IMPORTANT NOTICE

NOT FOR DISTRIBUTION INTO THE UNITED STATES

IMPORTANT: You must read the following before continuing. The following applies to the preliminary offering circular(the “Offering Circular”) following this page, and you are therefore advised to read this carefully before reading, accessingor making any other use of the Offering Circular. In accessing the Offering Circular, you agree to be bound by the followingterms and conditions, including any modifications to them any time you receive any information from the Issuer or theGuarantor (each as defined in the Offering Circular) as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THEUNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO.

THE SECURITIES AND THE GUARANTEE DESCRIBED HEREIN HAVE NOT BEEN, AND WILL NOT BE,REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THESECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIESAND THE GUARANTEE DESCRIBED HEREIN MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES ORFOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIESACT (“REGULATION S”)), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOTSUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE ORLOCAL SECURITIES LAWS. THIS OFFERING IS MADE SOLELY IN OFFSHORE TRANSACTIONS PURSUANT TOREGULATION S UNDER THE SECURITIES ACT.

THE FOLLOWING OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSONAND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BEFORWARDED TO ANY U.S. ADDRESS OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSONS. ANYFORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS OFFERING CIRCULAR IN WHOLE OR IN PART ISUNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THESECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TOTHIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISEDAND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED HEREIN.

Confirmation of your Representation: In order to be eligible to view this Offering Circular or make an investment decisionwith respect to the securities, investors must be purchasing the securities outside the United States in an offshore transactionin reliance on Regulation S under the Securities Act. By accepting the e-mail and accessing the attached Offering Circular,you shall be deemed to have represented to the Managers (as defined in the Offering Circular), the Issuer and the Guarantor(1) that you and any customers you represent are not, and that the electronic mail address that you gave the Issuer and/or theGuarantor and to which this e-mail has been delivered is not, located in the United States, (2) that you are not a U.S. person,or acting for, the account or benefit of a U.S. person and (3) that you consent to delivery of the attached Offering Circularand any amendments or supplements thereto by electronic transmission.

The Offering Circular is in preliminary form and is being furnished in connection with an offering in offshore transactionsoutside the United States to non U.S. persons in compliance with Regulation S under the Securities Act solely for the purposeof enabling a prospective investor to consider the purchase of the securities described in the Offering Circular. You arereminded that the information in the attached Offering Circular is not complete and may be changed.

You are reminded that the Offering Circular has been delivered to you on the basis that you are a person into whose possessionthe Offering Circular may be lawfully delivered in accordance with the laws of jurisdiction in which you are located and youmay not, nor are you authorised to, deliver the Offering Circular to any other person.

The materials relating to any offering of securities described in the Offering Circular do not constitute, and may not be usedin connection with, an offer or solicitation by or on behalf of any of the Issuer, the Guarantor or the Managers in any placewhere offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licenced brokeror dealer and any Manager or any affiliate of a Manager is a licenced broker or dealer in that jurisdiction, the offering shallbe deemed to be made by such Manager or such affiliate on behalf of the Issuer or the Guarantor in such jurisdiction.

MiFID II product governance/Professional investors and ECPs only target market – Solely for the purposes of themanufacturer’s product approval process, the target market assessment in respect of the Bonds has led to the conclusion that:(i) the target market for the Bonds is eligible counterparties and professional clients only, each as defined in Directive2014/65/EU (as amended, “MiFID II”); and (ii) all channels for distribution of the Bonds to eligible counterparties andprofessional clients are appropriate. Any person subsequently offering, selling or recommending the Bonds (a “distributor”)should take into consideration the manufacturer’s target market assessment; however, a distributor subject to MiFID II isresponsible for undertaking its own target market assessment in respect of the Bonds (by either adopting or refining themanufacturer’s target market assessment) and determining appropriate distribution channels.

The Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via thismedium may be altered or changed during the process of electronic transmission and consequently neither the Issuer, theGuarantor or the Managers or any person who controls the Issuer, the Guarantor or the Managers nor any director, officer,employee, representative, adviser nor agent of the Issuer, the Guarantor or the Managers or affiliate of any such personaccepts any liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to youin electronic format and the hard copy version available to you on request from the Managers.

You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own riskand it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

Actions that you may not take: If you receive this document by e-mail, you should not reply by e-mail to this document,and you may not purchase any securities by doing so. Any reply e-mail communications, including those you generate byusing the “Reply” function on your e-mail software, will be ignored or rejected.

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SUBJECT TO COMPLETION STRICTLY CONFIDENTIALPRELIMINARY OFFERING CIRCULAR DATED 4 MARCH 2020

Haitong International Finance Holdings 2015 Limited(incorporated with limited liability in the British Virgin Islands)

U.S.$[●] [●] per cent. guaranteed bonds due [●] (the “Bonds”)unconditionally and irrevocably guaranteed by

Haitong Securities Co., Ltd.(海通證券股份有限公司 )

(incorporated with limited liability in the People’s Republic of China)

Issue Price: [●] per cent.

The U.S.$[●] [●] per cent. guaranteed bonds due [●] (the “Bonds”) will be issued by Haitong International Finance Holdings 2015 Limited (the “Issuer”), a company incorporated in the British Virgin Islands with limitedliability and will be unconditionally and irrevocably guaranteed (the “Guarantee”) by Haitong Securities Co., Ltd. (海通證券股份有限公司) (the “Guarantor”), a company incorporated in the People’s Republic of China(the “PRC”) with limited liability. The Issuer is a wholly-owned indirect subsidiary of the Guarantor.

