thedistribution year

Percentageto the net profit

attributable toshareholders oflisted companyunder theconsolidated

financialstatements

Explanation on shortfallaccumulated to the nextaccounting year due toinsufficient distributableprofits or portion can beallocated to remaining profitdistribution2019388,843,604.701,656,566,584.8823.47%Chenming You 01, Chenming

You 02 and Chenming You 03participated in the proposal ofremaining profit distribution forRMB174,418,604.70 in 2019.2018493,494,767.522,509,828,858.4719.66%Chenming You 01, Chenming

You 02 and Chenming You 03participated in the proposal ofremaining profit distribution forRMB279,069,767.52 in 2018.2017679,141,006.883,769,325,450.9318.02%Chenming You 01, Chenming

You 02 and Chenming You 03participated in the proposal ofremaining profit distribution forRMB464,716,006.88 in 2017.

Any adjustment or change in profit distribution policy for preference shares

□ Yes √ No

Both earnings of the Company and retained profit of the parent company are positive during the reporting period butwithout profit distribution for preference shares

□ Applicable √ Not applicable

IX Preference Shares

III. Profit distribution for preference sharesCont’dExplanation on other matters regarding distribution for preference shares

√ Applicable □ Not applicable

Holders of preference shares participate in profit distribution in two portions, namely the fixed dividend distributed based ona fixed dividend rate and the distribution of retained earnings realised for the year.

1. Distribution of fixed dividend

According to the Articles of Association, the Company shall distribute fixed dividends to holders of the preferenceshares at fixed dividend rate if there are distributable profits after making good losses and the contribution toreserve fund according to law. The Board is authorised by the general meeting to declare and pay all dividends onthe preference shares in accordance with the issuance plan under the framework and principles considered andapproved in the general meeting in respect of the preference shares. The general meeting of the Company has theright to cancel part of or all of the current dividends on the preference shares. However, when the general meetingof the Company will consider the cancellation of part of or all of the current dividends on the preference shares, theCompany shall inform the holders of preference shares at least 10 working days before the date of dividend paymentin accordance with the requirements of the related authorities.

2. Participation in the distribution of retained earnings realised for the year

Holders of preference shares participate in the distribution of the retained earnings through receipt of cash whichis non-cumulative and non-deferrable. In the event of making good losses and the contribution to reserve fundaccording to law, after receiving fixed dividends at fixed dividend rate as agreed, holders of preference shares canalso participate in the distribution of the retained earnings for the year in proportion. Specific terms are as follows: theretained earnings for the year arises from net profit attributable to owners of the parent company on a consolidatedbasis upon distribution of relevant fixed income to holders of financial instruments such as the preference shareswhich may be classified under equity. 50% of the retained earnings shall be distributed to holders of preferenceshares and ordinary shareholders. Holders of preference shares shall participate in the distribution of the retainedearnings by receiving cash dividends, and the ordinary shareholders shall participate in the distribution of the retainedearnings by receiving cash dividends or dividends on ordinary shares.

2019 AnnuAl RepoRt

IX Preference Shares

IV. Repurchase or conversion

□ Applicable √ Not applicable

There was no repurchase or conversion during the reporting period.

V. Resumption of voting rights of preference shares

1. Resumption and exercise of voting rights

□ Applicable √ Not applicable

2. Shareholders and beneficial owner involved in resumption of voting rights of preference shares

□ Applicable √ Not applicable

VI. Accounting policy and reasons thereof

√ Applicable □ Not applicable

Pursuant to requirements of Accounting Standard for Business Enterprises No. 22 – Recognition and Measurement ofFinancial Instruments, Accounting Standard for Business Enterprises No. 37 – Presentation of Financial Instruments andProvisions for Differentiation between Financial Instruments and Equity Instruments and Relevant Accounting Treatment, thepreference shares were accounted for as equity instruments as their terms satisfied requirements for such treatments.

X Directors, Supervisors and Senior Management and Staff

I. Changes in shareholding of Directors, Supervisors and Senior Management

NamePositionStatusGenderAge

Start dateof the term

End dateof the term

Shares held

as at thebeginning of

the period

(shares)

Increase inthe number ofshares heldduring theperiod (shares)

Decrease inthe number ofshares held

during theperiod (shares)

Otherchanges(increase ordecrease)(shares)Shares held

as at theend of theperiod(shares)Chen HongguoChairmanIn officeM556 September 200111 June 202210,144,444935,60011,080,044Hu ChangqingVice ChairmanIn officeM5423 June 201811 June 20221,85741,00042,857Li XingchunVice ChairmanIn officeM5411 June 201911 June 202200Han TingdeDirectorIn officeM5111 June 201911 June 202200Li ChuanxuanDirectorIn officeM4211 June 201911 June 202200Sun JianfeiIndependent DirectorIn officeM4711 June 201911 June 202200Yin MeiqunIndependent DirectorIn officeF4911 June 201911 June 202200Yang BiaoIndependent DirectorIn officeM4011 June 201911 June 202200Li DongChairman of Supervisory

Committee

In officeM3713 December 201611 June 202215,00060,00075,000Li XingguiSupervisorIn officeM5511 June 201911 June 202200Qiu LanjuSupervisorIn officeF4611 June 201911 June 202200Pan AilingSupervisorIn officeF5511 June 201911 June 202200Zhang HongSupervisorIn officeF5511 June 201911 June 202200Li FengGeneral managerIn officeM469 November 20199 November 2020707,727198,300906,027Li XueqinDeputy general managerIn officeF541 September 200411 June 2022644,022217,300861,322Geng GuanglinDeputy general managerIn officeM4611 June 201911 June 2022656,15060,800716,950Li WeixianDeputy general managerIn officeM386 November 201911 June 20224,800235,400240,200Li ZhenzhongDeputy general managerIn officeM4620 March 201111 June 20220113,000113,000Zhao XuegangDeputy general managerIn officeM4711 June 201911 June 202200Dong LianmingFinancial controllerIn officeM4512 October 201811 June 2022069,60069,600Yuan XikunSecretary to the BoardIn officeM3416 May 201811 June 2022044,70044,700Chu Hon LeungCompany secretary

(Hong Kong)

In officeM3711 June 201911 June 202200Chen GangDirector and deputy

general manager

ResignedM4714 June 201829 November 20190139,700139,700Sun YinghuaSupervisorResignedF5118 May 201611 June 2019073,80073,800Zhang QingzhiDeputy general managerResignedM5418 May 201611 June 201900Yang WeimingDeputy general managerResignedM4518 May 201615 March 201900Yang GuihuaDirectorResignedF549 May 201411 June 201900Wang FengrongIndependent DirectorResignedF5118 May 201611 June 201900Huang LeiIndependent DirectorResignedM6318 May 201611 June 201900Liang FuIndependent DirectorResignedF5218 May 201611 June 201900Zhang XiaofengSupervisorResignedM4218 May 201611 June 201900Poon Shiu CheongCompany secretary and

qualified accountant

ResignedM5028 May 200811 June 201900

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

II. Changes of Directors, Supervisors and Senior Management of the Company

√ Applicable □ Not applicable

NamePositionTypeDateReasonChen HongguoChairmanElected11 June 2019Elected as a director and the chairman

of the ninth session of the Board atthe 2018 annual general meeting andthe first meeting of the ninth session of the Board, respectively.Hu ChangqingVice ChairmanElected11 June 2019Elected as a director and a vice chairman

of the ninth session of the Board at the2018 annual general meeting and thefirst meeting of the ninth session of the Board, respectively.Li XingchunVice ChairmanElected11 June 2019Elected as a director and a vice chairman

of the ninth session of the Board at the2018 annual general meeting and thefirst meeting of the ninth session of the Board, respectively.Han TingdeDirectorElected11 June 2019Elected as a director of the ninth session

of the Board at the 2018 annual general meeting.Li ChuanxuanDirectorElected11 June 2019Elected as a director of the ninth session

of the Board at the 2018 annual general meeting.Sun JianfeiIndependent

Director

Elected11 June 2019Elected as an independent director of the

ninth session of the Board at the 2018 annual general meeting.Yang BiaoIndependent

Director

Elected11 June 2019Elected as an independent director of the

ninth session of the Board at the 2018 annual general meeting.Yin MeiqunIndependent

Director

Elected11 June 2019Elected as an independent director of the

ninth session of the Board at the 2018 annual general meeting.Li DongChairman of

Supervisory Committee

Elected11 June 2019Elected as a supervisor and the chairman

of the ninth session of the SupervisoryCommittee at the 2018 annual general meeting.Pan AilingSupervisorElected11 June 2019Elected as a supervisor of the ninth

session of the Supervisory Committee at the 2018 annual general meeting.Zhang HongSupervisorElected11 June 2019Elected as a supervisor of the ninth

session of the Supervisory Committee at the 2018 annual general meeting.Li XingguiEmployee

representative supervisor

Elected11 June 2019Elected as an employee representative

supervisor at the tenth meeting ofthe ninth session of the employee representative meeting.

X Directors, Supervisors and Senior Management and Staff

NamePositionTypeDateReasonQiu LanjuEmployee

representative supervisor

Elected11 June 2019Elected as an employee representative

supervisor at the tenth meeting ofthe ninth session of the employee representative meeting.Li FengGeneral managerAppointed6 November 2019Appointed as the general manager by

the Company according to the General Manager Rotation System.Li WeixianDeputy general

manager

Appointed6 November 2019Elected as a deputy general manager at

the sixth extraordinary meeting of the ninth session of the Board.Li XueqinDeputy general

manager

Appointed11 June 2019Elected as a deputy general manager at

the first meeting of the ninth session of the Board.Geng GuanglinDeputy general

manager

Appointed11 June 2019Elected as a deputy general manager at

the first meeting of the ninth session of the Board.Li ZhenzhongDeputy general

manager

Appointed11 June 2019Elected as a deputy general manager at

the first meeting of the ninth session of the Board.Zhao XuegangDeputy general

manager

Appointed11 June 2019Elected as a deputy general manager at

the first meeting of the ninth session of the Board.Dong LianmingFinancial controllerAppointed11 June 2019Elected as the financial controller at the

first meeting of the ninth session of the Board.Yuan XikunSecretary to the

Board

Appointed11 June 2019Elected as the secretary to the Board at

the first meeting of the ninth session of the Board.Chu Hon LeungHong Kong

company secretary

Appointed11 June 2019Elected as the company secretary

(Hong Kong) at the first meeting of the ninth session of the Board.Geng GuanglinDirectorExpiry of term

of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardLi FengDirectorExpiry of term

of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardZhang HongDirectorExpiry of term

of office

11 June 2019Elected as a supervisor subsequent to the

vacation of office upon expiry of the

term of the eighth session of the BoardYang GuihuaDirectorExpiry of term

of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardWang FengrongIndependent

director

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardHuang LeiIndependent

Director

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardLiang FuIndependent

Director

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the Board

II. Changes of Directors, Supervisors and Senior Management of the Company(Cont’d)

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

NamePositionTypeDateReasonPan AilingIndependent

Director

Expiry of term of office

11 June 2019Elected as a supervisor subsequent to the

vacation of office upon expiry of the term of the eighth session of the BoardSun YinghuaEmployee

representative supervisor

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the Supervisory CommitteeZhang XiaofengDirectorExpiry of term

of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the Supervisory CommitteeZhang QingzhiDeputy general

manager

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the BoardYang WeimingDeputy general

manager

Dismissed15 March 2019Resignation from the position due to

personal reasonsChen GangDirector and deputy

general manager

Resignation29 November 2019Resignation from the position due to

personal reasonsPoon Shiu CheongCompany secretary

and qualified accountant

Expiry of term of office

11 June 2019Vacation of office upon expiry of the term

of the eighth session of the Board

III. EmploymentProfessional background, major working experiences and current duties at the Company of Directors, Supervisors and theSenior Management

1. Brief biographies of Directors

(1) Brief biographies of executive Directors

Mr. Chen Hongguo is a member of the Communist Party of the PRC. He holds a bachelor’s degree. He is asenior economist and holds the titles including Nationwide Light Industry Top Ten Youth Experts (全國輕工系統十佳傑出青年崗位能手), Labor Medal on Enriching Shandong Province (山東省富民興魯勞動獎章獲得者),Excellent Entrepreneur of Shandong Province (山東省優秀企業家), Nationwide May 1st Labor Medal (全國五一勞動獎章獲得者), Nationwide Excellent Entrepreneur (全國優秀創業企業家) and USA RISI CEO of the Year (美國銳思“年度最佳CEO獎”). He is vice chairman of the China National Light Industry Council. He joined the Companyin 1987 and had held positions including chief officer of manufacturing section, chief officer of branch factory,deputy general manager, Director of the Company and the chairman of Wuhan Chenming Hanyang Paper Co.,Ltd. He is currently the chairman of the Company and a Party Committee Secretary. Mr. Chen Hongguo is thespouse of Ms. Li Xueqin, a deputy general manager of the Company.Mr. Hu Changqing is a member of the Communist Party of the PRC. He holds a bachelor‘s degree. He joinedthe Company in 1988. He had held various positions in the Company such as the chief of the technologicalreform department, the chief officer of branch factory, the deputy general manager and the Director. He iscurrently a director of Chenming Holdings Company Limited and a vice chairman of the Company.

II. Changes of Directors, Supervisors and Senior Management of the Company(Cont’d)

X Directors, Supervisors and Senior Management and Staff

III. Employment(Cont’d)

1. Brief biographies of Directors

(Cont’d)

(1) Brief biographies of executive Directors

(Cont’d)Mr. Li Xingchun holds a doctorate from School of Engineering Management and Engineering (FinancialEngineering) at Nanjing University and is a visiting professor of Shanghai Finance University and the founder ofLeadbank Financial Service Group. In 2015, he was selected as a financial innovative figure of Lujiazui by YICAI(第一財經). In the same year, he was selected as an independent fortune leader in China by Fortune Today.In 2016, he was selected as an outstanding entrepreneur of wealth management institution in China by ChinaEconomy and Trade Promotion Association (中國經濟貿易促進會). In 2017, he was awarded the outstandingwealth management leader award. He was the senior director of Ctrip.com, the vice president of FuyouSecurities Co., Ltd. (富友證券有限責任公司), the executive vice president of Pan Asia Trust Co., Ltd. (泛亞信託有限公司), and the director and president of Western Development Holdings Co., Ltd. (西部發展控股有限公司). Heis currently the chairman of Leadbank Technology (Investment Group) and a vice chairman of the Company.

(2) Brief biographies of non-executive Directors

Mr. Han Tingde graduated with a bachelor’s degree. He was the deputy general manager and the generalmanager of operational department of Jinan, Liaocheng and Linyi offices of Shandong Securities Co., Ltd.,the deputy general manager and the general manager of operational department of Zibo and Jinan offices ofTiantong Securities Co., Ltd. in China, the general management of each of the customer service department,the brokerage headquarters and the legal affairs department, as well as a deputy general manager of the retailheadquarters of Zhongtai Securities Co., Ltd., etc.Mr. Li Chuanxuan holds a doctorate in law. He is a professor at Fudan University, Shanghai. From 2008 to 2012,he was a lecturer in the Law School of Fudan University. From 2012 to 2013, he was a visiting scholar of theLaw School of Columbia University in the United States, focusing on the research on green finance laws andpolicies. He is currently the secretary general of the Association of Shanghai Environmental Resources Law (上海市環境資源法研究會), the director of the Association of China Environmental Resources Law (中國環境資源法研究會), the director of the Association of Shanghai Economic Law (上海市經濟法研究會), as well as theevaluation expert of the National Judicial Verification of Environmental Damages (國家環境損害司法鑒定). Hehas been in charge of and undertook over 10 national and provincial scientific research projects. Moreover, hehas participated in the drafting of several laws and regulations of different legislatures including the StandingCommittee of the National People’s Congress, the Ministry of Ecology and Environment and Shanghai NationalPeople’s Congress.

(3) Brief biographies of independent non-executive Directors

Mr. Sun Jianfei holds a doctorate in finance. He was a lecturer at University of Nevada, Reno, and concurrentlyserved as the consultant of hedge funds such as Eagle Peak Fund LP. From 2010 to 2017, he was a lecturerat Antai College of Economics & Management, Shanghai Jiao Tong University. He was selected in the NationalAcademic Leadership Talent Programme in Accounting (Standby List) (全國學術類會計領軍（後備）人才項目)organised by the Ministry of Finance, as well as the Shanghai Pujiang Talent Programme (上海市浦江人才計劃). He is currently a professor at Institute for Social and Economic Research, Nanjing Audit University, andconcurrently serves as a professor at Antai College of Economics & Management and Advanced Institute ofFinance, Shanghai Jiao Tong University. He is currently the independent director of A share listed companiesincluding Zhejiang Yueling Co., Ltd. and Huasu Holdings Co., Ltd., as well as the independent director ofseveral companies whose shares is proposed to be listed, including Nanya New Material Technology Co., Ltd.and Shanghai Saiyi Environmental Protection Equipment Co., Ltd. (上海賽一環保設備有限公司)

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

III. Employment(Cont’d)

1. Brief biographies of Directors

(Cont’d)

(3) Brief biographies of independent non-executive Directors

(Cont’d)

Mr. Yang Biao holds a doctorate in law, and is currently a professor and doctoral tutor in the School of Lawof Sun Yat-sen University. He is, among others, one of the“Guangzhou Top Ten Young and Middle-agedJurists”, an outstanding young talent in the“Guangdong Special Support Program”, a selected member in the“Double Thousand Plan”(雙千計劃) of the Ministry of Education and the Central Politics and Law Committee, atraining candidate in the“Thousand-Hundred-Ten”project (千百十工程) for universities in Guangdong Province,a member of the Academy for East-Asian Tort Law (AETL), a member of the Expert Advisory Committeeto Guangdong People’s Procuratorate, a supervisory member and judicial advisory expert of the StandingCommittee of Guangzhou People’s Congress and an expert certified in Major Administrative Decision-Makingand Argumentation in Guangzhou. He has served in Guangdong High People’s Court and People’s Court ofGuangzhou Huangpu District. He has also served as independent director of Guangdong Guangzhou DailyMedia Co.,. Ltd.* (廣東廣州日報傳媒股份有限公司), Guangdong Yue Feed Group Co., Ltd. (廣東粵飼料集團股份有限公司), Circle Logistics Co., Ltd. and Guangdong Tianhe Agricultural Means of Production Co., Ltd. (廣東天禾農資股份有限公司).Ms. Yin Meiqun is a university professor and a certified public accountant in China. She holds a doctorate inaccounting degree. She paid academic visits to Sweden, Finland, Denmark and the Iowa State University in theUnited States. From 1993 to 2007, she was a professor in the department of accounting at Harbin Universityof Science and Technology. She is a professor of Beijing International Studies University. She is currentlya representative of the 15th Beijing Municipal People’s Congress, a member of the Accounting EducationCommittee of the Accounting Society of China, a council member of the Accounting Society of China, a councildirector of the Association of Beijing Internal Audit, an expert of The Chinese Institute of Certified PublicAccountants and an expert of Social Examination Department of the National Education Examinations Authority,etc. She concurrently serves as an independent director of Beijing Life Insurance Co., Ltd.

2. Brief biographies of Supervisors

Mr. Li Dong is a member of the Communist Party of the PRC. He graduated with a diploma. After joining the Companyin 2004, he had held different positions including the deputy chief of the cost auditing section and the chief of thegeneral section under the financial department of the Company, the financial controller of Zhanjiang Chenming andthe chief of the financial department of the Group. He is currently the chairman of the Supervisory Committee of theCompany.Ms. Pan Ailing is a Ph.D. in Economics and holds a post-doctoral degree in Financial Management. She is currently aprofessor of the School of Management, an advisor to doctoral students, the chief of the Department of Accountingand the chief of the Investment and Financing Research Centre (投融資研究中心) in Shandong University and anon-practising member of CICPA (Chinese Institute of Certified Public Accountants). She is also a director of theAccounting Institute, Shandong Province (山東省會計學會), a council member of Shandong Comparative ManagementAssociation, a visiting professor at Soochow University in Taiwan, a visiting scholar at University of Connecticut inthe United States and a state-level candidate for the New Century Ten Million Talents Project (新世紀“百千萬人才工程”). She is a specialist entitled to the State Council Special Allowance (國務院政府特貼專家), and a Young andMiddle-aged Expert with Outstanding Contributions in Shandong Province (山東省有突出貢獻的中青年專家). She isthe chief expert of the Major Tender Projects of National Social and Science Fund (國家社科基金重大招標課題首席專家). She has finished various research projects at national and provincial level and published more than 80 academicpapers. She is also an independent director of Sinotruck Jinan Truck Co., Ltd. (中國重汽集團濟南卡車股份有限公司),an independent director of Inspir Software Co., Ltd. and an independent director of Lu Thai Textile Co., Ltd. She iscurrently a supervisor of the Company.Ms. Zhang Hong holds a doctoral degree in Economics, and is currently a professor and advisor to doctoral studentsat Shandong University, head of a multinational corporation research institute, a non-practising member of theChinese Institute of Certified Public Accountants, a director of China Association of International Trade, a director ofShandong Province External Trade Association, and an independent director of Shandong Zhangqiu Blower Co., Ltd.,Shandong Delisi Food Co., Ltd. and Cisen Pharmaceutical Co., Ltd. He is currently a supervisor of the Company.

X Directors, Supervisors and Senior Management and Staff

III. Employment(Cont’d)

2. Brief biographies of Supervisors

(Cont’d)Mr. Li Xinggui is a member of the Communist Party of the PRC. He graduated with a diploma. After joining theCompany in 1994, he had held different positions including a deputy chief of the production department, a deputydirector and director of the general administration office, and a director of the trade union office of the Company. Heis currently the deputy chairman of the trade union of the Company and an employee representative supervisor.Ms. Qiu Lanju graduated with a diploma. After joining the Company in 1995, she had held different position includinga deputy chief of the price auditing section of the audit department, a chief of the executive section of the purchasedepartment, a chief of the general administration section of the purchase department and a manager of the materialscompany of the Company. She is currently the assistant to the general manager of the Company and an employeerepresentative supervisor.

3. Brief biographies of Senior Management

Mr. Li Feng is a member of the Communist Party of the PRC. He holds a bachelor’s degree. He joined the Company in1992 and had held different positions including the chief officer of manufacturing section and assistant to the generalmanager of the Company, chairman, executive director of a Group, marketing director and deputy general manager ofWuhan Chenming Hanyang Paper Holdings Co., Ltd. He is currently the general manager of the Company.Mr. Li Weixian graduated with a postgraduate degree. He joined the Company in 2002 and had held different positionsincluding the deputy manager of a Shenzhen coated paper subsidiary of the Company, manager of ShandongChenming Paper Sales Company Limited, vice chairman of a household paper company, deputy marketing directorand marketing director of a sales company and vice president of a group. He is currently the deputy general managerand chairman of the financial division of the Company.Mr. Geng Guanglin is a member of the Communist Party of the PRC. He graduated with a diploma. He joined theCompany in 1992 and had held different positions including the chief officer of manufacturing section of the Company,the deputy general manager of Chibi Chenming Paper Co., Ltd., the chairman of Wuhan Chenming Hanyang PaperHoldings Co., Ltd., the chairman of Jilin Chenming Paper Co., Ltd., the chairman of Jiangxi Chenming Paper Co., Ltd.and the director of the Company. He is currently the deputy general manager of the Company.Ms. Li Xueqin is a member of the Communist Party of the PRC. She holds a bachelor’s degree. She was successivelyawarded titles including“Model Worker in Shandong Province (山東省勞動模範), Model Worker in the Country (全國勞動模範) and Nationwide May 1st Labour Medal (全國五一勞動獎章)”and a deputy of the Tenth, Eleventh andTwelfth National People‘s Congress. She joined the Company in 1987 and had held the positions of the chief of auditdepartment and deputy general manager of the Company. She has been a deputy general manager of the Companysince March 2003. Ms. Li Xueqin is the spouse of Mr. Chen Hongguo, chairman of the Company.Mr. Li Zhenzhong is a member of the Communist Party of the PRC. He holds a bachelor’s degree. He joined theCompany in 1995 and had served as principal representative of the Shanghai management region of a sales company,sales manager of light weight coated cultural paper products, deputy marketing director of the Sales Company. He iscurrently the deputy general manager of the Company.Mr. Zhao Xuegang is a member of the Communist Party of China. He holds a postgraduate degree. He graduatedfrom the Economic Information Management School of Shandong Economics University, and obtained a Master’sdegree in Finance from Shandong University. After joining the Company in 2017, he served as the general manager ofthe Financial Leasing Company and currently serves as the deputy general manager of the Company.Mr. Dong Lianming is a member of the Communist Party of the PRC and an accountant. He holds a bachelor’sdegree. He joined the Company in 1997 and had held positions as the chief of accounting and auditing section underthe financial department of the Company, the deputy chief and chief of the financial department, chief accountantof Jiangxi Chenming, chief accountant of Shandong Chenming Panels and financial controller and deputy generalmanager of Zhanjiang Chenming. He is currently the financial controller of the Company.

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

III. Employment(Cont’d)

3. Brief biographies of Senior Management

(Cont’d)Mr. Yuan Xikun is a member of the Communist Party of the PRC. He holds a bachelor’s degree in management. Hejoined the Company in 2010 and had held positions as the accountant for consolidated financial statements in thefinancial department of the Company, manager of disclosure department, security affairs specialist and chief of thesecurity investment section. He is currently the secretary to the Board of the Company.Mr. Chu Hon Leung is a lawyer. He obtained a bachelor’s degree in business from Macquarie University, Sydney,Australia, and a postgraduate diploma in law from The College of Law, London, England. He graduated from the CityUniversity of Hong Kong and obtained a diploma in Hong Kong law. He had been a lawyer in local and internationallaw firms in Hong Kong and served and an internal consultant for leading Chinese asset management companies. Hehas been a practicing lawyer in Hong Kong since 2009 and currently works for Li & Partners.Employment at the shareholder of the Company

√ Applicable □ Not Applicable

Name of employee

Name of shareholderof the Company

Position at theshareholder ofthe CompanyStart date of the termEnd date of the term

Whether receivingany remunerationor allowance fromthe shareholder ofthe CompanyChen HongguoChenming Holdings

Company Limited

Chairman and general manger

22 September 201629 December 2020NoHu ChangqingChenming Holdings

Company Limited

Director22 September 201629 December 2020NoLi XueqinChenming Holdings

Company Limited

Director22 September 201629 December 2020NoGeng GuanglinChenming Holdings

Company Limited

Director22 September 201629 December 2020NoLi DongChenming Holdings

Company Limited

Director29 December 201729 December 2020YesExplanation of theemployment at theshareholder of the Company

Nil

X Directors, Supervisors and Senior Management and Staff

III. Employment(Cont’d)

3. Brief biographies of Senior Management

(Cont’d)Employment at other units

√ Applicable

□ Not Applicable

Name of employeeName of other unitsPosition at other unitsStart date of the termEnd date of the term

Whether receivingany remunerationor allowancefrom other unitsYang BiaoGuangdong Guangzhou Daily

Media Co., Ltd.

Independent director1 August 20191 August 2022YesYin MeiqunBeijing Life Insurance Co., Ltd.Independent director1 August 20181 August 2021NoSun JianfeiNanya New Material Technology

Co., Ltd.

Independent director1 August 20171 August 2020YesZhejiang Yueling Co., Ltd.Independent director1 November 20161 November 2019YesHuasu Holdings Co., Ltd.Independent director1 April 20171 April 2020YesExplanation of the employment at the other unitNilSanctions against current Directors, Supervisors and Senior Management of the Company and those who resignedduring the reporting period by securities regulatory authorities in the past three years

□ Applicable √ Not Applicable

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

IV. Remuneration of Directors, Supervisors and Senior ManagementDecision process, basis for determining the remuneration and actual payment for the remuneration ofDirectors, Supervisors and the Senior Management

(1) Determination basis for remuneration of Directors, Supervisors and the Senior Management: The annual remuneration

of each of the executive Directors and the Senior Management of the Company was in the band of RMB0.20 millionto 5.00 million and the specific amount for each of them was determined by the remuneration committee basedon the main financial indicators and operation target completed by the Company, the scope of work and mainresponsibilities of the Directors and Senior Management of the Company, the target completion of the Directors andSenior Management as assessed by the duty and performance appraisal system, as well as business innovationcapability and profit generation ability of the Directors and the Senior Management. The annual remuneration ofSupervisors assuming specific managerial duties in the Company were determined by the general manager officeof the Company based on specific managerial duties assumed by them. Fixed annual remuneration policy wasadopted on external Supervisors who did not hold actual management positions in the Company. During the reportingperiod, as approved by the first meetings of the ninth session of the Board and the Supervisory Board as well asthe 2019 first extraordinary general meeting, the Company paid each of the independent non-executive Directorsand non-executive Directors of the Company allowance of RMB200,000 (before tax). The remuneration of externalSupervisors amounted to RMB100,000 (before tax). The travel expenses for attending board meetings, supervisorymeetings and general meetings of the Company and fees reasonably incurred in the performance of their duties underthe Articles of Association by independent non-executive Directors, non-executive Directors and external supervisorsare reimbursed as expensed.

(2) Decision process for remuneration of Directors, Supervisors and Senior Management: In accordance with the relevant

policies and regulations such as the Implementation Rules Of The Remuneration And Assessment CommitteeUnder The Board, any remuneration plan for the Company’s executive Directors proposed by the remuneration andassessment committee shall be agreed on by the Board and then submitted to the general meeting for considerationand approval prior to implementation. Any proposal of remuneration distribution plan for the Senior Managementofficers of the Company shall be submitted to the Board for approval. The remuneration of independent non-executivedirectors, non-executive directors and external supervisors of the Company shall be agreed on by the Board and thensubmitted to the general meeting for consideration and approval prior to implementation.

(3) The remuneration and assessment committee, which was set up by the Board according to the resolution of

the general meeting, is mainly responsible to formulate the standards of, carry out appraisal in respect of thenon-independent Directors and Senior Management of the Company; formulate and examine the remuneration policyand scheme of the non-independent Directors and Senior Management of the Company, and accountable to theBoard.

X Directors, Supervisors and Senior Management and Staff

IV. Remuneration of Directors, Supervisors and Senior Management(Cont’d)

Unit: RMB’0,000

NamePositionGenderAgeStatus

Totalremunerationbefore tax

receivedfrom theCompany

Receivedremuneration

from relatedparties of the

CompanyChen HongguoChairmanM55In office499.00NoHu ChangqingVice-chairmanM54In office303.90NoLi XingchunVice-chairmanM54In office499.00NoLi ChuanxuanDirectorM42In office11.67NoHan TingdeDirectorM51In office11.67NoYin MeiqunIndependent DirectorF49In office11.67NoYang BiaoIndependent DirectorM40In office11.67NoSun JianfeiIndependent DirectorM47In office11.67NoLi DongChairman of Supervisory CommitteeM37In office0YesPan AilingSupervisorF55In office11.20NoZhang HongSupervisorF55In office11.20NoQiu LanjuEmployee representative supervisorF46In office26.90NoLi XingguiEmployee representative supervisorM55In office24.40NoLi FengGeneral managerM46In office186.80NoLi XueqinDeputy general managerF54In office219.10NoLi WeixianDeputy general managerM38In office277.50NoGeng GuanglinDeputy general managerM46In office162.40NoZhao XuegangDeputy general managerM47In office214.90NoLi ZhenzhongDeputy general managerM46In office164.20NoDong LianmingFinancial controllerM45In office118.40NoYuan XikunSecretary to the BoardM34In office42.00NoChu Hon LeungCompany secretary (Hong Kong)M37In office0NoChen GangDirector and deputy general managerM47Resigned96.70NoYang GuihuaDirectorF54Resigned5.37NoWang FengrongIndependent DirectorF51Resigned5.37NoHuang LeiIndependent DirectorM63Resigned5.37NoLiang FuIndependent DirectorF52Resigned5.37NoSun YinghuaEmployee representative supervisorF51Resigned13.40NoZhang XiaofengSupervisorM42Resigned1.12NoZhang QingzhiDeputy general managerM54Resigned20.60NoYang WeimingDeputy general managerM45Resigned12.20NoPoon Shiu CheongCompany secretary and qualified

accountant

M50Resigned10.08 (HKD)No

Note: The total remuneration of the resigned director, supervisor and senior management was the remuneration received during their respective

tenure of office.Directors and Senior Management of the Company granted share options as incentives during the reportingperiod

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

X Directors, Supervisors and Senior Management and Staff

V. Personnel of the Company

1. Number of staff, specialty composition and education level

Number of staff at the Company (person)4,055Number of staff at major subsidiaries (person)9,043Total number of staff (person)13,677Total number of staff receiving remuneration during the period (person)13,677Number of retired/resigned staff the Company and its major subsidiaries are required to compensate (person)0

Specialty compositionCategory of specialty compositionNumber of people (person)Production staff9,169Sales staff616Technical staff447Financial staff209Administrative staff1,861Other staff1,375Total13,677

Education levelCategory of education levelNumber of people (person)Postgraduate and above60Undergraduate1,283Post-secondary3,130Technical secondary and below9,204Total13,677

X Directors, Supervisors and Senior Management and Staff

V. Personnel of the Company(Cont’d)

2. Remuneration policies

The remuneration of the employees of the Company includes their salaries, bonuses and other fringe benefits. Subjectto the relevant laws and regulations, the Company adopts different standards of remuneration for different employees,which are determined based on their position, skill variety, performance etc. with reference to the remuneration levelin the labour market, the average level of salary in the society and the corporate reference line set by the government.The Company provides various benefits to the employees, including social insurance, housing allowance and paidleaves etc.

3. Training programmes

The Company attaches importance to personnel training, implements the corporate spirit of“learning, surpassingand leading”and establishes a learning organisation. In 2020, the Company will further enhance cooperation withprofessional training institutions to enhance training quality. Meanwhile, the Company innovated its way of learningand built a practical online learning platform. We also developed quality training materials and improved existing onesby levels, initiating targeted training programs. For the junior level staff, the training focuses on professional skills andbusiness knowledge. For the middle-level staff, the training focuses on team management and execution. For thesenior management, training focuses on leadership. A team of excellent quality is built through training.

4. Labour outsourcing

□ Applicable √ Not applicable

2019 AnnuAl RepoRt

XI Corporate Governance

I. Corporate governance in practiceThe Company operated in compliance with the requirement of Companies Law （《公司法》）, Securities Law （《證券法》）,Code of Corporate Governance for Listed Companies （《上市公司治理準則》）, Rules Governing Listing of Stocks onShenzhen Stock Exchange （《深圳證券交易所股票上市規則》）, the Listing Rules of Hong Kong Stock Exchange and therelated requirements as required by CSRC, and continued to improve and optimise its legal person governance structureduring the reporting period. The Company also continuously improved its internal control system and proactively carriedout management works in relation to investor relations during the reporting period, so as to further improve corporategovernance standards and promote the Company’s standardised operations. As of the end of the reporting period, theactual practice of corporate governance complied with the requirements of the regulatory documents issued by the CSRCregarding the governance of listed companies.

(I) Shareholders and general meeting

The Company had established a corporate governance structure that ensured shareholders’ability to fully exercisetheir rights and enjoy equal status. Shareholders enjoyed their rights and undertook corresponding obligations inaccordance with the shares held by them. The convening and holding of general meeting of the Company were legaland compliant, and on the premise of guaranteeing the legality and effectiveness of the general meeting, both on-sitevoting and online voting were provided as channels to participate in such meetings. Where significant matters whichhad an impact on the interests of minority investors were being considered, the votes by minority investors werecounted separately for the convenience of shareholders and for the sake of making public and timely disclosures. Atthe same time, investors present at the general meeting could communicate with the management of the Company inperson, which effectively safeguard the rights and demands of investors to participate in the Company’s management.We ensured that all investors could participate in corporate governance on an equal basis, which effectivelysafeguarded the legitimate interests of shareholders, especially those of minority shareholders.(II) Controlling shareholder and the listed company

During the reporting period, the Company remained independent of its controlling shareholder, beneficial controllersand related parties in terms of its business, assets, finance, personnel and organisations, and complied with therelevant provisions of the China Securities Regulatory Commission on the independence of listed companies. Thecontrolling shareholders and beneficial controllers strictly regulated their behaviour, and exercised their rights andperformed their obligations in accordance with the laws. The Company had business independence and self-operationcapability. The Board, the Supervisory Committee and internal structure can operate independently.(III) Directors and the BoardThe composition of the Board of the Company complied with the laws and regulations and the requirements ofthe Articles of Association. Directors of the Company possessed the knowledge, skills, and qualities necessary tothe performance of their duties. All of them were able to earnestly, faithfully, and diligently perform their duties andpowers as stipulated in the Articles of Association. The convening and holding of Board meetings were in strictcompliance with the Articles of Association and Rules of Procedure of Board Meetings and other relevant provisions.The four special committees under the Board of the Company, namely the Strategic Committee, the Audit Committee,the Nomination Committee and the Remuneration and Assessment Committee, performed their duties normally andprovided scientific and professional opinions for the decision-making of the Board.

XI Corporate Governance

I. Corporate governance in practice(Cont’d)(IV) Supervisors and the Supervisory CommitteeThe Supervisory Committee strictly followed the requirement of relevant laws and regulations including the CompaniesLaw, the Articles of Associations and the Rules of Procedure of the Supervisory Committee in fulfilling its duties. Inthe spirit of being accountable to the shareholders and the Company, the Supervisory Committee independently andeffectively exercised its supervision and inspection functions. By attending Board meetings and conducting regularinspections on the legal compliance of the Company’s operations and finance, the Supervisory Committee supervisedthe decision-making procedures of the Board, resolutions and the legal compliance of the Company’s operations, soas to safeguard the legitimate interests of the Company and the shareholders.(V) Information disclosure and management of investor relations

In accordance with the requirements of the relevant rules, the Company strictly enforced the relevant informationdisclosure regulations and fully fulfilled its information disclosure obligations. The Company disclosed information ina timely and fair manner and ensured that the information disclosed was true, accurate and complete, and did notcontain false information, misleading statements or major omissions. During the reporting period, the Company issueda total of more than 190 periodic reports, interim announcements, and related documents through the designatedinformation disclosure media, and a total of 220 periodic reports, interim announcements, and related documentsthrough the website of Hong Kong Stock Exchange. The Company performed its information disclosure obligations ina timely manner with respect to the Company’s operations, related party transactions, external investment, externalguarantees, and the implementation of annual profit distribution, so as to further safeguard the legitimate rights ofinvestors.Under the premise of strictly fulfilling disclosure obligations, the Company attached importance to the managementof investor relations. The Company made public its address, contact number, facsimile, e-mail and other informationon its official website and CNINFO, in an attempt to facilitate investors’communication with the Company throughthe above channels. The Company also made full use of the investor hotline, Shenzhen Stock Exchange’s“EasyIR”

platform, field investigation and research and other channels and methods to actively interact with investors andlisten to what they had to say. We patiently answered questions from investors, and worked at enhancing investors’

understanding and recognition of the Company. We passed investors’reasonable opinions and suggestions to themanagement of the Company in a timely manner, building a bridge between investors and the Company.(VI) Management on registration of personnel with insider informationThe Company strictly complied with the provisions of the“Registration Management System of Personnel with InsiderInformation”and other relevant systems to strengthen the confidentiality of insider information and improved theregistration and management of personnel with insider information. The Directors, Supervisors, Senior Managementand other related personnel of the Company were able to strictly observe their confidentiality obligations throughoutthe preparation of periodic reports, temporary announcements and the planning of major events. With thedevelopment of the Company, the Company will continue to strictly abide by the requirements of relevant laws andregulations and continuously promote corporate governance to ensure that the Company operates in a standardisedmanner.Any material non-compliance of the regulatory documents on the governance of listed companies issued by theCSRC in respect of actual governance of the Company

□ Yes √ No

There was no material non-compliance of the regulatory documents on the governance of listed companies issued bythe CSRC in respect of the actual governance of the Company.

2019 AnnuAl RepoRt

XI Corporate Governance

II. Particulars about the independence in terms of businesses, personnel, assets, organisations,and finance from the controlling shareholder

The Company was completely separated from the controlling shareholder in terms of business, personnel, assets,organisations and finance. The Company had a comprehensive internal structure, independent and complete businesses aswell as the capability of self-operation.

1. In terms of business: the Company had its own R&D, production, procurement and sales system, and was completely

independent of controlling shareholder in terms of business. The controlling shareholder and its other subsidiarieswere not competitors of the Company in the same industry.

2. In terms of personnel: the Company had an independent workforce, and had established independent departments

including the research and development department, production department, administration department, financedepartment, procurement department and sales department. The Company had also established a comprehensivemanagement system with respect to labour, personnel and salary. Personnel of the Company were independent ofthe controlling shareholder. The Company’s Chairman was elected at the general meeting, while the general manager,deputy general manager, secretary to the Board, chief financial officer and other senior management members allworked at and received remuneration from the Company. They did not receive remuneration from related companiesof the controlling shareholder, nor did they serve at any position therein other than a director or supervisor. Theappointment of the Company’s Directors, supervisors and senior management was conducted through legalprocedures and in strict compliance with the relevant requirements of Companies Law and the Articles of Association.None of the controlling shareholders interfered with the Company’s Board, or the appointment and dismissaldecisions at general meetings.

3. In terms of assets: the title relationship between the Company and the controlling shareholder was clear, and the

Company’s funds, assets and other resources were not illegally occupied or dominated by the controlling shareholder.The Company’s assets were complete, and possessed production equipment, auxiliary production equipment, patentsand other assets that were in line with its production and operation scope. The Company had complete control anddominance over all assets.

4. In terms of organisations: the Board, Supervisory Committee, management and other internal organisations of the

Company operated independently. Each functional department was completely separated from the controllingshareholder in terms of authority, personnel, etc. There was no subordinate relationship between the controllingshareholder and its functional departments, and the Company and its functional departments. The Company’sindependence in terms of its production, operation and management was not affected by the controlling shareholder.

5. In terms of finance: the Company had its own finance department, accounting and auditing system and financial

management system, and was able to make independent financial decisions, with a standardised financial accountingsystem and financial management system for subsidiaries. None of the controlling shareholders interfered with theCompany’s finance and accounting activities. The Company had a separate account in a commercial bank and therewas no sharing of bank accounts with the controlling shareholder. The Company reported on tax return and fulfilled itstax obligations independently in accordance with the law.

III. Competition in the industry

□ Applicable √ Not applicable

XI Corporate Governance

IV. Annual general meeting and extraordinary general meeting convened during the reportingperiod

1. General meetings during the reporting period

MeetingType of meeting

Attendancerate ofinvestorsConvening dateDisclosure dateDisclosure index2018 annual general meetingAnnual general meeting32.20%11 June 201912 June 2019http:/www.cninfo.com.cn2019 first extraordinary general meeting

Extraordinary generalmeeting

31.16%3 September 20194 September 2019http:/www.cninfo.com.cn

2019 second extraordinary general meeting

Extraordinary generalmeeting

31.96%23 October 201924 October 2019http:/www.cninfo.com.cn

2019 third extraordinary general meeting

Extraordinary generalmeeting

31.72%3 December 20194 December 2019http:/www.cninfo.com.cn

2. Extraordinary general meeting requested by holders of the preference shares with voting rights

restored

□ Applicable √ Not applicable

V. Performance of Independent Directors during the reporting period

1. Attendance of Independent Directors at Board meetings and general meetings

Attendance of Independent Directors at Board meetings and general meetings

Name ofIndependent Directors

Number ofattendancerequired for Board

meetings during

the reporting

period

Attendance atBoard meetings

in person

Attendance

at Boardmeetings bycommunication

Attendance

at Boardmeetings by proxy

Absence

fromBoardmeetings

Absent fromBoard meetings

twice in a row

(in person)

Attendance

at generalmeetingsSun Jianfei91800No1Yang Biao91800No1Yin Meiqun91800No1Pan Ailing5

00No1Huang Lei5

00No0Liang Fu5

00No0Wang Fengrong5

00No0None of the independent Directors was absent from the Board meeting twice in a row.

2. Objections from Independent Directors on related issues of the Company

Were there any objections on related issues of the Company from the Independent Directors?

□ Yes √ No

There was no objection on related issues of the Company from the Independent Directors during the reporting period.

2019 AnnuAl RepoRt

XI Corporate Governance

V. Performance of Independent Directors during the reporting period(Cont’d)

3. Other details about the performance of duties by the independent Directors

Were there any suggestions from the independent Directors adopted by the Company?

√ Yes □ No

Explanation on the adoption or non-adoption with related suggestions from the independent DirectorsDuring the reporting period, the independent Directors of the Company focused on the operation of the Companyand performed their duties strictly in accordance with relevant laws and regulations and the Articles of Association.They provided a lot of valuable professional recommendations on optimising the Company’s system and decision ondaily operation. They also issued independent and fair opinion on matters arising during the reporting period whichrequested opinions from Independent Directors. This helped optimise the supervisory system of the Company, as wellas protecting the legal rights of the Company and all shareholders.Publication timeSubject matterOpinion21 January 2019Independent opinions on Huanggang Chenming’s application for bankloan and provision of guarantee and asset pledge

Agreed29 March 2019Independent opinions on the Company’s internal control self-assessmentreport, particulars and independent opinions on external guarantees ofthe Company, independent opinions on determination of remunerationof Directors, Supervisors and senior management for 2018, independentopinions on the use of proceeds by related parties and related partytransactions, independent opinions on provision of guarantee forcomprehensive credit line of relevant subsidiaries, independent opinionson appointment of the auditor for 2019, and independent opinions oncorrections of accounting errors and retrospective restatement

Agreed

20 May 2019Independent opinions on the election of the BoardAgreed11 June 2019Independent opinions on the appointment of senior managementAgreed19 July 2019Independent opinions on the remuneration of external directors and

shareholder representative supervisor

Agreed19 July 2019Independent opinions on the acceptance of financial support and related

party transactions

Agreed19 July 2019Independent opinions on daily business dealings with subsidiaries and

related party transactions

Agreed15 August 2019Independent opinions on the use of proceeds by controlling shareholders

and other related parties and on external guarantees

Agreed6 September 2019Independent opinions on the increase in shareholding by the controlling

shareholders

Agreed16 September 2019Independent opinions on change of the auditorAgreed17 October 2019Independent opinions on the provision of guarantee to a subsidiaryAgreed25 October 2019Independent opinions on the change of accounting policiesAgreed25 October 2019Independent opinions on the acceptance of financial support and related

party transactions

Agreed6 November 2019Independent opinions on change and rotation of the general manager,

and independent opinions on the appointment of senior management

Agreed

XI Corporate Governance

VI. Performance of duties by special committees under the Board during the reporting period(I) Audit Committee

1. The following major tasks were completed in 2019:

(1) it conducted pre-audit communication with external auditing institution engaged by the Company in

respect of the 2018 financial report auditing, reviewed the 2018 auditor’s report and financial report, whichwere submitted to the Board of the Company for consideration and approval;

(2) it reviewed the 2019 first quarter report of the Company as of 31 March 2019, which was submitted to the

Board for consideration and approval;

(3) it reviewed the 2019 interim financial statements as of 30 June 2019, which were submitted to the Board

for consideration and approval;

(4) it reviewed the 2019 third quarter report of the Company as of 30 September 2019, which was submitted

to the Board for consideration and approval.

2. Auditing work conducted on the 2019 financial report of the Company is as follows:

(1) it convened a meeting to review with due consideration the 2019 auditing plan and the related information

of the Company with the auditing certified public accountants and the finance department of theCompany prior to the on-site audit, and negotiated and determined the schedule of an audit of the 2019financial statements of the Company with Ruihua Certified Public Accountants, which was responsible forthe Company’s auditing work during the year;

(2) with due consideration, it reviewed the draft of financial statements of the Company prior to an annual

onsite audit performed by the auditing certified public accountants and issued its approval to audit;

(3) it kept in close contact with the auditor upon the annual on-site audit performed by the auditing certified

public accountants and issued a letter to the auditor to urge that they submit the auditor’s report onschedule;

(4) it reviewed the financial statements of the Company again upon the issue of preliminary opinion on the

annual audit by the auditing certified public accountants appointed for the annual audit, and consideredthe financial statements of the Company to be true, accurate and complete to reflect the overall positionof the Company;

(5) it reviewed the 2019 report on internal audit and self-assessment report on internal controls of the

Company as of 31 December 2019.

2019 AnnuAl RepoRt

XI Corporate Governance

VI. Performance of duties by special committees under the Board during the reporting period

(Cont’d)

(II) Remuneration and Assessment Committee

The Remuneration and Assessment Committee under the Board of the Company were primarily responsible forformulating the remuneration and assessment for the Directors and the Senior Management of the Company andformulating and examining the remuneration package of the Directors and the Senior Management of the Company,and accountable to the Board. During the reporting period, the Remuneration and Assessment Committee formulatedthe 2018 remuneration package of the Directors and the Senior Management of the Company, which was arrivedat based on the operation conditions of 2018 and assessment of the Directors and the Senior Management of theCompany. The remuneration package was then submitted to the Board for consideration.

(III) Strategy Committee

The Strategy Committee conducted research on major investment decisions of the Company and maderecommendations, and inspected and evaluated the implementation of related matters. At the same time, the StrategyCommittee actively discussed the Company’s future long-term strategic development plan based on the Company’sindustry characteristics and development stage in combination with the Company’s production and operationconditions, providing valuable and constructive opinions for the company’s steady development.During the reporting period, the Strategy Committee held two meetings. On 21 January 2019, the first meeting ofthe Strategy Committee considered the Resolution in Relation to the External Investment. On 7 March 2019, thesecond meeting of the Strategy Committee considered the resolution in relation to the Cooperation on the Initiationof the Establishment of Weifang Chenming Growth Driver Replacement Equity Investment Fund Partnership (LimitedPartnership).(IV) Nomination Committee

During the reporting period, the Nomination Committee held three meetings. The first meeting in 2019 consideredthe Resolution in Relation to the Election of the Board, which was submitted to the 37th extraordinary meeting of theeighth session of the Board of the Company for consideration and approval. The second meeting in 2019 consideredthe Resolution in Relation to the Election of the Senior Management Personnel of the Company, which was submittedto the first meeting of the ninth session of the Board of the Company for consideration and approval. The thirdmeeting in 2019 considered the Resolution in Relation to the Appointment of New General Manager on Duty onRotation, which was submitted to the 6th extraordinary meeting of the ninth session of the Board of the Company forconsideration and approval.

XI Corporate Governance

VII. Performance of duties by the Supervisory Committee

Were there any risks of the Company identified by the Supervisory Committee when performing its duties during thereporting period?

□ Yes √ No

None of those issues under the supervision was objected by the Supervisory Committee during the reporting period.VIII. Assessment and incentive mechanism for the Senior ManagementThe senior management of the Company is assessed on monthly and annually basis. Monthly assessments were conductedin line with the direction of the annual major tasks, and were focused on appraisals of two fixed indicators, namely thecompletion status of each month and the evaluation on important performance indicators. It was carried out monthly byway of cross assessment and supervision among the related departments. The annual assessments were carried out by theRemuneration and Assessment Committee with reference to the results of monthly assessments and overall performancesduring the year, including the integrated quality of Senior Management and internal training of talents.IX. Internal control

1. Particulars of material deficiencies in internal control detected during the reporting period

□ Yes √ No

2. Self-assessment Report on Internal Controls

Date of Disclosure of Assessment Report on Internal Controls28 March 2020Index of Assessment Report on Internal Controls Disclosurehttp://www.cninfo.com.cnPercentage of Total Assets Included in Assessment to Total Assets in Consolidated Financial Statements of the Company99.30%Percentage of Revenue Included in Assessment to Revenue in Consolidated Financial Statements of the Company99.50%

2019 AnnuAl RepoRt

XI Corporate Governance

IX. Internal control(Cont’d)

2. Self-assessment Report on Internal Controls

(Cont’d)Basis for identifying deficienciesTypeFinancial reportingNon-financial reportingQualitative criteria① Indicators of material deficiencies in the

internal control of financial reporting include:

ineffective control environment, material lossto and adverse impact on the Company as aresult of misconduct by Directors, Supervisorsand senior management; material misstatementof non-exceptional incidents; ineffectiveness insupervision of internal control of the Companyby the Board, or its delegated authorities, andthe internal audit department.

② Indicators of major deficiencies in internal

control of financial reporting include: failurein selecting and applying accountingpolicies in accordance with generallyaccepted accounting principles; failure toestablish procedures and control measuresto prevent corrupt practices; failure toestablish corresponding control mechanismfor the accounting of unusual or specialtransactions or failure to implement or setup the corresponding compensation control;failure to reasonably ensure the truthfulnessand accuracy in the preparation of financialstatement, as a result of one or moredeficiencies in the control of financial reportingas of the end of the period.

③ General deficiencies: other deficiencies in

internal control that do not constitute materialor major deficiencies.

Indicators of material deficiencies in theinternal control of non-financial reportinginclude: major failure as a result of the decisionmaking process; lack of control system oroccurrence of systematic failure in principalactivities and lack of effective compensationcontrol, high turnover rate of mid to senior levelmanagement and senior technical staff; failureto address the findings of internal controlassessment, in particular material deficiencies;and other factors which impose materialadverse impact on the Company. Indicatorsof major deficiencies in internal control ofnonfinancial reporting include: general failureas a result of the decision-making process;deficiencies in major business procedure orsystem; high turnover rate of key staff; failureto address the findings of internal controlassessment, in particular major deficiencies;and other factors which impose great adverseimpact to the Company. Indicators of generaldeficiencies in internal control of non-financialreporting include: low efficiency of decisionmaking process; deficiencies in generalbusiness procedure or system; high turnoverrate of employees; and failure to rectify generaldeficiencies.Quantitative criteriaGeneral deficiencies: deviation of less than or

equal to 0.1% from the target of accountingerror/the total revenue; Major deficiencies:

deviation of 0.1% – 0.5% from the target ofaccounting error/the total revenue; materialdeficiencies: deviation greater than 0.5%from the target of accounting error/the totalrevenue.

General deficiencies: quantitative criterion(financial loss) less than RMB5,000,000;major deficiencies: quantitative criterion(financial loss) between RMB5,000,000and RMB20,000,000; material deficiencies:

quantitative criterion (financial loss) overRMB20,000,000.Number of material deficiencies in financial reporting: (number)0Number of material deficiencies in non-financial reporting: (number)0Number of major deficiencies in financial reporting: (number)0Number of major deficiencies in non-financial reporting: (number)0

XI Corporate Governance

X. Auditor’s report on internal control

√ Applicable □ Not applicable

Auditor’s opinion contained in the Auditor’s report on internal controlWe are of the opinion that Shandong Chenming Paper Holdings Limited had in all material aspects maintained effectiveinternal control over the financial statements in accordance with the Basic Internal Control Norms for Enterprises as of 31December 2019.Disclosure of Auditor’s Report on Internal ControlDisclosedDate of Disclosure of Auditor’s report on internal control28 March 2020Index of Auditor’s Report on Internal Control Disclosurehttp://www.cninfo.com.cnType of Opinion in Auditor’s Report on Internal ControlStandard and unqualified opinionMaterial deficiencies in non-financial reportingNoAny opinions of non-standardisation set out in the Auditor’s Report on Internal Control issued by accountants

□ Yes √ No

Auditor’s Report on Internal Control issued by accountants was in line with Directors’opinions contained in Self-assessmentReport

√ Yes

□ NoXI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(I) Compliance with the Code on Corporate Governance

The Company maintained high standards of corporate governance through various internal controls. The Board

reviewed the corporate governance practices of the Company from time to time to enhance the corporate governance

standards of the Company.

Save for the details set out in III Board, IV Chairman and General Manager and XVII Communications with

shareholders in this section, the Company had fully complied with all the principles and code provisions of the Code

on Corporate Governance as set out in Appendix 14 to the Hong Kong Listing Rules during the reporting period.(II) Securities transactions by Directors

The Directors of the Company confirmed that the Company had adopted the Model Code for Securities Transactions

by Directors of Listed Companies as set out in Appendix 10 to the Hong Kong Listing Rules. Having made adequate

enquiries with all Directors and Supervisors of the Company, the Company was not aware of any information that

reasonably suggested that the Directors and Supervisors had not complied with the requirements as stipulated in this

code during the reporting period.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of

Hong Kong Limited(Cont’d)

(III) BoardThe members of the Board of the Company are elected at the general meeting and held accountable to the generalmeeting, and shall exercise the following functions and powers: (1) to be responsible for convening the generalmeeting and to report on its work to the general meeting; (2) to carry out the resolutions of general meetings; (3)to decide on the business plans and investment proposals of the Company; (4) to formulate the proposed annualfinancial budget and final accounts of the Company; (5) to formulate the plan for profit distribution and the planmaking up losses of the Company; (6) to formulate plans for the increase or reduction in the registered capital of theCompany and for the issue and listing of Company’s debentures or other securities; (7) to draft plans for materialacquisition and repurchase of the Company’s own shares; (8) to draft plans for the merger, division or dissolution orthe change of formation of the Company; (9) to decide on external investment, acquisition and disposal of assets,pledge of assets, matter in relation to external guarantee, entrusted wealth management, connected transactions,etc. within the scope of mandate of the general meeting; (10) to decide on the establishment of the Company’sinternal management organisation; (11) to employ or dismiss the manager or secretary to the Board of the Company;to employ or dismiss the Senior Management, such as the deputy general manager(s) and personnel in chargeof financial affairs, as proposed by the general manager; and to decide on their remuneration and rewards andpunishments; (12) to formulate the basic management system of the Company; (13) to formulate proposals foramending the Articles of Association; (14) to administrate matter related to information disclosure of the Company;

(15) to propose to the general meeting for the engagement or replacement of accounting firm performing audit for the

Company; (16) to review work reports from managers of the Company and to inspect on their work; (17) to exercisethe functions and powers as conferred upon by the Articles of Association or the general meeting.The Board comprised three executive Directors: Chen Hongguo (Chairman), Hu Changqing and Li Xingchun; twonon-executive Directors: Han Tingde and Li Chuanxuan; and three independent non-executive Directors: Sun Jianfei,Yin Meiqun and Yang Biao. Please refer to section X of this annual report for their brief biographies.The Board is responsible for leading and monitoring the Company, and is wholly responsible for the administration andsupervision of the Company’s businesses to facilitate its success. The Executive Director or the senior management isauthorised to be responsible for the various divisions and functions and management of the processing. Directors ofthe Company shall act objectively and make decisions in the interests of the Company. The management and seniormanagement of the Company held regular meetings with the Board to discuss the ordinary business operationsand performance of the Company, and carried out the relevant decisions of the Board. The Company will arrangeindependent legal advice upon the request from the Directors or any committees of the Board, if the Board or anycommittees of the Board consider it necessary to seek for independent professional advice.Pursuant to Code A.1.8 of the code provisions, the Company should arrange appropriate insurance cover in respectof legal action against its Directors. As at the date of this report, the Company has not reached an agreement withthe original insurance company, and therefore has not arranged relevant insurance cover for directors. However, theCompany is currently under negotiation with another insurance Company with respect to director liability insurance in2020.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(III) Board(Cont’d)

During the reporting period, the Board held 14 meetings, 4 of which were regular meetings and 10 were extraordinarymeetings. None of the directors were absent from any Board meetings.NamePositionAttendance at the relevant meetings (attention required/attended)

Boardmeetings

Auditcommitteemeetings

Nominationcommitteemeetings

Remunerationand assessment

committee

meetings

Strategiccommittee

meetings

GeneralmeetingsI. Executive Directors Chen HongguoChairman14/14N/A3/3N/A2/24/0 Hu ChangqingVice Chairman14/14N/AN/AN/A2/24/4 Li XingchunVice Chairman9/9N/AN/A1/1N/A4/1II. Non-executive Directors Li ChuanxuanDirector9/93/3N/AN/AN/A4/1 Han TingdeDirector9/9N/AN/AN/AN/A4/1III. Independent non-executive Directors Sun JianfeiIndependent Director9/93/32/21/1N/A4/1 Yin MeiqunIndependent Director9/93/32/2N/AN/A4/1 Yang BiaoIndependent Director9/9N/AN/A1/10/04/1Save for those disclosed in the brief profile of Directors of the Company in this Report, none of the members of theBoard had any financial, business, family relations or material connections with each other.The Board held 4 regular meetings during the year, each by giving a 10-day notice in advance to ensure that allDirectors could participate in discussions of matters in the agenda. Reasonable prior notification was given for theother meetings of the Board to ensure all Directors could take time to attend.All Directors had access to opinions and services of the secretary to the Board to ensure the procedures governingthe Board and all applicable regulations and rules were complied with.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(III) Board(Cont’d)Directors’ training and professional developmentAll newly appointed Directors are provided with necessary orientation information, with an aim to ensure that they willhave a better understanding of operations and business of the Company as well as relevant laws and regulations andobligations under the Listing Rules.Directors and Supervisors of the Company were arranged by the Company to attend the 1st and the 2nd sessionof training courses 2019 for directors and supervisors held by China Securities Regulatory Commission, Shandong;and, briefing paper in respect of amendments to Hong Kong Listing Rules prepared by Advisor to Hong Kong Law ofthe Company was distributed to all Directors and Supervisors, the above of which were to ensure all Directors andSupervisors to comply with relevant laws and sound corporate governance practice, and enhance their awareness ofsound corporate governance practice.

(IV) Chairman and General Manage

The chairman of the Company is Mr. Chen Hongguo, and the general manager of the Company is Mr. Li Feng. Pleaserefer to section X of this annual report for his brief biographies.According to the Articles of Association of the Company, the chairman shall exercise the following powers: (1)presiding over general meetings, and convening and presiding over Board meetings; (2) supervising and inspectingthe implementation of the resolutions of the Board; (3) signing the shares, the securities and bonds issued by theCompany; (4) signing important documents of the Board and other documents which are required to be signed bylegal representative of the Company; (5) performing the powers of a legal representative; (6) nominating candidatesfor general manager for the Board; (7) exercising the special right to operate the Company in accordance with thelaws and acting for the benefits of the Company in the event of emergency situation as a result of act of God ornatural disaster, and reporting to the Board meetings and general meeting afterwards; and (8) exercising other powersauthorised by the Board.The general manager shall exercise the following powers: (1) in charge of the operation and management of theCompany, and organising the implementation of the resolutions of the Board; (2) organising the implementation ofthe Company’s annual business plans and investment plans; (3) drafting plans for the establishment of the internalorganisational structure of the Company; (4) drafting the basic management system of the Company; (5) formulatingspecific rules and regulations for the Company; (6) proposing the appointment or dismissal of the deputy generalmanager and chief financial officer; (7) appointing or dismissing management personnel other than those requiredto be appointed or dismissed by the Board; (8) proposing the wages, welfare, rewards, and penalties of staff and todecide the appointment or dismissal of staff of the Company; (9) proposing the convening of extraordinary meeting ofthe Board; and (10) exercising other powers conferred by the Articles of Association of the Company and the Board.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of

Hong Kong Limited(Cont’d)

(V) Independent Non-executive DirectorsThere are three independent non-executive Directors in the Board, which is in compliance with the minimumrequirement of the number of independent non-executive directors set out in the Hong Kong Listing Rules. WangFengrong and Pan Ailing, the independent non-executive Directors of the Company, have appropriate accountingor related financial management expertise, which is compliance with the requirement of Rule 3.10 of the Hong KongListing Rules. Please refer to section X of this annual report for their brief biographies. The Company has receivedfrom each of the independent non-executive Directors a confirmation of independence for the year pursuant to Rule

3.13 of the Hong Kong Listing Rules and considered all of the independent non-executive Directors to be independent

during the year.(VI) Terms of DirectorsAccording to the Articles of Association of the Company, all Directors, including non-executive Directors, are electedat general meetings with a term of three years from June 2019 to June 2022. They may be re-elected for another termupon expiry of tenure.

(VII) Directors’ Responsibility for the Financial Statements

The Directors acknowledged their responsibility to prepare financial statements for each financial year which give

a true and fair view of the state of affairs of the Company. The Directors believed that the Company had adopted

and applied consistently appropriate accounting policies in preparing the financial statements in compliance with all

related accounting standards.

(VIII) Board Committees

Pursuant to Code on Corporate Governance, the Board has established four committees, namely, Audit Committee,

Remuneration and Assessment Committee, Strategic Committee and Nomination Committee, for overseeing particular

aspects of the Company’s affairs. Each Board Committee has its own defined written terms of reference. The written

terms of reference of each Board Committee are published on websites of stock exchange and the Company.

Save for requirements of Code on Corporate Governance, the Company also set up Strategic Committee, for

overseeing and studying long-term strategic development plan of the Company and making recommendations.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of

Hong Kong Limited(Cont’d)(IX) Audit Committee

The Audit Committee of the Company comprises three members, including Yin Meiqun (as the chairman), LiChuanxuan and Sun Jianfei. Two of them, including the chairman, are independent non-executive Directors. Theprimary duties of the Audit Committee are serving as a communication media between internal and external auditand the related review and supervision. Yin Meiqun and Sun Jianfei have appropriate professional qualifications orappropriate accounting or related financial management expertise, which is in compliance with the requirement of theHong Kong Listing Rules.The primary duties of the Audit Committee of the Company are: (1) proposing the appointment or dismissal of theexternal auditor; (2) supervising the internal control system of the Company and its implementation; (3) serving asa communication media between internal and external audit; (4) auditing the financial information of the Companyand its disclosures; (5) reviewing the financial control, risk control and internal control system of the Company andaudit the significant connected transactions; (6) discussing the risk management and internal control system withthe management to ensure the management has performed its duties to establish effective systems. The discussionshould include the adequacy of resources, staff qualifications and experience, training programs and budget of theaccounting and financial reporting functions of the Company; (7) studying the major investigation findings on riskmanagement and internal control matters on its own initiative or as delegated by the Board and the management’sresponse to these findings; (8) where the annual report includes statements in relation to the risk management andinternal control system of the Company, reviewing such statements prior to submission to the Board for approval; and

(9) dealing with other matters as delegated by the Board.

The Audit Committee discussed with the management of the Company the accounting standards and practicesadopted by the Group and discussed and reviewed this report, including the review of the financial statements of theGroup for the year ended 31 December 2019 prepared in accordance with China Accounting Standards for BusinessEnterprises.Particulars of the meetings held by the Audit Committee during the reporting period were detailed in part VI of thissection.Risk Management and Internal ControlThe Board is responsible for the risk management and internal control systems and reviewing their effectiveness.Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and canonly provide reasonable but not absolute assurance against material misstatement or loss.The Audit Committee (on behalf of the Board) oversees management in the design, implementation and monitoringof the risk management and internal control systems, and the management has provided confirmation to the AuditCommittee (and the Board) on the effectiveness of these systems for the year ended 31 December 2019.In respect of internal control system, procedures have been designed for safeguarding assets against unauthoriseduse or disposition, ensuring the maintenance of proper accounting records for the provision of reliable financialinformation for internal use or for publication, and ensuring compliance of applicable laws, rules and regulations.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(X) Remuneration and Assessment Committee

The Remuneration and Assessment Committee of the Company comprises three members, including Yang Biao,the Chairman, and other members, namely Li Xingchun and Sun Jianfei. Two members, including the Chairman,are independent non-executive Directors, which is in compliance with Code on Corporate Governance Practices.The Remuneration and Assessment Committee is primarily responsible for formulating the criteria of appraisal ofthe Directors and managers and conducting the appraisal, and studying and formulating the remuneration policyand package of the Directors and the Senior Management of the Company. The Remuneration and AssessmentCommittee is accountable to the Board.The primary duties of the Remuneration and Assessment Committee of the Company are: (1) formulating theremuneration plan or package based on the major scope of work, duties and importance of the Directors and themanagement and the remuneration level of other counterparts; (2) formulating the remuneration plan or packagewhich mainly includes but not limited to standards, procedures and a system for performance appraisals as wellas major plans and a system for rewards and sanctions; (3) examining the performance of the Directors, excludingthe independent non-executive Directors, and the Senior Management and conduct annual performance appraisalsfor them; (4) supervising the implementation of the remuneration policy of the Company; and (5) dealing with othermatters as delegated by the Board.Particulars of the meetings held by the Remuneration and Assessment Committee during the reporting period aredetailed in part VI of this section.

(XI) Nomination Committee

The Nomination Committee of the Company comprises three members, including Sun Jianfei (as the chairman), ChenHongguo and Yin Meiqun. Two of them, including the chairman, are independent non-executive Directors, which isin compliance with Code on Corporate Governance Practices. The Nomination Committee is primarily responsiblefor selecting candidates for directors and the management of the Company, determining the selection criteria andprocedure and making recommendations.The primary duties of the Nomination Committee are (1) advising the Board on the size and composition of the Boardin light of the Company’s operating activities, asset scale and shareholding structure; (2) studying the selection criteriaand procedure for Directors and the management and advising the Board on the same; (3) extensively identifyingqualified candidates for Directors and the management; (4) examining candidates for Director and the managementand advising on the same; (5) examining other Senior Management staff pending referral to the Board for decision ontheir employment and advising on the same; (6) advising to the Board on appointment and re-appointment of directorsand on skills, knowledge, experience, background, gender and other characteristics required in serving as a directortaking into consideration diversity, balance and efficiency of the Board and benefits thereto; (7) reviewing the Boarddiversity policy, revising thereon in a timely manner and making relevant disclosure in the corporate governance reportin the corresponding annual report; and (8) dealing with other matters as delegated by the Board.During the reporting period, the Nomination Committee, after studying the needs of the Company for new Directorsand managerial personnel and taking into consideration the Board diversity policy, identified suitable candidates forDirector and managerial positions through various channels (including from the Group internally and from the humanresources market). Upon acceptance of nomination by the nominated person, the Nomination Committee performedqualification review on preliminary candidates by holding meetings, review criteria include the academic qualifications,relevant experience and specialised skills of the preliminary candidates. One to two months prior to election of newDirectors, the Nomination Committee submitted recommendations and relevant materials of the directorial candidatesto the Board; prior to engaging new Senior Management, the Nomination Committee submitted recommendationsand relevant materials of the new Senior Management personnel to the Board.Particulars of the meetings held by the Nomination Committee during the reporting period are detailed in part VI ofthis section.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)

(XII) Strategic CommitteeThe Company set up a Strategic Committee which comprised three members, including Chen Hongguo, theChairman, and other members, namely, Hu Changqing and Yang Biao. The Strategic Committee is primarilyresponsible for studying the long term strategic development and major investments of the Company and makingrecommendations.The primary duties of the Strategic Committee are (1) conducting research and submitting proposals regarding thelong term development strategic plan; (2) conducting research and submitting proposals regarding the financingplans for major investments which require approval from the Board as stipulated in the Articles of Association of theCompany; (3) conducting research and submitting proposals regarding major capital operations and assets operationprojects which require approval from the Board as stipulated in the Articles of Association of the Company; (4)conducting research and submitting proposals regarding other material matters that may affect the development ofthe Company; (5) carrying out examination on the implementation of the above matters; (6) dealing with other mattersas delegated by the Board.(XIII) AuditorOn 23 October 2019, the 2019 second extraordinary general meeting of the Company approved a resolution toengage Grant Thornton (Special General Partnership) as the domestic auditor of the Company for 2019 and beresponsible for domestic auditing of the Company for 2019.(XIV) Remuneration for the Auditor

The financial statements for 2019 prepared in accordance with Accounting Standards for Business Enterprises bythe Group were audited by Grant Thornton (Special General Partnership). The Company paid the auditor in aggregateRMB2,500,000 and RMB800,000 in respect of financial statements audit and non-audit services in relation to internalcontrol for 2019 respectively. Save the above, no other non-audit fee was incurred during the year.Grant Thornton (Special General Partnership) has stated their reporting responsibilities on the financial statements ofthe Group in XII. Financial Report.

(XV) Supervisors and Supervisory Committee

The Supervisory Committee is accountable to the shareholders. It monitors the financial position of the Companyand the performance of the Directors, managers and Senior Management of the Company as to whether they are inaccordance with relevant requirements of the laws and regulations to protect the lawful rights of the Company and theshareholders. The Supervisory Committee comprises three shareholder representatives and two staff representatives.The shareholder representatives shall be elected and removed at a general meeting and the staff representatives shallbe elected and removed democratically by the staff of the Company.Details of the work of the Supervisory Committee during the reporting period are set forth in part VII of this section.

(XVI) Company Secretary

During the year, the company secretary confirmed that he has received relevant professional training for not less than15 hours in accordance with Rule 3.29 of the Listing Rules.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of

Hong Kong Limited(Cont’d)(XVII) Communications with ShareholdersThe Company considers effective communication with Shareholders is essential to enable them to have a clearassessment of the Group’s performance as well as accountability of the Board. Principal means of communicationwith Shareholders of the Company are as follows:

Information disclosure on the Company’s websiteThe Company endeavours to disclose all material information about the Group to all interested parties as widely andtimely as possible. The Company maintains its website at www.chenmingpaper.com where important informationabout the Group’s activities and corporate matters such as annual reports and interim reports to Shareholders,announcements, business development and operations, corporate governance practices and other information areavailable for review by Shareholders and other stakeholders.When announcements are made through the Stock Exchange, the same information will be made available on theCompany’s website.General meetingsThe Company’s annual general meeting provides a useful platform for direct communication between the Board andShareholders. Various resolutions are proposed on each substantially separate issue at the general meetings. Savefor the annual general meeting held on 11 June 2019 by the Company, three extraordinary general meetings wereconvened in 2019. The attendance record of Directors at each general meeting is set out below:

NameDirectors attending general meetings in person2018 annual general meetingHu Changqing, Chen Gang, Yang Biao, Yin Meiqun, Sun Jianfei,

Li Chuanxuan, Han Tingde, Li Xingchun, Zhang Hong and Pan Ailing2019 first extraordinary general meetingHu Changqing2019 second extraordinary general meetingHu Changqing2019 third extraordinary general meetingHu ChangqingThe Company’s external auditor also attended the Annual General Meeting.Code E.1.2 of the code provisions – This code provision requires the chairman to invite the chairmen of the audit,remuneration and nomination committees to attend the Annual General Meeting.Mr. Chen Hongguo, the chairman of the Company and its strategy committee, was absent from the annual generalmeeting due to business commitments.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(XVII)Communications with Shareholders(Cont’d)

General meetings(Cont’d)Code A.6.7 of the code provisions – This code provision requires independent non-executive Directors and othernon-executive Directors, as equal board members, should give the Board and any committees on which they servethe benefit of their skills, expertise and varied backgrounds and qualifications through regular attendance and activeparticipation. They should also attend general meetings and develop a balanced understanding of the views ofshareholders.Yang Guihua, Wang Fengrong, Liang Fu and Huang Lei were absent from the 2018 annual general meeting due tobusiness commitments.Han Tingde, Li Chuanxuan, Yang Biao, Yin Meiqun and Sun Jian were absent from the 2019 first extraordinary generalmeeting due to business commitments.Han Tingde, Li Chuanxuan, Yang Biao, Yin Meiqun and Sun Jian were absent from the 2019 second extraordinarygeneral meeting due to business commitments.Han Tingde, Li Chuanxuan, Yang Biao, Yin Meiqun and Sun Jian were absent from the 2019 third extraordinarygeneral meeting due to business commitments.Voting by pollResolutions put to vote at the general meetings of the Company are taken by poll. Procedures regarding the conductof the poll are explained to the shareholders at the commencement of each general meeting, and questions fromshareholders regarding the voting procedures are answered. The poll results are posted on the websites of the StockExchange and the Company respectively on the same day.Shareholders’ right

1. Procedures for convening an extraordinary general meeting by Shareholder

Pursuant to Article 90 of the Articles of Association of the Company, Shareholder(s) alone or in aggregateholding 10% or more of the Company’s shares shall be entitled to request the Board to convene extraordinarygeneral meetings, provided that such request shall be made in writing. The Board shall, in accordance withprovisions of the laws, administrative regulations and the Articles of Association, furnish a written reply statingits agreement or disagreement to the convening of an extraordinary general meeting within ten days afterreceiving such proposal of the same.In the event that the Board agrees to convene an extraordinary general meeting, the notice of general meetingshall be issued within five days after the passing of the relevant resolution of the Board. Any changes in theoriginal request made in the notice shall require prior approval of Shareholders concerned.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange of

Hong Kong Limited(Cont’d)

(XVII)Communications with Shareholders(Cont’d)Shareholders’right(Cont’d)

1. Procedures for convening an extraordinary general meeting by Shareholder

(Cont’d)In the event that the Board does not agree to convene an extraordinary general meeting or does not furnish anyreply within ten days after receiving such proposal, Shareholder(s) alone or in aggregate holding 10% or more ofthe Company’s Shares shall be entitled to propose to the Supervisory Committee the convening of extraordinarygeneral meeting, provided that such proposal shall be made in writing.In the event that the Supervisory Committee agrees to convene an extraordinary general meeting, the notice ofgeneral meeting shall be issued within five days after receiving such request. Any changes in the original requestmade in the notice shall require prior approval of Shareholders concerned.Failure of the Supervisory Committee to issue a notice of general meeting within the stipulated period shallbe deemed as failure of the Supervisory Committee to convene and preside over a general meeting, andShareholder(s) alone or in aggregate holding 10% or more of the Company’s shares for ninety consecutive daysor more shall be entitled to convene and preside over the meeting on a unilateral basis.Pursuant to Article 91 of the Articles of Association of the Company, if Shareholders determine to convene ageneral meeting on their own, they shall give a written notice to the Board and file the same with the local officeof CSRC at the place where the Company is located and the stock exchange for records. The shareholdingpercentage of shareholders who convened shall not be lower than 10% prior to the announcement ofresolutions of the general meeting.Shareholders who convened shall submit relevant certifications to the local office of CSRC at the place wherethe Company is located and the stock exchange upon the issuance of the notice of general meeting and theannouncement of resolutions of the general meeting.The Board and its secretary shall cooperate with respect to matters relating to general meetings convenedby Shareholders on their own. The Board shall provide Shareholder registers as of the date of shareholdingregister. If a general meeting is convened by shareholders on their own, all necessary expenses incurred shallbe borne by the Company.

2019 AnnuAl RepoRt

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(XVII)Communications with Shareholders(Cont’d)

Shareholders’right(Cont’d)

2. Procedures for sending shareholders

’ enquiries to the BoardShareholders may at any time send their enquiries and concerns to the Board of the Company in writing throughthe Company Secretary/Secretary to the Board whose contact details are as follows:

Secretary to the BoardHong Kong Company SecretaryNameYuan XikunChu Hon LeungAddressNo. 2199 East Nongsheng Road,

Shouguang City, Shandong Province

22/F, Universal Building, Central, Hong KongTelephone(86)-0536-2158008+852-21629600Facsimile(86)[e-mail]@li-partners.comThe Company Secretary and the secretary to the Board shall forward shareholders’enquiries and concernsto the Board and/or relevant Board Committees of the Company, where appropriate, to answer shareholders’

questions.

3. Procedures for putting forward proposals of Shareholders at general meetings

Pursuant to Article 102 of the Articles of Association of the Company, shareholders individually or jointly holdingover 3% of the total shares of the Company are entitled to propose motions to the Company.Shareholders individually or jointly holding over 3% of the total shares of the Company may submit extraordinarymotions to the Board or the secretary to the Board ten working days before the convening of the GeneralMeeting. The Board or the secretary to the Board shall issue supplementary notice of the General Meeting toannounce the extraordinary motions within two working days after receiving the proposed motions.Save for provided above, the Board or Secretary to the Board shall not amend proposals stated in the notice ofgeneral meeting or add new proposals therein following the notice of general meeting has been issued.No voting or resolution shall be effected or adopted at the general meeting for proposals that have not beenstated in the notice of general meeting or that do not comply with provisions of the Articles of Association.Extraordinary general meeting shall not resolve issues that are not contained in the notice.Relationships with investorsThe Company recognises its responsibility to explain its activities to those with a legitimate interest and to respond totheir questions. Investors are received and visited at appropriate times to explain the Group’s business. In addition,questions received from the general public and individual shareholders are answered promptly. In all cases, great careis taken to ensure that no price-sensitive information is disclosed selectively.

XI Corporate Governance

XI. Disclosures as required by the Hong Kong Listing Rules issued by the Stock Exchange ofHong Kong Limited(Cont’d)(XVIII) Internal Control

For details of internal control of the Company, please refer to IX. Internal Control hereunder.

(XIX) Articles of Association

On 3 December 2019, the Company amended the Articles of Association. The amendments were primarily relating tothe time for convening general meetings. Memorandum of Association and the amended version of the new Articles ofAssociation of the Company are available on websites of the Company and Stock Exchange.(XX) Board DiversityOn 21 August 2013, the Company formulated policies to diversify Board members and amended the implementingrules of the nomination committee. Pursuant to the new policies, the nomination committee shall regularly review theBoard diversity policy to improve efficiency and ensure interest thereof.Such policies are summarised as follows:

The Company recognises and embraces the benefits of having a diverse Board, and sees diversity at Board level asan essential element in maintaining a competitive advantage. A truly diverse Board will include and make good useof differences in the talents, skills, regional and industry experience, backgrounds, genders and other qualities of themembers of the Board. These differences will be considered in determining the optimum composition of the Boardand when possible should be balanced appropriately. All appointments of the members of the Board are made onmerit, and in the context of the talents, skills and experience of the Board as a whole.The Nomination Committee of the Company reviews and assesses the composition of the Board and makesrecommendations to the Board on appointment of new directors of the Company. The Nomination Committeealso oversees the conduct of the annual review of the effectiveness of the Board. In reviewing and assessing thecomposition of the Board, the Nomination Committee will consider the benefits of all aspects of diversity, includingwithout limitation those described above, in order to maintain an appropriate range and balance of talents, skills,experience and backgrounds on the Board. In recommending candidates for appointment to the Board, theNomination Committee will consider candidates on merit against objective criteria and with due regard for the benefitsof diversity on the Board.The composition of the Board of the Company is basically diversified. For details, please refer to (III) Composition ofthe Board under section XI.

(XXI) Dividend policy

Based on the total ordinary share capital of 2,904,608,200 shares and the 1,162,790,698 simulated ordinary sharesconverted from the preference shares using a conversion ratio of 1 share valued at RMB3.87 as at the end of 2019, acash dividend of RMB1.5 (tax inclusive) per 10 shares will be distributed to ordinary shareholders; a cash dividend ofRMB1.5 (tax inclusive) per 10 simulated ordinary shares converted from the preference shares will be distributed toholders of preference shares. No bonus shares will be issued and there is no increase of share capital from reserves.A cash dividend of RMB435,691,230 will be distributed to holders of ordinary shares and a variable cash dividend ofRMB174,418,604.70 will be distributed to holders of preference shares. In other words, a cash dividend of RMB3.87(tax inclusive) per preference share with a nominal value of RMB100 each will be distributed to holders of preferenceshares.

2019 AnnuAl RepoRt

XII Corporate bonds

Are there any corporate bonds offered to the public and listed on stock exchanges which do not become due as at the date ofapproval of annual report or overdue but not fully settled?YesI. Basic information on corporate bonds

Name of bondBond abbreviationBond codeIssue dateMaturity date

Outstanding

amount ofthe bonds(RMB’0,000)Interest ratePayment methodThe public issuance of thecorporate bonds of ShandongChenming Paper HoldingsLimited to qualified investors in 2017 (phase I)

17 ChenmingBond 01

11257017 August

2017

21 August 20229,0007.28%Interest is paid annually. The principal

amount and the last interest paymentwill be paid on the maturity date.The public issuance of thecorporate bonds of ShandongChenming Paper HoldingsLimited to qualified investors in 2018 (phase I)

18 ChenmingBond 01

11264129 March

2018

2 April 202390,0007.28%Interest is paid annually. The principal

amount and the last interest paymentwill be paid on the maturity date.Stock exchange on whichcorporate bonds are listed or transferred

Shenzhen Stock ExchangeInvestor eligibility arrangementOnline subscription: Public investors with A share security account opened under China Securities Depository and Clearing Co., Ltd. Offline

subscription: Institutional investors with A share security account opened under China Securities Depository and Clearing Co., Ltd.Interest payment of corporate bonds during the reporting per

The payment of principal and interest on the remaining bonds for the bond resale portion of 17 Chenming Bond 01 was completed on 21

August 2019. For details, please refer to the relevant announcements as disclosed on 10 July, 11 July, 15 July and 18 July 2019.

The payment of interest on 18 Chenming Bond 01 was completed on 2 April 2019. For details, please refer to the Announcement on

Payment of 2019 Interest with Respect to the First Tranche of Corporate Bonds Publicly Issued to Qualified Investors in 2018, which was

published by the Company on 26 March 2019.Performance of relevant termsduring the reporting period, forspecial terms such as issuer orinvestor option andinterchangeable for corporate bonds (if any).

Both 17 Chenming Bond 01 and 18 Chenming Bond 01 attach with options for the issuer to adjust the coupon rate and for investors to

resell. The issuer has the right to determine the adjustment to the coupon rate for the following 3 years at the end of the second year

and the adjustment to the coupon rate for the following year as the end of the fourth year. After issuing the announcement on whether

the coupon rate of the relevant tranche of bonds will be adjusted and the range of adjustment, the investors have the right to register for

reselling during the period as announced to resell all or part of the relevant tranche of bonds held to the issuer at par value.

XII Corporate bonds

II. Information on bond custodian and credit rating agencyBond custodian:

NameGF Securities Co., Ltd.Office address38th Floor, Metro Plaza,

No.183 Tianhe NorthRoad, Guangzhou

Contact personXu DuweiTelephone of

contact person

020-87555888Credit rating agency(ies) which conducted rating on corporate bonds during the reporting period:

NameChina Chengxin Securities Rating Co., Ltd.Office address21/F, Anji Building, 760 Xizang South Road,

Huangpu District, ShanghaiReason of change, procedures to be performed and impacts on interests of investors, etc. in casethe bond trustee and credit rating agency engaged by the Company during the reporting period have changed (if applicable)

No change during the reporting period.

III. Use of proceeds from corporate bonds

Use of proceeds from corporate bonds and itsimplementation

The use of proceeds from issuance of corporate bonds has strictlycompleted relevant application and approval procedures. As at theend of the reporting period, the proceeds from 17 Chenming Bond01 and 18 Chenming Bond 01 were fully used.Balance as at the end of the year (RMB’0,000)0Operation of special account for proceedsSpecial account for proceeds is used for the deposit of special

capital from bonds.Is the use of proceeds consistent with the use ofproceeds guaranteed under the prospectus,proposed use of proceeds and other agreement?

Consistent

IV. Credit rating of corporate bondsThe credit rating of 18 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. was AA+, and thecredit rating for the Company remained at AA+ (stable outlook). The 2018 public issuance of the corporate bonds (tranche I)updated rating report (2019) was published on CNINFO on 28 May 2019.The credit rating of 17 Chenming Bond 01 as granted by China Chengxin Securities Rating Co., Ltd. remained at AA+, andthe credit rating for the Company was AA+ (stable outlook). The 2017 public issuance of the corporate bonds (tranche I)updated rating report (2019) was published on CNINFO on 28 May 2019.V. Credit enhancement mechanism, repayment plan and other repayment guarantee measuresfor corporate bonds

There was no change in credit enhancement mechanism, repayment plan and other repayment guarantee measures, whichwere consistent with relevant commitments as set out in the prospectuses, during the reporting period.

2019 AnnuAl RepoRt

XII Corporate bonds

VI. Convening of meeting for bondholders during the reporting periodNot applicableVII. Performance of bond custodian during the reporting periodThe bond custodian performed its duties in accordance with the agreement during the reporting period.VIII. Major accounting data and financial indicators of the Company over the past two years as atthe end of the reporting period

Unit: RMB’0,000Item20192018

Year-on-yearincrease/decrease

in percentageEBITDA689,484.08655,492.30

5.19%

Current ratio85.30%78.10%7.20%Gearing ratio

73.11%

75.43%

-2.32%

Quick ratio76.24%67.27%8.97%Proportion of EBITDA to total debts

11.32%

8.25%

3.07%

Interest coverage ratio

1.70

1.87

-9.09%

Cash interest coverage ratio4.563.84

18.75%

EBITDA interest coverage ratio

2.34

2.47

-5.26%

Loans payment ratio100.00%100.00%–Interest payment ratio100.00%100.00%–Major reason for more than 30% in year-on-year change for the above accounting data and financial indicators

□ Applicable √ Not applicable

IX. Interest payment on other bonds, debt and financing instruments during the reporting period

Unit: RMBItem

Amount ofinterest paymentCorporate bonds1,253,520000.00Medium-term notes197,000,000.00Super & short-term commercial papers5,065,928,807.55Total6,516,418,807.55

XII Corporate bonds

X. Bank credit obtained, its use and repayment of bank loans during the reporting periodDuring the reporting period, the Company obtained bank credit of RMB82,720 million, of which RMB48,648 million wasutilised with RMB34,072 million outstanding. The Company repaid bank loans of RMB30,486 million.XI. Performance of relevant agreements or commitments under the prospectus of corporatebonds during the reporting periodNil

XII. Matters of significance during the reporting period

Nil

XIII. Is there any guarantor for corporate bonds?

□ Yes √ No

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I. Auditor’s ReportType of auditor’s opinionStandard and unqualified opinionsThe date of the audit report signed27 March 2020Name of the auditorGrant Thornton (Special General Partnership)Reference number of the auditor’s reportAudit Report No. 371ZA4264 (2020)Name of certified public accountantsHu Naizhong and Liu NanaText of the auditor’s reportI. Auditor’s opinionWe have audited the financial statements of Shandong Chenming Paper Holdings Limited (hereinafter“ChenmingPaper Company”), which comprise the consolidated and company balance sheets as at 31 December 2019, theconsolidated and company income statements, the consolidated and company cash flow statements and theconsolidated and company statements of changes in shareholders’equity for 2019 and notes to the relevant financialstatements.In our opinion, the accompanying financial statements were prepared in accordance with the Accounting Standardsfor Business Enterprises in all material aspects and give a true and fair view of the consolidated and company financialposition of Chenming Paper Company as at 31 December 2019 and of its consolidated and company operatingresults and cash flows for 2019.II. Basis of opinionsWe have conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute ofCertified Public Accountants. Our responsibilities under those standards are further described in the responsibilitiesof certified public accountants for the audit of the financial statements section of the auditor’s report. We areindependent of Chenming Paper Company in accordance with the ethical codes of Chinese certified publicaccountants, and we have fulfilled our other ethical responsibilities in accordance with the codes. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.III. Key audit mattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of thefinancial statements for the current period. These matters were addressed in the context of our audit of the financialstatements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.(I) Recognition of revenue from machine-made paperFor detailed disclosures of relevant information, please see note V. 26 and VII. 46.

1. Details

In 2019, Chenming Paper Company recorded revenue of RMB30,395,434,100, of whichRMB25,911,568,900 was attributed to revenue of machine-made paper, accounting for 85.25% of therevenue. For domestic machine-made paper sales business, Chenming Paper Company will recognizethe revenue after the goods have been delivered and signed by the customer for confirmation; for foreignmachine-made paper sales business, Chenming Paper Company will recognize the revenue after thegoods are loaded on board and declared.Revenue is one of the key performance indicators of Chenming Paper Company, and the revenue frommachine-made paper accounted for a relatively huge proportion of the total revenue due to enormoussales, there may be potential misstatement in relation to whether revenue recognition is accountedfor in the appropriate period of the financial statements and have a significant impact on the financialstatements, therefore, we identified recognition of revenue from machine-made paper as a key auditmatter.

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2. Application for auditing

We have carried out the following audit procedures for the recognition of revenue from machine-madepaper:

(1) we identified and evaluated and tested the effectiveness of the design and operation of key internal

controls conducted by the management related to revenue recognition;

(2) we conducted sampling inspections on sales contracts, identified contract terms and conditions

related to the transfer of control of the goods, assessed whether the timing of recognition of salesrevenue from Chenming Paper Company meets the requirements of the Accounting Standards forBusiness Enterprises;

(3) we analysed revenue and gross profit by taking into account product types and identified whether

the abnormal fluctuations in the amount of revenue are reasonable in the current period;

(4) inspected the occurrence of on-the-spot recognition of sales at the end of the inspection period

and inspected goods returns after the inspection period to determine the accuracy of revenuerecognition during the period;

(5) we collected samples from sales revenue recorded around the balance sheet date for cut-off

tests; verified delivery orders and other supporting documents to assess whether sales revenue isrecorded in the appropriate accounting period;

(6) we conducted sampling inspections on transactions recorded during the year and verified with

sales invoices, sales contracts, letters of credit, letters of guarantee, declaration forms, customers’

confirmation of receipt and delivery orders, etc.; evaluated whether the relevant revenue recognitionmeets the accounting policy on revenue recognition of Chenming Paper Company;

(7) we sought external confirmations and conducted interviews for clients with larger sales during the

period.

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(II) The existence and integrity of monetary fundsFor detailed disclosures of relevant information, please see note VII.1.

1. Details

As at 31 December 2019, the balance of the Chenming Paper Company’s monetary funds wasRMB19,306,529,500, accounting for 19.71% of the total assets, of which the balance of other monetaryfunds was RMB16,338,984,100, accounting for 84.63% of the monetary funds. As the available restrictedamount was significant, investors and regulatory authorities were very concerned about the risk ofmisappropriation, and, the security of the depository, and the accuracy and integrity of the balance hadmaterial impact on the financial statements. Therefore, we have regarded the existence and integrity ofthe monetary funds as a key audit matter.

2. Application for auditing

We have carried out the following audit procedures for the existence and integrity of monetary funds:

(1) we identified, evaluated and tested the effectiveness of the design and operation of internal control

related to monetary fund revenue and expenditure and management;

(2) obtained the list of opened bank accounts, verify with Chenming Paper Company

’s accountinformation, and verify the integrity of bank accounts;

(3) supervised the cash on hand, examined the bank statement, and sought external confirmations for

bank account;

(4) obtained the enterprise credit report, examined whether the monetary fund is mortgaged, pledged

or frozen, and review whether the disclosure of the restricted monetary fund in the notes to thefinancial statements is sufficient and appropriate;

(5) interviewed Chenming Paper Company

’s management to confirm whether there is fund pooling andappropriation formed by“fund pool” business and others.

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(III) Accounting of new major long-term equity investmentFor detailed disclosures of relevant information, please see note V. 13 and note VII. 11 and 58.

1. Details

The closing balance of the long-term equity investment of Chenming Paper Company wasRMB3,606,339,000, and the opening balance was RMB484,674,300, an increase of RMB3,121,664,700.The main reason for the change was to purchase the equity of Guangdong Nanyue Bank Co., Ltd.Due to the significant amount of investment, and the transaction recognized non-operating income ofRMB364,597,000. The accuracy of accounting has material impact on the financial statements, therefore,we have regarded the new major long-term equity investment as a key audit matter.

2. Application for auditing

We have carried out the following audit procedures for the accounting of new major long-term equityinvestment:

(1) identified and assessed the internal control possess in relation to external investment decision

making and approval, interviewed the responsible officer of the investment managementdepartment, and conducted a walk-through test on its business process;

(2) obtained the investment contract and regulatory approval of the transaction, analysed the holding

intentions and capabilities of Chenming Paper Company’s management of long-term equityinvestment;

(3) examined the resolutions of the board of directors and general meeting of Guangdong Nanyue

Bank Co., Ltd., assessed the actual influence of Chenming Paper Company’s major decisions onthe investee and related operations, and reviewed whether the classification of the new significantlong-term equity investments during the current period was correct and whether the subsequentmeasurement was appropriate;

(4) obtained and reviewed the financial information of the investee, and recalculated for the recognition

of long-term equity investments and non-operating income.IV. Other information

Chenming Paper Company’s management is responsible for other information. Other information includes theinformation covered in the 2019 annual report of Chenming Paper Company, but does not include the financialstatements and our audit report.Our audit opinions published in the financial statements do not cover other information and we do not publish anyform of assurance conclusion on other information.In conjunction with our audit of the financial statements, our responsibility is to read other information, during whichwe consider whether there is significant inconsistency or other material misstatement of other information with thefinancial statements or what we have learned during the audit.Based on the work we have performed, if we determine that there is a material misstatement of other information, weshould report that fact. In this regard, we have nothing to report.