The Bonds will bear interest on their outstanding principal amount from and including [●] 2020 (the “Issue Date”) at the rate of [●] per cent. per annum. Interest on the Bonds is payable semi-annually in arrear in equalinstalments on [●] and [●] in each year, commencing on [●] 2020.

Payments on the Bonds or under the Guarantee shall be made free and clear of and without set-off or counterclaim and without withholding or deduction for or on account of any present or future taxes, duties, assessmentsor governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the British Virgin Islands or the PRC or, in each case, any political subdivision or any authority therein or thereofhaving power to tax to the extent described under “Terms and Conditions of the Bonds – Taxation”.

The Bonds will constitute direct, unsubordinated, unconditional and unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference or priority among themselves. The payment obligationsof the Issuer under the Bonds shall, save for such exceptions as may be provided by mandatory provisions of applicable laws and regulations, at all times rank at least equally with all its other present and future unsecuredand unsubordinated obligations. The obligations of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by mandatory provisions of applicable laws and regulations, at all times rank at leastequally with all its other present and future unsecured and unsubordinated obligations.

Pursuant to the Notice on Promoting the Reform of the Administrative System on the Issuance by Enterprises of Foreign Debt Filings and Registrations (Fa Gai Wai Zi [2015] No. 2044) (國家發展改革委關於推進企業發行外債備案登記制管理改革的通知(發改外資[2015]2044號)) (the “NDRC Circular”) issued by the National Development and Reform Commission of the PRC or its local counterparts (“NDRC”) on 14 September 2015 whichcame into effect on the same day, the Guarantor has registered the issuance of the Bonds with the NDRC and obtained a certificate from the NDRC on 30 August 2019 evidencing such registration and intends to file or causeto be filed the requisite information and documents with the NDRC within 10 PRC Business Days (as defined in the terms and conditions of the Bonds (the “Terms and Conditions”)) after the Issue Date in accordance withthe NDRC Circular.

The Guarantor will enter into a deed of guarantee (the “Deed of Guarantee”) on or about the Issue Date with Citicorp International Limited (the “Trustee”) in relation to the Guarantee. The Guarantor will be required tofile or cause to be filed with the Shanghai Branch of the State Administration of Foreign Exchange (“SAFE”) the Deed of Guarantee within 15 PRC Business Days after the execution of the Deed of Guarantee in accordancewith the Provisions on the Foreign Exchange Administration of Cross-Border Guarantees (跨境擔保外匯管理規定) promulgated by SAFE on 12 May 2014, which came into effect on 1 June 2014 (the “Cross-Border SecurityRegistration”). The Guarantor shall use its best endeavours to complete the Cross-Border Security Registration and obtain a registration certificate from SAFE (or any other document evidencing the completion of registrationissued by SAFE) on or before the Registration Deadline (being 90 PRC Business Days after the Issue Date) and comply with all applicable PRC laws and regulations in relation to the issue of the Bonds and the Guarantee.

Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principal amount on [●] (the “Maturity Date”). The Bonds may be redeemed at the option of the Issuer in whole, but not in part,at any time on giving not less than 30 nor more than 60 days’ notice to the Bondholders in accordance with Condition 16 (Notices) of the Terms and Conditions (which shall be irrevocable) and in writing to the Trustee andthe Agents (as defined in the Terms and Conditions), at their principal amount (together with any interest accrued to but excluding the date fixed for redemption) if the Issuer (or if the Guarantee was called, the Guarantor)satisfies the Trustee immediately prior to the giving of such notice that (i) it has or will become obliged to pay Additional Tax Amounts (as defined in the Terms and Conditions) as a result of any change in, or amendmentto, the laws or regulations of the British Virgin Islands or the PRC or, in each case, any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretationof such laws or regulations (including but not limited to any decision by a court of competent jurisdiction), which change or amendment becomes effective on or after [●] 2020, and (ii) such obligation cannot be avoidedby the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it, as further described in the Terms and Conditions. At any time following the occurrence of a Relevant Event (as defined in theTerms and Conditions), the holder of any Bond will have the right, at such holder’s option, to require the Issuer to redeem all, but not some only, of such holder’s Bonds on the Put Settlement Date (as defined in the Termsand Conditions) at a redemption price equal to 101 per cent. (in the case of a redemption for a Change of Control (as defined in Terms and Conditions)) or 100 per cent. (in the case of a redemption for a No RegistrationEvent (as defined in the Terms and Conditions), of their principal amount, together in each case with any interest accrued to but excluding such Put Settlement Date. See “Terms and Conditions of the Bonds – Redemptionand Purchase”.

For a more detailed description of the Bonds, see “Terms and Conditions of the Bonds” beginning on page 39.

The Bonds will be issued in the specified denomination of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.

Investing in the Bonds involves risks. See “Risk Factors” beginning on page 14 for a discussion of certain factors to be considered in connection with an investment in the Bonds.

The Bonds and the Guarantee have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) and, subject to certain exceptions, may not be offered orsold within the United States or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (“Regulation S”)). For a description of these and certain further restrictions on offersand sales of the Bonds and the distribution of this Offering Circular, see “Subscription and Sale”.

MiFID II product governance/Professional investors and ECPs only target market – For the purposes of Directive 2014/65/EU (as amended, “MiFID II”), any person offering, selling or recommending the Bonds (a“distributor”) should take into consideration the target market in respect of the Bonds which is eligible counterparties and professional clients only, each as defined in MiFID II; however, a distributor subject to MiFID IIis responsible for undertaking its own target market assessment in respect of the Bonds (by either adopting or refining the target market) and determining appropriate distribution channels.