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V. Management and management responsibility for financial statementsThe management of Chenming Paper Company is responsible for the preparation of financial statements inaccordance with the requirements of the Accounting Standards for Business Enterprises to enable them to achievefair reflection, and to achieve the design, implementation and maintenance of necessary internal controls so that thefinancial statements are free of material misstatements due to fraud or errors.In the preparation of the financial statements, the management is responsible for assessing the continuing operationscapabilities of Chenming Paper Company, disclosing issues related to going concern (if applicable), and applying thegoing concern assumption unless management plans to liquidate Chenming Paper Company, terminate operations orhave no other realistic options.The management is responsible for supervising the financial reporting process of Chenming Paper Company.VI. Auditor’s responsibility for auditing financial statementsOur objective is to obtain reasonable assurance as to whether the entire financial statements are free from materialmisstatement due to fraud or errors and to issue an audit report containing audit opinions. Reasonable assurance isa high level of assurance, but it does not guarantee that an audit performed in accordance with auditing standardscan always discover a major misstatement when it exists. Misstatements are generally considered to be material if itis reasonably expected that misstatements, individually or in aggregate, may affect the economic decision made byusers of financial statements based on the financial statements.In the process of conducting audit work in accordance with auditing standards, we use professional judgment andmaintain professional suspicion. At the same time, we also perform the following tasks:

(1) To identify and assess risks of material misstatement of financial statements due to fraud or errors, design

and implement audit procedures to address these risks, and obtain adequate and appropriate audit evidence,together perform as a basis for issuing audit opinions. Since fraud may involve collusion, falsification, intentionalomission, misrepresentation or override of internal controls, the risk of failing to detect a material misstatementdue to fraud is higher than the risk of failing to detect a material misstatement due to an error.

(2) To understand audit-related internal controls to design appropriate audit procedures.

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(3) To evaluate the appropriateness of accounting policies adopted by the management and the reasonableness of

accounting estimates and related disclosures.

(4) To conclude on the appropriateness of management

’s use of the continuing operation assumption. At thesame time, according to the audit evidence obtained, it may lead to conclusions as to whether there aresignificant uncertainties in matters or circumstances that have significant doubts about the ability of ChenmingPaper Company to continue its operations. If we conclude that there are significant uncertainties, the auditingstandards require us to request the users of the report to pay attention to the relevant disclosures in the financialstatements in the audit report; if the disclosure is not sufficient, we should publish modified audit report. Ourconclusions are based on the information available as of the date of the audit report. However, future events orcircumstances may cause Chenming Paper Company to not continue its operations.

(5) Evaluate the overall presentation, structure, and content (including disclosures) of the financial statements and

evaluate whether the financial statements fairly reflect the relevant transactions and matters.

(6) To obtain sufficient and appropriate audit evidence on the financial information of entities or business activities

in Chenming Paper Company to express opinions on the financial statements. We are responsible for guiding,supervising and executing group audits, and take full responsibility for the audit opinion.We communicate with the management on planned audit scope, time arrangements and major audit findings,including communication of the internal control deficiencies that we identified during the audit.We also provide statements to the management on compliance with ethical requirements related to independence,and communicate with the management on all relationships and other matters that may reasonably be considered toaffect our independence, as well as related preventive measures (if applicable).From the matters we communicated with the management, we determine which matters are most important for theaudit of the financial statements for the current period and thus constitute the key audit matters. We describe thesematters in our audit report, unless laws and regulations prohibit the public disclosure of these matters, or in rarecases, if it is reasonably expected that the negative consequences of disclosing something in the audit report willoutweigh the benefits to the public interest, we determine that the matter should not be reported in the audit report.Grant Thorn ton (Special General Partnership)

Chinese Certified Public Accountant (Project Partner): HuNaizhongBeijing, ChinaChinese Certified Public Accountant: Liu Nana

27 March 2020

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II. Financial StatementsThe unit in the notes to the financial statements is: RMB

1. Consolidated Balance Sheet

Prepared by: Shandong Chenming Paper Holdings Limited31 December 2019

Unit: RMBItem31 December 201931 December 2018CURRENT ASSETS:

Monetary funds19,306,529,473.3319,292,774,747.79 Bills receivable1,213,116,491.46 Accounts receivable2,525,083,311.033,404,487,004.59 Accounts receivable financing442,915,861.70 Prepayments603,573,549.08863,739,020.74 Other receivables2,216,654,598.662,133,089,983.39 Including: Interest receivable198,577,632.43 Dividend receivable13,000,000.00 Inventories4,774,430,110.816,771,488,433.74 Non-current assets due within one year6,974,539,613.304,007,503,281.86 Other current assets8,108,707,394.7010,281,312,825.13Total current assets44,952,433,912.6147,967,511,788.70

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Item31 December 201931 December 2018NON-CURRENT ASSETS:

Long-term receivables1,200,575,810.957,926,610,770.86 Long-term equity investments3,606,339,023.74484,674,282.77 Other non-current financial assets147,445,653.55103,000,000.00 Investment property5,082,362,293.114,844,993,039.62 Fixed assets34,439,935,032.6927,913,986,152.68 Construction in progress5,476,122,928.9511,871,350,821.55 Right-of-use assets152,141,882.05 Intangible assets1,781,061,904.511,939,355,274.98 Goodwill5,969,626.575,969,626.57 Long-term prepaid expenses48,203,408.71134,916,241.81 Deferred income tax assets892,442,631.04603,873,698.62 Other non-current assets173,875,826.671,522,493,129.66Total non-current assets53,006,476,022.5457,351,223,039.12Total assets97,958,909,935.15105,318,734,827.82

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Item31 December 201931 December 2018CURRENT LIABILITIES:

Short-term borrowings36,883,156,014.1940,227,945,361.89 Bills payable1,515,048,206.004,218,969,554.93 Accounts payable4,351,087,581.984,150,228,644.66 Contract liabilities968,082,063.13419,540,133.74 Staff remuneration payables190,229,883.52135,373,407.70 Tax payables311,554,116.73451,651,198.64 Other payables2,594,249,626.541,777,718,017.48 Including: Interest payable208,189,699.15226,788,777.59 Non-current liabilities due within one year5,662,958,920.037,216,305,771.01 Other current liabilities222,402,500.002,816,956,481.68 Total current liabilities52,698,768,912.1261,414,688,571.73NON-CURRENT LIABILITIES:

Long-term borrowings9,140,339,693.567,798,934,484.94 Bonds payable1,258,270,909.492,097,562,500.00 Lease liabilities59,697,128.65 Long-term payables3,321,535,538.943,900,255,693.44 Provisions325,259,082.28325,259,082.28 Deferred income1,771,013,335.111,862,395,197.61 Deferred income tax liabilities1,411,125.59 Other non-current liabilities3,042,841,328.862,047,948,069.73Total non-current liabilities18,920,368,142.4818,032,355,028.00Total liabilities71,619,137,054.6079,447,043,599.73

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Item31 December 201931 December 2018OWNERS’ EQUITY:

Share capital2,904,608,200.002,904,608,200.00 Other equity instruments7,465,500,000.007,465,500,000.00 Including: Preference shares4,477,500,000.004,477,500,000.00 Perpetual bonds2,988,000,000.002,988,000,000.00 Capital reserves5,086,686,427.305,091,449,915.14 Other comprehensive income-879,452,135.10-736,520,181.01 Special reserves3,257,998.47 Surplus reserves1,212,009,109.971,148,888,912.11 General risk provisions74,122,644.2064,123,919.23 Retained profit9,306,269,617.389,107,422,690.85Total equity attributable to owners of the Company25,169,743,863.7525,048,731,454.79 Minority interest1,170,029,016.80822,959,773.30Total owners’ equity26,339,772,880.5525,871,691,228.09

Total liabilities and owners’ equity97,958,909,935.15105,318,734,827.82Legal Representative:Financial controller:Head of the financial department:

Chen HongguoDong LianmingZhang Bo

2. Balance sheet of the Company

Unit: RMBItem31 December 201931 December 2018CURRENT ASSETS:

Monetary funds9,001,257,324.528,160,234,434.15 Bills receivable3,254,460,000.00436,662,187.80 Accounts receivable39,204,670.001,349,276,965.04 Financing receivables189,873,567.14 Prepayments722,472,479.011,584,388,551.00 Other receivables13,975,590,537.5819,405,314,961.24 Including: Interest receivable77,257,506.25 Inventories696,487,727.531,133,888,230.37 Non-current assets due within one year129,546,826.00 Other current assets80,815,659.84140,126,157.18Total current assets28,089,708,791.6232,209,891,486.78

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Item31 December 201931 December 2018NON-CURRENT ASSETS:

Long-term receivables418,750,862.51516,925,607.06 Long-term equity investments23,629,780,317.8722,487,417,443.24 Investment in other equity instruments3,000,000.003,000,000.00 Other non-current financial assets147,445,653.55103,000,000.00 Fixed assets3,901,007,932.882,103,164,588.93 Construction in progress350,623,821.422,014,493,138.68 Intangible assets446,430,156.00458,365,862.52 Deferred income tax assets426,711,909.98303,861,021.95 Other non-current assets110,930,000.009,800,000.00Total non-current assets29,434,680,654.2128,000,027,662.38Total assets57,524,389,445.8360,209,919,149.16CURRENT ASSETS:

Short-term borrowings11,601,509,632.097,668,689,104.31 Bills payable9,890,041,170.2010,595,836,030.46 Accounts payable833,526,295.40722,999,244.33 Contract liabilities2,096,436,345.903,299,778,982.47 Staff remuneration payables71,040,017.1353,899,651.15 Taxes payable76,872,851.5659,595,083.56 Other payables6,426,648,847.955,465,488,890.52 Including: Interest payable127,278,083.35139,444,333.34 Non-current liabilities due within one year3,695,934,663.303,256,715,148.39 Other current liabilities932,402,500.003,527,956,481.68Total current liabilities35,624,412,323.5334,650,958,616.87

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Item31 December 201931 December 2018NON-CURRENT LIABILITIES:

Long-term borrowings150,692,035.941,335,482,969.43 Bonds payable89,070,000.002,097,562,500.00 Long-term payables1,167,426,124.982,072,502,840.48 Provisions325,259,082.28325,259,082.28 Deferred income42,070,840.2746,412,014.99 Other non-current liabilities2,789,283,340.671,592,166,670.00Total non-current liabilities4,563,801,424.147,469,386,077.18Total liabilities40,188,213,747.6742,120,344,694.05OWNERS’ EQUITY:

Share capital2,904,608,200.002,904,608,200.00 Other equity instruments7,465,500,000.007,465,500,000.00 Including: Preference shares4,477,500,000.004,477,500,000.00 Perpetual bonds2,988,000,000.002,988,000,000.00 Capital reserves4,953,557,435.194,953,557,435.19 Surplus reserves1,199,819,528.061,136,699,330.20 Retained profit812,690,534.911,629,209,489.72Total owners’ equity17,336,175,698.1618,089,574,455.11TOTAL LIABILITIES AND OWNERS’ EQUITY57,524,389,445.8360,209,919,149.16

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3. Consolidated Income Statement

Unit: RMBItemAmount for 2019Amount for 2018I. Total revenue30,395,434,073.3528,875,756,163.56 Including: Revenue30,395,434,073.3528,875,756,163.56II. Total operating costs28,390,081,416.9925,925,815,303.43 Including: Operating costs21,773,884,285.3919,845,756,818.51 Taxes and surcharges275,933,439.81250,358,478.10 Sales and distribution expenses1,297,196,188.841,190,499,238.49 General and administrative expenses1,134,725,391.84967,840,641.90 Research and development expense992,312,956.74929,873,688.40 Finance expenses2,916,029,154.372,741,486,438.03 Including: Interest expenses3,573,865,213.863,348,606,907.65 Interest income836,491,207.55692,370,142.41 Plus: Other income561,556,630.5197,814,340.42 Investment income (“-” denotes loss)174,000,822.89248,962,910.68 Including: Investment income from associates and joint ventures-2,995,932.01-20,475,760.38

Gain on change in fair value (“-” denotes loss)26,692,741.61-115,464,400.65

Credit impairment loss (“-” denotes loss)-1,033,867,928.73-127,644,916.73 Loss on impairment of assets (“-” denotes loss)-120,991,683.19-164,654,098.54

Gain on disposal of assets (“-” denotes loss)-29,073,731.0517,149,722.72III.

Operating profit (“-” denotes loss)1,583,669,508.402,906,104,418.03

Plus: Non-operating income493,393,914.87319,396,237.27

Less: Non-operating expenses28,584,594.0019,184,539.11IV.

Total profit (“-” denotes total loss)2,048,478,829.273,206,316,116.19

Less: Income tax expenses295,180,636.46641,577,494.92V.

Net profit (“-” denotes net loss)1,753,298,192.812,564,738,621.27

(I)

Classification according to the continuity of operation

1.

Net profit from continuing operations (“-” denotes net loss)1,689,474,069.202,515,935,340.22

2.

Net profit from discontinued operations (“-” denotes net loss)63,824,123.6148,803,281.05

(II)

Classification according to ownership

1.

Net profit attributable to shareholders of the Company1,656,566,584.882,509,828,858.47

2.

Profit or loss of minority interest96,731,607.9354,909,762.80

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ItemAmount for 2019Amount for 2018VI.

Net other comprehensive income after tax-142,931,954.09-382,355,053.21

Net other comprehensive income after tax attributable to shareholders of theCompany-142,931,954.09-382,355,053.21

Other comprehensive income that will be reclassified to profit and loss insubsequent periods-142,931,954.09-382,355,053.21IncludingExchange differences on translation-142,931,954.09-382,355,053.21VII.

Total comprehensive income1,610,366,238.722,182,383,568.06

Total comprehensive income attributable to shareholders of the Company1,513,634,630.792,127,473,805.26

Total comprehensive income attributable to minority interest96,731,607.9354,909,762.80VIII.

Earnings per share:

(I)

Basic earnings per share0.330.51

(Ii)

Diluted earnings per share0.330.51Legal Representative:Financial controller:Head of the financial department:

Chen HongguoDong LianmingZhang Bo

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4. Income statement of the Company

Unit: RMBItemAmount for 2019Amount for 2018I. Revenue6,914,154,801.195,674,841,840.67 Less: Operating costs5,276,084,637.804,280,788,382.36 Taxes and surcharges47,507,009.1070,504,281.15 Sales and distribution expenses217,963,783.79170,956,908.96 General and administrative expenses367,847,081.04313,006,816.72 Research and development expense292,447,426.29217,377,973.03 Finance expenses1,437,070,384.941,370,330,815.22 Including: Interest expenses2,275,231,993.882,392,019,845.76 Interest income980,330,079.031,196,235,406.95 Plus: Other income78,722,787.604,341,174.61 Investment income (“-” denotes loss)1,352,470,766.36728,792,644.01Including: Investment income from associates and joint ventures-11,142,579.41-16,957,355.99 Gain on change in fair value (“-” denotes loss)-94,000,000.00 Credit impairment loss (“-” denotes loss)-128,688,655.59-2,970,370.50 Loss on impairment of assets (“-” denotes loss)-77,447,218.54-5,617,450.00 Gain on disposal of assets (“-” denotes loss)-30,388,143.0917,006,032.16II. Operating profit (“-” denotes loss)469,904,014.97-100,571,306.49 Plus: Non-operating income11,140,162.55158,610,672.64 Less: Non-operating expenses19,138,740.537,236,443.34III. Total profit (“-” denotes total loss)461,905,436.9950,802,922.81 Less: Income tax expenses-122,850,888.03-116,925,134.27IV. Net profit (“-” denotes net loss)584,756,325.02167,728,057.08 Net profit from continuing operations (“-” denotes net loss)584,756,325.02167,728,057.08V. Total comprehensive income584,756,325.02167,728,057.08VI. Earnings per share:

(I) Basic earnings per share (II) Diluted earnings per share

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5. Consolidated cash flow statement

Unit: RMBItemAmount for 2019Amount for 2018I. Cash flows from operating activities:

Cash received from sales of goods and rendering of services34,573,214,070.9832,087,951,780.92 Tax rebates received111,119,105.0160,796,324.64 Cash received relating to other operating activities6,949,229,810.966,920,381,377.58 Subtotal of cash inflows from operating activities41,633,562,986.9539,069,129,483.14 Cash paid for goods and services23,866,695,680.8019,899,777,030.88 Cash paid to and for employees1,457,717,966.621,263,770,142.64 Payments of taxes and surcharges2,273,360,732.522,104,645,214.45 Cash paid relating to other operating activities1,803,081,384.071,701,235,208.13Subtotal of cash outflows from operating activities29,400,855,764.0124,969,427,596.10Net cash flows from operating activities12,232,707,222.9414,099,701,887.04II. Cash flows from investing activities:

Cash received from investments2,784,345.772,390,000,000.00 Cash received from investment income12,000,000.00375,641,400.00Net cash received from disposal of fixed assets, intangible assets and other long-term assets137,211,301.99698,360.18Net cash received from disposal of subsidiaries and other business units215,421,083.2419,610,260.70 Cash received relating to other investing activities767,670,000.00Subtotal of cash inflows from investing activities1,135,086,731.002,785,950,020.88Cash paid for purchase of fixed assets, intangible assets and other long-term assets1,112,186,863.713,608,698,828.73 Cash paid on investments1,947,322,879.24118,200,000.00 Cash paid relating to other investing activities101,130,000.00838,042,210.54 Subtotal of cash outflows from investing activities3,160,639,742.954,564,941,039.27 Net cash flows from investing activities-2,025,553,011.95-1,778,991,018.39

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ItemAmount for 2019Amount for 2018III. Cash flows from financing activities:

Cash received from investments423,000,000.00500,000,000.00Including: Cash received from by subsidiaries from minority investment423,000,000.00500,000,000.00 Cash received from borrowings28,631,245,817.4843,668,959,703.07 Cash received from issuance of bonds898,650,000.00 Cash received relating to other financing activities5,866,106,002.6216,718,183,724.57 Subtotal of cash inflows from financing activities34,920,351,820.1061,785,793,427.64 Cash repayments of amounts borrowed30,767,815,349.3138,860,270,293.67 Cash paid for dividend and profit distribution or interest payment3,530,178,266.593,749,772,244.77Including: Dividend and profit paid by subsidiaries to minority shareholders19,262,500.00 Cash paid relating to other financing activities10,109,785,861.7432,028,908,989.58 Subtotal of cash outflows from financing activities44,407,779,477.6474,638,951,528.02 Net cash flows from financing activities-9,487,427,657.54-12,853,158,100.38IV. Effect of foreign exchange rate changes on cash and cashequivalents-210,956,768.56109,597,099.79V. Net increase in cash and cash equivalents508,769,784.89-422,850,131.94Plus: Balance of cash and cash equivalents as at the beginning of the period2,381,558,242.522,804,408,374.46VI. Balance of cash and cash equivalents as at the end of the period2,890,328,027.412,381,558,242.52

XIII Financial Report

6. Cash flow statement of the Company

Unit: RMBItemAmount for 2019Amount for 2018

I. Cash flows from operating activities:

Cash received from sales of goods and rendering of services7,719,183,653.246,040,539,799.02 Cash received relating to other operating activities1,561,317,548.231,899,284,149.44Subtotal of cash inflows from operating activities9,280,501,201.477,939,823,948.46 Cash paid for goods and services3,634,400,369.893,280,788,382.36 Cash paid to and for employees496,342,845.44388,826,518.74 Payments of taxes and surcharges206,120,796.96296,043,362.00 Cash paid relating to other operating activities1,113,784,472.341,861,866,604.79Subtotal of cash outflows from operating activities5,450,648,484.635,827,524,867.89Net cash flows from operating activities3,829,852,716.842,112,299,080.57II. Cash flows from investing activities:

Cash received from investments228,794,345.772,288,400,000.00 Cash received from investment income1,087,829,000.00965,641,400.00Net cash received from disposal of fixed assets, intangible assets and other

long-term assets81,086,086.00290,680.96 Cash received relating to other investing activitiesSubtotal of cash inflows from investing activities1,397,709,431.773,254,332,080.96Cash paid for purchase of fixed assets, intangible assets and other long-term assets154,820,434.45338,672,140.85 Cash paid on investments1,278,000,000.003,794,390,597.05 Cash paid relating to other investing activities101,130,000.00Subtotal of cash outflows from investing activities1,533,950,434.454,133,062,737.90Net cash flows from investing activities-136,241,002.68-878,730,656.94III. Cash flows from financing activities:

Cash received from borrowings13,980,360,915.8610,473,500,000.00 Cash received from issuance of bonds898,650,000.00 Cash received relating to other financing activities5,007,324,754.2725,438,933,017.20Subtotal of cash inflows from financing activities18,987,685,670.1336,811,083,017.20 Cash repayments of amounts borrowed10,970,294,184.8012,527,601,933.33 Cash paid for dividend and profit distribution or interest payment1,762,132,250.151,602,928,591.75 Cash paid relating to other financing activities10,415,992,353.5424,309,884,284.53Subtotal of cash outflows from financing activities23,148,418,788.4938,440,414,809.61Net cash flows from financing activities-4,160,733,118.36-1,629,331,792.41IV. Effect of foreign exchange rate changes on cash and cash equivalents-4,354,937.11-16,693,638.05V. Net increase in cash and cash equivalents-471,476,341.31-412,457,006.83 Plus: Balance of cash and cash equivalents as at the beginning of the period607,805,063.021,020,262,069.85VI. Balance of cash and cash equivalents as at the end of the period136,328,721.71607,805,063.02

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7. Consolidated statement of changes in owners

’ equity

Amount for the reporting period

Unit: RMB

2019

Equity attributabl e to owners of the Company

Other equity instruments

ItemShare capitalPreference sharesPerpetual bondsOthersCapital reservesLess: treasury shares

Other comprehensiveincomeSpecial reservesSurplus reservesGeneral risk provisionsRetained profitOthersSubtotalMinority interestTotal owners

’ equity

I. Balance as at the end of the prioryear2,904,608,200.004,477,500,000.002,988,000,000.005,091,449,915.14-736,520,181.013,257,998.471,148,888,912.1164,123,919.239,107,422,690.8525,048,731,454.79822,959,773.3025,871,691,228.09II. Balance as at the beginning of theyear2,904,608,200.004,477,500,000.002,988,000,000.005,091,449,915.14-736,520,181.013,257,998.471,148,888,912.1164,123,919.239,107,422,690.8525,048,731,454.79822,959,773.3025,871,691,228.09

III. Changes in the period (“–” denotes decrease)-4,763,487.84-142,931,954.09-3,257,998.4763,120,197.869,998,724.97198,846,926.53121,012,408.96347,069,243.50468,081,652.46(I) Total comprehensive income-142,931,954.091,656,566,584.881,513,634,630.7971,201,958.491,584,836,589.28(II) Capital paid in and reducedby owners-4,763,487.84-4,763,487.84295,129,785.01290,366,297.17

1. Ordinary shares paid by

owners—439,447,225.77439,447,225.77

2. Capital paid by holders of

other equity instruments——

3. Others-4,763,487.84-4,763,487.84-144,317,440.76-149,080,928.60

(III) Profit distribution63,120,197.869,998,724.97-1,457,719,658.35-1,384,600,735.52-19,262,500.00-1,403,863,235.52

1. Transfer to surplus

reserves63,120,197.86-63,120,197.86——

2. Transfer to general risk

provisions9,998,724.97-9,998,724.97——

3. Distribution to owners (or

shareholders)-1,384,600,735.52-1,384,600,735.52-19,262,500.00-1,403,863,235.52

IV. Transfer within owners’ equity-4,881,991.84-4,881,991.84-4,881,991.84

1. Capital (or share capital)

created on capital reserve——

2. Others-4,881,991.84-4,881,991.84-4,881,991.84

V. Special reserves1,623,993.371,623,993.371,623,993.37

1. Withdrawal1,623,993.371,623,993.371,623,993.37IV. Balance as at the end of the

period2,904,608,200.004,477,500,000.002,988,000,000.005,086,686,427.30-879,452,135.10—1,212,009,109.9774,122,644.209,306,269,617.3825,169,743,863.751,170,029,016.8026,339,772,880.55

XIII Financial Report

Amount for the prior period

Unit: RMB

2018

Equity attributable to owners of the Company

Other equity instruments

ItemShare capitalPreference sharesPerpetual bondsOthersCapital reservesLess: treasury shares

Other comprehensive

incomeSpecial reservesSurplus reserves

General risk

provisionsRetained profitOthersSubtotalMinority interestTotal owners

’ equity

I. Balance as at the end of the prior

year1,936,405,467.004,477,500,000.005,570,800,000.006,149,257,784.90-354,165,127.801,132,116,106.408,866,614,844.4027,778,529,074.902,495,649,464.0430,274,178,538.94II. Balance as at the beginning of theyear1,936,405,467.004,477,500,000.005,570,800,000.006,149,257,784.90-354,165,127.801,132,116,106.408,866,614,844.4027,778,529,074.902,495,649,464.0430,274,178,538.94III. Changes in the period (“–” denotes decrease)968,202,733.00-2,582,800,000.00-1,057,807,869.76-382,355,053.213,257,998.4716,772,805.7164,123,919.23240,807,846.45-2,729,797,620.11-1,672,689,690.74-4,402,487,310.85(I) Total comprehensive income-382,355,053.212,509,828,858.472,127,473,805.2654,909,762.802,182,383,568.06(II) Capital paid in and reducedby owners-2,582,800,000.00-17,200,000.00-2,600,000,000.00500,000,000.00-2,100,000,000.00

1. Ordinary shares paid by

owners500,000,000.00500,000,000.00

2. Capital paid by holders of

other equity instruments-2,582,800,000.00-17,200,000.00-2,600,000,000.00-2,600,000,000.00

3. Others

(III) Profit distribution16,772,805.7164,123,919.23-2,269,021,012.02-2,188,124,287.08-2,188,124,287.08

1. Transfer to surplus

reserves16,772,805.71-16,772,805.71

2. Transfer to general risk

provisions64,123,919.23-64,123,919.23

3. Distribution to owners (or

shareholders)-2,188,124,287.08-2,188,124,287.08-2,188,124,287.08IV. Transfer within owners’ equity968,202,733.00-1,040,607,869.76-72,405,136.76-2,227,599,453.54-2,300,004,590.30

1. Capital (or share capital)

created on capital reserve968,202,733.00-968,202,733.00

2. Others-72,405,136.76-72,405,136.76-2,227,599,453.54-2,300,004,590.30V. Special reserves3,257,998.473,257,998.473,257,998.47

1. Withdrawal 3,257,998.473,257,998.473,257,998.47

IV. Balance as at the end of the

period2,904,608,200.004,477,500,000.002,988,000,000.005,091,449,915.14-736,520,181.013,257,998.471,148,888,912.1164,123,919.239,107,422,690.8525,048,731,454.79822,959,773.3025,871,691,228.09

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8. Statement of changes in equity of owners of the Company

Amount for the reporting period

Unit: RMB

2019

Other equity instruments

ItemShare capitalPreference sharesPerpetual bondsOthersCapital reservesLess: treasury shares

Other comprehensiveincomeSpecial reservesSurplus reservesRetained profitOthersTotal owners

’ equity

I. Balance as at the end of the prior year2,904,608,200.004,477,500,000.002,988,000,000.004,953,557,435.191,136,699,330.201,629,209,489.7218,089,574,455.11 Plus: OthersII. Balance as at the beginning of the year2,904,608,200.004,477,500,000.002,988,000,000.004,953,557,435.191,136,699,330.201,629,209,489.7218,089,574,455.11III. Changes in the period (“-” denotes decrease)63,120,197.86-816,518,954.81-753,398,756.95(I) Total comprehensive income631,201,978.57631,201,978.57(II) Capital paid in and reduced by owners

1. Capital paid by holders of other equity

instruments

2. Others

(III) Profit distribution63,120,197.86-1,447,720,933.38-1,384,600,735.52

1. Transfer to surplus reserves63,120,197.86-63,120,197.86

2. Distribution to owners (or shareholders)-1,384,600,735.52-1,384,600,735.52

(IV) Transfer within owners’ equity

1. Capital (or share capital) created on

capital reserve

IV. Balance as at the end of the period2,904,608,200.004,477,500,000.002,988,000,000.004,953,557,435.191,199,819,528.06812,690,534.9117,336,175,698.16

XIII Financial Report

Amount for the prior period

Unit: RMB

2018

Other equity instruments

ItemShare capitalPreference sharesPerpetual bondsOthersCapital reservesLess: treasury shares

Other comprehensiveincomeSpecial reservesSurplus reservesRetained profitOthersTotal owners

’ equity

I. Balance as at the end of the prior year1,936,405,467.004,477,500,000.005,570,800,000.005,938,960,168.191,119,926,524.493,674,882,253.1122,718,474,412.79 Plus: Others-8,503,727.68-8,503,727.68II. Balance as at the beginning of the year1,936,405,467.004,477,500,000.005,570,800,000.005,938,960,168.191,119,926,524.493,666,378,525.4322,709,970,685.11III. Changes in the period (“-” denotes decrease968,202,733.00-2,582,800,000.00-985,402,733.0016,772,805.71-2,037,169,035.71-4,620,396,230.00(I) Total comprehensive income167,728,057.08167,728,057.08(II) Capital paid in and reduced by owners-2,582,800,000.00-17,200,000.00-2,600,000,000.00

1. Capital paid by holders of other equity

instruments-2,582,800,000.00-17,200,000.00-2,600,000,000.00

2. Others

(III) Profit distribution16,772,805.71-2,204,897,092.79-2,188,124,287.08

1. Transfer to surplus reserves16,772,805.71-16,772,805.71

2. Distribution to owners (or shareholders)-2,188,124,287.08-2,188,124,287.08

(IV) Transfer within owners’ equity968,202,733.00-968,202,733.00

1. Capital (or share capital) created on

capital reserve968,202,733.00-968,202,733.00

IV. Balance as at the end of the period2,904,608,200.004,477,500,000.002,988,000,000.004,953,557,435.191,136,699,330.201,629,209,489.7218,089,574,455.11

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XIII Financial Report

III. General Information of the Company

1. Company overview

The predecessor of Shandong Chenming Paper Holdings Limited (hereinafter referred to as the“Company”) wasShandong Shouguang Paper Mill Corporation, which was changed as a joint stock company with limited liabilitythrough offering to specific investors in May 1993. In December 1996, with approval by Lu Gai Zi [1996] No. 270)issued by the People’s Government of Shandong Province and Zheng Wei [1996] No. 59 of the Securities Committeeof the State Council, the Company was changed as a joint stock company with limited liability established by shareoffer.In May 1997, with approval by Zheng Wei Fa [1997] No. 26 issued by the Securities Committee of the State Council,the Company issued 115,000,000 domestic listed foreign shares (B shares) under public offering, which were listedand traded on Shenzhen Stock Exchange from 26 May 1997.In September 2000, with approval by Zheng Jian Gong Si Zi [2000] No. 151 issued by the China Securities RegulatoryCommission, the Company issued an additional 70,000,000 RMB ordinary shares (A shares), which were listed andtraded on Shenzhen Stock Exchange from 20 November 2000.In June 2008, with approval by the Stock Exchange of Hong Kong Limited, the Company issued 355,700,000 Hshares. The Company publicly offered 355,700,000 H shares all over the world and listed for trading on the mainboard of Stock Exchange of Hong Kong on 18 June 2008. At the same time, 35,570,000 H shares were allocated tothe National Council for Social Security Fund by our relevant state-owned shareholder and converted into overseaslisted foreign shares (H shares) for the purpose of reducing the number of state-owned shares. The additional Hshares issued were listed and traded on Hong Kong Stock Exchange on 18 June 2008.As at 31 December 2019, the total share capital of the Company was changed to 2,904,608,200 shares. For details,please refer to Note VII. 38.The Company established a corporate governance structure comprising the general meeting, the board of directorsand the supervisory committee, and has human resources department, information technology department,corporate management department, legal affairs department, financial management department, capital managementdepartment, securities investment department, procurement department, audit department, and other departments.The Company and its subsidiaries (hereinafter referred to as the“Group”) are principally engaged in, among otherthings, processing and sale of paper products (including machine-made paper and paper board), paper makingraw materials and machinery; generation and sale of electric power and thermal power; forestry, saplings growing,processing and sale of timber; manufacturing, processing and sale of wood products; and manufacturing and saleof laminated boards and fortified wooden floorboards, hotel service, equipment financial and operating leasing,magnesite mining, processing and sales of talc.The financial statements and notes thereto were approved by the board of directors of the Company (the“Board”) on27 March 2020.

2. Scope of consolidation

Subsidiaries of the Company included in the scope of consolidation in 2019 totalled 68. For details, please refer toNote IX“Equity in other entities”. The scope of consolidation of the Company during the year had 4 more companiesincluded and three companies less compared to the prior year. For details, please refer to Note VIII“Changes in thescope of consolidation”.

XIII Financial Report

IV. Basis of Preparation of the Financial Statements

1. Basis of preparation

The Company’s financial statements are prepared on a going concern and based on actual transactions and events,in accordance with the Accounting Standards for Business Enterprises-Basic Standards promulgated by the Ministryof Finance (Order of Ministry of Finance No. 33, as amended by Order of Ministry of Finance No. 76) and 42 specificaccounting standards as promulgated and amended on and after 15 February 2006, the application guidelines of theAccounting Standards for Business Enterprises, interpretations and other related rules of the Accounting Standardsfor Business Enterprises (hereinafter referred to as“ASBEs”), and the disclosure requirements of the“Regulation onthe Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements forFinancial Reports” (revised in 2014) of China Securities Regulatory Commission.The Company’s financial statements have been prepared on an accrual basis in accordance with the ASBEs.Except for certain financial instruments, the financial statements are prepared under the historical cost convention.Held-for-sale non-current assets are measured at the lower of the difference of fair value less expected expenses orthe original carrying amount when meeting the conditions of holding for sale. In the event that depreciation of assetsoccurs, a provision for impairment is made accordingly in accordance with the relevant regulations.

2. Going concern

No facts or circumstances comprise a material uncertainty about the Company’s going concern basis within 12months since the end of the reporting period.

V. Significant Accounting Policies and Accounting EstimatesSpecific accounting policies and accounting estimates are indicated as follows:

The Company and its subsidiaries are principally engaged in machine-made paper, electricity and heat, constructionmaterials, paper making chemical products, financial leasing, hotel management and other operations. The Company and itssubsidiaries formulated certain specific accounting policies and accounting estimates for the transactions and matters suchas revenue recognition, determination of performance progress and R&D expenses based on their actual production andoperation characteristics pursuant to the requirements under the relevant accounting standards for business enterprises.For details, please refer to this Note V. 29“Revenue”. For the critical accounting judgments and estimates made by themanagement, please refer to Note V. 33“Change of Significant accounting policies and accounting estimates”.

1. Statement of compliance with the Accounting Standards for Business Enterprises

These financial statements have been prepared in conformity with the ASBEs, which truly and fully reflect the financialposition of the consolidated entity and the Company as at 31 December 2019 and relevant information such as theoperating results and cash flows of the consolidated entity and the Company for 2019.

2. Accounting period

The accounting period of the Group is from 1 January to 31 December of each calendar year.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

3. Operating cycle

Ordinary operating cycle refers to the period from acquisition of assets used for processing by the Company untiltheir realisation in cash or cash equivalents. The operating cycle of the Company lasts for 12 months, and acts as anindicator for classification of liquidity of assets and liabilities.

4. Functional currency

The Company and its domestic subsidiaries recognise RMB as their functional currency according to the primaryeconomic environment in which they operate. The functional currency of the Company and its domestic subsidiariesis Renminbi (“RMB”). Overseas subsidiaries of the Company recognise U.S. dollar (“USD”or“US$”), Japanese yen(“JPY”), Euro (“EUR”) and South Korean Won (“KRW”) as their respective functional currency according to the generaleconomic environment in which these subsidiaries operate. The Company prepares its financial statements in RMB.

5. Preparation of consolidated financial statements

(1) Scope of consolidation

The scope of consolidation of the consolidated financial statements is determined on the basis of control. Theterm“control”refers to the fact that the Company has power over the investee and is entitled to variable returnsfrom its involvement with the investee and the ability to use its power over the investee to affect the amount ofthose returns. A subsidiary is an entity controlled by the Company (including an enterprise, a separable part ofan investee, a structured entity, etc.).

(2) Basis for preparation of the consolidated financial statements

The consolidated financial statements are prepared by the Company based on the financial statements of theCompany and its subsidiaries and other relevant information. In preparing the consolidated financial statements,the accounting policies and accounting periods of the Company and its subsidiaries shall be consistent, andintra-company significant transactions and balances are eliminated.A subsidiary and its business acquired through a business combination involving entities under common controlduring the reporting period shall be included in the scope of the consolidation of the Company from the dateof being controlled by the ultimate controlling party, and its operating results and cash flows from the date ofbeing controlled by the ultimate controlling party are included in the consolidated income statement and theconsolidated cash flow statement, respectively.For a subsidiary and its business acquired through a business combination involving entities not under commoncontrol during the reporting period, its income, expenses and profits are included in the consolidated incomestatement, and cash flows are included in the consolidated cash flow statement from the acquisition date to theend of the reporting period.The shareholders’equity of the subsidiaries that is not attributable to the Company is presented undershareholders’equity in the consolidated balance sheet as minority interest. The portion of net profit or loss ofsubsidiaries for the period attributable to minority interest is presented in the consolidated income statementunder the“profit or loss of minority interest”. When the amount of loss attributable to the minority shareholdersof a subsidiary exceeds the minority shareholders’ portion of the opening balance of owners’equity of thesubsidiary, the excess amount shall be allocated against minority interest.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

5. Preparation of consolidated financial statements

(Cont’d)

(3) Accounting treatment for loss of control over subsidiaries

For the loss of control over a subsidiary due to disposal of a portion of the equity investment or other reasons,the remaining equity is measured at fair value on the date when the control is lost. The difference arising fromthe sum of consideration received for disposal of equity interest and the fair value of remaining equity interestover the sun of the share of the carrying amount of net assets of the former subsidiary calculated continuouslyfrom the purchase date based on the shareholding percentage before disposal and the goodwill is recognisedas investment income in the period when the control is lost.Other comprehensive income related to equity investment in the former subsidiary shall be transferred to currentprofit or loss at the time when the control is lost, except for other comprehensive income arising from changesin net assets or net liabilities due to remeasurement of defined benefit plan by the investee.

6. Classification of joint arrangements and accounting treatment for joint ventures

A joint arrangement refers to an arrangement of two or more parties have joint control. The joint arrangements of theGroup comprise joint operations and joint ventures.

(1) Joint operations

Joint operations refer to a joint arrangement during which the Group is entitled to relevant assets andobligations of this arrangement.The Group recognises the following items in relation to its interest in a joint operation and accounts for them inaccordance with the relevant ASBEs:

A. the assets held solely by it and assets held jointly according to its share;B. the liabilities assumed solely by it and liabilities assumed jointly according to its share;C. the revenue from sale of output from joint operations;D. the revenue from sale of output from joint operations according to its share;E. the fees solely incurred by it and fees incurred from joint operations according to its share.

(2) Joint ventures

Joint ventures refer to a joint arrangement during which the Company only is entitled to net assets of thisarrangement.The Group accounts for its investments in joint ventures in accordance with the requirements relating toaccounting treatment using equity method for long-term equity investments.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

7. Standards for recognising cash and cash equivalents

Cash refers to cash on hand and deposits readily available for payment purpose. Cash equivalents refer to short-termand highly liquid investments held by the Group which are readily convertible into known amount of cash and whichare subject to insignificant risk of value change.

8. Foreign currency operations and translation of statements denominated in foreign currency

(1) Foreign currency operations

The foreign currency operations of the Group are translated into the functional currency at the prevailing spotexchange rate on the date of exchange, i.e. usually the middle price of RMB exchange rate published by thePeople’s Bank of China on that date in general and the same hereinafter.On the balance sheet date, foreign currency monetary items shall be translated at the spot exchange rate onthe balance sheet date. The exchange difference arising from the difference between the spot exchange rateon the balance sheet date and the spot exchange rate upon initial recognition or the last balance sheet date willbe recognised in profit or loss for the period. The foreign currency non-monetary items measured at historicalcost shall still be measured by the functional currency translated at the spot exchange rate on the date of thetransaction. Foreign currency non-monetary items measured at fair value are translated at the spot exchangerate on the date of determination of the fair value. The difference between the amounts of the functionalcurrency before and after the translation will be recognised in profit or loss for the period.

(2) Translation of financial statements denominated in foreign currency

When translating the financial statements denominated in foreign currency of overseas subsidiaries, assets andliabilities on the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date;owner’s equity items except for“retained profit”are translated at the spot exchange rates at the dates on whichsuch items arose.Income and expenses items in the income statement are translated at the average exchange rate for the periodin which the transaction occurred.All items in the cash flow statements shall be translated at the average exchange rate for the period in whichthe cash flow transaction occurred. Effects arising from changes of exchange rate on cash shall be presentedseparately as the“effect of foreign exchange rate changes on cash and cash equivalents”item in the cash flowstatements.The differences arising from translation of financial statements shall be included in the“other comprehensiveincome” item in owners’ equity in the balance sheet.On disposal of foreign operations and loss of control, exchange differences arising from the translation offinancial statements denominated in foreign currencies related to the disposed foreign operations whichhas been included in owners’equity in the balance sheet, shall be transferred to profit or loss in whole or inproportionate share in the period in which the disposal took place.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

A financial instrument is a contract that gives rise to a financial asset of one party and a financial liability or equityinstrument of another party.

(1) Recognition and derecognition of financial instruments

Financial asset or financial liability will be recognised when the Group became one of the parties under afinancial instrument contract.Financial asset that satisfied any of the following criteria shall be derecognised:

① the contract right to receive the cash flows of the financial asset has terminated;

② the financial asset has been transferred and meets the derecognition criteria for the transfer of financial

asset as described below.A financial liability (or a part thereof) is derecognised only when the present obligation is discharged in full orin part. If an agreement is entered between the Group (debtor) and a creditor to replace the existing financialliabilities with new financial liabilities, and the contractual terms of the new financial liabilities are substantiallydifferent from those of the existing financial liabilities, the existing financial liabilities shall be derecognised andthe new financial liabilities shall be recognised.Conventionally traded financial assets shall be recognised and derecognised at the trading date.

(2) Classification and measurement of financial assets

The Group classifies the financial assets according to the business model for managing the financial assets andcharacteristics of the contractual cash flows as follows: financial assets measured at amortised cost, financialassets measured at fair value through other comprehensive income, and financial assets measured at fair valuethrough profit or loss.Financial assets measured at amortised costA financial asset is measured at amortised cost if it meets both of the following conditions and is not designatedas measured at fair value through other comprehensive income:

The Group’s business model for managing such financial assets is to collect contractual cash flows;The contractual terms of the financial asset stipulate that cash flows generated on specific dates are solelypayments of principal and interest on the principal amount outstanding.Subsequent to initial recognition, such financial assets are measured at amortised cost using the effectiveinterest method. A gain or loss on a financial asset that is measured at amortised cost and is not part of ahedging relationship shall be recognised in profit or loss for the current period when the financial asset isderecognised, amortised using the effective interest method or with impairment recognised.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(2) Classification and measurement of financial assets

(Cont’d)Financial assets measured at fair value through other comprehensive incomeA financial asset is classified as measured at fair value through other comprehensive income if it meets both ofthe following conditions and is not designated as measured at fair value through profit or loss:

The Group’s business model for managing such financial assets is achieved both by collecting collectcontractual cash flows and selling such financial assets;The contractual terms of the financial asset stipulate that cash flows generated on specific dates are solelypayments of principal and interest on the principal amount outstanding.Subsequent to initial recognition, such financial assets are subsequently measured at fair value. Interestcalculated using the effective interest method, impairment losses or gains and foreign exchange gains andlosses are recognised in profit or loss for the current period, and other gains or losses are recognised inother comprehensive income. On derecognition, the cumulative gain or loss previously recognised in othercomprehensive income is reclassified from other comprehensive income to profit or loss.Financial assets measured at fair value through profit or lossThe Group classifies the financial assets other than those measured at amortised cost and measured at fairvalue through other comprehensive income as financial assets measured at fair value through profit or loss.Upon initial recognition, the Group irrevocably designates certain financial assets that are required to bemeasured at amortised cost or at fair value through other comprehensive income as financial assets measuredat fair value through profit or loss in order to eliminate or significantly reduce accounting mismatch.Upon initial recognition, such financial assets are measured at fair value. Except for those held for hedgingpurposes, gains or losses (including interests and dividend income) arising from such financial assets arerecognised in the profit or loss for the current period.The business model for managing financial assets refers to how the Group manages its financial assets in orderto generate cash flows. That is, the Group’s business model determines whether cash flows will result fromcollecting contractual cash flows, selling financial assets or both. The Group determines the business model formanaging financial assets on the basis of objective facts and specific business objectives for managing financialassets determined by key management personnel.The Group assesses the characteristics of the contractual cash flows of financial assets to determine whetherthe contractual cash flows generated by the relevant financial assets on a specific date are solely payments ofprincipal and interest on the principal amount outstanding. The principal refers to the fair value of the financialassets at the initial recognition. Interest includes consideration for the time value of money, for the credit riskassociated with the principal amount outstanding during a particular period of time and for other basic lendingrisks, costs and profits. In addition, the Group evaluates the contractual terms that may result in a change in thetime distribution or amount of contractual cash flows from a financial asset to determine whether it meets therequirements of the above contractual cash flow characteristics.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(2) Classification and measurement of financial assets

(Cont’d)

Financial assets measured at fair value through profit or loss(Cont’d)All affected financial assets are reclassified on the first day of the first reporting period following the changein the business model where the Group changes its business model for managing financial assets; otherwise,financial assets shall not be reclassified after initial recognition.Financial assets other than accounts receivable without a significant financing component are measured atfair value upon initial recognition. For financial assets measured at fair value through profit or loss, relevanttransaction costs are directly recognised in profit or loss for the current period. For other categories of financialassets, relevant transaction costs are included in the amount initially recognised. Accounts receivable withoutsignificant financing component are initially recognised based on the transaction price expected to be entitledby the Group.

(3) Classification and measurement of financial liabilities

At initial recognition, financial liabilities of the Group are classified as financial liabilities measured at fair valuethrough profit or loss and financial liabilities measured at amortised cost. For financial liabilities not classifiedas measured at fair value through profit or loss, relevant transaction costs are included in the amount initiallyrecognised.Financial liabilities measured at fair value through profit or lossFinancial liabilities measured at fair value through profit or loss comprise held-for-trading financial liabilitiesand financial liabilities designated as measured at fair value through profit or loss upon initial recognition. Suchfinancial liabilities are subsequently measured at fair value, and the gains or losses from the change in fair valueand the dividend or interest expenses related to the financial liabilities are included in the profit or loss of thecurrent period.Financial liabilities measured at amortised costOther financial liabilities are subsequently measured at amortised cost using the effective interest rate method,and the gains or losses arising from derecognition or amortisation are recognised in profit or loss for the currentperiod.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(3) Classification and measurement of financial liabilities

Classification between financial liabilities and equity instrumentsA financial liability is a liability if:

① it has a contractual obligation to pay in cash or other financial assets to other parties.

② it has a contractual obligation to exchange financial assets or financial liabilities under potential adverse

condition with other parties.

③ it is a non-derivative instrument contract which will or may be settled with the entity

’s own equityinstruments, and the entity will deliver a variable number of its own equity instruments according to suchcontract.

④ it is a derivative instrument contract which will or may be settled with the entity

’s own equity instruments,except for a derivative instrument contract that exchanges a fixed amount of cash or other financial assetwith a fixed number of its own equity instruments.Equity instruments are any contract that evidences a residual interest in the assets of an entity after deductingall of its liabilities.If the Group cannot unconditionally avoid the performance of a contractual obligation by paying cash ordelivering other financial assets, the contractual obligation meets the definition of financial liabilities.Where a financial instrument must or may be settled with the Group’s own equity instruments, the Group’s ownequity instruments used to settle such instrument should be considered as to whether it is as a substitute forcash or other financial assets or for the purpose of enabling the holder of the instrument to be entitled to theremaining interest in the assets of the issuer after deducting all of its liabilities. For the former, it is a financialliability of the Group; for the latter, it is the Group’s own equity instruments.

(4) Derivative financial instruments

The Group’s derivative financial instruments are mainly forward foreign exchange contracts, which are initiallyrecognised at fair value on the date a derivative contract is entered into and are subsequently measured attheir fair value. A derivative financial instrument is recognised as an asset when the fair value is positive and asa liability when the fair value is negative. Any gain or loss arising from changes in fair value and not complyingwith the accounting requirements on hedging shall be recognised in profit or loss for current period.

(5) Fair value of financial instruments

The methods for determining the fair value of the financial assets or financial liabilities are set out in Note V. 10.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(6) Impairment of financial assets

The Group makes provision for impairment based on expected credit losses (ECLs) on the following items:

Financial assets measured at amortised cost;Debt investments measured at fair value through other comprehensive income;Measurement of ECLsECLs are the weighted average of credit losses of financial instruments weighted by the risk of default. Creditlosses refer to the difference between all contractual cash flows receivable according to the contract anddiscounted according to the original effective interest rate and all cash flows expected to be received, i.e. thepresent value of all cash shortages.The Group takes into account reasonable and well-founded information such as past events, current conditionsand forecasts of future economic conditions, and calculates the probability-weighted amount of the presentvalue of the difference between the cash flows receivable from the contract and the cash flows expected to bereceived weighted by the risk of default.The Group measures ECLs of financial instruments at different stages. If the credit risk of the financial instrumentdid not increase significantly upon initial recognition, it is at the first stage, and the Group makes provision forimpairment based on the ECLs within the next 12 months; if the credit risk of a financial instrument increasedsignificantly upon initial recognition but has not yet incurred credit impairment, it is at the second stage, and theGroup makes provision for impairment based on the lifetime ECLs of the instrument; if the financial instrumentincurred credit impairment upon initial recognition, it is at the third stage, and the Group makes provision forimpairment based on the lifetime ECLs of the instrument.For financial instruments with low credit risk on the balance sheet date, the Group assumes that the credit riskdid not increase significantly upon initial recognition, and makes provision for impairment based on the ECLswithin the next 12 months.Lifetime ECLs represent the ECLs resulting from all possible default events over the expected life of a financialinstrument. The 12-month ECLs are the ECLs resulting from possible default events on a financial instrumentwithin 12 months (or a shorter period if the expected life of the financial instrument is less than 12 months) afterthe balance sheet date, and is a portion of lifetime ECLs.The maximum period to be considered when estimating ECLs is the maximum contractual period over whichthe Group is exposed to credit risk, including renewal options.For the financial instruments at the first and second stages and with low credit risks, the Group calculates theinterest income based on the book balance and the effective interest rate before deducting the impairmentprovisions. For financial instruments at the third stage, interest income is calculated based on the amortisedcost after deducting impairment provisions made from the book balance and the effective interest rate.For bills receivable, accounts receivable and contract assets, regardless of whether there is a significantfinancing component, the Group always makes provision for impairment at an amount equal to lifetime ECLs.

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XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(6) Impairment of financial assets

(Cont’d)

Measurement of ECLs(Cont’d)

When the Group is unable to assess the information of ECLs for an individual financial asset at a reasonablecost, it classifies bills receivable and accounts receivable into portfolios based on the credit risk characteristics,and calculates the ECLs on a portfolio basis. The basis for determining the portfolios is as follows:

A. Bills receivableBills receivable portfolio 1: Bank acceptance billsBills receivable portfolio 2: Commercial acceptance billsB. Accounts receivableAccounts receivable portfolio 1: Factoring receivablesAccounts receivable portfolio 2: Receivables from non-related party customersAccounts receivable portfolio 3: Due from related party customersFor bills receivable classified as a portfolio, the Group refers to the historical credit loss experience, combinedwith the current situation and the forecast of future economic conditions, to calculate the ECLs based on defaultrisk exposure and lifetime ECL rate.For accounts receivable classified as a portfolio, the Group refers to the historical credit loss experience,combined with the current situation and the forecast of future economic conditions, to prepare a comparisontable of the ageing/overdue days of accounts receivable and the lifetime ECL rate to calculate the ECLs.Other receivablesThe Group classifies other receivables into portfolios based on credit risk characteristics, and calculates theECLs on a portfolio basis. The basis for determining the portfolios is as follows:

Other receivables portfolio 1: Amount due from government authoritiesOther receivables portfolio 2: Amount due from related partiesOther receivables portfolio 3: Other receivablesFor other receivables classified as a portfolio, the Group calculates the ECLs based on default risk exposureand the ECL rate over the next 12 months or the entire lifetime.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(6) Impairment of financial assets

(Cont’d)Long-term receivablesThe Group’s long-term receivables include finance lease receivables and deposits receivable.The Group classifies the finance lease receivables, deposits receivable and other receivables into portfoliosbased on the credit risk characteristics, and calculates the ECLs on a portfolio basis. The basis for determiningthe portfolios is as follows:

A. Finance lease receivablesFinance lease receivables portfolio 1: Receivables not past dueFinance lease receivables portfolio 2: Overdue receivablesB. Other long-term receivables

Other long-term receivables portfolio 1: Deposits receivableOther long-term receivables portfolio 2: Other receivablesFor deposits receivable and other receivables, the Group refers to the historical credit loss experience,combined with the current situation and the forecast of future economic conditions, and calculates the ECLsbased on default risk exposure and lifetime ECL rate.Except for those of finance lease receivables and deposits receivable, the ECLs of other receivables andlong-term receivables classified as a portfolio are measured based on default risk exposure and ECL rate overthe next 12 months or the entire lifetime.Debt investments and other debt investmentsFor debt investments and other debt investments, the Group measures the ECLs based on the nature of theinvestment, the types of counterparty and risk exposure, and default risk exposure and ECL rate within the next12 months or the entire lifetime.Assessment of significant increase in credit riskIn assessing whether the credit risk of a financial instrument has increased significantly upon initial recognition,the Group compares the risk of default of the financial instrument at the balance sheet date with that at the dateof initial recognition to determine the relative change in risk of default within the expected lifetime of the financialinstrument.In determining whether the credit risk has increased significantly upon initial recognition, the Group considersreasonable and well-founded information, including forward-looking information, which can be obtained withoutunnecessary extra costs or efforts. Information considered by the Group includes:

The debtor’s failure to make payments of principal and interest on their contractually due dates;

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(6) Impairment of financial assets

(Cont’d)Assessment of significant increase in credit risk(Cont’d)An actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if any);An actual or expected significant deterioration in the operating results of the debtor;Existing or expected changes in the technological, market, economic or legal environment that have a significantadverse effect on the debtor’s ability to meet its obligation to the Group.Depending on the nature of the financial instruments, the Group assesses whether there has been a significantincrease in credit risk on either an individual basis or a collective basis. When the assessment is performed on acollective basis, the financial instruments are grouped based on their common credit risk characteristics, suchas past due information and credit risk ratings.The Group determines that the credit risk on a financial asset has increased significantly if it is more than 30days past due.Credit-impaired financial assetsAt balance sheet date, the Group assesses whether financial assets measured at amortised cost and debtinvestments measured at fair value through other comprehensive income are credit-impaired. A financial assetis credit-impaired when one or more events that have an adverse effect on the estimated future cash flowsof the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the followingobservable events:

Significant financial difficulty of the issuer or debtor;A breach of contract by the debtor, such as a default or delinquency in interest or principal payments;For economic or contractual reasons relating to the debtor’s financial difficulty, the Group having granted to thedebtor a concession that would not otherwise consider;It becoming probable that the debtor will enter bankruptcy or other financial reorganisation;The disappearance of an active market for that financial asset because of financial difficulties of the issuer ordebtor.Presentation of provisions for ECLsECLs are remeasured at each balance sheet date to reflect changes in the financial instrument’s credit risk uponinitial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss forthe current period. For financial assets measured at amortised cost, the provisions of impairment is deductedfrom the carrying amount of the financial assets presented in the balance sheet; for debt investments at fairvalue through other comprehensive income, the Group makes provisions of impairment in other comprehensiveincome without reducing the carrying amount of the financial asset.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

9. Financial instruments

(Cont’d)

(6) Impairment of financial assets

(Cont’d)Write-offsThe book balance of a financial asset is directly written off to the extent that there is no realistic prospect ofrecovery of the contractual cash flows of the financial asset (either partially or in full). Such write-off constitutesderecognition of such financial asset. This is generally the case when the Group determines that the debtordoes not have assets or sources of income that could generate sufficient cash flows to repay the amountssubject to the write-off. However, financial assets that are written off could still be subject to enforcementactivities in order to comply with the Group’s procedures for recovery of amounts due.If a write-off of financial assets is later recovered, the recovery is credited to profit or loss in the period in whichthe recovery occurs.

(7) Transfer of financial assets

Transfer of financial assets refers to the transfer or delivery of financial assets to another party other than theissuer of such financial assets (the transferee).If the Group transfers substantially all the risks and rewards of ownership of the financial asset to the transferee,the financial asset shall be derecognised. If the Group retains substantially all the risks and rewards ofownership of a financial asset, the financial asset shall not be derecognised.If the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financialasset, it accounts for the transaction as follows: if the Group does not retain control, it derecognises thefinancial asset and recognises any resulting assets or liabilities; if the control over the financial asset is notwaived, the relevant financial asset is recognised according to the extent of its continuing involvement in thetransferred financial asset and the relevant liability is recognised accordingly.

(8) Offset of financial assets and financial liabilities

If the Group owns the legitimate rights of offsetting the recognised financial assets and financial liabilities, whichare enforceable currently, and the Group plans to realise the financial assets or to clear off the financial liabilitieson a net amount basis or simultaneously, the net amount of financial assets and financial liabilities shall bepresented in the balance sheet upon offsetting. Otherwise, financial assets and financial liabilities are presentedseparately in the balance sheet without offsetting.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

10. Fair value measurement

The fair value refers to the price that will be received when selling an asset or the price to be paid to transfer a liabilityin an orderly transaction between market participants on the date of measurement.The Group measures the relevant assets or liabilities at fair value, assuming that the orderly transaction of selling theassets or transferring the liabilities is conducted in the main market of the relevant assets or liabilities; in the absenceof the main market, the Group assumes that the transaction is conducted in the most advantageous market forthe relevant asset or liability. The main (or the most advantageous) market must be accessible to by the Group onthe measurement date. The Group uses assumptions that market participants would use when pricing the asset orliability, assuming that market participants act in their economic best interest.For financial assets or financial liabilities exist in an active market, fair value is determined based on the quotedprice in such market. While financial instruments do not exist in an active market, the fair value is determined usingvaluation techniquesFair value measurement for a non-financial asset takes into account a market participant’s ability to generateeconomic benefits by using the asset in its best use or by selling it to another market participant that would use theasset in its best use.The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data areavailable to measure fair value, and gives priority to relevant observable inputs. Unobservable inputs are used onlywhen relevant observable inputs are not accessible or the access to which is impracticable.All assets and liabilities measured at fair value or disclosed in the financial statements are categorised within the fairvalue hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurementas a whole: Level 1 inputs are available quoted prices (unadjusted) in active markets for identical assets or liabilitiesat the measurement date; Level 2 inputs are inputs, other than Level 1 inputs, that are observable for the asset orliability, either directly or indirectly; Level 3 inputs are unobservable inputs for the asset or liability.For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Groupre-assess them at each balance sheet date to determine whether transfers have occurred between levels in thehierarchy.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

11. Inventories

(1) Classification of inventories

Inventories of the Group mainly include raw materials, work in progress, goods in stock, development productsand consumable biological assets, etc.

(2) Pricing of inventories dispatched

Inventories of the Group are measured at their actual cost when obtained. Cost of raw materials, goods in stockand others will be calculated with weighted average method when being dispatched.Consumable biological assets refer to biological assets held-for-sale which include growing timber. Consumablebiological assets without a stock are stated at historical cost at initial recognition, and subsequently measuredat fair value when there is a stock. Changes in fair values shall be recognised as profit or loss in the currentperiod. The cost of self-planting, self-cultivating consumable biological assets is the necessary expensesdirectly attributable to such assets prior to canopy closure, including borrowing costs eligible for capitalisation.Subsequent expenses such as maintenance cost incurred after canopy closure shall be included in profit or lossfor the current period.

(3) Recognition of net realisable value of inventories and provision for inventory impairment

Net realisable value of inventories refers to the amount of the estimated price of inventories less the estimatedcost incurred upon completion, estimated sales expenses and taxes and levies. The realisable value ofinventories shall be determined on the basis of definite evidence, purpose of holding the inventories and effectof after-balance-sheet-date events.At the balance sheet date, provision for inventory impairment is made when the cost is higher than the netrealisable value. The Group usually make provision for inventory impairment based on categories of inventories.At the balance sheet date, in case the factors causing inventory impairment no longer exists, the originalprovision for inventory impairment shall be reversed.

(4) Inventory stock taking system

The Group implements permanent inventory system as its inventory stock taking system.

(5) Amortisation of low-value consumables and packaging materials

The low-value consumables of the Group are amortised when issued for use.Packaging materials for turnover are amortised when issued for use.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

12. Held for sale and discontinued operations

(1) Classification and measurement of non-current assets or disposal groups held for sale

A non-current asset or disposal group is classified as held for sale if its carrying amount will be recoveredprincipally through a sale transaction (including a non-monetary asset exchange with commercial substance)rather than through continuing use.The aforesaid non-current asset does not include the investment property subsequently measured at fair value,the biological assets measured at the net amount of the fair value deducting the sales expense, the assetsgenerated from remuneration, financial assets, deferred income tax assets and rights from insurance contract.A disposal group is a group of assets to be disposed of together as a whole by sale or other means in atransaction, and liabilities directly associated with those assets that will be transferred in the transaction. Incertain circumstances, the disposal group includes the goodwill acquired in the business combination.A non-current asset or a disposal group is classified as held for sale if it meets all of the following conditions:

the non-current asset or disposal group is available for immediate sale in its present condition subject only toterms that are usual and customary for sales of such asset or disposal group; the sale is highly probable, i.e. asale plan has been resolved and a firm purchase commitment has been obtained, and the sale is expected tobe completed within one year. When the Group loses control of a subsidiary due to reasons such as disposalof investment in a subsidiary, regardless of whether the Group retains part of the equity investment after thedisposal, when the investment in a subsidiary intended to be disposed of meets the conditions for classificationas held for sale, the investment in a subsidiary is classified as held for sale as a whole in the separate financialstatements, and all assets and liabilities of the subsidiary are classified as held for sale in the consolidatedfinancial statements.When the non-current assets or disposal groups held for sale are initially measured or remeasured at thebalance sheet date, the excess of the carrying amount over the net amount of the fair value less sellingexpenses is recognised as asset impairment loss. For the amount of impairment loss recognised on disposalgroups held for sale, the carrying amount of the goodwill of the disposal group shall be offset against first, andthen be offset against the carrying amount of non-current assets according to the proportion of the carryingamount of non-current assets.If the net amount of the fair value of the non-current assets or disposal groups held for sale less the sellingexpenses increases on the subsequent balance sheet date, the amount previously written down shall berecovered and reversed in the amount of asset impairment loss recognised after be classified as held for sale,and the reversed amount shall be included in the current profit and loss. The carrying amount of goodwill writtenoff shall not be reversed.Non-current assets held for sale and assets in disposal group held for sale are not depreciated or amortised.Interest and other expenses of a disposal group classified as held for sale continue to be recognised. For allor part of an investment in an associate or a joint venture that is classified as held for sale, the part of beingclassified as held for sale shall cease to be accounted for using the equity method, while any retained portion(not classified as held for sale) shall continue to be accounted for using the equity method; The Group ceases touse the equity method from the date when the Group ceases to have significant influence over an associate or ajoint venture.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

12. Held for sale and discontinued operations

(Cont’d)

(1) Classification and measurement of non-current assets or disposal groups held for sale

(Cont’d)If a non-current asset or disposal group is classified as held for sale but subsequently no longer meets thecriteria for being classified as held for sale, the Group shall cease to classify it as held for sale and measure it atthe lower of:

① he carrying amount of the asset or disposal group before being classified as held for sale is adjusted by

the depreciation, amortisation or impairment that would have been recognised if the asset or disposalgroup had not been classified as held for sale;

② recoverable amount.

(2) Discontinued operations

A discontinued operation is a component of the Group that either has been disposed of or is classified as heldfor sale, and can be distinguished separately, and meets one of the following conditions:

① The component represents a separate major line of business or geographical area of operations.

② The component is part of a related plan to dispose of a separate major line of business or geographical

area of operations.

③ The component is a subsidiary acquired exclusively with a view to resale.

(3) Presentation

The Group presents the non-current assets held for sale or the assets in the disposal group held for sale as“assets held-for-sale”and the liabilities in the disposal group held for sale as“liabilities held-for-sale”in thebalance sheet.The Group presents profit or loss from continuing operations and profit or loss from discontinued operations inthe income statement. For non-current assets and disposal groups held for sale that do not meet the definitionof discontinued operation, their impairment losses and reversal amounts and gains or losses are presented asprofit or loss from continuing operations. Operating profit or loss such as impairment loss and reversal amountof discontinued operation and disposal gain or loss are presented as profit or loss from discontinued operation.Disposal groups that are intended to be closed for use rather than for sale and meet the conditions for thecomponents in the definition of discontinued operations are presented as discontinued operations from the dateof cessation of use.For the discontinued operations presented in the current period, the information originally presented asprofit or loss from continuing operations in the current financial statements is re-presented as profit or lossfrom discontinued operations in the comparable accounting period. If the discontinued operations no longermeet the conditions for being classified of held-for-sale, the information originally presented as profit or lossfrom discontinued operations in the current financial statements shall be re-presented as profit or loss fromcontinuing operations in the comparable accounting period.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

13. Long-term equity investments

Long-term equity investments include the equity investments in subsidiaries, joint ventures and associates. Associatesof the Group are those investees that the Group imposes significant influence over.

(1) Determination of initial investment cost

Long-term equity investments acquired through business combinations: for a long-term equity investmentacquired through a business combination involving enterprises under common control, the investment cost shallbe the absorbing party’s share of the carrying amount of the owners’equity under the consolidated financialstatements of the ultimate controlling party on the date of combination. For a long-term equity investmentacquired through a business combination involving enterprises not under common control, the investment costof the long-term equity investment shall be the cost of combination.Long-term equity investments acquired through other means: for a long-term equity investment acquiredby cash payment, the initial investment cost shall be the purchase cost actually paid; for a long-term equityinvestment acquired by issuing equity securities, the initial investment cost shall be the fair value of equitysecurities issued.

(2) Subsequent measurement and method for profit or loss recognition

Investments in subsidiaries shall be accounted for using the cost method. Except for the investments whichmeet the conditions of holding for sale, investments in associates and joint ventures shall be accounted forusing the equity method.For a long-term equity investment accounted for using the cost method, the cash dividends or profits declaredby the investees for distribution shall be recognised as investment gains and included in profit or loss for thecurrent period, except the case of receiving the actual consideration paid for the investment or the declared butnot yet distributed cash dividends or profits which is included in the consideration.For a long-term equity investment accounted for using the equity method, where the initial investment costexceeds the investor’s interest in the fair value of the investee’s identifiable net assets at the acquisition date,no adjustment shall be made to the investment cost of the long-term equity investment. Where the initialinvestment cost is less than the investor’s interest in the fair value of the investee’s identifiable net assets at theacquisition date, adjustment shall be made to the carrying amount of the long-term equity investment, and thedifference shall be charged to profit or loss for the current period.Under the equity method, investment gain and other comprehensive income shall be recognised based onthe Company’s share of the net profits or losses and other comprehensive income made by the investee,respectively. Meanwhile, the carrying amount of long-term equity investment shall be adjusted. The carryingamount of long-term equity investment shall be reduced based on the Group’s share of profit or cash dividenddistributed by the investee. In respect of the other movement of net profit or loss, other comprehensive incomeand profit distribution of investee, the carrying amount of long-term equity investment shall be adjusted andincluded in the capital reserves (other capital reserves). The Group shall recognise its share of the investee’s netprofits or losses based on the fair values of the investee’s individual separately identifiable assets at the time ofacquisition, after making appropriate adjustments thereto according to the accounting policies and accountingperiods of the Group.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

13. Long-term equity investments

(Cont’d)

(2) Subsequent measurement and method for profit or loss recognition

(Cont’d)For additional equity investment made in order to obtain significant influence or common control over investeewithout resulted in control, the initial investment cost under the equity method shall be the aggregate of fairvalue of previously held equity investment and additional investment cost on the date of transfer. The differencebetween the fair value and carrying amount of previously held equity investment on the date of transfer and theaccumulated change in fair value originally included in other comprehensive income shall be recognised in theprofit or loss for the current period under the equity method.In the event of loss of common control or significant influence over investee due to partial disposal of equityinvestment, the remaining equity interest after disposal shall be accounted for according to the AccountingStandard for Business Enterprises No. 22 – Recognition and measurement of Financial Instruments. Thedifference between its fair value and carrying amount shall be included in profit or loss for the current period. Inrespect of other comprehensive income recognised under previous equity investment using equity method, itshall be accounted for in accordance with the same accounting treatment for direct disposal of relevant asset orliability by investee at the time when equity method was ceased to be used. Movement of other owners’equityrelated to the previous equity investment shall be transferred to profit or loss for the current period.In the event of loss of control over investee due to partial disposal of equity investment, the remaining equityinterest which can apply common control or impose significant influence over the investee after disposal shallbe accounted for using equity method. Such remaining equity interest shall be treated as accounting for usingequity method since it is obtained and adjustment was made accordingly. For the remaining equity interestwhich cannot apply common control or impose significant influence over the investee after disposal, it shall beaccounted for using the Accounting Standard for Business Enterprises No. 22 – Recognition and measurementof Financial Instruments. The difference between its fair value and carrying amount as at the date of losingcontrol shall be included in profit or loss for the current period.If the shareholding ratio of the Company is reduced due to the capital increase of other investors, and as aresult, the Company loses the control of but still can apply common control or impose significant influence overthe investee, the net asset increase due to the capital increase of the investee attributable to the Company shallbe recognised according to the new shareholding ratio, and the difference with the original carrying amount ofthe long-term equity investment corresponding to the shareholding ratio reduction part that should be carriedforward shall be recorded in the profit or loss for the current period; and then it shall be adjusted according tothe new shareholding ratio as if equity method is used for accounting when acquiring the investment.In respect of the transactions between the Group and its associates and joint ventures, the share of unrealisedgain or loss arising from internal transactions shall be eliminated by the portion attributable to the Group.Investment gain shall be recognised accordingly. However, any unrealised loss arising from internal transactionsbetween the Group and an investee is not eliminated to the extent that the loss is impairment loss of thetransferred assets.(In case of using accounting policy options, the following disclosure should be added:

The Group’s long-term equity investments in associates and joint ventures, which are held indirectly by venturecapital institutions, mutual funds, trust companies or similar entities including investment-linked insurancefunds, are measured at fair value and their changes are included in the profit or loss.)

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

13. Long-term equity investments

(Cont’d)

(3) Basis for determining the common control and significant influence on the investee

Common control is the contractually agreed sharing of control over an arrangement, which relevant activitiesof such arrangement must be decided by unanimously agreement from parties who share control. Whendetermining if there is any common control, it should first be identified if the arrangement is controlled byall the participants or the group consisting of the participants, and then determined if the decision on thearranged activity can be made only with the unanimous consent of the participants sharing the control. If all theparticipants or a group of participants can only decide the relevant activities of certain arrangement throughconcerted action, it can be considered that all the participants or a group of participants share commoncontrol on the arrangement. If there are two or more participant groups that can collectively control certainarrangement, it does not constitute common control. When determining if there is any common control, therelevant protection rights will not be taken into account.Significant influence is the power of the investor to participate in the financial and operating policy decisionsof an investee, but to fail to control or joint control the formulation of such policies together with other parties.When determining if there is any significant influence on the investee, the influence of the voting shares of theinvestee held by the investor directly and indirectly and the potential voting rights held by the investor andother parties which are exercisable in the current period and converted to the equity of the investee, includingthe warrants, stock options and convertible bonds that are issued by the investee and can be converted in thecurrent period, shall be taken into account.When the Company holds directly or indirectly through the subsidiary 20% (inclusive) to 50% of the votingshares of the investee, it is generally considered to have significant influence on the investee, unless thereis concrete evidence to prove that it cannot participate in the production and operation decision-making ofthe investee and cannot pose significant influence in this situation. When the Group owns less than 20%of the voting shares of the investee, it is generally considered that it has not significantly influenced on theinvestee, unless there is concrete evidence to prove that it can participate in the production and operationdecision-making of the investee and cannot pose significant influence in this situation.

(4) Method for impairment test and measurement of impairment provision

For the method for making impairment provision for the investment in subsidiaries, associates and jointventures, please refer to Note V. 21.

14. Investment property

Investment property refers to real estate held to earn rentals or for capital appreciation, or both. The investmentproperty of the Group includes leased land use rights, land use rights held for sale after appreciation, and leasedbuildings.The investment property of the Group is measured initially at cost upon acquisition, and subject to depreciation oramortisation in the relevant periods according to the relevant provisions on fixed assets or intangible assets.For the method for making impairment provision for the investment property adopted cost method for subsequentmeasurement, please refer to Note V. 21.When an investment property is sold, transferred, retired or damaged, the amount of proceeds on disposal of theproperty net of the carrying amount and related tax and surcharges is recognised in profit or loss for the currentperiod.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

15. Fixed assets

(1) Conditions for recognition of fixed assets

Fixed assets of the Group are tangible assets that are held for use in the production or supply of goods orservices, for rental to others, or for administrative purposes; and have a useful life of more than one accountingyear.Fixed assets are recognised only if the Company is very likely to receive economic benefits from the asset andits cost can be measured reliably.A fixed asset of the Group shall be initially measured at actual cost when acquired.

(2) Depreciation method of various types of fixed assets

The Group adopts the straight-line method for depreciation. Provision for depreciation will be started when thefixed asset reaches its expected usable state, and stopped when the fixed asset is derecognised or classified asa non-current asset held for sale. Without regard to the depreciation provision, the Group determines the annualdepreciation rate of various types of fixed assets by category, estimated useful lives and estimated residualvalue of the fixed assets, as shown below:

Category

Useful lives

(Year)

Estimated residual

value (%)

Annual depreciation

rate (%)Housing and building structure20-405-102.25-4.75Machinery and equipment8-205-104.50-11.88Transportation equipment5-85-1011.25-19.00Electronic equipment and others55-1018.00-19.00Where, for the fixed assets for which depreciation provision is made, to determine the depreciation rate, theaccumulated amount of the fixed asset depreciation provision that has been made shall be deducted.

(3) The impairment test method and impairment provision method of the fixed assets are set out in Note V. 21.

(4) The Group will recheck the useful lives, estimated net residual value and depreciation method of the fixed

assets at the end of each year.When there is any difference between the useful lives estimate and the originally estimated value, the usefullives of the fixed asset shall be adjusted. When there is any difference between the estimated net residual valueestimate and the originally estimated value, the estimated net residual value of the fixed asset shall be adjusted.

(5) Overhaul expense

For the overhaul expense incurred by the Group during the regular inspection on the fixed assets, if there isconcrete evidence to prove that it meets the fixed asset recognition condition, it shall be included in the cost offixed asset; if it does not meet the fixed asset recognition condition, it shall be included in the profit or loss forthe current period. The depreciation of fixed assets shall be continued in the intervals of the regular overhaul ofthe fixed asset.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

16. Construction in progress

Construction in progress of the Group is recognised based on the actual construction cost, including all necessaryexpenditures incurred for construction projects, capitalised borrowing costs for the construction in progress before ithas reached the working condition for its intended use, and other related expenses during the construction period.A construction in progress is reclassified to fixed assets when it has reached the working condition for its intendeduse.The method for impairment provision of construction in progress is set out in Note V. 21.

17. Materials for project

The materials for project of the Group refer to various materials prepared for construction in progress, includingconstruction materials, equipment not yet installed and tools for production.The purchased materials for project are measured at cost, and the planning materials for project are transferred toconstruction in progress. After the completion of the project, the remaining materials for project are transferred toinventory.The method for impairment provision of materials for project is set out in Note V. 21.The closing balance of materials for project is presented as“construction in progress” item in the balance sheet.

18. Borrowing costs

(1) Recognition principle for the capitalisation of the borrowing costs

The borrowing costs incurred by the Group directly attributable to the acquisition, construction or productionof a qualifying asset will be capitalised and included in the cost of relevant asset. Other borrowing costs will berecognised as expenses when incurred according to the incurred amount, and included in the profit or loss forthe current period. When the borrowing costs meet all the following conditions, capitalisation shall be started:

① The capital expenditure has been incurred, which includes the expenditure incurred by paying cash,

transferring non-cash assets or undertaking interest-bearing liabilities for acquiring. constructing orproducing the qualifying assets;

② The borrowing costs have been incurred;

③ The acquisition, construction or production activity necessary for the asset to be ready for its intended

use or sale has been started.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

18. Borrowing costs

(Cont’d)

(2) Capitalisation period of borrowing costs

When a qualifying asset acquired, constructed or produced by the Group is ready for its intended use or sale,the capitalisation of the borrowing costs shall discontinue. The borrowing costs incurred after a qualifying assetis ready for its intended use or sale shall be recognised as expenses when incurred according to the incurredamount, and included in the profit or loss for the current period.Capitalisation of borrowing costs shall be suspended during periods in which the acquisition, construction orproduction of a qualifying asset is interrupted abnormally, when the interruption is for a continuous period ofmore than 3 months. The capitalisation of the borrowing costs shall be continued in the normal interruptionperiod.

(3) Calculation methods for capitalisation rate and capitalisation amount of the borrowing costs

Where funds are borrowed for a specific purpose, the amount of interest to be capitalised shall be the actualinterest expense incurred on that borrowing for the period less any bank interest earned from depositing theborrowed funds before being used into banks or any investment income on the temporary investment of thosefunds. Where funds are borrowed for general purpose, the Company shall determine the amount of interestto be capitalised on such borrowings by applying a capitalisation rate to the weighted average of the excessamounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings.The capitalisation rate shall be the weighted average of the interest rates applicable to the general-purposeborrowings.During the capitalisation period, exchange differences on a specific purpose borrowing denominated in foreigncurrency shall be capitalised. Exchange differences related to general-purpose borrowings denominated inforeign currency shall be included in profit or loss for the current period.

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XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

19. Intangible assets

The intangible assets of the Group include land use rights, software and certificates of third party right.The intangible asset is initially measured at cost, and its useful life is determined upon acquisition. If the useful lifeis finite, the intangible asset will be amortised over the estimated useful life using the amortisation method thatcan reflect the estimated realisation of the economic benefits related to the asset, starting from the time when it isavailable for use. If it is unable to reliably determine the estimated realisation, straight-line method shall be adoptedfor amortisation. The intangible assets with uncertain useful life will not be amortised.The amortisation methods for the intangible assets with finite useful life are as follows:

TypeUseful lifeMethod of amortisationLand use rights50-70Straight-line methodSoftware5-10Straight-line methodCertificates of third party right3Straight-line methodThe Group reviews the useful life and amortisation method of the intangible assets with finite useful life at the end ofeach year. If it is different from the previous estimates, the original estimates will be adjusted, and will be treated as achange in accounting estimate.If it is estimated on the balance sheet date that certain intangible asset can no longer bring future economic benefitto the company, the carrying amount of the intangible asset will be entirely transferred into the profit or loss for thecurrent period.The impairment method for the intangible assets is set out in Note V. 21.

20. Research and development expenditure

Research and development expenditure of the Group is divided into expenses incurred during the research phase andexpenses incurred during the development phase.Expenses incurred during the research phase and the development phase are recognised in profit or loss in thecurrent period.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

21. Asset impairment

Impairment of long-term equity investments in subsidiaries, associates and joint ventures, investment property, fixedassets, construction in progress, intangible assets, goodwill and others (excluding inventories, deferred tax assetsand financial assets) subsequently measured at cost is determined as follows:

The Group determines if there is any indication of asset impairment as at the balance sheet date. If there is anyevidence indicating that an asset may be impaired, recoverable amount shall be estimated for impairment test.Goodwill arising from business combinations, intangible assets with an indefinite useful life and intangible assets notready for use will be tested for impairment annually, regardless of whether there is any indication of impairment.The recoverable amount of an asset is the higher of its fair value less costs of disposal and the present value of thefuture cash flows expected to be derived from the asset. The Group estimates the recoverable amount of an individualasset. If it is not possible to estimate the recoverable amount of the individual asset, the Group shall determine therecoverable amount of the asset group to which the asset belongs. The determination of an asset group is based onwhether major cash inflows generated by the asset group are independent of the cash inflows from other assets orasset groups.When the recoverable amount of an asset or an asset group is less than its carrying amount, the carrying amount isreduced to its recoverable amount. The reduction amount is charged to profit or loss and an impairment provision ismade accordingly.For the purpose of impairment test of goodwill, the carrying amount of goodwill acquired in a business combination isallocated to the relevant asset groups on a reasonable basis from the acquisition date; where it is difficult to allocateto the related asset groups, it is allocated to the combination of related asset groups. The related asset groups orcombination of asset groups are those which can benefit from the synergies of the business combination and are notlarger than the reportable segments identified by the Group.In the impairment test, if there is any indication that an asset group or a combination of asset groups related togoodwill may be impaired, the Group first tests the asset group or set of asset groups excluding goodwill forimpairment, calculates the recoverable amount and recognises the corresponding impairment loss. An impairment testis then carried out on the asset group or combination of asset groups containing goodwill by comparing its carryingamount with its recoverable amount. If the recoverable amount is lower than the carrying amount, an impairment lossis recognised for goodwill.An impairment loss recognised shall not be reversed in a subsequent period.

22. Long-term prepaid expenses

The long-term prepaid expenses incurred by the Group shall be recognised based on the actual cost, and evenlyamortised over the estimated benefit period. For the long-term prepaid expense that cannot benefit the subsequentaccounting periods, its value after amortisation shall be entirely included in the profit or loss for the current period.

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XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

23. Employee benefits

(1) Scope of employee benefits

Employee benefits are all forms of considerations or compensation given by an entity in exchange forservices rendered by employees or for the termination of employment. Employee benefits include short-termstaff remuneration, post-employment benefits, termination benefits and other long-term employee benefits.Employee benefits include benefits provided to employees’spouses, children, other dependants, survivors ofthe deceased employees or to other beneficiaries.Employee benefits are presented as“employee benefits payable”and“long-term employee benefits payable”inthe balance sheet, respectively, according to liquidity.

(2) Short-term staff remuneration

Employee wages or salaries actually incurred, bonuses, and social insurance contributions such as medicalinsurance, work injury insurance, maternity insurance, and housing fund, contributed at the applicablebenchmarks and rates, are recognised as a liability as the employees provide services, with a correspondingcharge to profit or loss or included in the cost of assets where appropriate. Where the payment of liability isexpected not to be fully settled within 12 months after the end of the annual reporting period in which theemployees render the related services, and the financial impact would be material, these liabilities are measuredat their discounted values.

(3) Post-employment benefits

Post-employment benefit plans include defined contribution plans and defined benefit plans. A definedcontribution plan is a post-employment benefit plan under which the Group pays fixed contributionsinto a separate fund and the Group has no further obligations for payment. A defined benefit plan is apost-employment benefit plan other than a defined contribution plan.Defined contribution plansDefined contribution plans include basic pension insurance and unemployment insurance.During the accounting period in which an employee provides service, the amount payable calculated accordingto the defined contribution plan is recognised as a liability and included in the profit or loss for the current periodor the cost of relevant assets.

(4) Termination benefits

When the Group provides termination benefits to employees, employee benefits liabilities arising fromtermination benefits are recognised in profit or loss for the current period at the earlier of the following dates:

when the Group cannot revoke unilaterally compensation for dismissal due to the cancellation of labourrelationship plans and employee redundant proposals; the Group recognises cost and expenses related topayment of compensation for dismissal and restructuring.For the early retirement plans, economic compensations before the actual retirement date were classified astermination benefits. During the period from the date of cease of render of services to the actual retirementdate, relevant wages and contribution to social insurance for the employees proposed to be paid are recognisedin profit or loss on a one-off basis. Economic compensation after the official retirement date, such as normalpension, is accounted for as post-employment benefits.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

23. Employee benefits

(Cont’d)

(5) Other long-term benefits

Other long-term employee benefits provided by the Group to employees that meet the conditions for definedcontribution plans are accounted for in accordance with the relevant provisions relating to defined contributionplans as stated above. If the conditions for defined benefit plans are met, the benefits shall accounted for inaccordance with the relevant provisions relating to defined benefit plans, but the“changes arising from theremeasurement of the net liabilities or net assets of the defined benefit plans”in the relevant employee benefitsshall be included in the current profit or loss or the relevant asset cost.

24. Provisions

Obligations pertinent to the contingencies which satisfy the following conditions are recognised as provisions:

(1) the obligation is a current obligation borne by the Group;

(2) it is likely that an outflow of economic benefits from the Group will be resulted from the performance of the

obligation; and

(3) the amount of the obligation can be reliably measured.

The provisions shall be initially measured based on the best estimate for the expenditure required for the performanceof the current obligation, after taking into account relevant risks, uncertainties, time value of money and otherfactors pertinent to the contingencies. If the time value of money has significant influence, the best estimates shallbe determined after discounting the relevant future cash outflow. The Group reviews the carrying amount of theprovisions on the balance sheet date and adjust the carrying amount to reflect the current best estimates.If all or some expenses incurred for settlement of recognised provisions are expected to be borne by the third party,the compensation amount shall, on a recoverable basis, be recognised as asset separately, and compensationamount recognised shall not be more than the carrying amount of provisions.

25. Preference shares, perpetual bonds and other financial instruments

(1) Classification of financial liabilities and equity instruments

Financial instruments issued by the Group are classified into financial assets, financial liabilities or equityinstruments on the basis of the substance of the contractual arrangements and the economic nature not onlyits legal form, together with the definition of financial asset, financial liability and equity instruments on initialrecognition.

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XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

25. Preference shares, perpetual bonds and other financial instruments

(Cont’d)

(2) Accounting treatment of preference shares, perpetual bonds and other financial instruments

Financial instruments issued by the Group are initially recognised and measured in accordance with thefinancial instrument standards; thereafter, interest or dividends are accrued on each balance sheet dateand accounted for in accordance with relevant specific ASBEs, i.e. to determine the accounting treatmentfor interest expenditure or dividend distribution of the instrument based on the classification of the financialinstrument issued. For financial instruments classified as equity instruments, their interest expenses or dividenddistributions are treated as profit distribution of the Group, and their repurchases and cancellations are treatedas changes in equity; for financial instruments classified as financial liabilities, their interest expenses or dividenddistribution are in principle accounted for with reference to borrowing costs, and the gains or losses arising fromtheir repurchases or redemption are included in the profit or loss for the current period.For the transaction costs such as fees and commissions incurred by the Group for issuing financial instruments,if such financial instruments are classified as debt instruments and measured at amortised cost, they areincluded in the initial measured amount of the instruments issued; if such financial instruments are classified asequity instruments, they are deducted from equity.

26. Revenue

(1) General principles

The Group recognises revenue when it satisfies a performance obligation in the contract, i.e. when the customerobtains control of the relevant goods or services.Where a contract has two or more performance obligations, the Group allocates the transaction price to eachperformance obligation based on the percentage of respective unit price of goods or services guaranteed byeach performance obligation, and recognises as revenue based on the transaction price that is allocated toeach performance obligation.If one of the following conditions is fulfilled, the Group performs its performance obligation within a certainperiod; otherwise, it performs its performance obligation at a point of time:

① when the customer simultaneously receives and consumes the benefits provided by the Group when the

Group performs its obligations under the contract;

② when the customer is able to control the goods in progress in the course of performance by the Group

under the contract;

③ when the goods produced by the Group under the contract are irreplaceable and the Group has the right

to payment for performance completed to date during the whole contract term.For performance obligations performed within a certain period, the Group recognises revenue by measuringthe progress towards complete of that performance obligation within that certain period. When the progressof performance cannot be reasonably determined, if the costs incurred by the Group are expected tobe compensated, the revenue shall be recognised at the amount of costs incurred until the progress ofperformance can be reasonably determined.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

26. Revenue

(Cont’d)

(1) General principles

(Cont’d)For performance obligation performed at a point of time, the Group recognises revenue at the point of timeat which the customer obtains control of relevant goods or services. To determine whether a customer hasobtained control of goods or services, the Group considers the following indications:

① the Group has the current right to receive payment for the goods, which is when the customers has the

current payment obligations for the goods;

② the Group has transferred the legal title of the goods to the customer, which is when the client possesses

the legal title of the goods;

③ the Group has transferred the physical possession of goods to the customer, which is when the customer

obtain physical possession of the goods;

④ the Group has transferred all of the substantial risks and rewards of ownership of the goods to the

customer, which is when the customer obtain all of the substantial risks and rewards of ownership of thegoods to the customer;

⑤ the customer has accepted the goods;

⑥ other information indicates that the customer has obtained control of the goods.

The Group’s right to consideration in exchange for goods or services that the Group has transferred tocustomers (and such right depends on factors other than passage of time) is accounted for as contract assets,and contract assets are subject to impairment based on ECLs (see Note V. 9 (6)). The Group’s unconditionalright to receive consideration from customers (only depends on passage of time) is accounted for as accountsreceivable. The Group’s obligation to transfer goods or services to customers for which the Group has receivedor should receive consideration from customers is accounted for as contract liabilities.Contract assets and contract liabilities under the same contract are presented on a net basis. Where the netamount has a debit balance, it is presented in“contract assets”or“other non-current assets”according to itsliquidity. Where the net amount has a credit balance, it is presented in“contract liabilities”or“other non-currentliabilities” according to its liquidity.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

26. Revenue

(Cont’d)

(2) Specific methods

Specific method for revenue recognition of machine-made paper business of the Group: in terms of domesticsales of machine-made paper, revenue is recognised when goods are delivered to the customers and suchdeliveries are confirmed; while in terms of overseas sales of machine-made paper, revenue is recognised on theday when goods are loaded on board and declared.Specific method for recognition of finance lease income of the Group: according to the repayment schedule, theincome is recognised by instalments according to the effective interest rate.Specific method for recognition of revenue from real estate of the Group: revenue is recognised by amortisingthe rental income on a straight-line basis over the lease term.

27. Government grants

A government grant is recognised when there is reasonable assurance that the grant will be received and that theGroup will comply with the conditions attaching to the grant.If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received orreceivable. If a government grant is in the form of a transfer of non-monetary asset, it is measured at fair value; if thefair value cannot be obtained in a reliable way, it is measured at the nominal amount of RMB1.Government grants obtained for acquisition or construction of long-term assets or other forms of long-term assetformation are classified as government grants related to assets, while the remaining government grants are classifiedas government grants related to revenue.Regarding the government grant not clearly defined in the official documents and can form long-term assets, thepart of government grant which can be referred to the value of the assets is classified as government grant relatedto assets and the remaining part is government grant related to revenue. For the government grant that is difficult todistinguish, the entire government grant is classified as government grant related to revenue.A government grant related to an asset shall be recognised as deferred income, and evenly amortised to profit or lossover the useful life of the asset in a reasonable and systematic manner. For a government grant related to revenue,if the grant is a compensation for related costs, expenses or losses incurred, the grant shall be recognised in profitor loss for the current period; if the grant is a compensation for related costs, expenses or losses to be incurredin subsequent periods, the grant shall be recognised as deferred income, and recognised in profit or loss over theperiods in which the related costs, expenses or losses are recognised. A government grant measured at nominalamount is directly included in profit or loss for the current period. The Group adopts a consistent approach to thesame or similar government grants.A government grant related to daily activities is recognised in other gains relying on the essence of economicbusiness; otherwise, recognised in non-operating income or non-operating expenses.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

27. Government grants

(Cont’d)For the repayment of a government grant already recognised, if there is any related deferred income, the repaymentshall be off set against the carrying amount of the deferred income, and any excess shall be recognised in profit orloss for the current period; otherwise, the repayment shall be recognised immediately in profit or loss for the currentperiod.For the policy preferential interest subsidy, if it is provided by the financial authority through banks, it is recognisedat the amount of borrowings actually received, and the borrowings costs are calculated based on the principalof the borrowings and the policy preferential interest rate; if it is provided by the financial authority directly, thecorresponding interest will be used to offset the relevant borrowing expenses.

28. Deferred income tax assets and deferred income tax liabilities

Income tax comprises current income tax expense and deferred income tax expense, which are included in profit orloss for the current period as income tax expenses, except for deferred tax related to transactions or events that aredirectly recognised in owners’ equity which are recognised in owners’equity, and deferred tax arising from a businesscombination, which is adjusted against the carrying amount of goodwill.Temporary differences arising from the difference between the carrying amount of an asset or liability and its tax baseat the balance sheet date of the Group shall be recognised as deferred income tax using the balance sheet liabilitymethod.All the taxable temporary differences are recognised as deferred income tax liabilities except for those incurred in thefollowing transactions:

(1) The initial recognition of goodwill, and the initial recognition of an asset or liability in a transaction which is

neither a business combination nor affects accounting profit or taxable profit (or deductible loss) when thetransaction occurs;

(2) The taxable temporary differences associated with investments in subsidiaries, associates and joint ventures,

and the Group is able to control the timing of the reversal of the temporary difference and it is probable that thetemporary difference will not reverse in the foreseeable future.The Group recognises a deferred income tax asset for the carry forward of deductible temporary differences,deductible losses and tax credits to subsequent periods, to the extent that it is probable that future taxable profitswill be available against which the deductible temporary differences, deductible losses and tax credits can be utilised,except for those incurred in the following transactions:

(1) The transaction is neither a business combination nor affects accounting profit or taxable profit (or deductible

loss) when the transaction occurs;

(2) The deductible temporary differences associated with investments in subsidiaries, associates and joint ventures,

the corresponding deferred income tax asset is recognised when both of the following conditions are satisfied:

it is probable that the temporary difference will reverse in the foreseeable future, and it is probable that taxableprofits will be available in the future, against which the temporary difference can be utilised.

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XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

28. Deferred income tax assets and deferred income tax liabilities

(Cont’d)At the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at the taxrates that are expected to apply to the period when the asset is realised or the liability is settled, and their tax effect isreflected accordingly.At the balance sheet date, the Group reviews the carrying amount of a deferred income tax asset. If it is probablethat sufficient taxable profits will not be available in future periods to allow the benefit of the deferred tax asset to beutilised, the carrying amount of the deferred tax asset is reduced. Any such reduction in amount is reversed when itbecomes probable that sufficient taxable profits will be available.

29. Lease

(1) Identification of leases

On the beginning date of the contract, the Group (as a lessee or lessor) assesses whether the customer inthe contract has the right to obtain substantially all of the economic benefits from use of the identified assetthroughout the period of use and has the right to direct the use of the identified asset throughout the period ofuse. If a contract conveys the right to control the use of an identified asset and multiple identified assets for aperiod of time in exchange for consideration, the Group identifies such contract is, or contains, a lease.

(2) The Group as lessee

On the beginning date of the lease, the Company recognises right-of-use assets and lease liabilities for allleases, except for short-term lease and low-value asset lease with simplified approach.The accounting policy for right-of-use assets is set out in Note V. 30.The lease liability is initially measured at the present value of the lease payments that are not paid at thebeginning date of the lease using the interest rate implicit in the lease or the incremental borrowing rate. Leasepayments include fixed payments and in-substance fixed payments, less any lease incentives receivable;variable lease payments that are based on an index or a rate; the exercise price of a purchase option if thelessee is reasonably certain to exercise that option; payments for terminating the lease, if the lease term reflectsthe lessee exercising that option of terminating; and amounts expected to be payable by the lessee underresidual value guarantees. Subsequently, the interest expense on the lease liability for each period during thelease term is calculated using a constant periodic rate of interest and is recognised in profit or loss for thecurrent period. Variable lease payments not included in the measurement of lease liabilities are charged toprofit or loss in the period in which they actually arise. The Group calculates the interest expense of the leaseliability for each period of the lease term based on the fixed periodic interest rate and is included in the currentprofit and loss. The variable lease payments that are not included in the measurement of the lease liability arerecognised in profit or loss when incurred.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

29. Lease

(Cont’d)

(2) The Group as lessee

(Cont’d)Short-term leaseShort-term leases refer to leases with a lease term of less than 12 months from the commencement date,except for those with a purchase option.Lease payments on short-term leases are recognised in the cost of related assets or current profit or loss on astraight-line basis over the lease term.For short-term leases, the Group chooses to adopt the above simplified approach for the following types ofassets that meet the conditions of short-term lease according to the classification of leased assets.Low-valve machinery and equipmentTransportation vehiclesLow-value asset leaseA low-value asset lease is a lease that the value of a single leased asset is below RMB2,000,000 when it is anew asset.For a low-value asset lease, the Group chooses the above simplified approach based on the specificcircumstances of each lease.Lease payments on low-value asset leases are recognised on a straight-line basis over the lease term, andeither included in the cost of the related asset or charged to profit or loss for the current period.

(3) The Group as lessor

When the Group is a lessor, a lease is classified as a finance lease whenever the terms of the lease transfersubstantially all the risks and rewards of asset ownership to the lessee. All leases other than financial leases areclassified as operating leases.Operating leaseLease payments under operating leases are recognised in profit or loss on a straight-line basis over the leaseterm. Initial direct costs incurred in relation to operating leases are capitalised and amortised over the lease termon the same basis as rental income and recognised in profit or loss for the current period. The variable leasepayments obtained in relation to operating leases that are not included in the lease payments are recognised inprofit or loss in the period in which they actually incurred.