Application will be made to The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) for the listing of the Bonds by way of debt issues to professional investors (as defined in Chapter 37 of the RulesGoverning the Listing of Securities on The Stock Exchange of Hong Kong Limited and in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) (together, the “Professional Investors”) only. This Offering Circularis for distribution to Professional Investors only. Investors should not purchase the Bonds in the primary or secondary markets unless they are Professional Investors and understand the risks involved. The Bondsare only suitable for Professional Investors.

The Hong Kong Stock Exchange has not reviewed the contents of this Offering Circular, other than to ensure that the prescribed form disclaimer and responsibility statements, and a statement limiting distributionof this Offering Circular to Professional Investors only have been reproduced in this Offering Circular. Listing of the Bonds on the Hong Kong Stock Exchange is not to be taken as an indication of the commercialmerits or credit quality of the Bonds, the Issuer or the Guarantor or quality of disclosure in this Offering Circular. Hong Kong Exchanges and Clearing Limited and the Hong Kong Stock Exchange take no responsibilityfor the contents of this Offering Circular, make no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or anypart of the contents of this Offering Circular.

The Bonds will be represented initially by interests in a global certificate (the “Global Certificate”) in registered form which will be registered in the name of a nominee of, and shall be deposited on or about the Issue Datewith, a common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”). Interests in the Global Certificate will be shown on, and transfers thereof will be effected only through,records maintained by Euroclear and Clearstream. Except as described in the Global Certificate, definitive certificates for Bonds will not be issued in exchange for interests in the Global Certificate.

S&P Global Ratings (“S&P”) has assigned a corporate rating of “BBB” with a stable outlook to the Guarantor. Such rating is only correct as at the date of this Offering Circular. The Bonds are expected to be rated “BBB”by S&P. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.

Joint Global Coordinators, Joint Lead Managers and Joint BookrunnersHaitong International Haitong Bank ICBC Agricultural Bank of China

Bank of China China Construction Bank (Asia) Bank of Communications CMB International China MinshengBanking Corp., Ltd.,Hong Kong Branch

Joint Lead Managers and Joint BookrunnersShanghai Pudong

DevelopmentBank Hong Kong

Branch

China PA Securities(Hong Kong)

Company Limited

HSBC StandardChartered Bank

Citigroup CMBC Capital Orient Securities(Hong Kong)

CMB Wing LungBank Limited

Offering Circular dated [●] 2020.

NOTICE TO INVESTORS

THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANOFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT ISUNLAWFUL TO MAKE THE OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THEDELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER SHALL UNDER ANYCIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER,THE GUARANTOR OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR THAT THE INFORMATION SETFORTH IN THIS OFFERING CIRCULAR IS CORRECT AS AT ANY DATE SUBSEQUENT TO THE DATEHEREOF.

This Offering Circular includes particulars given in compliance with the Rules Governing the Listing ofSecurities on the Hong Kong Stock Exchange for the purpose of giving information with regard to the Issuer andthe Guarantor. Each of the Issuer and the Guarantor accepts full responsibility for the accuracy of the informationcontained in this Offering Circular and confirm, having made all reasonable enquiries, that to the best of itsknowledge and belief there are no other facts the omission of which would make any statement hereinmisleading.

Each of the Issuer and the Guarantor, having made all reasonable enquiries, confirms that (i) this OfferingCircular contains all information with respect to the Issuer, the Guarantor and other subsidiaries of the Guarantor(together, the “Group”), the Bonds and the Guarantee which is material in the context of the issue and offeringof the Bonds (including the information which is required by applicable laws and according to the particularnature of the Issuer, the Guarantor, the Bonds and the Guarantee, is necessary to enable investors and theirinvestment advisers to make an informed assessment of the assets and liabilities, financial position, profits andlosses, and prospects of the Issuer, the Guarantor, the Group and of the rights attaching to the Bonds and theGuarantee); (ii) the statements contained in this Offering Circular, are in every material particular true andaccurate and not misleading; (iii) the opinions and intentions expressed in this Offering Circular with regard tothe Issuer, the Guarantor and the Group are honestly held, have been reached after considering all relevantcircumstances and are based on reasonable assumptions; (iv) there are no other facts in relation to the Issuer, theGuarantor the Group, the transaction documents in relation to the Bonds or the Guarantee, the Bonds or theGuarantee, the omission of which would, in the context of the issue and offering of the Bonds make any statementin this Offering Circular misleading in any material respect; and (v) all reasonable enquiries have been made bythe Issuer and the Guarantor to ascertain all facts in relation to the Issuer, the Guarantor, the Group, the Bondsand the Guarantee and to verify the accuracy of all such information and statements in this Offering Circular.