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V. Significant Accounting Policies and Accounting Estimates(Cont’d)

29. Lease

(Cont’d)

(4) Sale and leaseback

The lessee and the lessor shall assess and determine whether the transfer of assets in a sale and leasebacktransaction is a sale in accordance with the requirements of the Accounting Standard for Business EnterprisesNo. 14 – Revenue.Where asset transfer under the sale and leaseback transactions is a sale, the lessee shall measure theright-of-use assets created by the sale and leaseback based on the portion of carrying amount of the originalassets related to right of use obtained upon leaseback, and only recognise relevant profit or loss for the righttransferred to the lessor. The lessor shall account for the purchase of assets in accordance with other applicableASBEs and account for the lease of assets in accordance with this standard.Where asset transfer under the sale and leaseback transactions is not a sale, the lessee shall continue torecognise the transferred assets while recognising a financial liability equal to the transfer income and accountfor such liability according to the Accounting Standard for Business Enterprises No. 22 – Recognition andMeasurement of Financial Instruments; or not to recognise the transferred assets but recognise a financial assetequal to the transfer income and account for such asset according to the Accounting Standard for BusinessEnterprises No. 22 – Recognition and Measurement of Financial Instruments.

30. Right-of-use assets

(1) Conditions for recognition of right-of-use assets

Right-of-use assets of the Group are defined as the right of underlying assets in the lease term for the Group asa lessee.Right-of-use assets are initially measured at cost at the commencement date of the lease. The cost includesthe amount of the initial measurement of lease liability; lease payments made at or before the inception of thelease less any lease incentives enjoyed; initial direct costs incurred by the Group as lessee; costs to be incurredin dismantling and removing the underlying assets, restoring the site on which it is located or restoring theunderlying asset to the condition required by the terms and conditions of the lease incurred by the Group aslessee. As a lessee, the Group recognises and measures the costs of dismantling and restoration in accordancewith the Accounting Standard for Business Enterprises No. 13 – Contingencies. Subsequently, the lease liabilityis adjusted for any remeasurement of the lease liability.

(2) Depreciation method of right-of-use assets

The Group uses the straight-line method for depreciation. Where the Group, as a lessee, is reasonably certain toobtain ownership of the leased asset at the end of the lease term, such asset is depreciated over the remaininguseful life of the leased asset. Where ownership of the lease assets during the lease term cannot be reasonablydetermined, right-of-use assets are depreciated over the lease term or the remainder of useful lives of the leaseassets, whichever is shorter.

(3) For the methods of impairment test and impairment provision of right-of-use assets, please refer to Note V. 21.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

31. General risk reserves

General risk reserve is a reserve provided from net profit for the partial offset unidentified possible losses.Adopting the principle of dynamic provisioning, the Finance Company employs the standard method to quantitativelyanalyze the risk situation faced by risk assets, to determine the estimated potential risk value. After calculatingthe potential risk value, if the potential risk value is higher than the provision for impairment of assets, the accruedprovision for impairment of assets will be deducted and provision for general risk will be made. If the potential riskvalue is lower than the provision for impairment of assets, provision for general risk will not be made.Dynamic provisioning is a counter-cyclical provisioning method adopted by financial companies based on changesin the macroeconomic situation, as in, in the upward cycle of macroeconomy and when the risk asset defaultrate is relatively low, more provisions are made to enhance financial buffer capacity; and in the downturn cycle ofmacroeconomy and when the risk asset default rate is relatively high, the accumulated provisions are used to absorbasset losses.The Finance Company makes general risk provisions for assets bearing risks and losses at the end of each year, thebalance of which, in principle, shall not be lower than 1.5% of the closing balance of risk assets. The risk provisionmade by factoring companies shall not be lower than 1% of the closing balance of the financial factoring business.Based on changes in the macroeconomic situation, and with reference to non-performing corporate loans,non-performing loan ratio, provision coverage ratio for non-performing loans, loan provision ratio, standard riskfactor and the requirement of general risk provision as a percentage of risk assets, the Ministry of Finance makesadjustments to the scope of risk assets for general risk provisions, standard risk factor and the requirement ofgeneral risk provision as a percentage of risk assets as appropriate. The Finance Company shall make adjustmentsaccordingly according to the requirements of the Ministry of Finance.Provisions for general risk is insufficient, in principle, the company shall not engage in after-tax profit distribution. Asconsidered and approved by the board of directors and general meeting of the Finance Company, such provisionsmay be used to offset losses but not for dividends. For special reasons, as approved by the Board and the generalmeeting, general risk reserves may be reclassified into undistributed profits.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

32. Critical accounting judgments and estimates

The Group gives continuous assessment on, among other things, the reasonable expectations of future events andthe critical accounting estimates and key assumptions adopted according to its historical experience and otherfactors. The critical accounting estimates and key assumptions that are likely to lead to significant adjustment risks ofthe carrying amount of assets and liabilities for the next financial year are listed as follows:

Classification of financial assetsSignificant judgements involved in determining the classification of financial assets include the analysis of businessmodels and contractual cash flow characteristics.Factors considered by the Group in determining the business model for a group of financial assets include how theasset’s performance is evaluated and reported to key management personnel, how risks are assessed and managedand how the relevant management personnel are compensated.When the Group assesses whether the contractual cash flows of the financial assets are consistent with basic lendingarrangements, the main judgements are described as below: whether the principal amount may change over the life ofthe financial asset (for example, if there are repayments of principal); whether the interest includes only considerationfor the time value of money, credit risk, other basic lending risks and a profit margin and cost. For example, whetherthe amount repaid in advance reflects only the outstanding principal and interest thereon, as well as reasonablecompensation paid for early termination of the contract.Measurement of the ECLs of accounts receivableThe Group calculates the ECLs of accounts receivable using the exposure to default risk and ECL rate of accountsreceivable, and determines the ECL rate based on default probability and default loss rate. When determining the ECLrate, the Group adjusts its historical data by referring to information such as historical credit loss experience as wellas current situation and forward-looking information. When considering the forward-looking information, indicatorsused by the Group include the risk of economic downturn, external market environment, technology environment andchanges in customers. The assumptions relating to the ECL calculation are monitored and reviewed by the Group ona regularly basis.Deferred income tax assetsDeferred income tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profitwill be available against which the losses can be utilised. Significant management judgement is required to determinethe amount of deferred income tax assets that can be recognised, based upon the likely timing and level of futuretaxable profits together with future tax planning strategies.

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

33. Changes in significant accounting policies and estimates

(1) Changes in significant accounting policies

① New Debt Restructuring Standard

On 16 May 2019, the Ministry of Finance published the Accounting Standard for Business Enterprises No.12 – Debt Restructuring (hereinafter referred to as the“New Debt Restructuring Standard”), which revisedthe definition of debt restructuring, clarified the applicable standards such as the Accounting Standardfor Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments in relation tofinancial instruments in debt restructuring, clarified that assets other than the financial assets transferredto creditors shall be initially measured at cost, and clarified that the distinction between the profit or lossfrom asset disposal and the profit or loss from debt restructuring is no longer required when the debt issettled with assets by the debtor.According to the requirements under Cai Kuai [2019] No. 6 Document, the“non-operating income”and“non-operating expenses”items no longer include gains or losses from disposal of non-current assets indebt restructuring.The Group adopted the prospective application method for the new debt restructuring occurred on 1January 2019, and did not make retrospective adjustments for the debt restructuring occurred before 1January 2019.The effects of the adoption of the New Debt Restructuring Standard on the Group’s financial position andresults of operations are as follows:

Contents and reasons for the changes inaccounting policiesApproval proceduresItem affected in the statementsAmount affectedThe New Debt Restructuring Standards published by the Ministry of Finance

The third meeting of the ninth session of the Board of Directors

Credit impairment loss55,792,548.82The New Debt Restructuring Standards published by the Ministry of Finance

The third meeting of the ninth session of the Board of Directors

Other current assets-61,437,051.19The New Debt Restructuring Standards published by the Ministry of Finance

The third meeting of the ninth session of the Board of Directors

Accounts receivable5,644,502.37

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

33. Changes in significant accounting policies and estimates

(Cont’d)

(1) Changes in significant accounting policies

(Cont’d)

New Lease StandardIn 2018, the Ministry of Finance published the Accounting Standard for Business Enterprises No. 21 –Leases (Revised), which imposed requirements on the enterprises listed in both domestic and overseasmarkets and the enterprises listed in overseas markets and adopting the International Financial ReportingStandards or Accounting Standards for Business Enterprises for financial report preparation from 1January 2019. At the third meeting of the ninth session of the Board of Directors of the Company held on25 October 2019, the Company approved the implementation of the New Lease Standard from 1 January2019, and adjusted the relevant accounting policies. The revised accounting policies are set out in Note V.29.As lesseeThe New Lease Standard requires a lessee to recognise right-of-use assets and lease liabilities for allleases, except for short-term lease and low-value asset lease with simplified approach, in which casedepreciation and interest expense are recognised respectively.For contracts that existed before the date of initial application, the Group chose not to reassess whether itis, or contains, a lease at the date of initial application.The New Lease Standard allows a lessee to choose one of the following methods for the transitionalaccounting of leases:

According to the Accounting Standard for Business Enterprises No. 28 – Changes in Accounting Policiesand Accounting Estimates and Correction of Errors, retrospective adjustment method is adopted.According to the cumulative effect of the initial application of this standard, the retained earnings at thebeginning of the year of the initial application of this standard and the amount of other relevant items inthe financial statements shall be adjusted, and the information for the comparable period shall not beadjusted.In accordance with the requirements of the New Lease Standard, the Group retrospectively adjustedthe difference between the New Lease Standard and the existing lease standard at the date of initialapplication to the retained earnings at the beginning of 2019. Meanwhile, the Group did not adjust thedata in the comparative financial statements.As for the finance leases before the date of initial application, the Group measured the right-of-useassets and lease liabilities according to the carrying amount of the finance lease assets and finance leasepayments payable respectively;

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

33. Changes in significant accounting policies and estimates

(Cont’d)

(1) Changes in significant accounting policies

(Cont’d)

New Lease Standard(Cont’d)As lessee(Cont’d)

For operating leases before the date of initial application, the Group measured the lease liabilities basedon the present value of the remaining lease payments discounted using the incremental borrowing rate atthe date of initial application, and measured the right-of-use assets for all leases at an amount equal tothe lease liabilities, adjusted by the prepaid lease payments where necessary.At the date of initial application, the Group performed impairment test on the right-of-use assets andcarried out corresponding accounting treatment in accordance with Note V. 30.For operating leases of low-value assets and short-term leases within 12 months before the date of initialapplication, the Group adopted a simplified approach and did not recognised right-of-use assets andlease liabilities.The Group adopted the following simplified approach for operating leases before the date of initialapplication:

When measuring lease liabilities, leases with similar characteristics may adopt the same discount rate.The measurement of right-of-use assets may exclude initial direct costs;When there is an option to renew or terminate the lease, the Group determined the lease term based onthe actual exercise of the option and other latest conditions before the date of initial application;As an alternative to the impairment test for right-of-use assets, the Group assessed whether a contractcontaining a lease is a loss-making contract before the date of initial application and adjusts theright-of-use asset based on the amount of loss allowance included in the balance sheet before the date ofinitial application;As for the lease changes before the date of initial date, the Group carried out accounting treatment basedon the final arrangement of lease changes.

2019 AnnuAl RepoRt

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

33. Changes in significant accounting policies and estimates

(Cont’d)

(1) Changes in significant accounting policies

(Cont’d)

New Lease Standard(Cont’d)

As lessee(Cont’d)The impacts of the adoption of the New Lease Standard on items in the balance sheet as at 1 January2019 are as follows:

Item

Carrying amountbefore adjustment(31 December 2018)ReclassificationRemeasurement

Carrying amountafter adjustment(1 January 2019)Assets:

Intangible assets13,341,727.06-13,341,727.06—— Right-of-use assets—92,855,179.1670,479,785.74163,334,964.90 Long-term prepaid expenses79,513,452.10-79,513,452.10 Total assets92,855,179.1670,479,785.74163,334,964.90Liabilities:

Lease liabilities Provisions70,479,785.7470,479,785.74Total liabilities70,479,785.7470,479,785.74For the minimum lease payments under significant operating leases disclosed in the 2018 financialstatements, the Group adjusted the outstanding minimum lease payments disclosed under the originallease standard to the lease liabilities recognised under the New Lease Standard based on the incrementalborrowing rate as the lessee on 1 January 2019 as follows:

Minimum lease payments under significant operating leases as at 31 December 2018101,323,476.94Minimum lease payments under the New Standards for Leases as at 1 January 2019101,323,476.94Weighted average incremental borrowing rate as at 1 January 20194.30%Lease liabilities as at 1 January 201970,479,785.74

XIII Financial Report

V. Significant Accounting Policies and Accounting Estimates(Cont’d)

33. Changes in significant accounting policies and estimates

(Cont’d)

(1) Changes in significant accounting policies

(Cont’d)New Lease Standard(Cont’d)

As lessee(Cont’d)The impacts of the adoption of the New Lease Standard on items in the financial statements for 2019 areas follows:

Item in consolidated balance sheet2019.12.31

Based on theoriginal leasestandard

Increase/decrease (-)Assets:

Right-of-use assets152,141,882.05152,141,882.05 Long-term prepaid expenses48,203,408.71124,528,223.40-76,324,814.69 Intangible assets1,781,061,904.511,801,508,745.54-20,446,841.03 Total assets1,981,407,195.271,926,036,968.9455,370,226.33Liabilities:

Non-current liabilities due within one year5,662,958,920.035,658,352,202.454,606,717.58 Lease liabilities59,697,128.6559,697,128.65Total liabilities5,722,656,048.685,658,352,202.4564,303,846.23

Item in consolidated income statementAmount for 2019

Based on theoriginal lease

standard

Increase/decrease (-)Operating costs21,773,884,285.3921,769,479,298.784,404,986.61Finance expenses2,916,029,154.372,913,002,047.583,027,106.79

2019 AnnuAl RepoRt

XIII Financial Report

VI. Taxation

1. Main tax types and tax rates

Tax typeTax base and tax rateValue added tax (VAT)16%/13% for general, 10%/9% for sales of water and gas and 6% for

the service industry. VAT is computed on the difference after deductionof input value-added tax.Urban maintenance and construction tax7%, 3%, 2% and 0.5% of actual payment of turnover tax.Enterprise income tax (EIT)25% of taxable income; for the companies which are subject to

preferential policies, please refer to the table below; the overseascompanies shall pay taxes at the tax rate pursuant to the requirements ofthe countries or regions where the companies are located.Disclosure of taxable entities subject to different EIT tax ratesName of taxable entityEIT tax rateShandong Chenming Paper Holdings Limited15%Shouguang Meilun Paper Co., Ltd.15%Jilin Chenming Paper Co., Ltd.15%Jiangxi Chenming Paper Co., Ltd.15%Zhanjiang Chenming Pulp & Paper Co., Ltd.15%Shouguang Shun Da Customs Declaration Co, Ltd.10%Qingdao Chenming Pulp & Paper Electronic Commodity Spot Trading Co., Ltd.10%Zhanjiang Chenming Arboriculture Development Co., Ltd.Exempt from EITNanchang Chenming Arboriculture Development Co., Ltd.Exempt from EITChenming Arboriculture Co., Ltd.Exempt from EITYangjiang Chenming Arboriculture Development Co., Ltd.Exempt from EIT

2. Tax incentives

(1) Enterprise income tax

On 16 August 2018, the Company received a high and new technology enterprise certificate with a certificationnumber of GR201837000311. Pursuant to the requirements under the Law of the People’s Republic of China onEnterprise Income Tax and the relevant policies, the Company is subject to a corporate income tax rate of 15%of taxable income, and is entitled to the preferential treatment from 2018 to 2020.Shouguang Meilun Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201837000455 on 16 August 2018. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, ShouguangMeilun is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to the preferentialtreatment from 2018 to 2020.

XIII Financial Report

VI. Taxation(Cont’d)

2. Tax incentives

(Cont’d)

(1) Enterprise income tax

(Cont’d)Jilin Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201922000658 on 2 September 2019. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, JilinChenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to thepreferential treatment from 2019 to 2021.Jiangxi Chenming Paper Co., Ltd., a subsidiary of the Company, received a high and new technology enterprisecertificate with a certification number of GR201936002184 on 3 December 2019. Pursuant to the requirementsunder the Law of the People’s Republic of China on Enterprise Income Tax and the relevant policies, JiangxiChenming is subject to an enterprise income tax rate of 15% of taxable income, and is entitled to thepreferential treatment from 2019 to 2021.Zhanjiang Chenming Pulp & Paper Co., Ltd., a subsidiary of the Company, received a high and new technologyenterprise certificate with a certification number of GR20184400547 on 28 November 2018. Pursuant to therequirements under the Law of the People’s Republic of China on Enterprise Income Tax and the relevantpolicies, Zhanjiang Chenming is subject to an enterprise income tax rate of 15% of taxable income, and isentitled to the preferential treatment from 2018 to 2020.Pursuant to the requirements of Rule 27(1) of Law of the People’s Republic of China on Enterprise Income Taxand Rule 86(1) of regulations for the Implementation of Law of the People’s Republic of China on EnterpriseIncome Tax, Zhanjiang Chenming Arboriculture Development Co., Ltd. and Yangjiang Chenming ArboricultureDevelopment Co., Ltd., which are the subsidiaries of the Company, have completed the filings for EIT reductionfor exemption from EIT.

2019 AnnuAl RepoRt

XIII Financial Report

VI. Taxation(Cont’d)

2. Tax incentives

(Cont’d)

(2) Value-added Tax (

“VAT”)Pursuant to Rule 10 of the Interim Regulation of the People’s Republic of China on Value Added Tax, ZhanjiangChenming Arboriculture Development Co., Ltd. and Yangjiang Chenming Arboriculture Development Co., Ltd.,which are the subsidiaries of the Company, are exempt from VAT, and have completed the filings for VATreduction for exemption from VAT.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use ofResources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applying integrateduse of resources may enjoy the immediate VAT refund policy. Zhanjiang Chenming New-style Wall MaterialsCo., Ltd., a subsidiary of the Company, produced products applying raw materials containing more than 30%of fly ash. It belongs to a company that uses pollutants for production, and is therefore subject to the immediateVAT refund policy in 2019.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Useof Resources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applyingintegrated use of resources may enjoy the immediate VAT refund policy. Shandong Chenming Panels Co., Ltd.,a subsidiary of the Company, produced products applying integrated use of resources, and is therefore subjectto the immediate VAT refund policy in 2019.Pursuant to the Value-added Tax Preferential Catalogue on Products and Services Applying Integrated Use ofResources (Cai Shui [2015] No. 78), taxpayers who sell self-produced products and services applying integrateduse of resources may enjoy the immediate VAT refund policy. Shouguang Chenming Cement Co., Limited, asubsidiary of the Company, produced products applying integrated use of resources, and is therefore subject tothe immediate VAT refund policy in 2019.

XIII Financial Report

VII. Notes to items of the consolidated financial statements

1. Monetary funds

Unit: RMBItemClosing balanceOpening balanceTreasury cash2,418,131.862,078,321.66Bank deposit2,965,127,198.702,379,479,920.86Other monetary funds16,338,984,142.7716,911,216,505.27Total19,306,529,473.3319,292,774,747.79Of which: Total deposits in overseas banks405,881,189.78614,601,451.77Other explanation

Notes: ① Other monetary funds of RMB11,796,498,642.44 (31 December 2018: RMB9,329,325,370.71) were the guarantee deposit for

the application for bank acceptance with the banks by the Group.

② Other monetary funds of RMB2,091,467,385.94 (31 December 2018: RMB3,703,195,695.22) were the guarantee deposit for

the application for letter of credit with the banks by the Group.

③ Other monetary funds of RMB1,846,470,647.42 (31 December 2018: RMB2,357,084,376.63) were the guarantee deposit for

the application for guarantees with the banks by the Group.

④ Other monetary funds of RMB0.00 (31 December 2018: RMB987,520,000.00) were the guarantee deposit for the application

for loans with the banks by the Group. ⑤ Other monetary funds of RMB440,810,000.00 (31 December 2018: RMB533,060,000.00) were the Group’s statutory reservedeposit at the banks.

⑥ Other monetary funds of RMB995,129.48 (31 December 2018: 1,031,062.71) were locked-up due to litigations, resulting in

restriction on the use of that account’s balance.

⑦ Bank deposit includes interest receivable of RMB77,217,303.16, and the other monetary funds include interest receivable of

RMB162,742,336.99.

2. Bills receivable

2019.12.312018.12.31Type of billBook balance

Bad debtsprovision

CarryingamountBook balance

Bad debtsprovision

CarryingamountBank acceptance bills1,214,616,491.461,500,000.001,213,116,491.46Total1,214,616,491.461,500,000.001,213,116,491.46

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

3. Accounts receivable

(1) Disclosure of accounts receivable by category

Unit: RMBClosing balanceOpening balanceBook balanceBad debts provisionBook balanceBad debts provisionCategoryAmountPercentageAmount

Provisionpercentage

CarryingamountAmountPercentageAmount

Provisionpercentage

CarryingamountAccounts receivableassessed individually for impairment117,277,135.483.81%117,277,135.48100.00%071,960,343.901.90%55,240,343.9076.76%16,720,000.00Of which:

Accounts receivableassessed collectively for impairment2,960,085,058.3696.19%435,001,747.3014.70%2,525,083,311.033,711,403,752.2398.10%323,636,747.648.72%3,387,767,004.59Of which:

Accounts receivable from related parties2,008,185.600.07%61,132.763.04%1,947,052.845,838,812.920.15%947,246.6416.22%4,891,566.28Accounts receivable from distributor clients2,202,548,603.0371.57%307,333,600.8413.95%1,895,215,002.163,043,388,184.3780.45%320,207,886.8610.52%2,723,180,297.51Factoring receivables755,528,269.7324.55%127,607,013.7016.89%627,921,256.03662,176,754.9417.50%2,481,614.140.37%659,695,140.80Total3,077,362,193.84100.00%552,278,882.7817.95%2,525,083,311.033,783,364,096.13100.00%378,877,091.5410.01%3,404,487,004.59

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

3. Accounts receivable (

Cont’d)

(1) Disclosure of accounts receivable by category

(Cont’d)Items assessed collectively for impairment:

In the groups, accounts receivable with collective provision for bad debts based on receivables from relatedparties:

Unit: RMBClosing balanceAgeingAccounts receivableBad debt provision

Expectedcredit lossrate (%)Within 1 year2,008,185.6061,132.763.04Total2,008,185.6061,132.763.04Collectively assessed item: receivables from unrelated party customers

Unit: RMBClosing balanceNameBook balanceBad debt provision

Expectedcredit loss

rate (%)Within 1 year1,831,410,082.5934,598,907.771.891 – 2 years90,212,063.1934,205,889.7437.922 – 3 years61,174,883.1236,261,660.8859.28Over 3 years219,751,574.13202,267,142.4592.04Total2,202,548,603.03307,333,600.8413.95

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

3. Accounts receivable (

Cont’d)

(1) Disclosure of accounts receivable by category

(Cont’d)

Collectively assessed item: factoring receivables

Unit: RMBClosing balanceNameBook balanceBad debt provision

ProvisionpercentageWithin 1 year604,114,038.8797,324,167.5316.11%1 to 2 years151,414,230.8630,282,846.1720.00%Total755,528,269.73127,607,013.7016.89%If the provision for bad debts of accounts receivable is made in accordance with the general model of expectedcredit losses, please disclose the information about provision for bad debts with reference to the way ofdisclosure of other receivables:

□ Applicable √ Not applicable

Disclosed by ageingAgeingClosing balanceOpening balanceWithin 1 year2,440,760,038.213,431,563,448.161 to 2 years397,312,284.0871,098,999.392 to 3 years70,484,233.2171,505,067.24Over 3 years168,805,638.34209,196,581.34Subtotal3,077,362,193.843,783,364,096.13

(2) Provision, recovery or reversal of bad debt provision for the period

Unit: RMBChanges in the periodCategoryOpening balanceProvision

Recovery or

reversalWritten offClosing balanceProvision for bad debt378,877,091.54189,884,304.1616,482,512.89552,278,882.81Total378,877,091.54189,884,304.1616,482,512.89552,278,882.81

(3) Top five accounts receivable based on closing balance of debtors

The total amount of the Company’s top five accounts receivable based on closing balance of debtors for theperiod was RMB894,051,793.67, which accounted for 29.05% of the closing balance of the total accountsreceivable. The closing balance of corresponding bad debt provision amounted to RMB95,343,756.76.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

4. Accounts receivable financing

Unit: RMBItemClosing balanceOpening balanceBills receivable442,915,861.70Total442,915,861.70

5. Prepayments

(1) Presentation of prepayments stated according to ageing analysis

Unit: RMBClosing balanceOpening balanceAgeingAmountPercentageAmountPercentageWithin 1 year528,554,005.6685.57%793,395,209.0291.86%1-2 years75,019,543.4212.43%70,343,811.728.14%Total603,573,549.08100%863,739,020.74100%

(2) Top five prepayments according to closing balance of prepaid parties

Top five prepayments according to closing balance of prepaid parties was RMB272,218,038.77, whichaccounted for 45.10% of the closing balance of the total accounts payable.

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XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

6. Other receivables

Unit: RMBItemClosing balanceOpening balanceInterest receivables0198,577,632.43Dividend receivables13,000,000.00Other receivables2,203,654,598.661,934,512,350.96Total2,216,654,598.662,133,089,983.39

(1) Interest receivable

Unit: RMBItemClosing balanceOpening balanceFixed term deposit026,021,373.31Interest on guarantee deposit0172,556,259.12Total0198,577,632.43

(2) Dividends receivable

Unit: RMBItem (or investee)Closing balanceOpening balanceWeifang Xingxing United Chemical Co., Ltd.13,000,000.00Total13,000,000.00

(3) Other receivables

1) Other payables by nature

Unit: RMBNatureClosing book balanceOpening book balanceOpen credit2,502,722,227.161,960,044,821.28Reserve and borrowings20,877,056.541,957,000.00Guarantee deposit29,529,247.7818,064,797.46Insurance premium21,618.272,034,980.18Advances19,351,237.294,099,146.51Others126,503,088.52162,793,258.20Total2,699,004,475.562,148,994,003.63

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

6. Other receivables (

Cont’d)

(3) Other receivables

(Cont’d)

2) Particulars of bad debt provision

Unit: RMBClosing bad debt provision at phase 1:

CategoryBook balance

Expected creditloss rate (%) forthe next 12months

Bad debtprovision

CarryingamountBad debt provision assessed individually13,000,000.0013,000,000.00Dividends receivable13,000,000.0013,000,000.00Bad debt provision assessed collectively1,253,790,238.9513.50169,202,744.321,084,587,494.63Amount due from government agencies5,525,444.9152.332,891,297.492,634,147.42Amount due from related parties76,081,288.349.337,101,277.6368,980,010.71Other receivables1,287,769,398.8518.6239,557,967.111,048,211,431.74Total1,382,376,132.1018.05249,550,542.231,132,825,589.87As at the end of the period, the Company did not have interest receivables, dividends receivables andother receivables in phase 2.As at the end of the period, closing bad debt provision at phase 3:

CategoryBook balance

Expected creditloss rate (%) over

the entire life

Bad debtprovision

Carrying

amountBad debt provision assessed individually1,445,214,236.6122.57326,147,132.581,119,067,104.03Total1,445,214,236.6122.57326,147,132.581,119,067,104.03

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XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

6. Other receivables (

Cont’d)

(3) Other receivables

(Cont’d)

2) Particulars of bad debt provision

(Cont’d)By ageing

Unit: RMBAgeingClosing BalanceOpening balanceWithin 1 year1,601,285,972.691,893,654,554.591-2 years920,980,164.2383,130,878.322-3 years82,752,788.6643,609,618.98Over 3 years93,985,549.98128,598,951.74Total2,699,004,475.562,148,994,003.63

3) Provision, recovery or reversal of bad debt provision for the year

Unit: RMBChanges for the yearCategory

OpeningbalanceProvision

Recoveryor reversalWriting-off

ClosingbalanceBad debt provision214,481,652.67283,002,941.382,134,717.15495,349,876.90Total214,481,652.67283,002,941.382,134,717.15495,349,876.90

4) Top five other receivables according to closing balance of debtors

The total amount of the Company’s top five accounts receivable based on closing balance of debtorsfor the year was RMB2,350,552,046.65, which accounted for 87.9% of the closing balance of thetotal accounts receivable. The closing balance of corresponding bad debt provision amounted toRMB310,186,154.68.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

7. Inventories

Whether the New Revenue Standard has been implemented

√ Yes □ No

(1) Categories of inventories

Unit: RMBClosing balanceOpening balance

ItemBook balance

Impairmentprovision forinventories or

performancecostsCarrying amountBook balance

Impairmentprovision forinventories orperformancecostsCarrying amountRaw materials1,972,197,240.9321,269,429.011,950,927,811.923,275,454,669.279,525,360.593,265,929,308.68Work-in-process products81,382,693.4981,382,693.49102,153,808.77102,153,808.77Goods in stock886,102,819.24886,102,819.241,690,248,067.4334,943,475.271,655,304,592.16Consumable biological assets1,541,004,633.421,541,004,633.421,511,542,610.361,511,542,610.36Developing products315,012,152.74315,012,152.74309,823,656.6473,265,542.87236,558,113.77Total4,795,699,539.8221,269,429.014,774,430,110.816,889,222,812.47117,734,378.736,771,488,433.74

(2) Impairment provision for inventories or performance costs

Unit: RMBIncrease for the periodDecrease for the periodItemClosing balanceProvisionOthersReversal or transferOthersClosing balanceRaw materials9,525,360.5921,269,429.019,525,360.5921,269,429.01Goods in stock34,943,475.2734,943,475.27Developing products73,265,542.8773,265,542.87Total117,734,378.7321,269,429.01117,734,378.7321,269,429.01Item

Recognize net realisable value/residualconsideration with future costReversal or transfer for the yearRaw materialsFull amount impairment of idle spare

parts with long-term storage ageing

Processed as machine-made paper andsoldGoods in stockThe goods in stock have been soldDevelopment costGovernment supporting documents have

been obtained, and the compensationamount is greater than the developmentcost

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

7. Inventories (

Cont’d)

(3) Changes in consumable biological assets

Unit: RMBIncrease for the periodDecrease for the periodItem

Openingbalance

Increase inbreeding

Increase inpurchase

Decrease infair value

Otherdecreases

Decrease in

sales

ClosingbalanceConsumable biological assets measured at fair value1,511,542,610.3679,652,771.1819,752,911.9430,437,836.181,541,004,633.42Total1,511,542,610.3679,652,771.1819,752,911.9430,437,836.181,541,004,633.42

8. Non-current assets due within one year

Unit: RMBItemClosing balanceOpening balanceLong-term receivables due within one year6,974,539,613.304,007,503,281.86Total6,974,539,613.304,007,503,281.86

9. Other current assets

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBItemClosing balanceOpening balanceVAT recoverable1,431,298,632.041,365,819,497.97Prepaid tax56,778,563.0413,217,451.88Receivables under financial lease due within one year5,229,125,471.517,192,752,596.30Factoring receivables due within one year1,008,707,988.471,041,254,552.40Prepaid expenses366,080,343.71662,919,414.09Others16,716,395.935,349,312.49Total8,108,707,394.7010,281,312,825.13

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

10. Long-term receivables

(1) Particulars of long-term receivables

Unit: RMBClosing balanceOpening balanceItemBook balance

Bad debtprovision

CarryingamountBook balance

Bad debtprovision

Carryingamount

Discountrate rangeFinance lease payments8,144,589,680.94182,532,601.307,962,057,079.6412,992,711,023.11145,746,721.1212,846,964,301.994.00-20.00Less: Unrealised financing income462,276,887.85462,276,887.851,491,762,037.161,491,762,037.16Less: non-current assets due within one year7,004,375,494.88159,382,707.556,844,992,787.334,028,313,053.6820,809,771.824,007,503,281.86Subtotal677,937,298.2123,149,893.75654,787,404.467,472,635,932.27124,936,949.307,347,698,982.97Deposit for finance lease734,530,650.26734,530,650.26588,925,607.06588,925,607.06Less: Unrealised financing income59,195,417.7759,195,417.7710,013,819.1710,013,819.17Less: non-current assets due within one year129,546,826.00129,546,826.00Subtotal545,788,406.49545,788,406.49578,911,787.89578,911,787.89Total1,223,725,704.7023,149,893.751,200,575,810.958,051,547,720.16124,936,949.307,926,610,770.86—

(2) Particulars of bad debt provision

Unit: RMBClosing balanceBook balanceBad debt provisionCategoryAmountPercentage (%)Amount

Expected credit

loss rate (%)Carrying amountBad debt provision assessed individually174,135,402.7014.2320,025,571.3111.50154,109,831.39Bad debt provision assessed collectively1,049,590,302.0085.773,124,322.440.301,046,465,979.56Including:

Lease receivables503,801,895.5141.173,124,322.440.62500,677,573.07Guarantee receivables545,788,406.4944.60545,788,406.49Total1,223,725,704.70100.0023,149,893.751.891,200,575,810.95

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

10. Long-term receivables (

Cont’d)

(2) Particulars of bad debt provision

(Cont’d)

Closing balanceBook balanceBad debt provisionCategoryAmountPercentage (%)Amount

Expected creditloss rate (%)Carrying amountBad debt provision assessed individuallyBad debt provision assessed collectively8,051,547,720.16100.00124,936,949.301.557,926,610,770.86Including:

Lease receivables7,472,635,932.2792.81124,936,949.301.677,347,698,982.97Guarantee receivables578,911,787.897.19578,911,787.89Total8,051,547,720.16100.00124,936,949.301.557,926,610,770.86Bad debt provision assessed collectively:

Collectively assessed item: lease receivables

Closing balanceBook balanceBad debt provision

Expected creditloss rate (%)Within 1 year1 to 2 years52,356,592.95324,688.890.622 to 3 years451,445,302.562,799,633.550.62Total503,801,895.513,124,322.440.62Collectively assessed item: guarantee receivables

Closing balanceBook balanceBad debt provision

Expected creditloss rate (%)Within 1 year1 to 2 years182,525,444.522 to 3 yearsOver 3 years363,262,961.97Total545,788,406.49

(3) Provision, recovery or reversal of bad debt provision for the period

The bad debt provision for the period amounted to RMB9,079,405.33 and reversal of bad debt provisionamounted to RMB110,866,460.88.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

11. Long-term equity investments

Unit: RMBChange for the period

Investee

Openingbalance(carryingamount)

Additionalcontribution

Withdrawncontribution

Investmentgain or lossrecognisedunder equity

methodAdjustmentof othercomprehensiveincomeOther changein equityinterestDistribution ofcash dividend

or profitdeclared

ImpairmentprovisionOthers

Closingbalance(carryingamount)

Closingbalanceof impairment

provisionI. Joint ventureShouguang Chenming HuisenNew-style Construction Materials Co., Ltd.3,572,834.792,216,832.822,000,000.003,789,667.61Weifang Sime Darby West Port Co., Ltd103,159,857.71-13,433,185.9589,726,671.76Shouguang Meite Environmental Technology Co., Ltd.5,880,000.005,880,000.00Weifang Xingxing United Chemical Co., Ltd.109,253,237.127,563,320.2723,000,000.0093,816,557.39Weifang Chenrong New andOld Kinetic Energy ConversionEquity Investment Fund Partnership (Limited Partnership)158,000,000.00158,000,000.00Subtotal215,985,929.62163,880,000.00-3,653,032.8625,000,000.00351,212,896.76II. AssociatesJiangxi Jiangbao Media Colour Printing Co. Ltd.811,998.75-811,998.750Zhuhai Dechen New Third BoardEquity Investment Fund Company (Limited Partnership)52,253,817.72159,172.1952,412,989.91Ningbo Kaichen Huamei EquityInvestment Fund Partnership (Limited Partnership)199,585,216.94-56,369.42199,528,847.52 Jiangxi Chenming Port Co., Ltd.2,156,252.31-465,892.651,690,359.66Xuchang Chenming Paper Co., Ltd.5,994,545.965,994,545.965,994,545.96 Xuchang Chenming Paper Co., Ltd.180,000,000.001,049,219.7811,683,737.93192,732,957.71Chenming (Qingdao) Asset ManagementCo., Ltd.7,886,521.47782,969.708,669,491.17 Guangdong Nanyue Bank Co., Ltd.2,435,494,479.24364,597,001.772,800,091,481.01Subtotal268,688,353.152,615,494,479.240657,100.8511,683,737.93—5,994,545.96364,597,001.773,255,126,126.985,994,545.96Total484,674,282.772,779,374,479.240-2,995,932.0111,683,737.9325,000,000.005,994,545.96364,597,001.773,606,339,023.745,994,545.96

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

12. Other non-current financial assets

Unit: RMBItemClosing balanceOpening balanceEquity instrument investment147,445,653.55103,000,000.00Total147,445,653.55103,000,000.00

13. Investment property

(1) Investment property under the cost method

√ Applicable □ Not applicable

Unit: RMBItem

Housing andbuilding structureTotalI. Original carrying amount 1. Opening balance5,021,057,511.205,021,057,511.20 2. Increase for the period419,903,365.19419,903,365.19 (1) Purchase419,903,365.19419,903,365.19 3. Decrease for the period7,250,842.007,250,842.00 (1) Disposal7,250,842.007,250,842.00 4. Closing balance5,433,710,034.395,433,710,034.39II. Accumulated depreciation and accumulated amortisation 1. Opening balance176,064,471.58176,064,471.58 2. Increase for the period176,124,231.77176,124,231.77 (1) Provision or amortisation176,124,231.77176,124,231.77 3. Decrease for the period840,962.07840,962.07 (1) Disposal840,962.07840,962.07 4. Closing balance351,347,741.28351,347,741.28III. Provision for impairmentIV. Carrying amount 1. Closing carrying amount5,082,362,293.115,082,362,293.11 2. Opening carrying amount4,844,993,039.624,844,993,039.62

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

14. Fixed assets

Unit: RMBItemClosing balanceOpening balanceFixed assets34,439,935,032.6927,913,986,152.68Total34,439,935,032.6927,913,986,152.68

(1) Particulars of fixed assets

Unit: RMBItem

Housing andbuildingstructure

Machinery and

equipmentVehicles

Electronicequipmentand othersTotalI. Original carrying amount:

1. Opening balance9,669,605,532.5432,091,581,325.72345,066,029.50440,199,456.2742,546,452,344.03 2. Increase for the period1,101,144,203.557,998,189,981.5333,305,487.6726,726,134.799,309,950,501.03 (1) Acquisition178,039,614.34393,317,184.1913,790,229.8514,186,430.78749,918,152.65

(2) Transferred from construction

in progress923,104,589.217,604,872,797.3419,515,257.8212,539,704.018,560,032,348.38 3. Decrease for the period829,168,855.31607,690,846.7327,341,909.9668,557,533.881,683,343,839.37 (1) Disposal or retirement246,662,919.20605,652,693.3312,693,006.1667,234,646.441,082,827,958.62 (2) Others582,505,936.112,038,153.4014,648,903.801,322,887.44600,515,880.75 4. Closing balance9,941,580,880.7839,482,080,460.52351,029,607.21398,368,057.1850,173,059,005.69II. Accumulated depreciation 1. Opening balance1,678,906,121.6512,326,017,656.16173,353,238.78257,772,524.5914,436,049,541.18 2. Increase for the period238,241,029.231,382,386,217.8731,350,459.0513,844,069.751,665,821,775.90 (1) Provision238,241,029.231,382,386,217.8731,350,459.0513,844,069.751,665,821,775.90 3. Decrease for the period120,817,150.11411,312,338.5015,806,863.6013,845,694.20561,782,046.41 (1) Disposal or retirement116,657,524.35395,263,144.416,430,300.7212,700,957.97531,051,927.45 (2) Others4,159,625.7616,049,194.099,376,562.881,144,736.2330,730,118.96 4. Closing balance1,796,330,000.7713,297,091,535.53188,896,834.23257,770,900.1415,540,089,270.67III. Provision for impairment 1. Opening balance50,958,113.15145,083,130.7713,092.92362,313.33196,416,650.17 2. Increase for the period27,808,852.79135,295,622.6813,889.137,434,552.87170,552,917.47 (1) Provision27,808,852.79135,295,622.6813,889.137,434,552.87170,552,917.47 3. Decrease for the period50,958,113.15122,601,345.9113,092.92362,313.33173,934,865.31 (1) Disposal or retirement50,958,113.15122,601,345.9113,092.92362,313.33173,934,865.31 4. Closing balance27,808,852.79157,777,407.5413,889.137,434,552.87193,034,702.33IV. Carrying amount 1. Closing carrying amount8,117,442,027.2226,027,211,517.45162,118,883.85133,162,604.1734,439,935,032.69 2. Opening carrying amount7,939,741,297.7419,620,480,538.79171,699,697.80182,064,618.3527,913,986,152.68

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

14. Fixed assets (

Cont’d)

Notes: (1) As at 31 December 2019, housing, building structure and equipment with the carrying amount of RMB10,573,696,190.50 (31

December 2018: carrying amount of RMB8,079,811,565.53) were pledged as collateral for intangible assets with the carryingamount of RMB880,676,428.58 (31 December 2018: carrying amount of RMB873,985,362.13), and investment properties withthe carrying amount of RMB4,519,487,976.25 (31 December 2018: carrying amount of RMB4,691,453,227.24) was pledged ascollateral for long-term borrowings with the carrying amount of RMB5,110,291,847.19 (31 December 2018: carrying amountof RMB4,733,171,900.00) and short-term borrowings with the carrying amount of RMB180,000,000.00 (31 December 2018:

carrying amount of RMB180,000,000.00).

(2) Other decreases in the original carrying amount and accumulated depreciation was due to the disposal of subsidiary, Haicheng

Haiming Mining Co., Ltd., during the period.

(2) Particulars of temporarily idle fixed assets

Unit: RMBItem

Originalcarryingamount

Accumulateddepreciation

Provisionfor impairment

CarryingamountHousing and building structure95,712,983.1214,236,532.951,430,613.2180,045,836.96Machinery and equipment1,036,068,969.74484,306,592.65127,431,431.68424,330,945.41Transportation equipment12,200.0010,980.00119.591,100.41Electronic equipment and others766,226.60651,788.268,478.26105,960.08Total1,132,560,379.46499,205,893.86128,870,642.74504,483,842.86

(3) Particulars of fixed assets without obtaining property right certificates

Unit: RMBItemCarrying amount

Reason for not yetobtaining property

right certificatesHousing and building structure (Zhanjiang Chenming Pulp & Paper Co., Ltd.)1,182,521,604.07HandlingHousing and building structure (Jilin Chenming Paper Co., Ltd.)476,756,148.62HandlingHousing and building structure (Shouguang Meilun Paper Co., Ltd.)422,122,695.70HandlingHousing and building structure (Jiangxi Chenming Paper Co., Ltd.)246,454,191.11HandlingHousing and building structure (Shandong Chenming Paper Holdings Limited)132,010,908.01HandlingHousing and building structure (Shandong Chenming Investment Limited)93,311,859.03HandlingHousing and building structure (Wuhan Chenming Hanyang Paper Holdings Co., Ltd.)81,493,301.27HandlingHousing and building structure (Chengdu Chenming Culture Communication Co., Ltd.)13,289,619.14HandlingTotal2,647,960,326.95

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

15. Construction in progress

Unit: RMBItemClosing balanceOpening balanceConstruction in progress5,467,321,406.8011,861,494,351.33Materials for project8,801,522.159,856,470.22Total5,476,122,928.9511,871,350,821.55

(1) Particulars of construction in progress

Unit: RMBClosing balanceOpening balanceItemBook balance

ImpairmentprovisionCarrying amountBook balance

Impairment

provisionCarrying amount400T/d Mechanical pulp project (Headquarters)190,246,507.11190,246,507.11Newsprint machine to cultural papermachine and related pulp line transformation (Headquarters)1,426,602,125.571,426,602,125.57Chemical pulp project (Meilun)3,016,785,495.663,016,785,495.66High-end cultural paper (Meilun)179,056,842.38179,056,842.381,701,781,479.301,701,781,479.30Haiming mining magnesite deep processing project (Haiming)486,501,551.60486,501,551.60200,000-ton magnesia-alumina spinel project (Haiming)558,876,283.14558,876,283.14Huanggang Chenming integrated forestry, pulp and paper project4,601,844,646.2744,601,844,646.2743,605,150,078.663,605,150,078.66Biomass power generation project193,548,348.79193,548,348.79157,540,365.92157,540,365.92Membrane treatment project (Zhanjiang Chenming)25,833,751.0725,833,751.0774,505,129.7274,505,129.72Back pressure unit project (Zhanjiang Chenming)26,452,503.4126,452,503.41Technological modification project67,088,127.3567,088,127.3560,368,232.9560,368,232.95Upgrading and renovation of back pressure unit of captive power plant263,626,439.57263,626,439.57177,001,786.08177,001,786.08Fly ash cement ceramsite production project51,767,628.0051,767,628.0030,122,443.4930,122,443.49Others114,080,363.7829,524,740.4184,555,623.37376,989,304.5427,428,935.82349,560,368.72Total5,496,846,147.2129,524,740.415,467,321,406.8011,888,923,287.1527,428,935.8211,861,494,351.33

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

15. Construction in progress (

Cont’d)

(2) Changes in material construction in progress projects for the period

Unit: RMB

Project name

Budget(RMB’

million)

OpeningbalanceIncrease forthe period

Transferto fixedasset forthe period

Otherdeductionsfor the period

Closingbalance

AccumulatedInvestment to

budget

Constructionin progress

Accumulated

capitalised

interest

Of which:

capitalised

interestamount forthe period

Capitalisation

rate of the

interestamount forthe period

Sourceof fundUpgrading and renovation of backpressure unit of captive power plant(headquarter)2.74177,001,786.0886,624,653.49263,626,439.5796%92%822,004.98822,004.985.36%

self-raised andborrowings400T/d Mechanical pulp project

(Headquarters)2.09190,246,507.1129,905,920.80220,152,427.91105%100%6,659,293.482,800,225.155.57%

self-raised andborrowingsMembrane treatment for reclaimed

water recycling (Headquarters)3.00145,410,753.42147,752,923.23293,163,676.6598%100%5,427,899.125,427,899.125.52%

self-raised andborrowingsNew annual 200,000 ton of fly ash

cement ceramsite production project0.7630,122,443.4921,645,184.5151,767,628.0068%70%

self-raisedNewsprint machine to cultural paper

machine and related pulp linetransformation (Headquarters)15.021,426,602,125.57185,117,357.761,611,719,483.33107%100%16,038,785.311,482,337.166.22%

self-raised and

borrowingsChemical pulp project (Meilun)

43.773,016,785,495.661,298,086,862.964,314,872,358.6299%100%235,662,801.0298,372,335.675.42%

self-raised and

borrowingsHigh-end cultural paper (Meilun)

37.611,701,781,479.30345,927,249.601,868,651,886.52179,056,842.3854%99%64,161,971.3122,003,288.795.71%

self-raised and

borrowingsHaiming mining magnesite deepprocessing project (Haiming)486,501,551.60486,501,551.600%0%97,619,920.72200,000-ton magnesia-alumina spinelproject558,876,283.14558,876,283.140%0%8,915,496.55

self-raised and

borrowingsHuanggang Chenming Forest and PaperIntegration Project (Pulping Project)(Huanggang Chenming)44.853,605,150,078.661,027,583,763.3830,889,195.774,601,844,646.27103%98%223,845,072.8575,599,965.835.35%

self-raised and

borrowingsDifferentiated viscose and spinning

and chemical project (HuanggangChenming)109.3510,199,525.602,283,840.0212,483,365.620%0%

self-raisedBiomass power generation project

(southern district) (HuanggangChenming)2.05157,540,365.9236,007,982.87193,548,348.7994%100%

self-raisedMembrane treatment project (Zhanjiang

Chenming)1.274,505,129.7225,833,751.0774,505,129.7225,833,751.0784%90%

self-raisedBack pressure unit project (Zhanjiang

Chenming)0.626,452,503.4126,452,503.41100%100%

self-raisedTotal

263.04

11,607,176,028.683,206,769,489.698,440,406,661.931,045,377,834.745,328,161,021.70659,153,245.34206,508,056.70 —

Explanation: The disposal of the subsidiary Haicheng Haiming Mining Co., Ltd. during the period resulted in the decrease in magnesite

deep processing projects.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

15. Construction in progress (

Cont’d)

(3) Particulars of provision for construction in progress impairment

Unit: RMBItem

Amount for

the year

Reason forthe provisionHuang Pulp & Paper project5,838,644.59Project suspensionTotal5,838,644.59—

(4) Materials for project

Unit: RMBClosing balanceOpening balanceItem

Bookbalance

Impairment

provision

Carryingamount

Bookbalance

Impairment

provision

CarryingamountSpecial materials8,801,522.158,801,522.159,856,470.229,856,470.22Total8,801,522.158,801,522.159,856,470.229,856,470.22

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

16. Right-of-use assets

Unit: RMBItemLand use rightsTotalI. Original carrying amount 1. Opening balance 2. Increase for the period163,334,964.90163,334,964.90 3. Decrease for the period 4. Closing balance163,334,964.90163,334,964.90II. Accumulated depreciation 1. Increase for the period11,193,082.8511,193,082.85 (1) Provision11,193,082.8511,193,082.85 2. Decrease for the period (1) Disposal 3. Closing balance11,193,082.8511,193,082.85III. Provision for impairment 1. Opening balance 2. Increase for the period (1) Provision 3. Decrease for the period (1) Disposal 4. Closing balanceIV. Carrying amount 1. Closing carrying amount152,141,882.05152,141,882.05 2. Opening carrying amount

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

17. Intangible assets

(1) Particulars of intangible assets

Unit: RMBItem

Land userights

UnpatentedtechnologySoftwareTotalI. Original carrying amount 1. Opening balance2,303,026,559.3515,908,674.8720,666,526.262,339,601,760.48 2. Increase for the period5,900,102.3136,109.305,936,211.61 (1) Acquisition5,900,102.3136,109.305,936,211.61 3. Decrease for the period127,063,110.1520,452.12127,083,562.27 (1) Disposal1,130,379.1220,452.121,150,831.24 (2) Transferred to right-of-use assets20,446,841.0320,446,841.03 (3) Others105,485,890.00105,485,890.00 4. Closing balance2,181,863,551.5115,908,674.8720,682,183.442,218,454,409.82II. Accumulated amortisation 1. Opening balance379,780,407.961,705,328.6618,760,748.88400,246,485.50 2. Increase for the period47,468,676.995,301,096.84331,072.1853,100,846.01 (1) Provision47,468,676.995,301,096.84331,072.1853,100,846.01 (2) Transferred to right-of-use assets15,954,826.2015,954,826.20 (3) Others1,606,907.781,606,907.78 3. Decrease for the period6,788,096.246,788,096.24 (1) Disposal7,559,822.187,559,822.18 4. Closing balance411,294,258.757,006,425.5019,091,821.06437,392,505.31III. Impairment provisionIV. Carrying amount 1. Closing carrying amount1,770,569,292.768,902,249.371,590,362.381,781,061,904.51 2. Opening carrying amount1,923,246,151.3914,203,346.211,905,777.381,939,355,274.98Explanation:

① As at 31 December 2019, housing, building structure and equipment with the carrying amount of RMB10,573,696,190.50 (31

December 2018: carrying amount of RMB8,079,811,565.53) were pledged as collateral for intangible assets with the carryingamount of RMB880,676,428.58 (31 December 2018: carrying amount of RMB873,985,362.13), and investment properties withthe carrying amount of RMB4,519,487,976.25 (31 December 2018: carrying amount of RMB4,691,453,227.24) was pledged ascollateral for long-term borrowings with the carrying amount of RMB5,110,291,847.19 (31 December 2018: carrying amountof RMB4,733,171,900.00) and short-term borrowings with the carrying amount of RMB180,000,000.00 (31 December 2018:

carrying amount of RMB180,000,000.00).

② The emission right of Huanggang Pulp and Paper is categorised as others (Other Rights Certificate), with the number of pollutant

discharge permit being 91421100679765869N001P, the issuing authority being Huanggang Ministry of Environmental Protectionand the expiry date ranging between 14 September 2018 and 13 September 2021.

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

18. Goodwill

(1) Original carrying amount of goodwill

Unit: RMBName of investee

Openingbalance

Increase forthe period

Decreasefor the period

ClosingbalanceShandong Chenming Panels Co., Ltd.5,969,626.575,969,626.57Jilin Chenming Paper Co., Ltd.14,314,160.6014,314,160.60Total20,283,787.1720,283,787.17

(2) Provision for impairment of goodwill

Unit: RMBName of investee

Openingbalance

Increase forthe period

Decrease forthe period

Closing

balanceMachine-made paper sector – Jilin Chenming Paper Co., Ltd.14,314,160.6014,314,160.60Total14,314,160.6014,314,160.60

Explanation: The Company evaluated the recoverable amount of the goodwill and determined that the goodwill related to the

Company’s panel business had not been impaired. With the category of the main business as the basis for determiningthe reporting segments, the Company regarded Shandong Chenming Panels Co., Ltd. as a single asset group. Therecoverable amount of the asset group Shandong Chenming Panels Co., Ltd. is determined based on the present valueof the estimated future cash flows. Future cash flows are based on the financial budget from 2020 to 2024 approvedby the management, and adopt 7.28% as the discount rate which is the interest rate of the 5-year bonds issued by theCompany in 2018. The cash flows of the asset group Shandong Chenming Panels Co., Ltd. for more than 5 years arecalculated based on the growth rate of 5%. Other key assumptions used in estimating future cash flows include theestimated sales and gross profit based on the performance of such asset group in the past and the expectation to marketdevelopment by the management. The management believes that any reasonable change in the above assumptionswill not result in the total book value of the asset group Shandong Chenming Panels Co., Ltd. exceeding its recoverableamount.

19. Long-term prepaid expenses

Unit: RMBItem

Openingbalance

Increase forthe period

Amortisationfor the period

Otherdeductions

ClosingbalanceWoodland expenses51,978,428.523,213,756.7739,122,447.159,642,224.6Others82,937,813.29166,458.724,219,273.6440,323,814.2638,561,184.1Total134,916,241.81166,458.727,433,030.4179,446,261.4148,203,408.7

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

20. Deferred income tax assets/deferred income tax liabilities

(1) Deferred income tax assets before offsetting

Unit: RMBClosing balanceOpening balanceItem

Deductibletemporarydifference

Deferredincometax assets

Deductibletemporarydifference

Deferredincome

tax assetsProvision for impairment of assets1,791,356,735.71417,688,820.311,009,229,761.95201,814,843.08Unrealised profit arising from intra-group transactions164,089,227.2641,022,306.8253,691,645.1313,422,911.28Deductible loss2,243,481,924.83344,125,106.671,832,638,038.33291,277,348.30Outstanding payables446,580,396.8768,163,018.91464,741,048.8572,646,157.78Deferred income116,165,951.1421,443,378.33136,079,842.6324,712,438.18Total4,761,674,235.81892,442,631.043,496,380,336.89603,873,698.62

(2) Deferred income tax assets before offsetting

Unit: RMBClosing balanceOpening balanceItem

Taxable temporary

differences

Deferred incometax liabilities

Taxable temporarydifferences

Deferred incometax liabilitiesDebt reconstructing5,644,502.361,411,125.59Total5,644,502.361,411,125.59

(3) The breakdown of unrecognised deferred income tax assets

Unit: RMBItemClosing balanceOpening balanceDeductible temporary difference352,057,221.14293,812,600.65Deductible loss521,737,724.53618,945,325.05Total873,794,945.67912,757,925.70

(4) Expiry of deductible loss of unrecognised deferred income tax assets falls in the periods as follows

Unit: RMBYearClosing amountOpening amount2019—58,075,279.702020674,989.7168,154,676.892021185,647.6179,493,561.61202211,628,813.1491,517,702.922023164,859,774.53321,704,103.932024344,388,499.54—Total521,737,724.53618,945,325.05

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XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

21. Other non-current assets

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBClosing balanceOpening balanceItemBook balance

Impairment

provisionCarrying amountBook balance

ImpairmentprovisionCarrying amountPrepayments for properties9,800,000.009,800,000.00458,224,099.89458,224,099.89Prepayments for land101,130,000.00101,130,000.0045,230,000.0045,230,000.00Prepayments for engineering47,430,952.0947,430,952.0922,445,137.1822,445,137.18Prepayments for equipment15,514,874.5815,514,874.58223,822,509.86223,822,509.86Deposits36,000,000.0036,000,000.00Equity transfer694,000,000.00694,000,000.00Pre-paid expenses42,771,382.7342,771,382.73Total173,875,826.67173,875,826.671,522,493,129.661,522,493,129.66

22. Short-term borrowings

(1) Classification of short-term borrowings

Unit: RMBItemClosing balanceOpening balanceDiscounted borrowings21,587,694,481.5321,626,534,000.00Credit borrowings7,174,060,275.177,531,565,147.43Guaranteed borrowings7,082,088,423.989,918,242,061.05Pledged borrowings859,312,833.51971,604,153.41Mortgage borrowings180,000,000.00180,000,000.00Total36,883,156,014.1940,227,945,361.89Explanation:

① For classification and amount of mortgage borrowing and mortgage borrowing, please see notes in

relation to monetary funds and assets with restricted ownerships or right to use.For classification and amount of pledged borrowing and mortgage borrowing, please see notes in relation

to monetary funds and assets with restricted ownerships or right to use.

② Overdue short-term borrowings

Total outstanding accounts payable as at the end of the year amounted to RMB0.00.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

23. Bills payable

Unit: RMBClassificationClosing balanceOpening balanceCommercial acceptance bills625,325,798.1849,670,407.62Bank acceptance bills889,722,407.824,169,299,147.31Total1,515,048,206.004,218,969,554.93Explanation: Total outstanding bills payable as at the end of the period amounted to RMB0.

24. Accounts payable

(1) Particulars of accounts payable

Unit: RMBItemClosing balanceOpening balanceLoans3,393,786,063.513,137,376,535.33Payment for engineering408,694,349.00327,682,450.74Payment for equipment312,292,221.48474,915,744.05Service expense199,838,288.95131,889,382.02Others36,476,659.0478,364,532.52Total4,351,087,581.984,150,228,644.66

(2) Significant advance receipts for over 1 year

Unit: RMBItemClosing balanceReasonsXD Baoji Electric Co., Ltd.22,343,730.83Quality guarantee deposit

for engineeringOmya Haiming (Nanchang) Chemical Co. Ltd.16,000,000.00Quality guarantee deposit

for engineeringChina Light Industry Nanning Design Engineering Co., Ltd.15,217,955.12Quality guarantee deposit

for engineeringHangzhou Water Treatment Technology Development Center Co., Ltd.

13,068,000.00Quality guarantee deposit

for engineeringShandong Shenhua Shanda Energy & Environment Co., Ltd.

11,736,736.36Quality guarantee deposit

for engineeringTotal78,366,422.31–

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

25. Contract liabilities

Unit: RMBItemClosing balanceOpening balanceAdvance loans968,082,063.13419,540,133.74Total968,082,063.13419,540,133.74

26. Staff remuneration payables

(1) Particulars of staff remuneration payables

Unit: RMBItemOpening balance

Increase forthe period

Decrease for

the period

ClosingbalanceI. Short-term remuneration135,108,374.131,348,451,077.121,294,553,070.53189,006,380.72II. Retirement benefit plan– defined contribution scheme265,033.57193,837,915.85192,879,446.621,223,502.80Total135,373,407.701,542,288,992.971,487,432,517.15190,229,883.52

(2) Particulars of short-term remuneration

Unit: RMBItem

Openingbalance

Increase for

the period

Decrease for

the period

Closingbalance

1. Salaries, bonuses, allowance and subsidies54,864,072.321,106,708,111.641,040,937,184.08120,634,999.88

2. Staff welfare38,374,252.2338,374,252.23

3. Social insurance premium1,453,195.4584,973,131.2384,554,394.381,871,932.30 Of which: Medical insurance premium484,700.1173,988,756.0173,633,207.30840,248.82 Work-related injury insurance premium2,559.914,263,030.534,242,520.5623,069.88 Maternity insurance premium965,935.436,721,344.696,678,666.521,008,613.60

4. Housing provident funds8,814,407.4289,852,004.6989,809,868.498,856,543.62

5. Union funds and workers

’ education26,540,500.6722,076,711.0912,786,187.8335,831,023.93

6. Other short-term remuneration43,436,198.276,466,866.2428,091,183.5221,811,880.99Total135,108,374.131,348,451,077.121,294,553,070.53189,006,380.72

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

26. Staff remuneration payables (

Cont’d)

(3) Defined contribution plan

Unit: RMBItem

Openingbalance

Increase for

the period

Decrease forthe period

Closing

balance

1. Basic pension insurance13,533.34186,731,483.19185,711,254.111,033,762.42

2. Unemployment insurance251,500.237,106,432.667,168,192.51189,740.38Total265,033.57193,837,915.85192,879,446.621,223,502.80

27. Taxes payable

Unit: RMBItemClosing balanceOpening balanceValue added tax81,745,671.90101,147,703.11Enterprise income tax166,389,232.03279,044,478.52Individual income tax29,565,363.8721,204,181.79Urban maintenance and construction tax5,844,684.791,675,884.94Land use tax8,206,677.0216,727,507.78Property tax8,239,300.7826,049,416.88Educational surcharges and others6,850,900.342,685,191.81Stamp duty4,712,286.003,116,833.81Total311,554,116.73451,651,198.64

28. Other payables

Unit: RMBItemClosing balanceOpening balanceInterest payable208,189,699.15226,788,777.59Other payables2,386,059,927.391,550,929,239.89Total2,594,249,626.541,777,718,017.48

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

28. Other payables (

Cont’d)

(1) Interest payable

Unit: RMBItemClosing balanceOpening balanceInterest on corporate bonds103,432,934.98132,103,351.62Interest payable on short-term borrowings27,960,930.8634,393,759.32Interest on medium-term notes76,795,833.3160,291,666.65Total208,189,699.15226,788,777.59

(2) Other payables

1) Other payables by nature

Unit: RMBItemClosing balanceOpening balanceOpen credit1,287,822,732.06164,919,560.22Deposit451,756,402.26969,423,011.35Accrued expenses506,095,837.14281,151,124.64Others140,384,955.93135,435,543.68Total2,386,059,927.391,550,929,239.89

2) Significant advance receipts for over 1 year

Unit: RMBItemClosing balanceReasonsNine Dragons Dawei Holdings Co., Ltd.30,000,000.00DepositShenzhen Dongchan Capital Group Co., Ltd.9,093,918.30DepositState-owned Shouguang Qingshuipo Farm8,800,000.00Open creditLu Haobin6,830,800.00DepositShandong Yingli Industrial Co., Ltd.6,286,020.00DepositTotal61,010,738.30

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

29. Non-current assets due within one year

Unit: RMBItemClosing balanceOpening balanceLong-term receivables due within one year2,520,582,051.434,234,248,448.36Bonds payable due within one year899,122,500.00Long-term payables due within one year2,238,647,651.022,732,057,322.65Lease liabilities due within one year4,606,717.58Other non-current liabilities due within one year250,000,000.00Total5,662,958,920.037,216,305,771.01

30. Other current liabilities

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBItemClosing balanceOpening balanceShort-term bonds payable222,402,500.002,816,956,481.68Total222,402,500.002,816,956,481.68

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

30. Other current liabilities (

Cont’d)Increase/decrease in short-term bonds payable:

Unit: RMBName of commercial paperPar value

Dateof issueTermAmount

Openingbalance

Issue duringthe period

Interest atpar value

Amortisationof premium/discount

Redemption

duringthe period

Closingbalance2018 Fifth Tranche of Super & Short-termCommercial Paper1,000,000,000.002018-4-24270 days998,500,000.00683,129,134.97683,129,134.972018 Sixth Tranche of Super & Short-termCommercial Paper600,000,000.002018-5-9270 days599,100,000.00630,791,666.713,616,666.67100,000.00634,508,333.382018 Tenth Tranche of Super & Short-termCommercial Paper600,000,000.002018-8-9270 days599,066,750.00425,794,527.7814,000,000.00400,000.00440,194,527.782018 Eleventh Tranche of Super & Short-term Commercial Paper600,000,000.002018-10-29270 days599,004,115.00455,887,448.3321,116,666.67600,000.00477,604,115.002018 Twelfth Tranche of Super & Short-term Commercial Paper620,000,000.002018-12-19176 days619,393,778.00621,353,703.8918,203,888.89505,185.00640,062,777.782019 First Tranche of Super & Short-termCommercial Paper500,000,000.002019-1-18175 days499,513,889.00499,513,889.0015,944,444.44486,111.00515,944,444.442019 Second Tranche of Super & Short-term Commercial Paper600,000,000.002019-2-27270 days599,100,000.00599,100,000.0026,758,333.33900,000.00626,758,333.332019 Third Tranche of Super & Short-term

Commercial Paper300,000,000.002019-3-28270 days299,550,000.00299,575,471.7013,533,333.33324,528.30313,433,333.332019 Fourth Tranche of Super & Short-term

Commercial Paper300,000,000.002019-4-30270 days299,550,000.00299,550,000.0012,915,000.00450,000.00260,000,000.0052,915,000.002019 Fifth Tranche of Super & Short-term

Commercial Paper300,000,000.002019-5-24270 days299,550,000.00299,550,000.0011,655,000.00400,000.00300,000,000.0011,605,000.002019 Sixth Tranche of Super & Short-term

Commercial Paper300,000,000.002019-7-31270 days299,550,000.00299,550,000.008,032,500.00300,000.00150,000,000.00157,882,500.00Subtotal5,720,000,000.005,711,878,532.002,816,956,481.682,296,839,360.70145,775,833.334,465,824.305,041,635,000.01222,402,500.00

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

31. Long-term borrowings

(1) Types of long-term borrowings

Unit: RMBItemClosing balanceOpening balancePledge borrowings74,823,068.83362,064,033.51Secured borrowings5,110,291,847.194,733,171,900.00Guarantee borrowings5,695,114,793.036,097,254,963.85Credit borrowings780,692,035.94840,692,035.94Less: long-term borrowings due within 1 year2,520,582,051.434,234,248,448.36Total9,140,339,693.567,798,934,484.94Explanation: For classifications and amounts of secured borrowings and pledged assets, please see notes in respect of monetary

funds and assets with restricted ownerships or right to use.For classifications and amounts of pledge borrowings and pledged assets, please see notes in respect of monetary funds

and assets with restricted ownerships or right to use.

32. Bonds payable

(1) Bonds payable

Unit: RMBItemClosing balanceOpening balance17 Chenming Bond 01- Chenming Group89,070,000.001,198,710,000.0018 Chenming Bond 01- Chenming Group898,852,500.00Chenming USD Bonds1,169,200,909.49Total1,258,270,909.492,097,562,500.00

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

32. Bonds payable

Cont’d

(2) Increase/decrease in bonds payable (excluding other financial instruments such as preference shares and

perpetual bonds classified as financial liabilities)

Unit: RMBBond namePar value

Date ofissueTermAmountOpening balance

Issue duringthe period

Interest atpar valueAmortisationof premium/

discount

Redemptionduring the

periodAmortisationof issuance

fees

Closingbalance17 Chenming Bond

01- ChenmingGroup1,200,000,000.002017-8-225 years1,198,200,000.001,198,710,000.0078,000,000.00360,000.001,188,000,000.0089,070,000.0018 Chenming Bond01- ChenmingGroup900,000,000.002018-4-25 years898,650,000.00898,852,500.0065,520,000.00270,000.0065,520,000.00899,122,500.00Chenming USD

Bonds1,137,120,600.002019-8-62.6 years1,125,276,863.461,125,276,863.4642,073,462.201,850,583.831,169,200,909.49Total3,237,120,600.00––3,222,126,863.462,097,562,500.001,125,276,863.46185,593,462.202,480,583.831,253,520,000.002,157,393,409.49Less: Bondspayable duewithin one year899,122,500.00Total3,237,120,600.003,222,126,863.462,097,562,500.001,125,276,863.46185,593,462.202,480,583.831,253,520,000.001,258,270,909.49

33. Lease liabilities

Unit:

ItemClosing balanceOpening balanceLease payments payable90,539,867.03Less: Unrecognised financing expenses26,236,020.80Subtotal64,303,846.23Less: Lease liabilities due within one year4,606,717.58Total59,697,128.65

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

34. Long-term payables

Unit: RMBItemClosing balanceOpening balanceLong-term payables3,321,535,538.943,900,255,693.44Total3,321,535,538.943,900,255,693.44

(1) By nature

Unit: RMBItemClosing balanceOpening balanceRetention for the financial leasing operations160,190,103.51167,083,436.84China Development Bank Special funds595,000,000.00622,500,000.00Financial leasing4,804,993,086.455,842,729,579.25Less: due within 1 year2,238,647,651.022,732,057,322.65Total3,321,535,538.943,900,255,693.44

35. Provision

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBItemClosing balanceOpening balanceReasonPending litigation325,259,082.28325,259,082.28Losses from Arjo’s lawsuitTotal325,259,082.28325,259,082.28—Other explanations, including the explanations on significant assumptions and estimation related to significantprovision:

Note: In February 2017, ArjowigginsHKK2Limited (“HKK2 Company”) submitted a H share winding-up petition to HongKong High Court due to a joint venture dispute, which required a compensation for economic loss of RMB167million and interest thereon, and legal costs of USD3.54 million and arbitration fee of HK$3.3 million and interestthereon to HKK2. The Company made provision of RMB325 million for such pending litigation in 2017. As at thebalance sheet date, Hong Kong High Court had not given a verdict for such litigation.

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

36. Deferred income

Unit: RMBItemOpening balance

Increase for

the period

Decrease forthe periodClosing balanceReasonGovernment grants1,862,395,197.6191,381,862.501,771,013,335.11Financial provisionTotal1,862,395,197.6191,381,862.501,771,013,335.11—Items in respect of government grants:

Unit: RMB

Liabilities item

Openingbalance

New grantsfor the period

Include innon-operating

income for

the period

Include inother incomefor the period

Amountchargedagainst costexpenses

Otherchanges

Closingbalance

Asset-related/income-relatedProject fund for National technological support scheme1,617,224.68164,699.681,452,525.00Asset-relatedSewage treatment and water conservation configuration project64,466,819.641,192,682.9363,274,136.71Asset-relatedFinancial grants for technological modification project180,966,256.9112,783,808.11168,182,448.80Asset-relatedSubsidy Funds, for environmental protection749,420,276.7549,191,971.56700,228,305.19Asset-relatedLogistics park project51,960,000.00Asset-relatedZhanjiang integrated forestry, pulp and paper project71,141,834.424,094,632.9267,047,201.50Huanggang pulp-forestry-paper project681,564,072.66681,564,072.66Asset-relatedOthers61,258,712.551,589,455.0822,364,612.2237,304,645.25Asset-relatedTotal1,862,395,197.6169,017,250.2822,364,612.221,771,013,335.11Asset-related

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

37. Other non-current liabilities

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBItemClosing balanceOpening balanceWealth management direct financing250,000,000.00Less: other non-current liabilities due within one yea250,000,000.00Medium-term notes3,042,841,328.862,047,948,069.73Total3,042,841,328.862,047,948,069.73

38. Share capital

Unit: RMBIncrease/decrease during the year(+/-)Opening balanceNew issueBonus issue

Sharesconvertedfrom reservesOthersSubtotalClosing balanceTotal number of shares2,904,608,200.002,904,608,200.00

39. Other equity instruments

(1) Preference shares, perpetual bonds and other financial instruments outstanding at the end of the period

ItemOpening balance

Increase during

the year

Decrease during

the yearClosing balancePerpetual bonds2,988,000,000.002,988,000,000.00Preference shares4,477,500,000.004,477,500,000.00Total7,465,500,000.007,465,500,000.00

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XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

39. Other equity instruments

Cont’d

(2) Changes in preference shares, perpetual bonds and other financial instruments outstanding at the end of

the period

Unit: RMBBeginning of the periodIncrease for the periodDecrease for the periodEnd of the periodOutstanding financialinstrumentsNumber

CarryingamountNumber

CarryingamountNumber

CarryingamountNumber

Carryingamount17 Lu Chenming MTN00110,000,000.00996,000,000.0010,000,000.00996,000,000.0017 Lu Chenming MTN00220,000,000.001,992,000,000.0020,000,000.001,992,000,000.00Chenming You 0122,500,000.002,238,750,000.0022,500,000.002,238,750,000.00Chenming You 0210,000,000.00999,000,000.0010,000,000.00999,000,000.00Chenming You 0312,500,000.001,239,750,000.0012,500,000.001,239,750,000.00

75,000,0007,465,500,000.0075,000,0007,465,500,000.00Changes (increase or decrease) in other equity instruments during the period, the reasons for such changes,and the basis for relevant accounting treatment:

1. Note: ① Particulars of issue:

The Company issued medium-term notes amounting to RMB3,000 million on 12 July and 28September 2017 at a coupon rate of 6.80% and 6.30% respectively. The proceeds net ofissue costs amounted to RMB2,988.00 million.

② Particulars of the notes as perpetual bonds

The notes are debts without a defined maturity date and will continue indefinitely until theexercise of the right of redemption by the Company. The interest rate of the bills is determinedby the basic interest rate + the initial interest rate + 300BP. It has the feature of cappedinterest rates and the capped interest rate does not exceed the average interest rate levelof the same type of instruments in the same industry in the same period; The Company hasthe right to defer any payment of interest. The right of redemption of the notes is vestedin the Company so that it is up to the Company to decide whether to redeem or not; thepriority of repayment of the principal and interest of medium-term notes for the period is thesame as other outstanding debt financing instruments of the issuers in the event of windingup, because there is low probability of bankruptcy that the Company will not be liable forcontractual obligations to deliver cash or other financial assets expected.Based on the above, the notes do not contain any term giving rise to any contractualobligation to deliver cash or other financial assets to any other entity, or to exchange anyfinancial asset or financial liability with any other entity under potential adverse circumstances.Consequently, they are eligible to be recognised and accounted for as equity instruments andincluded under other equity instruments.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

39. Other equity instruments

Cont’d

(2) Changes in preference shares, perpetual bonds and other financial instruments outstanding at the end of

the period Cont’d

2. Note: ① Particulars of issue:

The Company non-publicly issued preference shares amounting to RMB4,500 million on 17March, 17 August and 22 September 2016 respectively. The proceeds net of issue costsamounted to RMB4,477.50 million.

② Particulars of the preference shares as equity Instruments

Holders of preference shares participate in profit distribution in two portions, namely the fixeddividend distributed based on a fixed dividend rate and the distribution of retained earningsrealised for the year.Other explanations:

A. Distribution of fixed dividend

According to the Articles of Association, the Company shall distribute fixed dividends to holdersof the preference shares at fixed dividend rate if there are distributable profits after making goodlosses and the contribution to reserve fund according to law. The Board is authorised by the generalmeeting to declare and pay all dividends on the preference shares in accordance with the issuanceplan under the framework and principles considered and approved in the general meeting in respectof the preference shares. The general meeting of the Company has the right to cancel part of orall of the current dividends on the preference shares. However, when the general meeting of theCompany considers the cancellation of part of or all of the current dividends on the preferenceshares, the Company shall inform the shareholders of preference shares at least 10 working daysbefore the date of dividend payment in accordance with the requirements of the related authorities.

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

39. Other equity instruments

Cont’d

(2) Changes in preference shares, perpetual bonds and other financial instruments outstanding at the end of

the period Cont’d

B. Participation in the distribution of retained earnings realised for the year

Holders of preference shares participate in the distribution of the retained earnings through receiptof cash which is non-cumulative and non-deferrable. In the event of making good losses and thecontribution to reserve fund according to law, after receiving fixed dividends at fixed dividendrate as agreed, holders of preference shares can also participate in the distribution of the retainedearnings for the year in proportion. Specific terms are as follows: the retained earnings for the yeararises from net profit attributable to owners of the parent company on a consolidated basis upondistribution of relevant fixed income to holders of financial instruments such as the preferenceshares which may be classified under equity. 50% of the retained earnings shall be distributedto holders of preference shares and ordinary shareholders. Holders of preference shares shallparticipate in the distribution of the retained earnings by receiving cash dividends, and the ordinaryshareholders shall participate in the distribution of the retained earnings by receiving cash dividendsor dividends on ordinary shares.Based on the above, the preference shares do not contain any term giving rise to any contractualobligation to deliver cash or other financial assets to any other entity, or to exchange any financialasset or financial liability with any other entity under potential adverse circumstances. Consequently,they were accounted for as other equity instruments – preference shares.

40. Capital reserves

Unit: RMBItem

Openingbalance

Increase for

the period

Decrease for

the period

ClosingbalanceShare premium4,421,127,407.9311,683,737.9316,447,225.774,416,363,920.09Other capital reserves670,322,507.21670,322,507.21Total5,091,449,915.1411,683,737.9316,447,225.775,086,686,427.30Other explanations, including changes (increase or decrease) during the period and reasons for such changes:

① The Company previously held 100% of equity interest in Shouguang Meilun Paper Co., Ltd. In December

2019, the Company entered the capital increase and share expansion agreement among Weifang ChenrongGrowth Driver Replacement Equity Investment Fund Partnership (Limited Partnership) and Shouguang MeilunPaper Co., Ltd.. Weifang Chenrong Growth Driver Replacement Equity Investment Fund Partnership (LimitedPartnership) made a unilateral capital injection into Shouguang Meilun Paper Co., Ltd. Upon completion of thecapital increase, its equity interest in Shouguang Meilun Paper Co., Ltd.. was 8% by Weifang Chenrong GrowthDriver Replacement Equity Investment Fund Partnership (Limited Partnership), and the transaction did not resultin the loss of our control of Shouguang Meilun Paper Co., Ltd. As of 31 December 2019, the implementationof this agreement was completed, and the capital increase was RMB415 million. The transaction resulted in anincrease in minority interest of RMB431.42 million and a decrease in capital reserves of RMB16.44 million.

② The capital increase and share expansion and the introduction from external shareholders from Goldtrust

Futures Co., Ltd., joint venture of the Company resulted in the dilution of the equity interest of the Company, butthe Company still had a significant impact on it. Upon the capital increase, the balance of the net asset sharecalculated according to the new shareholding ratio prior to the capital increase was RMB116.8 million based onthe original shareholding ratio, and the capital reserve increase was adjusted to RMB11.68 million.

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

41. Other comprehensive income

Unit: RMBDuring the period

Item

Openingbalance

Incurredbefore incometax forthe period

Less: Transferredfrom OtherComprehensiveIncome in priorperiods to profitor loss duringthe period

Less: Transferredfrom OtherComprehensiveIncome in priorperiods to retainedearnings duringthe period

Less: incometax expenses

Attributableto parentcompanyafter tax

Attributableto minorityshareholders

after tax

ClosingbalanceOther comprehensive incometo be reclassified to profit or loss in subsequent periods-736,520,181.01-142,931,954.09-142,931,954.09-879,452,135.10Including: Exchange differences on translation of foreign operations-736,520,181.01-142,931,954.09-142,931,954.09-879,452,135.10

Total other comprehensive income-736,520,181.01-142,931,954.09-142,931,954.09-879,452,135.10

42. Special reserves

Unit: RMBItemOpening balance

Increase forthe period

Decrease for

the periodClosing balanceSafety production3,257,998.473,257,998.470Total3,257,998.473,257,998.470

Explanation: The decrease in special reserves for the period represents the disposal of Haicheng Haiming Mining Co., Ltd.

43. General risk reserves

ItemOpening balance

Increase for

the period

Decrease for

the periodClosing balanceGeneral risk reserves64,123,919.239,998,724.9774,122,644.20Total64,123,919.239,998,724.9774,122,644.20Note: Pursuant to the requirements under the Notice of the Ministry of Finance on Issuing the Administrative Measuresfor the Provision of Reserves of Financial Enterprises (Cai Jin [2012] No. 20), the assets of a financial enterprisethat are subject to risks and losses shall make provisions, including loans and advances, available-for-salefinancial assets, held-to-maturity investments, long-term equity investments, deposits with banks, borrowings,debt assets, other receivables and others. The general reserve balance shall not be lower than 1.5% of theclosing balance of the risk assets in principle. The general provisions may be used to make up the losses, butnot for dividend distribution or capital transfers.The Company makes provision for general risk in accordance with 1.5% of the closing balance of deposits with banks,loans, discounted assets, borrowings, held-for-trading financial assets, debt investments and other receivables.

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

44. Surplus reserves

Unit: RMBItemOpening balance

Increase forthe period

Amortisation for

the periodClosing balanceStatutory surplus reserves1,148,888,912.1163,120,197.861,212,009,109.97Total1,148,888,912.1163,120,197.861,212,009,109.97

45. Retained profit

Unit: RMBItemThe periodThe prior periodRetained profit as at the end of the prior year before adjustment9,107,422,690.858,866,614,844.40Accumulated adjustments to retained profit as at the beginning of theyear (increase“+”, decrease“-”)Retained profit as at the beginning of the year after adjustment9,107,422,690.858,866,614,844.40Plus: Net profit for year attributable to shareholders of the parent company1,656,566,584.882,509,828,858.47Less: Transfer of statutory surplus reserves63,120,197.8616,772,805.71Transfer of general risk reserves9,998,724.9764,123,919.23Ordinary dividend payable697,105,968.001,161,843,280.20Dividends payable to minority shareholdersPerpetual bonds interest payable194,000,000.00347,140,000.00Preferred shares interest payable493,494,767.52679,141,006.88Retained profit as at the end of the period9,306,269,617.389,107,422,690.85Including: Surplus reserve attributable to the Parent Company extracted by subsidiaries175,282,280.06161,466,873.84

46. Revenue and operating cost

Unit: RMBAmount for the yearAmount for the prior yearItemRevenueOperating costsRevenueOperating costsPrincipal activities29,731,389,708.3321,311,249,692.7128,215,233,444.1319,278,736,866.85Other activities664,044,365.02462,634,592.68660,522,719.43567,019,951.66Total30,395,434,073.3521,773,884,285.3928,875,756,163.5619,845,756,818.51Whether the New Revenue Standard has been implemented

√ Yes □ No

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

46. Revenue and operating cost (

Cont’d)Information in relation to revenue:

Unit: RMBCategory of contract

Machine –made paper

Financialservices

MagnesiumminingReal estateOthersTotalType of goods Machine-made paper25,911,568,864.4825,911,568,864.48 Financial leasing1,815,459,714.281,815,459,714.28 Magnesium mining278,633,403.31278,633,403.31 Electricity and steam143,725,243.14143,725,243.14 Construction materials311,264,909.38311,264,909.38 Paper chemicals126,550,115.28126,550,115.28 Others1,557,952,590.8951,132,956.66105,094,250.4294,052,025.511,808,231,823.48Total27,739,796,813.791,866,592,670.94278,633,403.31105,094,250.42405,316,934.8930,395,434,073.35By geographical area Domestic24,132,497,135.201,866,592,670.94278,633,403.31105,094,250.42405,316,934.8926,788,134,394.76 Overseas3,607,299,678.593,607,299,678.59Total27,739,796,813.791,866,592,670.94278,633,403.31105,094,250.42405,316,934.8930,395,434,073.35Breakdown of revenue from principal activities

① By industry

Amount for the yearAmount for the prior yearIndustryRevenueOperating costsRevenueOperating costsMachine-made paper25,911,568,864.4719,455,165,308.4024,303,557,365.1317,849,873,914.56Financial leasing1,815,459,714.28119,934,602.872,202,061,690.16167,892,149.50Paper chemicals311,264,909.38252,296,926.73288,669,257.79228,873,017.91Magnesium mining278,633,403.31125,112,807.37416,152,447.97198,076,427.48Electricity and steam143,725,243.14114,507,240.78154,541,407.23115,739,913.92Construction materials126,550,115.28112,807,283.45110,998,714.22104,827,034.51Others1,144,187,458.471,131,425,523.11739,252,561.63613,454,408.97Total29,731,389,708.3321,311,249,692.7128,215,233,444.1319,278,736,866.85

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

46. Revenue and operating cost (

Cont’d)

② Machine-made paper by category of major products

Amount for the yearAmount for the prior yearItemRevenueOperating costsRevenueOperating costsDuplex press paper7,728,877,039.075,734,589,199.806,155,644,742.234,518,550,774.15White paper board6,908,899,578.155,755,130,694.576,440,247,745.665,395,302,715.50Coated paper3,779,487,348.442,722,530,177.964,697,177,229.033,407,051,401.87Electrostatic paper3,270,064,358.542,295,436,749.002,404,374,935.481,440,077,827.51Anti-sticking raw paper1,238,578,315.18846,933,499.501,208,193,494.70728,105,243.01Household paper620,993,038.46515,992,003.79749,151,937.19703,211,713.08Others2,364,669,186.641,584,552,983.782,647,586,420.341,656,767,066.92Total25,911,568,864.4719,455,165,308.4024,302,376,504.6217,849,066,742.04

③ Machine-made paper by geographical areas

Amount for the yearAmount for the prior yearItemRevenueOperating costsRevenueOperating costsMainland China22,304,269,185.8816,179,838,701.9720,008,292,214.9213,741,799,550.40Other countries and regions3,607,299,678.593,275,326,606.434,295,265,150.214,108,074,364.17Total25,911,568,864.4719,455,165,308.4024,303,557,365.1317,849,873,914.56

④ Revenue from top 5 customers

Period

Total revenue from

top 5 customers

Percentage of thetotal revenue inthe same period (%)20193,193,575,635.9410.51%20182,031,261,823.957.03%

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

47. Taxes and surcharges

Unit: RMBItem

Amountfor the year

Amount forthe prior yearUrban maintenance and construction tax68,851,026.8654,001,398.48Educational surcharges30,207,914.3826,130,730.37Resource tax11,038,459.8014,792,493.31Property tax70,397,206.9354,081,329.55Land use tax34,686,247.4451,224,066.03Vehicle and vessel tax112,050.62216,968.91Stamp duty26,151,364.6826,256,847.64Local education surcharges18,602,695.0812,085,006.25Water engineering funds2,576,414.282,718,637.28Land appreciation tax701,320.66368,549.40Others12,608,739.088,482,450.88Total275,933,439.81250,358,478.10

48. Selling and distribution expenses

Unit: RMBItem

Amount for

the year

Amount forthe prior yearWages143,945,947.37132,591,972.27Depreciation expenses12,421,773.8613,122,208.66Office expenses4,737,474.204,403,154.36Travel expenses31,547,133.8229,777,817.13Selling commissions8,642,790.1926,874,918.19Transportation expenses961,299,229.05869,865,309.41Cargo handling charges15,086,234.9413,435,084.73Rental expenses10,481,463.369,362,720.62Hospitality expenses66,310,236.6457,922,888.46Warehouse expenses7,548,664.333,137,071.93Others35,175,241.0830,006,092.73Total1,297,196,188.841,190,499,238.49

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

49. General and administrative expenses

Unit: RMBItem

Amountfor the year

Amount forthe prior yearWages and surcharges336,234,528.59286,951,672.01Welfare expenses51,837,962.5847,180,086.08Depreciation expenses146,845,808.97192,962,832.24Amortisation of intangible assets and long-term expenses48,927,936.4139,967,397.65Production interruption loss146,340,924.0155,876,227.19Repair cost and consumption of materials49,131,088.8435,079,467.58Audit fees6,131,215.015,755,228.95Travel expenses23,656,024.8724,336,676.68Business hospitality expenses101,735,867.2074,890,255.06Waste disposal expenses8,621,732.9112,445,936.32Insurance premium27,737,182.9725,343,799.30Office expenses13,277,878.2910,861,986.20Others174,247,241.19156,189,076.64Total1,134,725,391.84967,840,641.90

50. R&D expenses

Unit: RMBItem

Amountfor the year

Amountfor the prior yearInstallation expenses880,370.711,489,393.97Depreciation expenses47,736,244.6536,497,685.73Consumption of materials656,418,640.23656,847,566.98Travel expenses163,071.13521,322.61Wages and surcharges136,792,729.52106,705,510.89Welfare expenses3,484,889.213,019,837.65Housing provident funds4,647,016.684,232,757.63Insurance premium12,437,428.2519,103,988.33Union funds104,485.65415,339.74Utilities126,993,184.8299,972,218.72Other expenses2,654,895.891,068,066.15Total992,312,956.74929,873,688.40

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

51. Finance expenses

Unit: RMBItem

Amountfor the year

Amountfor the prior yearInterest expenses3,780,373,270.563,667,168,014.56Less: capitalised interest amount206,508,056.70318,561,106.91Less: interest income836,491,207.55692,370,142.41Foreign exchange gains and losses-78,262,003.10-156,373,853.85Bank charges256,917,151.16241,623,526.64Total2,916,029,154.372,741,486,438.03

52. Other income

Unit: RMBSource of other income

Amountfor the year

Amountfor the prior yearGovernment grants – amortised deferred income included in profit or loss91,381,862.5070,998,592.61Government grants – directly included in profit or loss470,171,768.0126,815,747.81Total561,556,630.5197,814,340.42

53. Investment income

Unit: RMBItem

Amountfor the year

Amountfor the prior yearIncome from long-term equity investments accounted for using the equity method-2,995,932.01-20,475,760.38Investment gain on disposal of long-term equity investments176,212,409.13113,688,671.06Disposal of other non-current financial assets784,345.77155,750,000.00

174,000,822.89248,962,910.68

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XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

54. Gain on change in fair value

Unit: RMBSource of gain on change in fair value

Amountfor the year

Amountfor the prior yearGain on change in fair value of consumable biological assets measured at fair value-19,752,911.94-21,464,400.65Gain on change in fair value of other non-current financial assets46,445,653.55-94,000,000.00Total26,692,741.61-115,464,400.65

55. Credit impairment loss

Unit: RMBItem

Amountfor the year

Amountfor the prior yearBad debt loss of bills receivable-1,494,362.23Bad debt loss of accounts receivable-173,401,791.27-25,891,565.05Bad debt loss of other receivables-280,868,224.23-112,957,716.39Loss on debt restructuring impairment-55,792,548.82Bad debt loss of financial lease payments-523,805,364.4112,698,726.94Total-1,033,867,928.73-127,644,916.73

56. Loss on impairment of assets

Whether the New Revenue Standard has been implemented

√ Yes □ No

Unit: RMBItem

Amountfor the year

Amountfor the prior yearLoss on inventory impairment61,394,424.83-117,733,282.00Loss on long-term equity investments impairment-5,994,545.96Loss on fixed asset impairment-170,552,917.47-5,177,720.12Loss on construction in progress impairment-5,838,644.59-27,428,935.82Loss on goodwill impairment-14,314,160.60Total-120,991,683.19-164,654,098.54

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

57. Asset disposal income

Unit: RMBSource of asset disposal income

Amountfor the year

Amountfor the prior yearDisposal of fixed assets-29,073,731.0517,149,722.72Total-29,073,731.0517,149,722.72

58. Non-operating income

Unit: RMB

Item

Amount for

the period

Amount forthe prior period

Amount includedin the currentnon-recurringprofit and lossNon-current assets damage and scrap profits1,360,844.76146,138.791,360,844.76Unpaid debt9,170,357.949,170,357.94government subsidy86,353,174.56277,480,950.8386,353,174.56Fine income3,244,945.046,061,107.573,244,945.04Adjustment in equity book value364,597,001.77364,597,001.77Others28,667,590.8035,708,040.0828,667,590.80Total493,393,914.87319,396,237.27493,393,914.87Government grants included in profit or loss for the year:

Unit: RMBGrants item

Amountfor the year

Amountfor the prior year

Asset-related/income-relatedAmortised deferred income17,480,975.56Asset-relatedGrant income86,353,174.56259,999,975.27Income-relatedTotal86,353,174.56277,480,950.83

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VII. Notes to items of the consolidated financial statements (Cont’d)

59. Non-operating expenses

Unit: RMB

Item

Amountfor the year

Amountfor the prior year

Amounts includedin extraordinarygains or losses

for the yearCharitable donation expenditures11,947,836.008,740,500.0011,947,836.00Litigation3,590,000.00Loss on destroyed and scrapped non-current assets12,610,269.223,324,345.7112,610,269.22Others4,026,488.783,529,693.404,026,488.78Total28,584,594.0019,184,539.1128,584,594.00

60. Income tax expenses

(1) Particulars of income tax expenses

Unit: RMBItem

Amountfor the year

Amountfor the prior yearIncome tax expenses for the period564,800,047.60723,140,689.50Deferred income tax expenses-269,619,411.14-81,563,194.58Total295,180,636.46641,577,494.92

(2) The reconciliation between accounting profit and income tax expenses

Unit: RMBItemAmount for the periodTotal profit2,048,478,829.27Income tax expenses calculated at statutory (or applicable) tax rates307,271,824.39Impact of applying different tax rates to certain subsidiaries66,184,045.82Adjustments to current income tax in previous periods-11,281,025.57Profit and loss of joint ventures and associates accounted for using the equity method-462,773.83Non-taxable income (listed with“-”)-97,258,402.51Non-deductible costs, expenses and losses29,485,040.12Utilization of the tax effect of unrecognized deductible losses and deductibletemporary differences in previous years (listed with“-”)-7,736,927.40Tax effects of unrecognized deductible losses and deductible temporary differences116,346,380.50Tax effect of R & D fee deduction (listed with“-”)-107,367,525.06Income tax expense295,180,636.46

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

61. Items on statements of cash flow

(1) Cash received relating to other operating activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearDefault penalty and fine31,483,669.3352,469,446.81Finance expenses – Interest income301,405,794.11278,115,215.56Income-related government grants502,905,296.95362,143,279.08Open credit and other income228,147,969.2635,794,381.99Net proceedings from the financial leasing business5,885,287,081.316,191,859,054.14Total6,949,229,810.966,920,381,377.58Explanation on cash received relating to other operating activities:

Explanation on cash received relating to other operating activities: Pursuant to the new standards, thegovernment grants related to assets and income were all included in operating activities.