The Issuer and Guarantor have prepared this Offering Circular solely for use in connection with the proposedoffering of the Bonds described in this Offering Circular. This Offering Circular does not constitute an offer of,or an invitation by or on behalf of Haitong International Securities Company Limited, Haitong Bank, S.A., ICBCInternational Securities Limited, Industrial and Commercial Bank of China (Asia) Limited, Agricultural Bank ofChina Limited Hong Kong Branch, Bank of China Limited, China Construction Bank (Asia) CorporationLimited, Bank of Communications Co., Ltd. Hong Kong Branch, CMB International Capital Limited, ChinaMinsheng Banking Corp., Ltd., Hong Kong Branch, ABCI Capital Limited, Shanghai Pudong Development BankCo., Ltd., Hong Kong Branch, China PA Securities (Hong Kong) Company Limited, The Hongkong and ShanghaiBanking Corporation Limited, Standard Chartered Bank, Citigroup Global Markets Limited, Industrial andCommercial Bank of China (Macau) Limited, Industrial and Commercial Bank of China Limited, SingaporeBranch, CMBC Securities Company Limited, Orient Securities (Hong Kong) Limited and CMB Wing Lung BankLimited (together, the “Managers”), the Issuer or the Guarantor to subscribe for or purchase any of the Bonds.The distribution of this Offering Circular and the offering of the Bonds in certain jurisdictions may be restrictedby law. Persons into whose possession this Offering Circular comes are required by the Issuer, the Guarantor andthe Managers to inform themselves about and to observe any such restrictions. No action is being taken to permita public offering of the Bonds or the distribution of this Offering Circular in any jurisdiction where action wouldbe required for such purposes. There are restrictions on the offer and sale of the Bonds, and the circulation ofdocuments relating thereto, in certain jurisdictions including the United States, the United Kingdom, Hong Kong,the PRC, the British Virgin Islands, Singapore and Japan and to persons connected therewith. For a descriptionof certain further restrictions on offers and sales of the Bonds, and distribution of this Offering Circular, see“Subscription and Sale”. By purchasing the Bonds, investors represent and agree to all of those provisionscontained in that section of this Offering Circular. This Offering Circular is personal to each offeree and doesnot constitute an offer to any other person or to the public generally to subscribe for, or otherwise acquire, Bonds.Distribution of this Offering Circular to any other person other than the prospective investor and any personretained to advise such prospective investor with respect to its purchase is unauthorised. Each prospectiveinvestor, by accepting delivery of this Offering Circular, agrees to the foregoing and to make no photocopies ofthis Offering Circular or any documents referred to in this Offering Circular.

i

No person has been or is authorised to give any information or to make any representation concerning the Issuer,the Guarantor, the Group, the Bonds or the Guarantee other than as contained herein and, if given or made, anysuch other information or representation should not be relied upon as having been authorised by the Issuer, theGuarantor, the Managers, the Trustee or the Agents (as defined in the Terms and Conditions) or any of theirrespective affiliates, directors, employees, agents, representatives, officers or advisers or any person whocontrols any of them. Neither the delivery of this Offering Circular nor any offering, sale or delivery made inconnection with the issue of the Bonds shall, under any circumstances, constitute a representation that there hasbeen no change or development reasonably likely to involve a change in the affairs of the Issuer, the Guarantoror the Group since the date hereof or create any implication that the information contained herein is correct asat any date subsequent to the date hereof. This Offering Circular does not constitute an offer of, or an invitationby or on behalf of the Issuer, the Guarantor, the Managers, the Trustee or the Agents or any of their respectiveaffiliates, directors, employees, agents, representatives, officers or advisers or any person who controls any ofthem to subscribe for or purchase the Bonds and may not be used for the purpose of an offer to, or a solicitationby, anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or isunlawful.

None of the Managers, the Trustee or the Agents or any of their respective affiliates, directors, employees, agents,representatives, officers or advisers or any person who controls any of them has independently verified theinformation contained in this Offering Circular. Accordingly, no representation, warranty or undertaking, expressor implied, is made or given and no responsibility or liability is accepted, by the Managers, the Trustee or theAgents or any of their respective affiliates, directors, employees, agents, representatives, officers or advisers orany person who controls any of them, as to the accuracy, completeness or sufficiency of the informationcontained in this Offering Circular or any other information supplied in connection with the Bonds. Nothingcontained in this Offering Circular is, or shall be relied upon as, a promise, representation or warranty by theManagers, the Trustee or the Agents or any of their respective affiliates, directors, employees, agents,representatives, officers or advisers or any person who controls any of them. This Offering Circular is notintended to provide the basis of any credit or other evaluation nor should it be considered as a recommendationby any of the Issuer, the Guarantor, the Managers, the Trustee or the Agents or any of their respective affiliates,directors, employees, agents, representatives, officers or advisers that any recipient of this Offering Circularshould purchase the Bonds. Each person receiving this Offering Circular acknowledges that such person has notrelied on the Managers, the Trustee or the Agents or any of their respective affiliates, directors, employees,agents, representatives, officers or advisers or any person who controls any of them in connection with itsinvestigation of the accuracy of such information or its investment decision, and each such person must rely onits own examination of the Issuer, the Guarantor and the Group, and the merits and risks involved in investingin the Bonds. See “Risk Factors” for a discussion of certain factors to be considered in connection with aninvestment in the Bonds.

To the fullest extent permitted by law, none of the Managers, the Trustee or the Agents or any of their respectiveaffiliates, directors, employees, agents, representatives, officers or advisers accepts any responsibility for thecontents of this Offering Circular and assume no responsibility for the contents, accuracy, completeness orsufficiency of any such information or for any other statement, made or purported to be made by the Managers,the Trustee or the Agents or any of their respective affiliates, directors, employees, agents, representatives,officers or advisers or any person who controls any of them or on their behalf in connection with the Issuer, theGuarantor, the Group, the issue and offering of the Bonds or the giving of the Guarantee. Each of the Managers,the Trustee and the Agents and each of their respective affiliates, directors, employees, agents, representatives,officers and advisers and each person who controls any of them accordingly disclaims all and any liability,whether arising in tort or contract or otherwise, which it might otherwise have in respect of this Offering Circularor any such statement. None of the Managers, the Trustee or the Agents or any of their respective affiliates,directors, employees, agents, representatives, officers or advisers or any person who controls any of themundertakes to review the results of operations, financial condition or affairs of the Issuer, the Guarantor or theGroup during the life of the arrangements contemplated by this Offering Circular nor to advise any investor orpotential investor in the Bonds of any information coming to the attention of the Managers, the Trustee or theAgents or any of their respective affiliates, directors, employees, agents, representatives, officers or advisers orany person who controls any of them.

ii

IN CONNECTION WITH THIS OFFERING, ANY OF THE MANAGERS APPOINTED AND ACTING INITS CAPACITY AS STABILISATION MANAGER (THE “STABILISATION MANAGER”) OR ANYPERSON(S) ACTING ON BEHALF OF THE STABILISATION MANAGER MAY OVER-ALLOT BONDSOR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE(S) OF THEBONDS AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER,THERE IS NO ASSURANCE THAT THE STABILISATION MANAGER (OR ANY PERSON ACTING ONBEHALF OF THE STABILISATION MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANYSTABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLICDISCLOSURE OF THE TERMS OF THE OFFER OF THE BONDS IS MADE AND, IF BEGUN, MAY BEENDED AT ANY TIME AND MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THEISSUE DATE OF THE BONDS AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THEBONDS. ANY STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THESTABILISATION MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILISATIONMANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND REGULATIONS.