(2) Cash paid relating to other operating activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearFinancial institutions charge249,130,994.84241,636,705.91Business hospitality expenses134,787,611.84128,872,141.01Travel expenses55,277,692.7655,398,230.16Office expenses21,976,874.3619,426,972.84Transportation expenses1,035,450,908.40937,436,432.35Leasing expenses14,283,881.8914,452,327.88Waste disposal expenses18,686,112.1831,586,754.90Insurance premium19,412,563.1819,073,069.46Repair expenses54,630,753.2551,165,035.29Cargo handling charges37,988,391.7619,073,069.46Intermediary service expenses43,965,039.0362,252,620.51Donation11,947,836.008,530,000.00Others105,542,724.58112,331,848.36Total1,803,081,384.071,701,235,208.13

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VII. Notes to items of the consolidated financial statements (Cont’d)

61. Items on statements of cash flow (

Cont’d)

(3) Cash received relating to other investing activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearRecovery of consideration for equity transfer767,670,000.00Total767,670,000.00

(4) Cash paid relating to other investing activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearSecurity deposit for Goldtrust Futures36,000,000.00Security deposit for Western Trust5,000,000.00Security deposit for acquisition of equity interest in Nanyue Bank694,000,000.00Compensation liability103,042,210.54Prepayments for land101,130,000.00Total101,130,000.00838,042,210.54

(5) Cash received relating to other financing activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearShort-term commercial paper3,081,090,437.8612,915,683,724.57Loans to the Finance Company100,000,000.00Equipment leaseback1,717,600,000.003,702,500,000.00Loans to Chenming Holdings Co., Ltd.332,440,865.27Net recovery of guarantee deposit734,974,699.49Total5,866,106,002.6216,718,183,724.57

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

61. Items on statements of cash flow (

Cont’d)

(6) Cash paid relating to other financing activities

Unit: RMBItem

Amountfor the year

Amountfor the prior yearRepayment of short-term commercial paper and MTN5,070,000,000.0018,036,968,519.46Repayment of bonds1,182,150,000.002,600,000,000.00Repayment of equipment leaseback3,155,141,094.222,790,756,044.94Repayment of interest on preference shares493,494,767.52679,141,006.88Repayment of interest on perpetual bonds194,000,000.00347,140,000.00Increase in restricted bank deposits for the year5,272,132,418.30Security deposit for financial leasing15,000,000.0032,200,000.00Acquisition of non-controlling interests in Shanghai Hongtai2,089,074,400.00Acquisition of non-controlling interests in Guangdong Huirui120,600,000.00Acquisition of non-controlling interests in Wuhan Chenming60,896,600.00Total10,109,785,861.7432,028,908,989.58

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

62. Supplementary information on cash flow statement

(1) Supplementary information on cash flow statement

Unit: RMBSupplementary information

Amountfor the year

Amountfor the prior year

1. Reconciliation of net profit as cash flows from operating

activities:——Net profit1,753,298,192.812,564,738,621.27Plus: loss on impairment of assets120,991,683.19164,654,098.54Credit impairment loss1,033,867,928.73127,644,916.73Depreciation of fixed assets, consumption of oil and gas assets, depreciation of bearer biological assets1,853,139,090.521,686,464,360.70Amortisation of intangible assets53,100,846.0149,169,532.63Amortisation of long-term prepaid expenses7,433,030.418,377,363.10Loss on disposal of fixed assets, intangible assets and other long-term assets (“-” denotes gain)30,173,140.18-16,986,475.18Loss on scrapped fixed assets (“-” denotes gain)1,361,320.41Loss on changes in fair value (“-” denotes gain)-26,692,741.61115,279,025.65Finance expenses (“-” denotes gain)3,073,865,213.863,348,593,728.38Investment loss (“-” denotes gain)-538,508,597.83-248,962,910.68Decrease in deferred income tax assets (“-” denotes increase)-288,568,932.42-81,584,848.22Increase in deferred income tax liabilities (“-” denotes decrease)1,411,125.59Decrease in inventories (“-” denotes increase)2,093,523,272.65-748,682,942.57Decrease in operating receivables (“-” denotes increase)7,690,318,930.2112,866,522,125.36Increase in operating payables (“-” denotes decrease)-4,625,917,052.94-5,735,524,708.67OthersNet cash flows from operating activities12,232,707,222.9414,099,701,887.04

2. Major investing and financing activities not involving

cash settlements:

Capital converted from debtsConvertible bonds of the Company due within one yearFinance leases of fixed assets

3. Net change in cash and cash equivalents:

Closing balance of cash2,890,328,027.402,381,558,242.52Less: Opening balance of cash2,381,558,242.522,804,408,374.46Plus: Closing balance of cash equivalentsLess: Opening balance of cash equivalentsNet increase in cash and cash equivalents508,769,784.88-422,850,131.94

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

62. Supplementary information on cash flow statement (

Cont’d)

(2) Net cash received from disposal of subsidiaries during the current period

Unit: RMBAmountDisposal of cash or cash equivalents received by subsidiaries during the period238,326,500.00Of which:–Haicheng Haiming Mining Co., Ltd.221,000,000.00Beijing Chenming Meilun Technology Co., Ltd.12,316,500.00Wuxi Songling Paper Co., Ltd.5,010,000.00Less: Cash and cash equivalents held by the company on the day in the event that thecontrol is lost22,905,416.76Of which:–Haicheng Haiming Mining Co., Ltd.22,843,749.03Beijing Chenming Meilun Technology Co., Ltd.60,797.95Wuxi Songling Paper Co., Ltd.869.78Net cash received from disposal of subsidiaries215,421,083.24

(3) Cash and cash equivalents composition

Unit: RMBItemClosing balanceOpening balanceI. Cash2,890,328,027.402,381,558,242.52Of which: Treasury cash2,418,131.862,078,321.66Bank deposit that can be used for payment at any time2,887,909,895.542,379,479,920.86Other monetary funds that can be used for payment at any timeDeposit at central bank deposit that can be used for paymentAmount due from banksAmount due to banksII. Cash equivalentsOf which: Bond investment with maturity within 3 monthsIII. Balance of cash and cash equivalent at end of period2,890,328,027.412,381,558,242.52Of which: Restricted cash and cash equivalents used by the Company or subsidiaries within the GroupOther explanation: Cash and cash equivalents did not include the restricted cash and cash equivalents used bythe Company or subsidiaries within the Group.

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

63. Assets with restricted ownerships or right to use

Unit: RMBItem

Closingcarrying amountReason for such restrictionsMonetary funds16,176,241,805.78As guarantee deposits for bank acceptance bills and letter of

credit and deposit reserves (Note VII.1)Bills receivable/accounts receivable financing

152,714,290.24As collateral for short-term borrowings, letters of guarantee and

letters of credit (Note VII.4)Fixed assets10,573,696,190.50As collateral for bank borrowings (Note VII.14)Intangible assets880,676,428.58As collateral for bank borrowings and long-term payables

(Note VII.17)Investment property4,519,487,976.25As collateral for bank borrowings (Note VII.13)Total32,302,816,691.35

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

64. Foreign currency items

(1) Foreign currency items

Unit: RMBItem

Closing foreigncurrency balanceExchange rate

Closing balance

in RMBMonetary fundsOf which: USD110,500,218.686.9762770,871,625.55

EUR405,730.037.81553,170,983.04HKD710,980.250.8958636,881.89JPY4,980.960.0641319.21GBP2,034.189.150118,612.93Accounts receivablesOf which: USD100,358,916.386.9762700,123,872.43

EUR5,844,790.937.815545,679,963.48JPY146,734,998.000.06419,403,659.08Accounts payableOf which: USD120,461,073.626.9762840,360,541.80

EUR12,302,034.947.815596,146,554.03Long-term borrowingsOf which: USD211,200,000.006.97621,473,373,440.00Bonds payableOf which: USD167,598,536.386.97621,169,200,909.49Short-term borrowingsOf which: USD127,401,000.636.9762888,774,860.61

HKD34,999,986.660.895831,352,288.05PrepaymentsOf which: USD218,766.496.97621,526,158.79

JPY121,696.000.06417,799.01Other receivablesOf which: USD685,767.626.97624,784,052.09

EUR315,311.827.81552,464,319.53Contract liabilitiesOf which: USD10,517,400.646.976273,371,490.31Other payablesOf which: USD13,252,216.096.976292,450,109.89

EUR352,861.307.81552,757,787.49

HKD173,783.570.8958155,671.85

2019 AnnuAl RepoRt

XIII Financial Report

VII. Notes to items of the consolidated financial statements (Cont’d)

64. Foreign currency items (

Cont’d)

(2) Explanation on overseas operating entities (including major overseas operating entities), which shall disclose

their overseas principal places of business, functional currency and basis. Reasons shall be disclosed ifthere is any change in the functional currency.

√ Applicable □ Not applicable

No.Name of subsidiary

Principal placeof business

Place ofincorporation

Functionalcurrency1Chenming GmbHHamburg, GermanyHamburg, GermanyEUR2Chenming Paper Korea Co., Ltd.Seoul, KoreaSeoul, KoreaKRW3Chenming International Co., Ltd.Los Angeles, USALos Angeles, USAUSD4Chenming Paper Japan Co., Ltd.Tokyo, JapanTokyo, JapanJPY5Chenming Paper United States Co., Ltd.Los Angeles, USALos Angeles, USAUSD

65. Government grants

(1) General information of government grants

Unit: RMBTypeAmountReporting item

Amount included

in the currentprofit and lossNational Science and Technology Support Program Project Funding164,700.00Other revenue164,700.00Sewage treatment and water saving reconstruction1,192,682.88Other revenue1,192,682.88Financial subsidies for technical transformation items110,054,807.72Other revenue110,054,807.72Zhanjiang Forest Pulp & Paper Integration Item4,094,632.92Other revenue4,094,632.92Industrial logistics park reconstruction compensation4,705,900.00Other revenue4,705,900.00Financial discount22,364,612.22Financial cost22,364,612.22Research and development grants74,923,512.88Other revenue74,923,512.88Funding for environmental protection49,361,843.85Other revenue49,361,843.85Government awards228,000,000.00Other revenue228,000,000.00VAT is levied and reimbursed immediately1,217,058.15Other revenue1,217,058.15Afforestation subsidy3,891,820.00Other revenue3,891,820.00Tax return80,382,428.92Other revenue80,382,428.92Enterprise reform and development subsidies31,070,010.00Non-operating

income

31,070,010.00Investment promotion subsidy41,542,500.00Non-operating

income

41,542,500.00Others17,307,907.75Non-operating

income, other

revenue

17,307,907.75

Total670,274,417.29670,274,417.29

XIII Financial Report

VIII. Change in scope of consolidation

1. Disposal of subsidiaries

Whether there is loss of control over subsidiaries on a single disposal

√ Yes □ No

Name ofsubsidiary

Consideration

of disposal

of equityinterestShareholding

of disposalof equityinterest

Nature ofdisposal ofequity interest

Time ofloss of controlBasis for time

Differencebetweenconsiderationand share ofnet assets of

relevantsubsidiaryas perconsolidatedfinancialstatements

Remainingshareholdingas of thedate of lossof control

Carryingamount ofremainingshareholding

as of thedate of lossof control

Fair valueof remainingshareholdingas of the dateof lossof controlGain or lossin fair value of

remainingshareholding

Determination and

key assumption

of fair valueof remainingshareholdingas of the dateof loss of control

Relevant othercomprehensive

income offormer subsidiary

transferred toprofit or lossHa icheng HaimingMining CompanyLimited421,000,000.0060.00Transfer2019.8.31Without control163,300,169.590.000.000.000.00Be ijing Chenming Meilun

Technology Co., Ltd.12,316,500.00100.00Transfer2019.9.30Without control6,656,201.200.000.000.000.00Wu xi Song Ling Paper

Co., Ltd.5,010,000.00100.00Transfer2019.12.31Without control6,256,038.340.000.000.000.00

2. Others

During the year, the scope of consolidation had 4 newly established subsidiaries, namely Shanghai Chenming Pulp& Paper Sales Co., Ltd., Meilun (BVI) Limited, Shandong Chenming Panels Co., Ltd., and Weifang Chenrong GrowthDriver Replacement Equity Investment Fund Partnership (Limited Partnership). Please refer to Note IX. 1. Interest insubsidiaries for details.

2019 AnnuAl RepoRt

XIII Financial Report

IX. Interest in other entities

1. Interest in subsidiaries

(1) Constitution of the Group

Name of subsidiary

Principle placeof business

Place ofincorporation

Nature ofbusiness

Type oflegal entityShareholdingAcquisition

Issued debt

securities

Issued share

capitalDirectIndirectZhanjiang Chenming Pulp & Paper Co., Ltd.Zhanjiang, ChinaZhanjiang, ChinaPaper makingFor-profit legal entity100.00%Establishment00Shouguang Meilun Paper Co., Ltd.Shouguang, ChinaShouguang, ChinaPaper makingFor-profit legal entity92.00%Establishment00Jilin Chenming Paper Co., Ltd.Jilin, ChinaJilin, ChinaPaper makingFor-profit legal entity100.00%Merger and

acquisition

Huanggang Chenming Pulp & Paper Co., Ltd.

Huanggang, ChinaHuanggang, ChinaPulp productionFor-profit legal entity100.00%Establishment00Shandong Chenming Paper Sales Co., Ltd.Shouguang, ChinaShouguang, ChinaSales of paper productsFor-profit legal entity100.00%Establishment00Shouguang Chenming Import and Export Trade Co., Ltd.

Shouguang, ChinaShouguang, ChinaImport and export tradeFor-profit legal entity100.00%Establishment00Jiangxi Chenming Supply Chain Management Co., Ltd.

Jiangxi, ChinaJiangxi, ChinaTradingFor-profit legal entity70.00%Establishment00Chenming GmbHHamburg, GermanyHamburg, GermanyPaper product tradingFor-profit legal entity100.00%Establishment00Shouguang Chenming Papermaking Machine Co., Ltd.

Shouguang, ChinaShouguang, ChinaMachinery manufacturingFor-profit legal entity100.00%Establishment00Shouguang Hongxiang Printing and Packaging Co., Ltd.

Shouguang, ChinaShouguang, ChinaPrinting and packagingFor-profit legal entity100.00%Merger and

acquisition

Shouguang Chenming Modern Logistic Co., Ltd.

Shouguang, ChinaShouguang, ChinaTransportationFor-profit legal entity100.00%Establishment00Shouguang Chenming Industrial Logistics Co., Ltd.

Shouguang, ChinaShouguang, ChinaLogisticsFor-profit legal entity100.00%Establishment00Jinan Chenming Investment Management Co., Ltd.

Jinan, ChinaJinan, ChinaInvestment ManagementFor-profit legal entity100.00%Establishment00Huanggang Chenming Arboriculture Development Co., Ltd.

Huanggang, ChinaHuanggang, ChinaArboricultureFor-profit legal entity100.00%Establishment00Chenming Arboriculture Co., Ltd.Wuhan, ChinaWuhan, ChinaArboricultureFor-profit legal entity100.00%Establishment00Chenming Paper Korea Co., Ltd.Seoul, KoreaSeoul, KoreaSales of paper productsFor-profit legal entity100.00%Establishment00Shandong Chenming Power Supply Holdings Co., Ltd.

Shouguang, ChinaShouguang, ChinaPowerFor-profit legal entity100.00%Establishment00Shouguang Shun Da Customs Declaration Co, Ltd.

Shouguang, ChinaShouguang, ChinaCustoms declarationFor-profit legal entity100.00%Establishment00Shanghai Chenming Industrial Co., Ltd.Shanghai, ChinaShanghai, ChinaProperty investment and

management

For-profit legal entity100.00%Establishment00Shandong Chenming Paper Group (Fuyu) Sales Co., Ltd.

Fuyu, ChinaFuyu, ChinaSales of paper productsFor-profit legal entity100.00%Establishment00Shandong Chenming Group Finance Co., Ltd.

Jinan, ChinaJinan, ChinaFinanceFor-profit legal entity80.00%20.00%Establishment00Jiangxi Chenming Paper Co., Ltd.Nanchang, ChinaNanchang, ChinaPaper makingFor-profit legal entity42.46%40.79%Establishment00Qingdao Chenming International Logistics Co., Ltd.

Qingdao, ChinaQingdao, ChinaLogisticsFor-profit legal entity30.00%70.00%Establishment00Shouguang Chenming Art Paper Co., Ltd.Shouguang, ChinaShouguang, ChinaPaper makingFor-profit legal entity75.00%Establishment00Hailaer Chenming Paper Co., Ltd.Hailaer, ChinaHailaer, ChinaPaper makingFor-profit legal entity75.00%Establishment00

XIII Financial Report

Name of subsidiary

Principle placeof business

Place ofincorporation

Nature ofbusiness

Type oflegal entityShareholdingAcquisition

Issued debt

securitiesIssued sharecapitalDirectIndirectShandong Grand View Hotel Co., Ltd.Shouguang, ChinaShouguang, ChinaCateringFor-profit legal entity70.00%Establishment00Wuhan Chenming Hanyang Paper Holdings Co., Ltd

Wuhan, ChinaWuhan, ChinaPaper makingFor-profit legal entity65.21%Establishment00Chengdu Chenming Culture Communication Co., Ltd.

Chengdu, ChinaChengdu, ChinaMarketingFor-profit legal entity100.00%Establishment00Shandong Chenming Financial Leasing Co., Ltd.

Jinan, ChinaJinan, ChinaFinancial leasingFor-profit legal entity100.00%Establishment00Qingdao Chenming Nonghai Financial Leasing Co., Ltd.

Qingdao, ChinaQingdao, ChinaFinancial leasingFor-profit legal entity100.00%Establishment00Chenming (HK) LimitedHong Kong, ChinaHong Kong, ChinaPaper product tradingFor-profit legal entity100.00%Establishment00Shouguang Hongyi Decorative Packaging Co., Ltd.

Shouguang, ChinaShouguang, ChinaPackagingFor-profit legal entity100.00%Merger and

acquisition

Shouguang Xinyuan Coal Co., Ltd.Shouguang, ChinaShouguang, ChinaCoalFor-profit legal entity100.00%Merger and

acquisition

Shouguang City Run Sheng Wasted Paper Recycle Co., Ltd.

Shouguang, ChinaShouguang, ChinaPurchase and sale of wasteFor-profit legal entity100.00%Merger and

acquisition

Shouguang Wei Yuan Logistics Company Limited

Shouguang, ChinaShouguang, ChinaLogisticsFor-profit legal entity100.00%Merger and

acquisition

Shandong Chenming Panels Co., Ltd.Shouguang, ChinaShouguang, ChinaPanelsFor-profit legal entity100.00%Merger and

acquisition

Shandong Chenming Floor Board Co., Ltd.Shouguang, ChinaShouguang, ChinaFloor BoardFor-profit legal entity100.00%Merger and

acquisition

Shouguang Chenming Cement Co., LimitedShouguang, ChinaShouguang, ChinaCementFor-profit legal entity100.00%Establishment00Wuhan Chenming Qianneng Electric Power Co., Ltd.

Wuhan, ChinaWuhan, ChinaThermal powerFor-profit legal entity51.00%Establishment00Shandong Chenming Investment LimitedJinan, ChinaJinan, ChinaInvestmentFor-profit legal entity100.00%Establishment00Japan Chenming Paper Co., Ltd.Tokyo, JapanTokyo, JapanPaper product tradingFor-profit legal entity100.00%Establishment00Chenming International Co., Ltd.Los Angeles,

the United States

Los Angeles, the United States

Paper product tradingFor-profit legal entity100.00%Establishment00Zhanjiang Chenming Arboriculture Development Co., Ltd.

Zhanjiang, ChinaZhanjiang, ChinaArboricultureFor-profit legal entity100.00%Establishment00Yangjiang Chenming Arboriculture Development Co., Ltd.

Yangjiang, ChinaYangjiang, ChinaArboricultureFor-profit legal entity100.00%Establishment00Nanchang Chenming Arboriculture Development Co., Ltd.

Nanchang, ChinaNanchang, ChinaArboricultureFor-profit legal entity100.00%Establishment00Guangdong Huirui Investment Co., Ltd.Zhanjiang, ChinaZhanjiang, ChinaInvestmentFor-profit legal entity100.00%Merger and

acquisition

Zhanjiang Chenming New-style Wall Materials Co., Ltd

Zhanjiang, ChinaZhanjiang, ChinaWall materialsFor-profit legal entity100.00%Establishment00Jilin Chenming New-style Wall Materials Co., Ltd.

Jilin, ChinaJilin, ChinaWall materialsFor-profit legal entity100.00%Establishment00

IX. Interest in other entities (Cont’d)

1. Interest in subsidiaries (

Cont’d)

(1) Constitution of the Group

(Cont’d)

2019 AnnuAl RepoRt

XIII Financial Report

Name of subsidiary

Principle placeof business

Place ofincorporation

Nature ofbusiness

Type oflegal entityShareholdingAcquisition

Issued debt

securitiesIssued sharecapitalDirectIndirectJilin Chenming Logistics Co., Ltd.Jilin, ChinaJilin, ChinaLogisticsFor-profit legal entity100.00%Establishment00Jiangxi Chenming Logistics Co., Ltd.Nanchang, ChinaNanchang, ChinaLogisticsFor-profit legal entity100.00%Establishment00Fuyu Chenming Paper Co., Ltd.Fuyu, ChinaFuyu, ChinaPaper makingFor-profit legal entity100.00%Establishment00Zhanjiang Meilun Pulp & Paper Co., Ltd.Zhanjiang, ChinaZhanjiang, ChinaPaper makingFor-profit legal entity100.00%Establishment00Shanghai Chenming Financial Leasing Co., Ltd.

Shanghai, ChinaShanghai, ChinaFinancial leasingFor-profit legal entity100.00%Establishment00Guangzhou Chenming Financial Leasing Co., Ltd.

Guangzhou, ChinaGuangzhou, ChinaFinancial leasingFor-profit legal entity100.00%Establishment00Shanghai Hongtai Real Estate Co., Ltd.Shanghai, ChinaShanghai, ChinaReal estateFor-profit legal entity100.00%Merger and

acquisition

Shanghai Hongtai Property Management Co., Ltd.

Shanghai, ChinaShanghai, ChinaProperty ManagementFor-profit legal entity100.00%Merger and

acquisition

Shandong Chenming Commercial Factoring Co., Ltd.

Jinan, ChinaJinan, ChinaBusiness factoringFor-profit legal entity100.00%Establishment00Guangzhou Chenming Commercial Factoring Co., Ltd.

Guangzhou, ChinaGuangzhou, ChinaBusiness factoringFor-profit legal entity51.00%Establishment00Qingdao Chenming Pulp & Paper Electronic Commodity Spot Trading Co., Ltd.

Qingdao, ChinaQingdao, ChinaTradingFor-profit legal entity30.00%70.00%Establishment00Shandong Chenming Coated Paper Sales Co. Ltd.

Shouguang, ChinaShouguang, ChinaSalesFor-profit legal entity100.00%Establishment00Zhanjiang Chenming Port Co., Ltd.Zhanjiang, ChinaZhanjiang, ChinaCargo loadingFor-profit legal entity100.00%Establishment00Beijing Chenming Financial Leasing Co., Ltd.Beijing, ChinaBeijing, ChinaFinanceFor-profit legal entity100.00%Establishment00Chenming Paper United States Co., Ltd.The United States3200 EL CAMINO

REAL,SUITE130,IRVINE,CA

Paper tradingFor-profit legal entity100.00%Establishment00Guangdong Chenming Panels Co., Ltd.GuangdongGuangdongPanelsFor-profit legal entity100.00%Establishment00Shanghai Chenming Pulp & Paper Sales Co., Ltd.

ShanghaiShanghaiPaper product tradingFor-profit legal entity100.00%Establishment00Meilun (BVI) LimitedCaymanShouguangFor-profit legal entity100.00%Establishment00We ifang Chenming Growth Driver

Replacement Equity Investment FundPartnership (Limited Partnership)

WeifangWeifangFundFor-profit legal entity79%Establishment00Na njing Chenming Culture Communication

Co., Ltd.

NanjingNanjingMarketingFor-profit legal entity100.00%Establishment00

IX. Interest in other entities (Cont’d)

1. Interest in subsidiaries (

Cont’d)

(1) Constitution of the Group

(Cont’d)

XIII Financial Report

IX. Interest in other entities (Cont’d)

1. Interest in subsidiaries (

Cont’d)

(2) Major non-wholly owned subsidiaries

Unit: RMB

Name of subsidiaryMinority interest

Gain orloss attributable

to minorityinterest duringthe period

Dividend tominorityinterestdeclaredduring the period

Closingbalance ofminority interestWuhan Chenming Hanyang Paper Holdings Co., Ltd.34.79%27,220,765.44111,697,321.19Shouguang Chenming Art Paper Co., Ltd.25%17,088,924.6398,366,240.06Shouguang Meilun Paper Co., Ltd.8%431,429,276.54

(3) Key financial information of major non-wholly owned subsidiaries

Unit: RMBClosing balanceOpening balanceName ofsubsidiary

CurrentassetsNon-currentassets

Totalassets

Currentliabilities

Non-current

liabilities

Totalliabilities

Currentassets

Non-current

assets

Totalassets

Currentliabilities

Non-current

liabilities

TotalliabilitiesWuhan ChenmingHanyang Paper Holdings Co., Ltd.242,300,843.281,042,530,549.731,284,831,393.01854,628,918.2284,521,086.72939,150,004.94304,800,513.201,128,834,779.701,433,635,292.901,116,394,677.0343,004,618.521,159,399,295.55Shouguang Chenming Art Paper Co., Ltd.651,004,033.69573,204,378.671,224,208,412.36830,743,452.16830,743,452.16874,366,187.24618,223,904.521,492,590,091.761,167,480,830.071,167,480,830.07Shouguang Meilun Paper Co., Ltd.5,071,137,194.6511,453,793,662.1716,524,930,856.8210,013,297,488.591,186,061,831.0811,199,359,319.671,731,551,339.3810,007,456,117.4211,739,007,456.805,339,163,271.761,700,271,079.407,039,434,351.16

Unit: RMBAmount for the yearAmount for the prior yearName of subsidiaryRevenueNet profit

Totalcomprehensiveincome

Cash flowsfrom operating

activitiesRevenueNet profit

Totalcomprehensive

income

Cash flowsfrom operating

activitiesWuhan Chenming Hanyang Paper Holdings Co., Ltd.1,282,969,981.6671,445,390.7271,445,390.72104,514,705.531,364,181,429.1935,042,380.3335,042,380.33316,577,834.65Shouguang Chenming Art Paper Co., Ltd.765,841,628.2168,355,698.5168,355,698.51-66,098,414.48909,260,241.77118,652,095.44118,652,095.44-99,931,648.76Shouguang Meilun Paper Co., Ltd.5,199,154,922.05199,314,693.58199,314,693.581,510,148,358.585,048,212,524.75103,361,172.68103,361,172.681,184,997,775.73

2019 AnnuAl RepoRt

XIII Financial Report

IX. Interest in other entities (Cont’d)

2. Transaction changing shareholding in but not causing to loss of control over subsidiaries

(1) Changing in shareholding in subsidiaries

The Company previously held 100% of equity interest in Shouguang Meilun Paper Co., Ltd. In December2019, the Company entered the capital increase and share expansion agreement among Weifang ChenrongGrowth Driver Replacement Equity Investment Fund Partnership (Limited Partnership) and Shouguang MeilunPaper Co., Ltd.. Weifang Chenrong Growth Driver Replacement Equity Investment Fund Partnership (LimitedPartnership) made a unilateral capital injection into Shouguang Meilun Paper Co., Ltd. Upon completion of thecapital increase, its equity interest in Shouguang Meilun Paper Co., Ltd.. was 8% by Weifang Chenrong GrowthDriver Replacement Equity Investment Fund Partnership (Limited Partnership), and the transaction did not resultin the loss of our control of Shouguang Meilun Paper Co., Ltd. As of 31 December 2019, the implementationof this agreement was completed, and the capital increase was RMB415 million. The transaction resulted in anincrease in minority interest of RMB431.44 million and a decrease in capital reserves of RMB16.44 million.

(2) Effect on minority interest and equity attributable to the owners of the parent company

Unit: RMBShouguang MeilunPaper Co., Ltd.– Cash4,978,090,322.16Total acquisition cost/disposal consideration415,000,000.00Less: share of net assets in subsidiaries based on shares acquired/disposed4,961,643,096.39Difference16,447,225.77Of which: capital reserve adjustment-16,447,225.77

3. Interest in joint arrangements or associates

(1) Major joint ventures and associates

Name of joint venture and associate

Principle placeof business

Principle placeof incorporation

Nature ofbusinessShareholding

AccountingmethodDirectIndirectWeifang Senda Meixi Port Co., Ltd.Weifang, ChinaWeifang, ChinaPort construction50.00%Equity methodNingbo Kaichen Huamei Equity Investment Fund Partnership (Limited Partnership)

Ningbo, ChinaNingbo, ChinaInvestment

management

40.00%Equity methodWeifang Xingxing United Chemical Co., Ltd.Weifang, ChinaWeifang, ChinaChemical50.00%Equity methodZhuhai Dechen New Third Board EquityInvestment Fund Company (Limited Partnership)

Zhuhai, ChinaZhuhai, ChinaInvestment

management

50.00%Equity methodGoldtrust Futures Co., Ltd.ChangshaChangshaFutures35.43%Equity methodWe ifang Chenrong Growth Driver Replacement

Equity Investment Fund Partnership (LimitedPartnership)

WeifangWeifangInvestment

management

44.44%Equity methodGuangdong Nanyue Bank Co., Ltd.,GuangdongGuangdongBank16.62%Equity method

XIII Financial Report

IX. Interest in other entities (Cont’d)

3. Interest in joint arrangements or associates (

Cont’d)

(2) Key financial information of major joint ventures

Unit: RMBClosing balance/Amount for the yearOpening balance/Amount for the prior yearItem

Weifang Sime DarbyWest Port Co., Ltd.

Weifang XingxingUnited Chemical Co., Ltd.

Weifang Sime DarbyWest Port Co., Ltd.

Weifang XingxingUnited Chemical Co., Ltd.Current assets26,890,506.2394,334,994.1455,386,175.2897,755,183.56Of which: Cash and cash equivalents8,299,040.1025,959,739.1453,489,910.5335,030,150.70Non-current assets543,566,206.6032,100,379.42528,403,804.8638,098,361.81Total assets570,456,712.83126,435,373.56583,789,980.14135,853,545.37Current liabilities16,216,196.0827,927,549.311,236,372.3032,584,182.76Non-current liabilities389,517,611.14389,620,042.41389,620,042.41Total liabilities405,733,807.2227,927,549.31390,856,414.7132,584,182.76Minority interestEquity interest attributable to shareholders of the parent company164,722,905.6198,507,824.25192,933,565.43103,269,362.61Share of net assets based on shareholding82,361,452.8149,253,912.1396,466,782.7251,634,681.31Adjustments – Goodwill– Unrealised profit arising from intra-group transactions7,365,218.9544,562,645.266,693,074.9957,618,555.81 – OthersCarrying amount of investment in joint ventures89,726,671.7693,816,557.39103,159,857.71109,253,237.12Fair value of investments in joint ventures with public quoted pricesRevenue29,834,105.08132,763,766.49166,613,896.54Finance expenses20,667,999.05-394,709.39-346,852.57-8,403.59Income tax expenses4,706,185.728,790,141.65Net profit-26,827,919.1714,118,557.12-3,214,369.5926,370,063.88Net profit from discontinued operationsOther comprehensive incomeTotal comprehensive income-26,827,919.1714,118,557.12-3,214,369.5926,370,063.88Dividend received from joint ventures during the period23,000,000.00

2019 AnnuAl RepoRt

XIII Financial Report

IX. Interest in other entities (Cont’d)

3. Interest in joint arrangements or associates (

Cont’d)

(3) Key financial information of major associates

Unit: RMBClosing balance/Amount for the yearOpening balance/Amount for the prior year

Item

Ningbo KaichenHuamei EquityInvestment FundPartnership (LimitedPartnership)

Zhuhai Dechen NewThird Board EquityInvestment FundCompany (Limited

Partnership)

Ningbo Kaichen

Huamei EquityInvestment FundPartnership (Limited

Partnership)

Zhuhai Dechen NewThird Board EquityInvestment FundCompany (LimitedPartnership)Current assets43,709,912.785,810,979.7979,292,150.815,492,635.42Including: Cash and cash equivalentsNon-current assets154,450,006.0099,020,000.00119,000,000.0099,020,000.00Total assets198,159,918.78104,830,979.79198,292,150.81104,512,635.42Current liabilities21,826.945,000.0013,135.405,000.00Non-current liabilitiesTotal liabilities21,826.945,000.0013,135.405,000.00Minority interestEquity interest attributable to shareholders of the parent company198,138,091.84104,825,979.79198,279,015.41104,507,635.42Share of net assets based on shareholding79,255,236.7452,412,989.9079,311,606.1652,253,817.72Adjustments – Goodwill– Unrealised profit arising from intra-group transactions – Others120,273,610.78　120,273,610.78Carrying amount of investment in associates199,528,847.5252,412,989.90199,585,216.9452,253,817.72Fair value of investments in joint ventures with public quoted pricesRevenueFinance expensesIncome tax expensesNet profit-154,058.98318,344.371,510,109.81670,768.61Net profit from discontinued operationsOther comprehensive incomeTotal comprehensive income-154,058.98318,344.371,510,109.81670,768.61Dividend received from joint ventures during the period

XIII Financial Report

IX. Interest in other entities (Cont’d)

3. Interest in joint arrangements or associates (

Cont’d)

(3) Key financial information of major associates

(Cont’d)Closing balance/Amount for the periodOpening balance/Amount for the prior period

Item

GoldtrustFuturesCo., Ltd.

Weifang ChenrongGrowth DriverReplacement EquityInvestment FundPartnership (LimitedPartnership)

GoldtrustFuturesCo., Ltd.

Weifang ChenrongGrowth DriverReplacement Equity

Investment FundPartnership (LimitedPartnership)Current assets514,865,137.338,000,250.00Of which:Cash and cash equivalentsNon-current assets13,965,721.72407,000,000.00Total assets528,830,859.05415,000,250.00Current liabilities281,568,856.438,000,000.00Non-current liabilities30,000,000.00Total liabilities311,568,856.438,000,000.00Minority interestsEquity interest attributable to shareholders of the parent company217,262,002.62407,000,250.00Share of net assets based on shareholding76,975,927.53180,870,911.10Adjustments – Goodwill104,073,292.25 – Unrealised profit arising from intra-group transactions – Others11,683,737.93-22,870,911.10Carrying amount of investment in joint ventures192,732,957.71158,000,000.00Fair value of investments in joint ventures with public quotedpricesRevenue48,222,356.65Financial costIncome tax expensesNet profit329,683.17250.00Net profit from discontinued operationsOther comprehensive incomeTotal comprehensive income329,683.17250.00Dividend received from joint ventures during the period

2019 AnnuAl RepoRt

XIII Financial Report

IX. Interest in other entities (Cont’d)

3. Interest in joint arrangements or associates (

Cont’d)

(3) Key financial information of major associates

(Cont’d)Closing balance/Amount

for the period

Opening balance/Amount

for the prior periodItem

Guangdong NanyueBank Co., Ltd.

Guangdong NanyueBank Co., Ltd.Current assets43,993,240,945.90Of which:Cash and cash equivalentsNon-current assets162,549,835,269.08Total assets206,543,076,214.98Current liabilities172,504,238,508.02Non-current liabilities17,098,918,091.65Total liabilities189,603,156,599.67Minority interestsEquity interest attributable to shareholders of theparent company16,847,722,509.11Share of net assets based on shareholding2,800,091,481.01Adjustments – Goodwill– Unrealised profit arising from intra-group transactions – OthersCarrying amount of investment in joint ventures2,800,091,481.01Fair value of investments in joint ventures with public quoted pricesRevenue11,008,440,467.50Financial costIncome tax expensesNet profit1,634,495,792.15Net profit from discontinued operationsOther comprehensive incomeTotal comprehensive income1,634,495,792.15Dividend received from joint ventures during the period

XIII Financial Report

IX. Interest in other entities (Cont’d)

3. Interest in joint arrangements or associates (

Cont’d)

(4) Summary financial information of non-major joint ventures and associates

Unit: RMBClosing balance/Amount forthe year

Opening balance/

Amount forthe prior yearJoint ventures:——Total carrying amount of investment9,669,667.613,572,834.79Total amount of the following items based on shareholding—— – Net profit2,216,832.82485,538.07 – Other comprehensive income – Total comprehensive income2,216,832.82485,538.07Associates:——Total carrying amount of investment10,359,850.8318,761,580.99Total amount of the following items based on shareholding-494,921.70-11,838,692.59 – Net profit-494,921.70-11,838,692.59 – Other comprehensive income – Total comprehensive income-494,921.70-11,838,692.59

(5) Excess loss of joint ventures or associates

Unit: RMB

Name of joint ventures or associates

Accumulatedunrecognisedloss incurred for

prior periods

Unrecognisedloss (or share of

net profit) for

the period

Unrecognisedloss (or share of

net profit) for

the periodArjo Wiggins Chenming Specialty Paper Co., Ltd.7,308,869.167,308,869.16

2019 AnnuAl RepoRt

XIII Financial Report

X. Risk relating to financial instruments

Main financial instruments of the Group include monetary funds, bills receivable, accounts receivable, other receivables,non-current assets due within one year, other current assets, other non-current financial assets, long-term receivables,short-term borrowings, accounts payable, other payables, short-term borrowings, non-current liabilities due within one year,long-term borrowings, bonds payable and Long-term payables. Details of financial instruments refer to related notes. Therisks associated with these financial instruments and the risk management policies adopted by the Company to mitigatethese risks are described below. The management of the Company manages and monitors these exposures to ensure thatthe above risks are controlled in a limited extent.

1. Risk management goals and policies

The Group aims to seek the appropriate balance between the risks and benefits in order to mitigate the adverseeffects on the Group’s financial performance from financial risk. Based on such objectives, the Group’s riskmanagement policies are established to identify and analyze the risks faced by the Group, to set appropriate risklimits and devise corresponding internal control procedures, and to monitor risks faced by the Group. Such riskmanagement policies and internal control systems are reviewed regularly to adapt to changes in market conditionsand the Group’s activities. The internal audit department of the Group undertakes both regular and ad-hoc reviews ofrisk management controls and procedures.Risks associated with the financial instrument of the Group mainly include credit risk, liquidity risk, market risk (includingexchange rate risk, interest rate risk and commodity price risk).The board of directors is responsible to plan and establish the Group’s risk management structure, make riskmanagement policies and related guidelines, and supervise the implementation of risk management. The Group hasalready made risk management risks to identify and analyse risks that the Group face. These policies mentionedspecific risks, covering market, credit risk and liquidity risk etc. The Group regularly assesses market environment andthe operation of the Group changes to determine if to make alteration to risk management policy and systems. TheGroup’s risk management is implemented by Risk Management Committee according to the approval of the boardof directors. Risk Management Committee work closely with other business department of the Group to identify,evaluating and avoiding certain risks. The Group’s internal audit department will audit the risk management controland procedures regularly and report the result to audit committee of the Group.The Group spreads risks through diverse investment and business lines, and through making risk management policyto reduce risks of single industry, specific area and counterpart.

(1) Credit risks

Credit risk refers to risk associated with the default of contract obligation of a transaction counterparty.The Group manages credit risk based category. Credit risks mainly arose from bank deposit, bills receivable,accounts receivable, other receivables and long-term receivables etc.

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

1. Risk management goals and policies (

Cont’d)

(1) Credit risks

(Cont’d)The Group’s bank deposit mainly deposits in state-owned banks and other large and medium-sized listedbanks. The Group anticipated that the bank deposit does not have significant credit risk.For bill receivable, accounts receivables, other receivables and long-term receivables, the Group set relatedpolicies to control exposure of credit risks. The Group evaluate client’s credit quality and set related creditperiod based on the client’s financial status, credit records and other factors such as current market situationetc. The Group keep monitor the client’s credit record and for client with deteriorate credit records, the Groupwill ensure the credit risk is under control in whole by means of written notice of payment collection, shorten orcancel credit period.The Group’s debtor spread over different industry and area. The Group continued to assess the credit evaluationto receivables and purchase credit guarantee insurance if necessary.The biggest credit risk exposure of the Group is the carrying amount of each financial assets in the balancesheet. The Group did not provide financial guarantee which resulted in credit risks.The amount of top 5 accounts receivable of the Group accounted for 29.05% (2018: 26.99%) of the Group’stotal accounts receivables. The amount of top 5 other receivable of the Group accounted for 87.09% (2018:

87.42%) of the Group

’s total other receivables.

(2) Liquidity risk

Liquidity risk refers to the risks that the Group will not be able to meet its obligations associated with its financialliabilities that are settled by delivering cash or other financial assets.To manage the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents to financethe Group’s operations and mitigate the effects of fluctuations in cash flows. The management of the Groupmonitors the usage of bank borrowings and ensures compliance with the borrowing agreements. In themeantime, we obtain commitments from major financial institutions to provide sufficient standby funds to meetshort-term and long-term funding needs.Operating cash was generated from capital and bank and other borrowings. As of 31 December 2019, theGroup’s unused bank loan credit is RMB34,072.1416 million (31 December 2018: 29,594.6933 million)

2019 AnnuAl RepoRt

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

1. Risk management goals and policies (

Cont’d)

(2) Liquidity risk

(Cont’d)As at the end of the period, the financial assets and financial liabilities of the Group are analysed by theirmaturity date as below at their undiscounted contractual cash flows (in ten thousand RMB):

2019.12.31ItemWithin 1 year1-2 years2-3 years3-4 yearsOver 4 yearsTotalFinancial assets:

Monetary funds1,906,656.981,906,656.98Accounts receivable307,736.22307,736.22Accounts receivable financial44,291.5944,291.59Other receivables270,183.01270,183.01Long-term receivables17,413.5423,488.2081,470.83122,372.57Other current assets808,452.56808,452.56Non-current assets due within one year697,303.80697,303.80Total financial assets4,034,624.1617,413.5423,488.2081,470.834,156,996.73Financial liabilities:

Short-term borrowings3,688,315.603,688,315.60Short-term borrowings151,504.82151,504.82Accounts payable435,108.76435,108.76Other payables238,605.99238,605.99Non-current liabilities due within one year566,295.89566,295.89Other current liabilities22,240.2522,240.25Long-term borrowings521,440.85117,319.8886,672.98188,600.26914,033.97Bonds payable116,920.098,907.00125,827.09Lease liabilities457.07443.29472.837,220.128,593.31Long-term payables64,272.9896,887.5983,321.6587,671.33332,153.55Total financial liabilities and contingent liabilities5,102,071.31703,090.99223,557.76170,467.46283,491.716,482,679.23

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

1. Risk management goals and policies (

Cont’d)

(2) Liquidity risk

(Cont’d)As at the beginning of the period, the financial assets and financial liabilities of the Group at the reporting dateare analysed by their maturity date as below at their undiscounted contractual cash flows (in ten thousandRMB):

2018.12.31ItemWithin 1 year1-2 years2-3 years3-4 yearsOver 4 yearsTotalFinancial assets:

Monetary funds1,929,277.471,929,277.47Bills receivable121,461.65121,461.65Accounts receivable378,336.41378,336.41Other receivables214,899.40214,899.40Long-term receivables465,770.86288,900.5448,142.112,341.27805,154.78Other current assets1,029,380.611,029,380.61Non-current assets due within one year400,750.33400,750.33Total financial assets4,074,105.87465,770.86288,900.5448,142.112,341.274,879,260.65Financial liabilities:

Short-term borrowings4,022,794.544,022,794.54Short-term borrowings421,896.96421,896.96Accounts payable415,022.86415,022.86Other payables155,092.92155,092.92Non-current liabilities due within one year713,832.58713,832.58Other current liabilities281,695.65281,695.65Long-term borrowings449,364.59101,103.3274,692.59162,530.95787,691.45Bonds payable209,756.25209,756.25Long-term payables75,471.44113,768.5897,839.01102,946.54390,025.57Total financial liabilities and contingent liabilities6,010,335.51524,836.03424,628.15172,531.60265,477.497,397,808.78The financial liabilities disclosed above are based on cash flows that are not discounted and may differ from thecarrying amount of the line items of the balance sheet.Financial guarantees issued do not represent the amount to be paid.

2019 AnnuAl RepoRt

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

1. Risk management goals and policies (

Cont’d)

(3) Market risk

Market risk includes interest rate risk and currency risk, refers to the risk that the fair value or future cash flow ofa financial instrument will be fluctuated due to the changes in market price.Interest riskInterest rate risk refers to the risk that the fair value or future cash flow of a financial instrument will be fluctuateddue to the floating rate. Interest rate risk arises from recognised interest-bearing financial instrument andunrecognised financial instrument (e.g. loan commitments).The Group’s interest rate risk arises from long-term interest-bearing liabilities including long-term borrowingand bonds payable. Financial liabilities issued at floating rate expose the Group to cash flow interest rate risk.Financial liabilities issued at fixed rate expose the Group to fair value interest rate risk. The Group determinesthe relative proportions of its fixed rate and floating rate contracts depending on the prevailing marketconditions and to maintain an appropriate combination of financial instruments at fixed rate and floating ratethrough regular reviews and monitors.The Group’s finance department continuously monitors the interest rate position of the Group. The Group didnot enter into any interest rate hedging arrangements. But the management is responsible to monitor the risksof interest rate and consider to hedge significant interest risk if necessary. Increase in interest rates will increasethe cost of new borrowing and the interest expenses with respect to the Group’s outstanding floating rateinterest-bearing borrowings, and therefore could have a material adverse effect on the Group’s financial result.The management will make adjustments with reference to the latest market conditions. These adjustments mayinclude enter into interest swap agreement to mitigate its exposure to the interest rate risk.Interest bearing financial instrument held by the Group are as follows (in ten thousand RMB):

ItemBalance for the year

Balance forthe prior yearFinancial instrument with fixed interest rateFinancial liabilitiesOf which: Short-term borrowings3,688,315.604,022,794.54 Long-term borrowings914,033.97779,893.45 Bonds payable125,827.09209,756.25Total4,728,176.665,012,444.24Financial instrument with float interest rateFinancial assetsOf which: Monetary funds288,790.99237,947.99Total288,790.99237,947.99The financial instruments held by the Group at the reporting date expose the Group to fair value interest raterisk. This sensitivity analysis as above has been determined assuming that the change in interest rates hadoccurred at the reporting date and arisen from the recalculation of the above financial instrument issued at newinterest rates. The non-derivative tools issued at floating interest rate held by the Group at the reporting dateexpose the Group to cash flow interest rate risk. The effect to the net profit and shareholder’s equity illustratedin the sensitivity analysis as above is arisen from the effect to the annual estimate amount of interest expensesor revenue at the floating interest rate. The analysis is performed on the same basis for prior year.

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

1. Risk management goals and policies (

Cont’d)

(3) Market risk

(Cont’d)Exchange rate riskExchange risk refers to the risk that the fair value or future cash flows of a financial instrument will be fluctuateddue to the changes in foreign currency rates. Foreign currency risk arises on financial instruments that aredenominated in a currency other than the functional currency in which they are measured.The principal business of the Group is situated within the PRC and is denominated in RMB. However,foreign exchange risks still exist for the assets and liabilities in foreign currencies and future foreign currencytransactions as recognized by the Group (assets and liabilities in foreign currencies and foreign currencytransactions are mainly denominated in US dollar, Japanese yen, Euro and South Korean Won). Financedepartment of the headquarters of the Group is responsible for monitoring the scale of foreign currencytransactions and assets and liabilities in foreign currencies to reduce the foreign exchange risks to the largestextent;The following table details the financial assets and liabilities held by the Group which denominated in foreigncurrencies and amounted to RMB as at 31 December 2019 are as follows (in RMB ten thousands):

Liabilities denominated in foreign

currency

Asset denominated in foreign

currencyItem

As at the endof the period

As at thebeginning ofthe period

As at the endof the period

As at thebeginning ofthe periodUSD453,753.14993,813.43147,730.57312,831.30EUR9,890.4364,547.565,131.5310,962.14HKD3,150.8063.6983.54KRW245.41YEN4.97941.18916.13GBP1.862.59Total466,794.371,058,365.96153,868.82325,041.11The Company closely monitors the impact of exchange rate changes on the Company’s foreign exchangerisk. The Company has not taken any measures to avoid foreign exchange risks. However, the management isresponsible for monitoring exchange rate risks and will consider hedging significant exchange rate risks whennecessary.With other variables unchanged, the after-tax effect of the possible reasonable changes in the exchange rate offoreign currency to RMB on the current profit and loss of the Group is as follows (in RMB ten thousands):

Increase (decrease) in after-tax profitsBalance for the yearBalance for the prior yearIncrease in exchange rate of USD5%-15,301.135%-34,049.11Decrease in exchange rate of USD-5%15,301.13-5%34,049.11Increase in exchange rate of Euro5%-237.955%-2,679.27Decrease in exchange rate of Euro-5%237.95-5%2,679.27

2019 AnnuAl RepoRt

XIII Financial Report

X. Risk relating to financial instruments (Cont’d)

2. Capital management

The objective of the Group’s capital risk management is to safeguard the Group’s ability to continue as a goingconcern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimalcapital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the Group may adjust the number of dividends paid toshareholders, return capital to shareholders, issue new shares or disposes assets to reduce its liabilities.The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net liabilities divided by totalcapital. As at 31 December 2019, the Group’s gearing ratio is 73.11% (31 December 2018: 75.43%).XI. Fair value

1. Fair value of assets and liabilities measured at fair value as at the end of the period

Unit: RMBFair value as at the end of the periodItemLevel 1Level 2Level 3TotalI. Continuous measurement of fair value———— (I) Other non-current financial assets147,445,653.55147,445,653.55 (II) Biological assets 1. Consumable biological assets1,541,004,633.421,541,004,633.42 Total assets continuously measured at fair value1,688,450,286.971,688,450,286.97During the year, there were no transfers of fair value measurements of financial assets and financial liability betweenLevel 1 and Level 2 and no transfers into or out of Level 3.

2. Quantitative Information About Significant Unobservable Inputs Used in the Level 3 Fair Value

Measurement that Are SignificantItem

Fair value as atthe end of the period

Valuation

techniques

UnobservableinputsRange (ton/RMB)Equity instrument investments:

Shandong Hongqiao Venture Capital Co., Ltd.

96,445,653.55Cost methodConsumable biological assets:————Forestry1,541,004,633.42Replacement cost methodCost per mu for the first year of Eucalyptus800

Cost per mu for the first year of Pines580Roll back method of market priceUnit price per ton of Eucalyptus wood580

Unit price per ton of wet pine540

Unit price per ton of Chinese fir850

XIII Financial Report

XII. Related parties and related party transactions

1. Parent company of the Company

Name of parent company

Place ofincorporationBusiness natureRegistered capital

Shareholdingof the parent

company inthe Company

Voting rightof the parentcompany inthe CompanyChenming Holdings Co., Ltd.ShouguangInvestment in

manufacture of paper,electricity,steam, and arboriculture

1,238,787,700.0027.87%27.87%

The ultimate controller of the Company is Shouguang State-owned Assets Supervision and Administration Office.