MiFID II product governance/Professional investors and ECPs only target market – Solely for the purposesof the manufacturer’s product approval process, the target market assessment in respect of the Bonds has led tothe conclusion that: (i) the target market for the Bonds is eligible counterparties and professional clients only,each as defined in Directive 2014/65/EU (as amended, “MiFID II”); and (ii) all channels for distribution of theBonds to eligible counterparties and professional clients are appropriate. Any person subsequently offering,selling or recommending the Bonds (a “distributor”) should take into consideration the manufacturer’s targetmarket assessment; however, a distributor subject to MiFID II is responsible for undertaking its own targetmarket assessment in respect of the Bonds (by either adopting or refining the manufacturer’s target marketassessment) and determining appropriate distribution channels.

Singapore SFA Product Classification: In connection with Section 309B of the Securities and Futures Act(Chapter 289) of Singapore (the “SFA”) and the Securities and Futures (Capital Markets Products) Regulations2018 of Singapore (the “CMP Regulations 2018”), the Issuer has determined, and hereby notifies all relevantpersons (as defined in Section 309A(1) of the SFA), that the Bonds are ‘prescribed capital markets products’ (asdefined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12:Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on InvestmentProducts).

Prospective investors should not construe anything in this Offering Circular as legal, business or tax advice. Eachprospective investor should determine for itself the relevance of the information contained in this OfferingCircular and consult its own legal, business and tax advisers as needed to make its investment decision anddetermine whether it is legally able to purchase the Bonds under applicable laws or regulations.

The contents of this Offering Circular have not been reviewed by any regulatory authority in the PRC, HongKong or elsewhere. Investors are advised to exercise caution in relation to the offer. If any investor is in anydoubt about any of the contents of this Offering Circular, that investor should obtain independent professionaladvice.

iii

INDUSTRY AND MARKET DATA

Market data and certain industry forecasts used throughout this Offering Circular have been obtainedbased on, among other sources, internal surveys, market research, publicly available information and industrypublications. Industry publications generally state that the information that they contain has been obtained fromsources believed by the Issuer and the Guarantor to be reliable and accurate but that the accuracy andcompleteness of that information is not guaranteed. Similarly, internal surveys, industry forecasts and marketresearch, while believed to be reliable, have not been independently verified, and none of the Issuer, theGuarantor, the Managers, the Trustee or the Agents or any of their respective affiliates, directors, employees,agents, representatives, officers or advisers or any person who controls any of them makes any representation asto the correctness, accuracy or completeness of that information complied within or outside the PRC. In addition,third-party information providers may have obtained information from market participants and such informationmay not have been independently verified. Accordingly, such information should not be unduly relied upon.

iv

PRESENTATION OF FINANCIAL INFORMATION

This Offering Circular contains consolidated financial information of the Guarantor as at and for theyears ended 31 December 2016 and 2017 and 2018, which has been extracted from the audited consolidatedfinancial statements of the Guarantor as at and for the year ended 31 December 2017 (the “Guarantor’s 2017Audited Consolidated Financial Statements”) and as at and for the year ended 31 December 2018 (the“Guarantor’s 2018 Audited Consolidated Financial Statements” and together with the Guarantor’s 2017Audited Consolidated Financial Statements, the “Guarantor’s Audited Consolidated Financial Statements”)which are included elsewhere in this Offering Circular. The Guarantor’s Audited Consolidated FinancialStatements were prepared and presented in accordance with the International Financial Reporting Standards (the“IFRS”) and have been audited by Deloitte Touche Tohmatsu (“Deloitte”), the independent auditors of theGuarantor, in accordance with the International Standards on Auditing.

This Offering Circular also contains the unaudited but reviewed consolidated interim financialinformation of the Guarantor as at and for the six months ended 30 June 2018 and 2019, which has been extractedfrom the unaudited but reviewed interim consolidated financial statements of the Guarantor as at and for the sixmonths ended 30 June 2019 (the “Guarantor’s 2019 Reviewed Consolidated Interim Financial Statements”,together with the Guarantor’s Audited Consolidated Financial Statements, the “Guarantor’s ConsolidatedFinancial Statements”). The Guarantor’s 2019 Reviewed Consolidated Interim Financial Statements wereprepared and presented in accordance with the International Accounting Standard 34 “Interim FinancialReporting” (the “IAS 34”) and have been reviewed by Deloitte in accordance with International Standard onReview Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor ofthe Entity”. Such unaudited but reviewed consolidated interim financial information has not been audited andshould not be relied upon by investors to provide the same quality of information associated with informationthat has been subject to an audit. Potential investors must exercise caution when using such data to evaluate theGuarantor’s or the Group’s financial condition or results of operations. Such unaudited consolidated interimfinancial information as at and for the six months ended 30 June 2019 should not be taken as an indication ofthe expected financial condition and results of operations for the Guarantor or the Group for the full financialyear ended 31 December 2019.

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CERTAIN DEFINITIONS, CONVENTIONS AND CURRENCY PRESENTATION

In this Offering Circular, unless otherwise specified or the context otherwise requires, all references to the“PRC” and “China” are to the People’s Republic of China (excluding Hong Kong, the Macau SpecialAdministrative Region of the People’s Republic of China and Taiwan); all references to the “United States” and“U.S.” are to the United States of America; all references to “PRC Government” are to the people’s governmentof the PRC; all references to “Hong Kong” are to the Hong Kong Special Administrative Region of the People’sRepublic of China; all references to “Renminbi”, “RMB” and “CNY” are to the lawful currency of the PRC;all references to “EUR”, “euro” and “C” are to the currency introduced at the start of the third stage of Europeaneconomic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended andall references to “USD”, “U.S.$” and “U.S. dollars” are to the lawful currency of the United States of America.

This Offering Circular contains translation of certain Renminbi amounts into U.S. dollars at specified rates solelyfor the convenience of the reader. Unless otherwise specified, where financial information in relation to theGuarantor has been translated into U.S. dollars, it has been so translated, for convenience only, at the rate ofRMB6.8650 to U.S.$1.00 (the noon buying rate in New York City on 28 June 2019 as set forth in the weekly H.10statistical release of the Board of Governors of the Federal Reserve System). Further information regardingexchange rate is set forth in “Exchange Rates” in this Offering Circular. No representation is made that theRenminbi amounts referred to in this Offering Circular could have been or could be converted into U.S. dollarsat any particular rate or at all, or vice versa.

In this Offering Circular, where information has been presented in thousands or millions of units, amounts mayhave been rounded up or down. Accordingly, totals of columns or rows of numbers in tables may not be equalto the apparent total of the individual items and actual numbers may differ from those contained herein due torounding. References to information in billions of units are to the equivalent of a thousand million units.

The English names of the PRC nationals, entities, departments, facilities, laws, regulations, certificates, titles andthe like are translations of their Chinese names and are included for identification purposes only. In the eventof any inconsistency, the Chinese names shall prevail.

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DEFINITIONS

In this Offering Circular, references to:

• “A Share(s)” are to domestic shares of the Haitong Securities, with a nominal value of RMB1.00 each, whichare subscribed for or credited as paid up in Renminbi and are listed for trading on the Shanghai StockExchange with stock code 600837

• “AUM” are to assets under management

• “B share” are to shares denominated in Renminbi, subscribed for and traded in foreign currency on theShanghai Stock Exchange or the Shenzhen Stock Exchange

• “Bloomberg” are to a premier site for business and financial market news

• “Bondholder(s)” are to holder(s) of the Bond(s)

• “CBIRC” are to the China Banking and Insurance Regulatory Commission (中國銀行保險監督管理委員會)

• “ChiNext Board” are to the growth enterprise board launched by the Shenzhen Stock Exchange

• “CSI 300 Index” are to a capitalisation-weighted stock market index designed to replicate the performanceof 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, which is compiledby the China Securities Index Company, Ltd. (中證指數有限公司)

• “CSRC” are to the China Securities Regulatory Commission (中國證券監督管理委員會)

• “Developing New Businesses” are to (i) margin financing and securities lending (融資融券),(ii) collateralised repo business (報價回購), (iii) stock repo trading (約定購回), (iv) asset-backed securities(資產證券化), (v) future cash arbitrage (期現套利), (vi) alternative investment (另類投資), (vii) directinvestment (直接投資) and (viii) stock index and futures brokerage (股指期貨)

• “enterprise annuity” are to the supplementary pension insurance scheme established voluntarily byenterprises and their employees in addition to the basic pension insurance in which they participate inaccordance with the law

• “ETF(s)” are to the exchange-traded fund(s)

• “FICC” are to fixed income, currency and commodities

• “Fullgoal Fund Management” are to Fullgoal Fund Management Co., Ltd. (富國基金管理有限公司) alimited liability company incorporated in the PRC, in which the Haitong Securities owned an equity interestof 27.78% as at 30 June 2019

• “futures IB business” are to the business activities in which securities firms, as commissioned by futurescompanies, introduce customers to futures companies to provide futures brokerage and other related services

• “Group” are to the Haitong Securities and its subsidiaries

• “Guarantor” and “Haitong Securities” are to Haitong Securities Co., Ltd. (海通證券股份有限公司), acompany incorporated in the PRC and listed on the SSE under the stock code of 600837 and listed on theHKSE under the stock of 06837

• “H Share(s)” are to ordinary shares in the share capital of the Haitong Securities with a nominal value ofRMB1.00 each, which are listed on the Hong Kong Stock Exchange with stock code 06837

• “Haitong Asset Management” are to Shanghai Haitong Securities Asset Management Company Limited(上海海通證券資產管理有限公司), a limited liability company incorporated in the PRC, a wholly-ownedsubsidiary of the Haitong Securities as at 30 June 2019

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• “Haitong Bank” are to Haitong Bank, S.A., previously known as Banco Espirito Santo de Investimento, S.A.(“BESI”), a limited liability company incorporated in Portugal, a wholly-owned subsidiary of the HaitongSecurities as at 30 June 2019

• “Haitong Capital Investment” are to Haitong Capital Investment Company Limited (海通開元投資有限公司), a limited liability company incorporated in the PRC, a wholly-owned subsidiary of the HaitongSecurities as at 30 June 2019

• “Haitong-Fortis PE Fund Management” are to Haitong-Fortis Private Equity Fund Management CompanyLimited (海富產業投資基金管理有限公司), a limited liability company incorporated in the PRC, in whichthe Haitong Securities owned a 67.00% equity interest as at 30 June 2019