2. Subsidiaries of the Company

Please refer to Note IX. 1. Interest in subsidiaries for details.

3. Joint ventures and associates of the Company

Please refer to Note IX. 3. Interest in joint ventures or associates for details.Balance of related party transaction between the Company and its joint ventures or associates during the period orprior periods are as follows:

Name of joint ventures or associatesRelationShouguang Chenming Huisen New-style Construction Materials Co., Ltd.A joint venture of the CompanyXuchang Chenming Paper Co., Ltd.An associate of the CompanyWeifang Sime Darby West Port Co., Ltd.A joint venture of the CompanyJiangxi Jiangbao Media Colour Printing Co., Ltd.An associate of the CompanyJiangxi Chenming Port Co., Ltd.An associate of the CompanyWeifang Xingxing Joint Chemical Co., LtdA joint venture of the CompanyGuangdong Nanyue Bank Co., Ltd.An associate of the Company

2019 AnnuAl RepoRt

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

4. Other related parties

Name of other related partiesRelationShandong Shouguang Jinxin Investment Development Holdings Group Co., Ltd.

Shareholder of the Company’s largest shareholderShouguang Henglian Enterprise Investment LimitedShareholder of the Company’s largest shareholderShouguang Ruifeng Enterprise Investment LimitedShareholder of the Company’s largest shareholderChenming Holdings (Hong Kong) LimitedSubsidiary of the Company’s largest shareholderZhanjiang Chenming Real Estate Co., Ltd.Subsidiary of the Company’s largest shareholderQingdao Hongji Weiye Investment Co., Ltd.Subsidiary of the Company’s largest shareholderShouguang Hengying Real Estate Co., Ltd.Subsidiary of the Company’s largest shareholderShouguang Hengtai Enterprise Investment Co., Ltd.A company invested by the Directors and

senior management of the CompanyShouguang Huixin Construction Materials Co., Ltd.A company invested by the Directors and

senior management of the CompanyShouguang Chenming Guangyuan Real Property Co., Ltd. and its subsidiaries

A company invested by the Directors and

senior management of the CompanyQingdao Chenming Nonghai Investment Co., Ltd. and its subsidiaries

A company invested by the Directors and

senior management of the CompanyNanchang Chenjian New-style Wall Materials Co., Ltd.A company invested by the Directors and

senior management of the CompanyShouguang Hengde Enterprises Investment Co., Ltd.A company invested by the Directors and

senior management of the CompanyZhejiang Huaming Investment Management Co., Ltd. and its subsidiaries

Directors and senior management served

by the Company’s DirectorsHebei Chenming Zhongjin Real Estate Development Co., Ltd. and its subsidiaries

Directors and senior management served

by the Company’s SupervisorsWuhan Chenming Zhongjin Real Estate Co., Ltd. and its subsidiaries

Directors and senior management served

by the Company’s SupervisorsWuhan Rongsheng Zhongjin Development and Investment Co., Ltd. and its subsidiaries

Directors and senior management served

by the Company’s SupervisorsQingzhou Chenming Denaturation Amylum Co., Ltd.Investee of the CompanyAnhui Time Source CorporationInvestee of the CompanyShandong Hongqiao Venture Capital Co., Ltd.Investee of the CompanyShanghai Hengzheng Venture Investment Center (Limited Partnership)

Investee of the CompanyLide Technology Co., Ltd.Investee of the CompanyJiangxi Jiuyu Energy Co., Ltd. and its subsidiariesDirectors and senior management served by the

Company’s Directors in the past twelve monthsChen Hongguo, Hu Changqing, Li Xingchun, Geng Guanglin, Li Feng, Chen Gang, Dong Lianming and Yuan Xikun

Key management personnel

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions

(1) Purchase and sales of goods and rendering and receiving services

Table on purchase of goods/receiving of services

Unit: RMB

Related party

Details of related partytransaction

Amount for thereporting period

Transactionfacilityapproved

Whether theTransactionfacility isexceeded

Amount forthe prior periodJiangxi Jiuyu Energy Co., Ltd.

Procurement of natural gas and medium oil, etc.

381,124,206.33600,000,000.00No347,639,077.35Weifang Xingxing Joint Chemical Co., Ltd.

Procurement of hydrogen

peroxide etc.

80,638,768.49No85,728,655.93Table on sales of goods/providing of services

Unit: RMBRelated party

Details of relatedparty transaction

Amount for thereporting period

Amount for the

prior periodShouguang Chenming Huisen New-style Construction Materials Co., Ltd.

Sales of electricity and gas7,064,454.196,528,609.08Shouguang Huixin Construction Materials Co., Ltd.

Sales of cement,

coal, oil, etc.

13,402,439.7219,056,566.01

2019 AnnuAl RepoRt

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(2) Guarantee

The Company as guarantor

Unit: RMB

Party being guaranteed

Amount under

guarantee

Starting dateof guarantee

Expiry date of

guarantee

Whetherperformanceof guaranteeis completedWeifang Sime Darby West Port Co., Ltd.135,000,000.002017-12-202027-12-20NoZhanjiang Chenming Pulp & Paper Co., Ltd.135,000,000.002019-2-22020-1-31NoZhanjiang Chenming Pulp & Paper Co., Ltd.30,600,977.222019-1-142020-1-13NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-1-222020-1-21NoZhanjiang Chenming Pulp & Paper Co., Ltd.125,000,000.002019-2-152020-2-14NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-3-222020-3-22NoZhanjiang Chenming Pulp & Paper Co., Ltd.70,000,000.002019-6-32020-6-2NoZhanjiang Chenming Pulp & Paper Co., Ltd.89,000,000.002019-7-182020-1-13NoZhanjiang Chenming Pulp & Paper Co., Ltd.53,000,000.002019-7-292020-1-21NoZhanjiang Chenming Pulp & Paper Co., Ltd.90,000,000.002019-8-162020-8-14NoZhanjiang Chenming Pulp & Paper Co., Ltd.50,000,000.002019-8-212020-8-20NoZhanjiang Chenming Pulp & Paper Co., Ltd.86,000,000.002019-9-122020-3-30NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-9-122020-3-30NoZhanjiang Chenming Pulp & Paper Co., Ltd.99,600,000.002019-9-62020-9-6NoZhanjiang Chenming Pulp & Paper Co., Ltd.50,108,549.492019-8-72020-8-7NoZhanjiang Chenming Pulp & Paper Co., Ltd.25,000,000.002019-10-92020-10-8NoZhanjiang Chenming Pulp & Paper Co., Ltd.200,000,000.002019-10-142020-10-13NoZhanjiang Chenming Pulp & Paper Co., Ltd.80,000,000.002019-10-162020-10-15NoZhanjiang Chenming Pulp & Paper Co., Ltd.110,000,000.002019-11-12020-4-28NoZhanjiang Chenming Pulp & Paper Co., Ltd.29,500,000.002019-11-52020-5-4NoZhanjiang Chenming Pulp & Paper Co., Ltd.80,000,000.002019-11-272020-5-20NoZhanjiang Chenming Pulp & Paper Co., Ltd.91,875,000.002019-11-222020-5-22NoZhanjiang Chenming Pulp & Paper Co., Ltd.90,000,000.002019-11-252020-5-25NoZhanjiang Chenming Pulp & Paper Co., Ltd.34,000,000.002019-11-52020-11-4NoZhanjiang Chenming Pulp & Paper Co., Ltd.115,000,000.002019-11-82020-11-7NoZhanjiang Chenming Pulp & Paper Co., Ltd.90,000,000.002019-11-132020-11-13NoZhanjiang Chenming Pulp & Paper Co., Ltd.166,668,000.002019-11-52020-11-14NoZhanjiang Chenming Pulp & Paper Co., Ltd.90,000,000.002019-12-52020-6-5NoZhanjiang Chenming Pulp & Paper Co., Ltd.97,000,000.002019-12-92020-12-8NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-12-172020-12-16NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-10-122020-3-12NoZhanjiang Chenming Pulp & Paper Co., Ltd.40,461,960.002019-11-132020-11-5NoZhanjiang Chenming Pulp & Paper Co., Ltd.48,833,400.002015-6-32020-5-21NoZhanjiang Chenming Pulp & Paper Co., Ltd.14,000,000.002015-6-52020-5-21No

XIII Financial Report

Party being guaranteed

Amount underguarantee

Starting dateof guarantee

Expiry date of

guarantee

Whetherperformanceof guaranteeis completedZhanjiang Chenming Pulp & Paper Co., Ltd.15,347,640.002018-2-132020-2-11NoZhanjiang Chenming Pulp & Paper Co., Ltd.49,000,000.002018-2-232020-2-11NoZhanjiang Chenming Pulp & Paper Co., Ltd.10,000,000.002018-2-262020-2-11NoZhanjiang Chenming Pulp & Paper Co., Ltd.10,000,000.002018-2-282020-2-11NoZhanjiang Chenming Pulp & Paper Co., Ltd.30,000,000.002018-10-312020-10-30NoZhanjiang Chenming Pulp & Paper Co., Ltd.330,000,000.002018-10-312020-10-30NoZhanjiang Chenming Pulp & Paper Co., Ltd.70,000,000.002018-12-182020-10-31NoZhanjiang Chenming Pulp & Paper Co., Ltd.100,000,000.002019-7-122021-7-12NoZhanjiang Chenming Pulp & Paper Co., Ltd.200,000,000.002019-12-42021-12-3NoZhanjiang Chenming Pulp & Paper Co., Ltd.140,000,000.002019-12-272022-12-27NoShandong Chenming Paper Sales Co., Ltd.690,643,800.002019-1-242020-1-16NoShandong Chenming Paper Sales Co., Ltd.100,000,000.002019-3-192020-3-13NoShandong Chenming Paper Sales Co., Ltd.50,000,000.002019-5-292020-5-28NoShandong Chenming Paper Sales Co., Ltd.150,000,000.002019-7-302020-6-12NoShandong Chenming Paper Sales Co., Ltd.270,000,000.002019-7-302020-7-29NoShandong Chenming Paper Sales Co., Ltd.280,000,000.002019-9-62020-3-6NoShandong Chenming Paper Sales Co., Ltd.254,102,620.852019-11-52020-5-4NoShandong Chenming Paper Sales Co., Ltd.420,133,926.552019-11-222020-5-21NoShandong Chenming Financial Leasing Co., Ltd.200,000,000.002017-9-212020-9-21NoHuanggang Chenming Pulp & Paper Co., Ltd.75,000,000.002016-6-242020-3-26NoHuanggang Chenming Pulp & Paper Co., Ltd.32,770,000.002016-6-242020-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.530,000.002017-1-52020-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.32,240,000.002017-1-52020-9-26NoHuanggang Chenming Pulp & Paper Co., Ltd.38,240,000.002017-1-52020-12-26NoHuanggang Chenming Pulp & Paper Co., Ltd.38,240,000.002017-1-52021-3-26NoHuanggang Chenming Pulp & Paper Co., Ltd.43,690,000.002017-1-52021-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.43,690,000.002017-1-52021-9-26NoHuanggang Chenming Pulp & Paper Co., Ltd.3,900,000.002017-2-32021-9-26NoHuanggang Chenming Pulp & Paper Co., Ltd.36,260,000.002017-2-32021-12-26NoHuanggang Chenming Pulp & Paper Co., Ltd.40,160,000.002017-2-32022-3-26NoHuanggang Chenming Pulp & Paper Co., Ltd.40,160,000.002017-2-32022-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.33,420,000.002018-9-192020-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.45,264,554.672018-11-142020-9-26NoHuanggang Chenming Pulp & Paper Co., Ltd.44,360,657.922017-4-122020-3-26NoHuanggang Chenming Pulp & Paper Co., Ltd.66,431,750.002017-4-122020-6-26NoHuanggang Chenming Pulp & Paper Co., Ltd.10,316,460.002019-9-292020-9-28No

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(2) Guarantee

2019 AnnuAl RepoRt

XIII Financial Report

Party being guaranteed

Amount under

guarantee

Starting dateof guarantee

Expiry date of

guarantee

Whetherperformanceof guaranteeis completedHuanggang Chenming Pulp & Paper Co., Ltd.200,000,000.002019-12-232020-12-22NoJiangxi Chenming Paper Co., Ltd.100,000,000.002019-1-72020-1-7NoJiangxi Chenming Paper Co., Ltd.64,285,135.372019-1-182020-1-15NoJiangxi Chenming Paper Co., Ltd.100,000,000.002019-2-282020-2-28NoJiangxi Chenming Paper Co., Ltd.22,800,000.002019-3-152020-3-14NoJiangxi Chenming Paper Co., Ltd.100,000,000.002019-3-212019-3-21NoJiangxi Chenming Paper Co., Ltd.150,000,000.002019-3-292020-3-29NoJiangxi Chenming Paper Co., Ltd.90,000,000.002019-3-292020-3-29NoJiangxi Chenming Paper Co., Ltd.70,000,000.002019-5-222020-5-21NoJiangxi Chenming Paper Co., Ltd.73,000,000.002019-12-62020-12-4NoJiangxi Chenming Paper Co., Ltd.150,000,000.002019-12-22020-3-2NoJiangxi Chenming Paper Co., Ltd.19,360,407.002019-6-282022-6-27NoJiangxi Chenming Paper Co., Ltd.200,000,000.002019-7-12020-6-27NoJiangxi Chenming Paper Co., Ltd.300,000,000.002019-10-232022-6-27NoJiangxi Chenming Paper Co., Ltd.85,000,000.002019-11-222022-6-27NoShouguang Meilun Paper Co., Ltd.114,750,000.002019-8-62020-2-3NoShouguang Meilun Paper Co., Ltd.249,935,732.902019-9-302020-9-30NoShouguang Meilun Paper Co., Ltd.100,000,000.002019-10-162020-1-14NoShouguang Meilun Paper Co., Ltd.99,507,360.092019-12-92020-12-3NoShouguang Meilun Paper Co., Ltd.168,622,526.922019-12-92020-6-8NoChenming (HK) Limited133,006,977.542019-6-192020-6-10NoChenming (HK) Limited271,095,132.002019-1-122020-1-10NoChenming (HK) Limited31,352,288.052018-4-232021-4-7NoChenming (HK) Limited144,686,388.002018-5-42021-4-6NoChenming (HK) Limited83,016,780.002018-5-172021-5-5NoChenming (HK) Limited52,181,976.002019-4-302022-4-22NoChenming (HK) Limited140,221,620.002018-5-112020-4-11NoChenming (HK) Limited97,666,800.002018-11-302020-10-30NoJilin Chenming Paper Co., Ltd.196,031,220.002019-3-152020-1-17NoJilin Chenming Paper Co., Ltd.40,000,000.002019-9-32020-3-17NoJilin Chenming Paper Co., Ltd.20,025,000.002019-11-152020-5-14NoJilin Chenming Paper Co., Ltd.48,000,000.002019-11-152020-5-14NoShanghai Chenming Pulp & Paper Sales Co., Ltd.30,000,000.002019-8-302020-8-7NoShanghai Chenming Pulp & Paper Sales Co., Ltd.20,000,000.002019-12-272020-12-24NoTotal12,912,203,217.01

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(2) Guarantee

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(3) Related party lending and borrowing

Unit: RMBRelated partyBorrowing amountStarting dateExpiry dateDescriptionBorrowingChenming Holdings Co., Ltd.708,440,865.273 September 20192 September 2020LendingWeifang Sime Darby West Port Co., Ltd.59,500,000.009 July 20188 July 2022

(4) Interests of related party lending and borrowing

Related party

Details of relatedparty transaction

Amount during

the year

Amount duringthe prior yearWeifang Sime Darby West Port Co., Ltd.Interest income4,052,621.832,363,749.98Chenming Holdings Co., Ltd.Interest expenses27,905,072.214,820,277.79

(5) Remuneration of key management staff

Unit: RMBItem

Amount duringthe year

Amount during the

prior yearRemuneration of key management staff3,057.252,460.15

(6) Other related party transactions

① Distribution band of remuneration of key management staff

Band of annual remuneration

Amount duringthe year

Amount duringthe prior yearTotal3,057.25RMB24.6015 millionOf which: (number of staff in each band of amount)RMB4.80-5.20 million21RMB3.60-4.00 millionRMB3.20-3.60 millionRMB2.80-3.20 million1RMB2.40-2.80 million1RMB2.00-2.40 million23RMB1.60-2.00 million31RMB1.20-1.60 million5RMB0.80-1.20 million21Below RMB0.80 million2115

2019 AnnuAl RepoRt

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(5) Other related party transactions

(Cont’d)

② Breakdown of remuneration of key management staff

Amount during the year (RMB’0,000)Key management staff

Basic annualremuneration

Social welfarecontribution

Payments ofhousing funds

Total(RMB’0,000)Yin Meiqun11.6711.67Yang Biao11.6711.67Sun Jianfei11.6711.67Pan Ailing11.2011.20Huang Lei5.375.37Liang Fu5.375.37Wang Fengrong5.375.37Sub-total of independent non-executiveDirectors62.3262.32Li Chuanxuan11.6711.67Han Tingde11.6711.67Yang Guihua5.375.37Zhang Hong11.2011.20Sub-total of non-executive Directors39.9139.91Chen Hongguo488.207.13.7499.00Hu Zhangqing288.9011.103.90303.90Li Xingchun499.00499.00499.00Geng Guanglin151.607.103.70162.40Li Feng176.007.103.70186.80Chen Gang86.706.503.5096.70Sub-total of executive Directors1690.4038.9018.501747.80Pan AilingReflected in the aforementioned independent non-executive DirectorsZhang HongReflected in the aforementioned non-executive DirectorsLi Xinggui17.105.302.0024.40Qiu Lanju20.704.202.0026.90Li Dong0Sun Yinghua7.303.602.5013.40Zhang Xiaofeng1.12　　1.12Total of Supervisor46.2213.106.5065.82Sub-total of other senior management members1,068.9045.2027.301,141.40Total2,907.7597.2052.303,057.25

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(5) Other related party transactions

(Cont’d)

Amount during the year (RMB’0,000)Key management staff

Basic annualremuneration

Social welfarecontribution

Payments ofhousing funds

Total(RMB’0,000)Pan Ailing12.0012.00Huang Lei12.0012.00Liang Fu12.0012.00Wang Fengrong12.0012.00Sub-total of independent non-executive Directors48.0048.00Yang Guihua12.0012.00Zhang Hong12.0012.00Sub-total of non-executive Directors24.0024.00Chen Hongguo491.035.632.34499.00Hu Changqing190.467.821.72200.00Yin Tongyuan120.91.821.48124.20Geng Guanglin146.245.632.34154.21Li Feng132.515.632.34140.48Chen Gang178.125.632.34186.09Sub-total of executive Directors1259.2632.1612.561303.98Li Dong0Sun Yinghua60.055.632.3468.02Yang Hongqin12.902.170.8315.90Zhang Xiaofeng2.502.50Total of Supervisors75.457.803.1786.42Sub-total of other senior management members946.7734.5416.48997.79Total2,353.4874.532.212,460.19

2019 AnnuAl RepoRt

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

5. Related party transactions (

Cont’d)

(5) Other related party transactions

(Cont’d)

③ The 5 highest paid individuals of the Company during the year comprised of 3 directors and 2 other senior

management members of the Company. The remuneration bands of the 2 senior management memberswere RMB2.00-2.40 million and RMB2.40-2.80 million.A. Remuneration of the five highest paid individuals

Item

Amountsduring the year(RMB’0,000)

Amounts duringthe prior year(RMB’0,000)Basic annual remuneration1,751.101262.58Provident fund15.0011.08Social welfare contribution32.4030.34Total1,798.501304.00B. Distribution band of remuneration of the five highest paid individuals

Band of annual remuneration

Number ofindividuals during

the year

Number ofindividuals during

the prior yearRMB4.80-5.20 million21RMB3.20-3.60 millionRMB2.80-3.20 million1RMB2.40-2.80 million1RMB2.00-2.40 million13RMB1.60-2.00 million1RMB1.20-1.60 million

④ During the year, no other emoluments were paid by the Company to the directors of the Company and the

5 highest paid individuals as an inducement to join or upon joining the Company or as compensation forloss of office. None of the directors waived any emoluments during the year.

XIII Financial Report

XII. Related parties and related party transactions (Cont’d)

6. Related party accounts receivable and accounts payable

(1) Accounts receivables

Unit: RMBClosing balanceOpening balanceItemRelated partyBook balanceBad debtBook balanceBad debtPrepaymentsShouguang Hengyuan Energy Co., Ltd.20,179,937.8725,586,691.33Other receivablesShouguang Hengyuan Energy Co., Ltd.10,000,000.00757,910.97Accounts receivableShouguang Chenming Huisen New-style

Construction Materials Co., Ltd.

2,008,185.6061,132.76774,832.2038,741.61PrepaymentsJiangxi Jiuyu Energy Co., Ltd.15,358,225.8333,567,041.92Other receivablesWeifang Sime Darby West Port Co., Ltd.64,889,583.265,151,661.5860,836,961.43304,184.80

(2) Accounts payable

Unit: RMBItemRelated party

Closing book

balance

Openingbook balanceAccounts payableWeifang Xingxing Joint Chemical Co., Ltd26,905,494.3418,544,025.96Other payablesChenming Holdings Co., Ltd.708,440,865.27376,000,000.00Other payablesShouguang Hengtai Enterprise

Investment Company Limited

44,392,007.69Accounts payableJiangxi Jiuyu Energy Co., Ltd.3,054,956.65Other current liabilitiesGuangdong Nanyue Bank Co., Ltd.400,000,000.00Other non-current liabilities

Guangdong Nanyue Bank Co., Ltd.400,000,000.00

(3) Deposits with related parties

Unit: RMBItemRelated party

Closing bookbalance

Openingbook balanceBank depositGuangdong Nanyue Bank Co., Ltd.85,668.46996,956.00Other monetary fundsGuangdong Nanyue Bank Co., Ltd.2,414,668,000.00355,113,225.32

(4) Loans from related parties

Unit: RMBItemRelated party

Closing bookbalance

Openingbook balanceShort-term borrowings

Guangdong Nanyue Bank Co., Ltd.2,948,970,000.00496,670,000.00

2019 AnnuAl RepoRt

XIII Financial Report

XIII. Undertaking and contingency

1. Significant commitments

Significant commitments as at the balance sheet date

(1) Capital commitment

ItemClosing balanceOpening balanceContracted but not yet recognised in the financial statementsCommitments in relation to acquisition and construction of long-term assets260,421,348.841,463,816,242.90Total260,421,348.841,463,816,242.90

2. Contingency

(1) Significant contingency as at the balance sheet date

In October 2005, the Company and Hong Kong ArjowigginsHKK2Limited (“HKK2”) jointly establishedArjoWiggins Chenming Specialty Paper Co., Ltd. in Shouguang, Shandong Province, which is engaged in theproduction of special paper, decoration paper and draft paper. However, such company experienced poormanagement due to financial crisis. Hence, such company was forced to dissolve in October 2008.In October 2012, HKK2 submitted for arbitration application to Hong Kong International Arbitration Centre, HongKong Special Administration of PRC, on the ground of default of the joint venture agreement by the Company.In November 2015, Hong Kong International Arbitration Centre announced arbitration result, stating that theCompany should compensate HKK2 with economic loss of RMB167 million, arbitration fee of HK$3.30 millionand legal fee of USD3.54 million, together with interest thereon calculated at 8% per annum. In October 2016,the Company received a statutory demand, stating that if the Company fails to perform the arbitration resultswithin 21 days, the liquidation application on H shares of the Company will be submitted. Subsequently, HKK2submitted H shares liquidation application to the arbitration centre.In November 2016, the Company submitted application to the Court of First Instance of the High Court of theHKSAR and received an injunction, stating that“the applicant is prohibited from applying for liquidation on theCompany”.In February 2017, HKK2 submitted an appeal to the court. In June 2017, the court dismissed the injunctionreceived by the Company. In the same month, the Company received the liquidation application submittedby the defendant to the High Court of Hong Kong, which alleged that the Company should compensate thedefendant with economic loss of RMB167 million, legal fee of USD3.54 million and arbitration fee of HK$3.30million, together with interest thereon due to failure in compliance of the arbitration results.In 2017, the Company made provision of RMB325,259,082.28 for the pending litigation. However, as of 31December 2019, judgment of the court of Hong Kong was yet to be made, and the expected loss was uncertain.Hence, such provision was still stated under the balance sheet.As at 31 December 2019, the Group has no other contingency that should be disclosed.

XIII Financial Report

XIV. Post-balance sheet event

1. Significant events after the balance sheet date

Unit: RMBItemContent

Effect to financialpositions andoperating results

Reason for notreliably estimatedSignificant external InvestmentIn vestment in overseas

subsidiaries

In vestment in overseassubsidiaries

Es tablishing a company hasa wide-ranging impact onfinancial conditions andoperating results

2. Profit distribution after the balance sheet date

Unit: (RMB)Prefits or dividends declared upon approval610,109,834.70

3. Description of other events after the balance sheet date

As of 27 March, 2019 (the date of approval of the report by the Board of Directors), the Group has no other eventsthat should be disclosed after the balance sheet date.

2019 AnnuAl RepoRt

XIII Financial Report

XV. Other material matters

1. Discontinued operation

Unit: RMBItemAmount for the period

Amount forthe last periodRevenue from discontinued operations (A)278,633,403.31421,749,990.14Less: Termination of operating expenses (B)203,049,365.06282,840,629.66 Total profit from discontinued operations (C)75,584,038.25138,909,360.48Less: income tax expense for termination of operations (D)11,759,914.6416,901,157.85 Net profit from operating activities (E = C-D)63,824,123.61122,008,202.63 Asset impairment loss/(reversal) (F) Total proceeds from disposal (G)277,000,000.00 Disposal of related income tax expenses (H)41,550,000.00 Net profit of disposal (I = G-H)235,450,000.00 Net profit from discontinued operations (J = E + F + I)299,274,123.61122,008,202.63Of which: Discontinued operating profit attributable to shareholders of the parent company179,564,474.1748,803,281.05

Discontinued operating profit attributable to minority shareholders119,709,649.4473,204,921.58 Net cash flow from operating activities41,903,992.3875,115,059.89 Net cash flow from investing activities-33,026,830.74-94,118,688.20 Net cash flow from financing activities0.0032,071,241.87

2. Segment information

(1) Basis for determination and accounting policies

According to the Group’s internal organizational structure, management requirements and internal reportingsystem, the Group’s operating business is divided into 5 reporting segments. These report segments aredetermined based on the financial information required by the company’s daily internal management. Themanagement of the Group regularly evaluates the operating results of these reporting segments to determinethe allocation of resources to them and evaluate their performance.The Group’s reporting segments include:

(1) Machine paper segment, which is responsible for production and sales of machine paper;

(2) Financial services segment, which provides financial services;

(3) Magnesium ore segment, which produces and sells magnesium ore;

(4) Investment real estate segment, which is responsible for real estate rental;

(5) Other segments, which is responsible for the above segments otherwise.

XIII Financial Report

XV. Other material matters (Cont’d)

2. Segment information (

Cont’d)

(1) Basis for determination and accounting policies

(Cont’d)Segment report information is disclosed in accordance with the accounting policies and measurement standardsadopted by each segment when reporting to management. These accounting policies and measurement basisare consistent with the accounting policies and measurement basis used in preparing the financial statements.

(2) Financial Information of Reporting Segment

Unit: (RMB’0,000)ItemMachine paper

FinancialServicesMagnesite

Investmentreal estateOthers

Inter-segmentoffsetTotalMain business income2,780,454.93239,856.5727,863.3410,509.4376,415.7395,556.593,039,543.41Main business cost2,088,496.2290,577.4412,511.2813,695.7063,180.4891,072.692,177,388.43Total assets9,045,841.653,178,178.27574,470.33477,198.613,479,797.869,795,890.99Total liabilities6,842,942.671,631,402.71310,649.29251,954.721,875,035.707,161,913.71

4. Government Subsidies

(1) Government subsidies included in deferred income will be subsequently measured using the gross method

Unit: RMB

Item of subsidiesType

OpeningBalance

New subsidy

amount forthe period

Amounttransferredto profit or

loss forthe periodOthers

Closingbalance

Presentableitems transferredto profit or loss

Asset-related/return-relatedNational Science and Technology

Support Program ProjectFunding

Financial appropriation1,617,224.68164,699.681,452,525.00Other revenueAsset-relatedSewage treatment and water

saving reconstruction

Financial appropriation64,466,819.641,192,682.9363,274,136.71Other revenueAsset-relatedFinancial subsidies for technical

transformation project

Financial appropriation180,966,256.9112,783,808.11168,182,448.80Other revenueAsset-relatedFunding for environmental

protection

Financial appropriation749,420,276.7549,191,971.56700,228,305.19Other revenueAsset-relatedIndustrial logistics park

reconstruction compensation

Financial appropriation51,960,000.0051,960,000.00Asset-relatedZhanjiang Forest Pulp & Paper

Integration Item

Financial appropriation71,141,834.424,094,632.9267,047,201.50Other revenueAsset-relatedHuanggang Forest Pulp and

Paper Integration Item

Financial appropriation681,564,072.66681,564,072.66Asset-relatedOthersFinancial appropriation61,258,712.5523,954,067.3037,304,645.25Other revenue、

financial cost

Asset-relatedTotal1,862,395,197.6191,381,862.501,771,013,335.11

2019 AnnuAl RepoRt

XIII Financial Report

XV. Other material matters (Cont’d)

4. Government Subsidies (

Cont’d)

(2) Government subsidies calculated into the current profit and loss using the total method

Unit: RMBSubsidy ItemType

Amount credited toprofit or loss forthe prior period

Amount creditedto profit or loss forthe period

Presentable itemsincluded in profit or loss

Asset-related/revenue-relatedNational Science and Technology Support Program Project FundingFinancial appropriation164,700.00164,700.00Other revenueAsset-relatedSewage treatment and water saving reconstructionFinancial appropriation1,192,682.881,192,682.88Other revenueAsset-relatedFinancial subsidies for technical transformation itemsFinancial appropriation13,582,557.60110,054,807.72Other revenueAsset-relatedZhanjiang Forest Pulp & Paper Integration ItemFinancial appropriation5,396,664.124,094,632.92Other revenueAsset-relatedIndustrial logistics park reconstruction compensationFinancial appropriation6,626,701.004,705,900.00Other revenueAsset-relatedFinancial discountFinancial appropriation235,712,512.8922,364,612.22financial costAsset-relatedResearch and development grantsFinancial appropriation3,766,800.0074,923,512.88Other revenuerevenue-relatedFunding for environmental protectionFinancial appropriation49,261,012.6449,361,843.85Other revenuerevenue-relatedRisk subsidyFinancial appropriation29,000,000.000.00Other revenuerevenue-relatedGovernment awardsFinancial appropriation586,334.54228,000,000.00Other revenuerevenue-relatedVAT is levied and reimbursed immediatelyFinancial appropriation4,699,443.061,217,058.15Other revenuerevenue-relatedAfforestation subsidyFinancial appropriation14,230,270.003,891,820.00Other revenuerevenue-relatedTax returnFinancial appropriation24,863,195.0580,382,428.92Other revenuerevenue-relatedEnterprise reform and development subsidiesFinancial appropriation203,933,687.5631,070,010.00Non-operating incomerevenue-relatedInvestment promotion subsidyFinancial appropriation0.0041,542,500.00Non-operating incomerevenue-relatedOthersFinancial appropriation40,491,906.2017,307,907.75Non-operating income,

Other revenue

revenue-relatedTotal633,508,467.54670,274,417.29

4. Net Current Assets and Total Assets less Current Liabilities

(1) Net current assets

2019.12.312018.12.31Current assets4,495,243.394,796,751.18Less: Current liabilities5,269,876.896,141,468.86Net current assets-774,633.50-1,344,717.68

(2) Total assets less current liabilities

2019.12.312018.12.31

Total assets9,795,890.9910,531,873.48Less: Current liabilities5,269,876.896,141,468.86Total assets less current liabilities4,526,014.104,390,404.63

XIII Financial Report

XVI. Major Item Notes of the Parent Company’s Financial Statements

1. Bill receivable

Closing balanceOpening BalanceBill typeBook balance

Provisionfor bad debtsBook valueBook balance

Provisionfor bad debtsBook valueBank acceptance bill2,230,000,000.002,230,000,000.00436,662,187.80436,662,187.80Commercial acceptance draft1,024,460,000.001,024,460,000.00Total3,254,460,000.003,254,460,000.00436,662,187.80436,662,187.80

(1) Bill receivable pledged at the end of the period

Type

Amount pledged atthe end of the periodBank acceptance bill152,714,290.24Commercial acceptance draftTotal152,714,290.24

(2) Bills receivable endorsed or discounted at the end of the period but not yet due

Type

Amount determinatedat the end of the period

Amount not confirmedat the end of the periodBank acceptance bill420,262,029.162,230,000,000.00Commercial acceptance draft1,024,460,000.00Total420,262,029.163,254,460,000.00

2019 AnnuAl RepoRt

XIII Financial Report

XVI. Major Item Notes of the Parent Company’s Financial Statements

2. Accounts receivable

(1) Disclosure of Receivables classified

Unit: RMBClosing balanceOpening BalanceBook balanceProvision for bad debtsBook balanceProvision for bad debtsTypeAmountProportionAmountAccrual ratioBook valueAmountProportionAmountAccrual ratioBook valueAccounts receivable with single item provision for bad debts778,063.571.73%778,063.57100.00%Of which:

Total accounts receivable with bad debt provision by group44,083,258.7998.27%4,878,588.7911.07%39,204,670.001,349,962,797.42100.00%685,832.380.05%1,349,276,965.04Of which:

Receivables from related parties31,427,654.3670.06%157,138.270.50%31,270,516.091,342,192,951.9899.42%1,342,192,951.98Receivables from dealer customers12,655,604.4328.21%4,721,450.5237.31%7,934,153.917,769,845.440.58%685,832.388.83%7,084,013.06Total44,861,322.36100.00%5,656,652.3612.61%39,204,670.001,349,962,797.42100.00%685,832.380.05%1,349,276,965.04Provision for bad debts per single item:

Closing balanceNameBook balance

Provision forbad debts

Expected credit

loss rate (%)Reasons for provisionSANAYE GHAZAIYE MASTER FOODEH CO.778,063.57778,063.57100%

Iran clients less likely to repayTotal778,063.57778,063.57100%–

XIII Financial Report

XVI. Major Item Notes of the Parent Company’s Financial Statements (Cont’d)

2. Accounts receivable (

Cont’d)

(1) Disclosure of Receivables classified

(Cont’d)

Total provision for bad debts by group:

Total accounts item by group: Accounts receivable fromrelated parties

Unit: RMBClosing balanceAging

Accountsreceivable

Provision for

bad debts

Expected credit

loss rateWith 1 year31,427,654.36157,138.270.50%Total31,427,654.36157,138.270.50%Total accounts item by group: Accounts receivable from non-related parties

UUnit: RMBClosing balanceAging

Accountsreceivable

Provision for

bad debts

Expected credit

loss rateWith 1 year8,152,783.26218,629.352.68%1-2 years2-3 yearsOver 3 years4,502,821.174,502,821.17100.00%Total12,655,604.434,721,450.5237.31%

2019 AnnuAl RepoRt

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

1. Accounts receivable (

Cont’d)

(1) Disclosure of accounts receivable by category

(Cont’d)

If the provision for bad debts of accounts receivable is made in accordance with the general model of ECLs,please disclose the information about provision for bad debts with reference to the way of disclosure of otherreceivables:

√ Applicable □ Not applicable

Disclosed by ageing:

Unit: RMBAgeingBook balanceWithin 1 year (including 1 year)40,358,501.191-2 years2-3 yearsOver 3 years4,502,821.17Total44,861,322.36

(2) Provision, recovery or reversal of bad debt provision for the period

Provision of bad debt provision for the period:

Unit: RMBCategory

Openingbalance

Changes in the period

Closing

balanceProvisionRecoveryor reversalWritten offBad debt provision685,832.384,970,819.985,656,652.36

(4) Top five accounts receivable based on closing balance of debtors

The top five accounts receivable based on closing balance of debtors for the period amounted toRMB38,430,605.62 in total, accounting for 85.67% of the total closing balance of accounts receivable. Theclosing balance of the corresponding bad debt provision amounted to RMB4,648,891.69 in total.

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

3. Other receivables

Unit: RMBItemClosing balanceOpening balanceInterest receivable077,257,506.25Other receivables13,975,590,537.5819,328,057,454.99Total13,975,590,537.5819,405,314,961.24

(1) Interest receivable

1) Classification of interest receivable

Unit: RMBItemClosing balanceOpening balanceFixed term deposit077,257,506.25Total077,257,506.25

(2) Other receivables

1) Other receivables by nature

Unit: RMBNatureClosing book balanceOpening book balanceOpen credit14,082,545,251.0519,297,217,793.30Guarantee deposit5,454,233.3645,241,076.47Advances526,752.627,681,197.42Insurance premium13,979.139,958,377.28Reserve and borrowings8,089,922.34466,935.72Others74,361,611.8539,175,451.96Total14,170,991,750.3519,399,740,832.15

2019 AnnuAl RepoRt

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

3. Other receivables (

Cont’d)

(2) Other receivables

(Cont’d)

2) Particulars of bad debt provision

As at the end of the period, bad debt provision in phase 1 is analyzed as follows:

Unit: RMBTypeBook balance

Expected credit

loss rate in thenext 12 months

Provision forbad debtsBook valueReasonProvision for bad debts per item92,164,832.9292,164,832.92Interest receivable92,164,832.9292,164,832.92Dividends receivableTotal provision for bad debts by group14,168,200,849.231.36%192,610,311.6413,975,590,537.59Receivables from government1,577,924.30100%1,577,924.30Receivables from related parties13,041,636,606.520.5%65,208,183.0312,976,428,423.49Other receivables1,124,986,318.4111.18%125,824,204.31999,162,114.10Total14,260,365,682.151.35%192,610,311.6414,067,755,370.51As at the end of the period, bad debt provision in phase 3 is analyzed as follows:

CategoryBook balance

Expectedcredit lossrate overthe entire life

Bad debtprovisionBook valueReasonShouguang Paper Mill No.21,500,000.00100%1,500,000.00Ov erdue for a prolonged

period and unlikely tobe recovered.Arjo Wiggins Chenming Specialty Paper Co., Ltd.

1,290,901.12100%1,290,901.12Ov erdue for a prolonged

period and unlikely tobe recovered.Total2,790,901.12100%2,790,901.12

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

3. Other receivables (

Cont’d)

(2) Other receivables

(Cont’d)

2) Particulars of bad debt provision

(Cont’d)

Changes in carrying book balances with significant changes in loss provision for the year

√ Applicable □ Not applicable

Disclosed by ageing:

Unit: RMBAgeingBook balanceWithin 1 year (including 1 year)10,816,421,382.301-2 years3,307,579,124.712-3 years6,172,674.00Over 3 years40,818,569.34Subtotal14,170,991,750.35

3) Provision, recovery or reversal of bad debt provision for the period

Provision of bad debt provision for the period:

Unit: RMBCategory

Openingbalance

Changes in the period

ClosingbalanceProvisionRecoveryor reversalWritten offBad debt provision71,683,377.16123,717,835.61195,401,212.77

2019 AnnuAl RepoRt

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

3. Other receivables (

Cont’d)

(2) Other receivables

(Cont’d)

4) Top five other receivables according to closing balance of debtors

The total amount of the Company’s top five accounts receivable based on closing balance of debtorsfor the period was RMB11,142,774,722.18, which accounted for 78.63% of the closing balance ofthe total accounts receivable. The closing balance of corresponding bad debt provision amounted toRMB55,713,873.61.

4. Long-term equity investments

Unit: RMBClosing balanceOpening balanceItemBook balanceImpairment provisionBook valueBook balanceImpairment provisionBook valueInvestment in subsidiaries23,275,652,649.9023,275,652,649.9022,114,152,649.9022,114,152,649.90Investment in joint ventures93,516,339.3793,516,339.37106,732,692.50106,732,692.50Investment in associates266,605,874.565,994,545.96260,611,328.60266,532,100.84266,532,100.84Total23,635,774,863.835,994,545.9623,629,780,317.8722,487,417,443.2422,487,417,443.24

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

4. Long-term equity investments (

Cont’d)

(1) Investment in subsidiaries

Unit: RMBInvestee

Opening balance

(book value)

Change for the period

Closing balance

(book value)

Closing balance

provision ofimpairmentAdditionalcontribution

Withdrawncontribution

ImpairmentprovisionOthersChenming Paper Korea Co., Ltd.6,143,400.006,143,400.00Chenming GmbH4,083,235.004,083,235.00Shandong Chenming Paper Group (Fuyu) Sales Co., Ltd.1,000,000.001,000,000.00Haicheng Haiming Mining Co., Ltd.144,000,000.00144,000,000.000.00Hailaer Chenming Paper Co., Ltd.12,000,000.0012,000,000.00Huanggang Chenming Pulp & Paper Co., Ltd.1,250,000,000.001,000,000,000.002,250,000,000.00Huanggang Chenming Arboriculture Development Co., Ltd.70,000,000.0070,000,000.00Jilin Chenming Paper Co., Ltd.1,501,350,000.001,501,350,000.00Jinan Chenming Investment Management Co., Ltd.100,000,000.00100,000,000.00Jiangxi Chenming Paper Co., Ltd.822,867,646.40822,867,646.40Shandong Chenming Power Supply Holdings Co., Ltd.157,810,117.43157,810,117.43Wuhan Chenming Hanyang Paper Holdings Co., Ltd.264,493,210.21264,493,210.21Shandong Grand View Hotel Co., Ltd.80,500,000.0080,500,000.00Zhanjiang Chenming Pulp & Paper Co., Ltd.5,027,500,000.0027,500,000.005,055,000,000.00Shouguang Chenming Modern Logistic Co., Ltd.10,000,000.0010,000,000.00Shouguang Chenming Art Paper Co., Ltd.113,616,063.80113,616,063.80Shouguang Meilun Paper Co., Ltd.4,449,441,979.314,449,441,979.31Shouguang Shun Da Customs Declaration Co, Ltd.1,500,000.001,500,000.00Shandong Chenming Paper Sales Co., Ltd.662,641,208.20100,000,000.00762,641,208.20Shouguang Chenming Import and Export Trade Co., Ltd.250,000,000.00250,000,000.00Shouguang Chenming Papermaking Machine Co., Ltd.2,000,000.002,000,000.00Shouguang Chenming Industrial Logistics Co., Ltd.10,000,000.0010,000,000.00Shouguang Chenming Hongxin Packaging Co., Ltd.3,730,000.003,730,000.00Shandong Chenming Group Finance Co., Ltd.4,000,000,000.004,000,000,000.00Chenming Arboriculture Co., Ltd.45,000,000.0045,000,000.00Shanghai Chenming Industry Co., Ltd.3,000,000,000.003,000,000,000.00Chenming (HK) Limited118,067,989.55118,067,989.55Chenming Paper USA Co., Ltd.6,407,800.006,407,800.00Shandong Coated Paper Sales Co. Ltd.20,000,000.0020,000,000.00Weifang Chenming Growth DriverReplacement Equity Investment Fund Partnership (Limited Partnership)158,000,000.00158,000,000.00Total22,114,152,649.901,305,500,000.00144,000,000.0023,275,652,649.90

2019 AnnuAl RepoRt

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

4. Long-term equity investments (

Cont’d)

(2) Investment in associates and joint ventures

Unit: RMB

Investee

Openingbalance(book value)

Change for the period

Closing balance(book value)

Closingbalanceprovision ofimpairmentAdditionalcontribution

Withdrawncontribution

Investmentgain or lossrecognised underequity method

Adjustmentof othercomprehensiveincome

Otherchange inequity interest

Distribution ofcash dividend orprofit declared

ImpairmentprovisionOthersI. Joint venturesShouguang Chenming HuisenNew-style Construction Materials Co., Ltd3,572,834.792,216,832.822,000,000.003,789,667.61Weifang Sime Darby West Port Co., Ltd.103,159,857.71-13,433,185.9589,726,671.76Subtotal106,732,692.50-11,216,353.132,000,000.0093,516,339.37II. AssociatesJiangxi Jiangbao Media Colour Printing Co., Ltd811,998.75-811,998.750Zhuhai Dechen New Third BoardEquity Investment Fund Company (Limited Partnership)52,253,817.72159,172.1952,412,989.91Ningbo Kaichen Huamei EquityInvestment Fund Partnership (Limited Partnership199,585,216.94-56,369.42199,528,847.52Chenming (Qingdao) Asset Management Co., Ltd.7,886,521.47782,969.708,669,491.17Xuchang Chenming Paper Co., Ltd.5,994,545.965,994,545.960.005,994,545.96Subtotal266,532,100.8473,773.725,994,545.96260,611,328.605,994,545.96Total373,264,793.34-11,142,579.412,000,000.005,994,545.96354,127,667.975,994,545.96

XIII Financial Report

XVI. Notes to major items in financial statement of the Company (Cont’d)

5. Revenue and operating costs

Unit: RMBAmount for the reporting periodAmount for the prior periodItemRevenueCostsRevenueCostsPrincipal activities5,832,105,007.214,281,782,302.884,196,033,317.732,902,204,877.94Other activities1,082,049,793.98994,302,334.921,478,808,522.941,378,583,504.42Total6,914,154,801.195,276,084,637.805,674,841,840.674,280,788,382.36Whether the New Revenue Standard has been implemented

√ Yes □ No

6. Investment income

Unit: RMBItem

Amounts duringthe period

Amounts duringthe prior periodIncome from long-term equity investments accounted for using the cost method1,085,829,000.00590,000,000.00Income from long-term equity investments accounted for using the equity method-11,142,579.41-16,957,355.99Investment gain on disposal of long-term equity investments277,000,000.00Investment gain from disposal of held-for-trading financial assets784,345.77155,750,000.00Total1,352,470,766.36728,792,644.01

2019 AnnuAl RepoRt

XIII Financial Report

XVII. Supplementary information

1. Breakdown of extraordinary gains or losses for the current period

√ Applicable □ Not applicable

Unit: RMBItemAmountRemarkProfit or loss from disposal of non-current assets135,669,108.82Government grants (except for the government grants closely related to the normaloperation of the Company and granted constantly at a fixed amount or quantityin accordance with a certain standard based on state policies) accounted for in profit or loss for the current period623,277,014.49Gain arising from investment costs for acquisition of subsidiaries, associates andjoint-ventures by the corporation being less than its share of fair value of identifiable net assets of the investees on acquisition364,597,001.77Profit or loss from debt restructuring-55,792,548.82Change in fair value of consumable biological assets26,692,741.61Non-operating gains and losses other than the above items24,876,982.31Less: Effect of income tax131,148,729.27Effect of minority interest33,934,072.32Total954,237,498.59The Company defines non-recurring profit and loss according to the definition in Explanatory Announcement No.1 on Information Disclosure of Companies Offering Their Securities to the Public – Non-recurring Profit and Lossand classifies non-recurring profit and loss listed in Explanatory Announcement No. 1 on Information Disclosure ofCompanies Offering Their Securities to the Public – Non-recurring Profit and Loss as nonrecurring profit and loss,please explain the reason.

□ Applicable √ Not applicable

2. Return on net assets and earnings per share

Earnings per shareProfit for the reporting period

Rate of return onnet assetson weightedaverage basis

Basic(RMB per share)

Diluted(RMB per share)Net profit attributable to ordinary shareholders of the Company5.57%0.330.33Net profit after extraordinary gains or lossesattributable to ordinary shareholders of the Company0.09%0.010.01

3. Accounting data difference under accounting standard at home and abroad

(1) Differences of net profit and net assets disclosed in financial reports prepared under IAS and Chinese

accounting standards

□ Applicable √ Not applicable

(2) Differences of net profit and net assets disclosed in financial reports prepared under oversea and Chinese

accounting standards

□ Applicable √ Not applicable

XIV

Documents Available for Inspection

I. The financial statements signed and sealed by the legal representative, financial representative and head of the financialdepartment of the Company;II. The original copy of the auditor’s report which is sealed by the accounting firm and signed and sealed by the certified publicaccountant;III. The original copies of the documents and announcements of the Company disclosed in the designated newspaper and onthe website as approved by the CSRC during the reporting period;IV. The annual report disclosed on the website of the Stock Exchange of Hong Kong Limited;V. Other related information.