• “Haitong Futures” are to Haitong Futures Co., Ltd. (海通期貨股份有限公司), a limited liability companyincorporated in the PRC, in which the Haitong Securities owned a 66.67% equity interest as at 30 June 2019,and listed on the National Equities Exchange and Quotation on 6 March 2018

• “Haitong Innovation Securities Investment” are to Haitong Innovation Securities Investment CompanyLimited (海通創新證券投資有限公司), a limited liability company incorporated in the PRC, a wholly-ownedsubsidiary of the Haitong Securities as at 30 June 2019

• “Haitong International Holdings” are to Haitong International Holdings Limited (海通國際控股有限公司),a wholly-owned subsidiary of the Haitong Securities as at 30 June 2019 and incorporated in Hong Kong

• “Haitong International Securities” are to Haitong International Securities Group Limited (海通國際證券集團有限公司), previously known as Taifook Securities, a company listed on the Hong Kong Stock Exchangeunder stock code 665, in which the Haitong Securities owned a 63.56% equity interest through HaitongInternational Holdings as at 30 June 2019

• “Hang Seng China H-Financials Index” are to a capitalisation-weighted stock market index designed toreplicate the performance of all H-shares in the Hang Seng China Enterprises Index (HSCEI) classified as“financials” in Hang Seng Index’s Company Limited’s industry classification system, which is compiled byHang Seng Indexes Company Limited (恒生指數有限公司)

• “Hang Seng Mainland 100 Index” are to a stock market index comprising the 100 largest companies whichderive the majority of their sales revenue (or profit or assets if more relevant) from Mainland China,including H shares, Red Chips and shares of other Hong Kong-listed Mainland companies. The index offersa comprehensive benchmark to gauge the Mainland sector of the Hong Kong stock market

• “HFT Investment Management” are to HFT Investment Management Co., Ltd. (海富通基金管理有限公司),a limited liability company incorporated in the PRC, in which the Haitong Securities owned a 51.00% equityinterest as at as at 30 June 2019

• “Hong Kong Stock Exchange” or “HKSE” are to The Stock Exchange of Hong Kong Limited, awholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited

• “IPO” are to initial public offering

• “Issuer” are to Haitong International Finance Holdings 2015 Limited

• “Listing Rules” are to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (asamended from time to time)

• “Ministry of Finance” are to the Ministry of Finance of the PRC (中華人民共和國財政部)

• “MOFCOM” are to the Ministry of Commerce of the PRC (中華人民共和國商務部)

• “NDRC” are to National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)

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• “NEEQ” are to the National Equities Exchange and Quotations (全國中小企業股份轉讓系統)

• “NSSF” are to the National Council for Social Security Fund of the PRC (全國社會保障基金理事會)

• “OTC” are to over-the-counter

• “PBOC” are to The People’s Bank of China

• “PRC GAAP” are to generally accepted accounting principles in the PRC

• “QDII” are to Qualified Domestic Institutional Investor (合格境內機構投資者)

• “QFII” are to Qualified Foreign Institutional Investor (合格境外機構投資者)

• “QFLP Funds” are to the Qualified Foreign Limited Partner Fund (合格境外有限合夥人基金)

• “Regulation S” are to Regulation S under the U.S. Securities Act

• “RQFII” are to Renminbi Qualified Foreign Institutional Investor (人民幣合格境外機構投資者), aprogramme launched in the PRC which allows Hong Kong subsidiaries of PRC brokerage companies andfund houses to facilitate investments of offshore Renminbi into the domestic securities market

• “RQFLP” are to Renminbi Qualified Foreign Limited Partner (人民幣合格境外有限合夥人)

• “S&P” are to Standard & Poor’s Ratings Services, a division to The McGraw-Hill Companies, Inc.

• “SAC” are to the Securities Association of China (中國證券業協會)

• “SAFE” are to the State Administration of Foreign Exchange

• “SASAC” are to State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會)

• “Securities Act” are to the United States Securities Act of 1933, as amended

• “SFA” are to the Securities and Futures Act (Chapter 289) of Singapore

• “Shanghai Stock Exchange” or “SSE” are to the Shanghai Stock Exchange (上海證券交易所)

• “Sino-foreign joint venture securities firm(s)” are to (i) securities firm(s) established jointly by foreignshareholders and PRC shareholders through equity contributions in accordance with applicable PRC law; and(ii) securities firm(s) formed as a result of foreign investors being assigned with, or subscribing for, equityinterests in PRC security firm in accordance with applicable PRC law. In each case, foreign shareholdersshall not in the aggregate hold, directly or indirectly, more than one-third of the shares or equity interestsin such securities firm

• “SMEs” are to small and medium enterprises

• “SSE 50 Index” are to an index of 50 representative stocks that are traded on the Shanghai Stock Exchange

• “SSE Corporate Governance Index” are to an index comprising all the stocks from the SSE CorporateGovernance Board, which is intended to encourage other listed companies on the Shanghai Stock Exchangeto strengthen their corporate governance and internal controls

• “State Council” are to State Council of the PRC (中華人民共和國國務院)

• “STAR Market” are to the Science and Technology Innovation Board of SSE

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• “stock index futures” are to cash-settled standardised futures contracts on the value of a particular stockmarket index

• “Taifook Securities” are to Taifook Securities Group Limited (大福證券集團有限公司), renamed as HaitongInternational Securities Group Limited in November 2010

• “targeted asset management scheme(s)” are to a type of special vehicle managed by PRC securities firmsfor annuity plans, other institutional investors and individual investors with large amount of investmentassets

• “UniTrust” are to Haitong UniTrust International Leasing Co., Ltd. (海通恒信國際租賃股份有限公司)(formerly known as Haitong UniTrust International Leasing Corporation (海通恒信國際租賃有限公司)), acompany incorporated in the PRC and listed on the HKSE under the stock code of 1905

• “UniTrust FTZ” are to Haitong UniTrust Financial Leasing (Shanghai) Corporation (海通恒信融資租賃(上海)有限公司), a company incorporated in the PRC on 29 July 2014

• “UT Capital Group” are to Haitong UT Capital Group Co., Limited (海通恒信金融集團有限公司) (formerlyknown as UT Capital Group Co., Limited (恒信金融集團有限公司)) and its subsidiaries

• “UT Capital Holdings” are to UT Capital Holdings Co., Ltd., an investment holding company incorporatedunder the laws of the Cayman Islands

• “Wind Info” are to Wind Information Co., Ltd., a company with limited liability incorporated in the PRCin 1994 and an integrated service provider of financial data, information and software

In this Offering Circular, the terms “associate,” “connected transaction,” “subsidiary” and “substantialshareholder” shall have the meanings given to such terms in the Listing Rules, unless the context otherwiserequires.

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FORWARD-LOOKING STATEMENTS

Each of the Issuer and the Guarantor has made certain forward-looking statements in this Offering Circular.These forward-looking statements include but are not limited to statements as to the business strategy, operatingrevenue and profitability, planned projects and other matters as they relate to the Issuer, the Guarantor and/or theGroup discussed in this Offering Circular regarding matters that are not historical fact. Some of these statementscan be identified by forward-looking terms, such as “anticipate”, “target”, “believe”, “can”, “would”, “could”,“estimate”, “expect”, “aim”, “intend”, “may”, “plan”, “will”, or similar words. These forward-looking statementsand any other projections contained in this Offering Circular (whether made by the Issuer, the Guarantor or byany third party) involve known and unknown risks, including those disclosed under “Risk Factors”, uncertaintiesand other factors that may cause the actual results, performance or achievements of the Issuer, the Guarantor orthe Group to be materially different from any future results, performance or achievements expressed or impliedby such forward-looking statements or other projections.

These forward-looking statements speak only as of the date of this Offering Circular. Each of the Issuer and theGuarantor expressly disclaims any obligation or undertaking to release publicly any updates or revisions to anyforward-looking statement contained herein to reflect any change in the Group’s expectations with regard theretoor any change of events, conditions or circumstances, on which any such statement was based.

The factors that could cause the actual results, performances and achievements of the Issuer, the Guarantor orany member of the Group to be materially different include, among others:

• the Group’s ability to successfully implement its business plans and strategies;

• various business opportunities that the Group may pursue;

• financial condition, performance and business prospects of the Group;

• the Group’s capital expenditure plans and its ability to carry out those plans;

• access and cost of capital and financing;

• changes in the competition landscape in the industries where the Group operates;

• any changes in the laws, rules and regulations of the PRC Government and the People’s Government ofShanghai City and the rules, regulations and policies of the relevant governmental authorities relating to allaspects of the Group’s business;

• general political and economic conditions, including those related to the PRC;

• changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices, includingthose pertaining to the PRC and the industry and markets in which the Group operates;

• fluctuations in prices of and demand for products and services that the Group provides;

• macroeconomic measures taken by the PRC Government to manage economic growth;

• natural disasters, industrial action, terrorist attacks and other events beyond the control of the Group;

• changes in the global economic conditions; and

• other factors, including those discussed in “Risk Factors”.

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TABLE OF CONTENTS

Page

NOTICE TO INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

CERTAIN DEFINITIONS, CONVENTIONS AND CURRENCY PRESENTATION . . . . . . . . . . . . . . vi

DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

SUMMARY CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

TERMS AND CONDITIONS OF THE BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM . . . . . . . . . . . . . 55

USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

DESCRIPTION OF THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

DESCRIPTION OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

MANAGEMENT OF THE GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

PRC REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1

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SUMMARY

The summary below is only intended to provide a limited overview of information described in more detailelsewhere in this Offering Circular. As it is a summary, it does not contain all of the information that may beimportant to investors and terms defined elsewhere in this Offering Circular shall have the same meanings whenused in this summary. Prospective investors should therefore read this Offering Circular in its entirety, includingthe section entitled “Risk Factors”, before making an investment decision.

THE GROUP

The Group is a leading full-service securities firm in the PRC with an integrated business platform, extensivebranch network and substantial customer base. The Group has established prudent operating strategies and is theonly major PRC securities firm established in the 1980s that remains in continuous operation under the samebrand without receiving government-backed capital injections or being the target of a successful acquisition orrestructuring. Leveraging its integrated business platform, the Group provides a comprehensive range offinancial products and services domestically and overseas, and primarily focuses on five principal business linesin the PRC, comprising wealth management, investment banking, asset management, trading and institutionalclient services, and financial leasing. The Group has gained leading market positions across multiple businesslines in the PRC securities industry, and it also provides a variety of securities products and services overseas.In addition, the Group has a long track record of brokerage operation across business cycles and enjoys a strongmarket position in China’s retail brokerage segment. The Group has become one of the leading players in China’sfinancial leasing segment following the acquisition of Haitong UT Capital Group Co., Limited.

The Group is one of the largest securities firms in the PRC. As at 31 December 2016, 2017 and 2018 and 30 June2019, the Group had total assets of RMB560,865.8 million, RMB534,706.3 million, RMB574,623.6 million andRMB622,907.3 million, respectively, and total equity of RMB121,958.4 million, RMB129,694.3 million,RMB130,185.9 million and RMB137,127.5 million, respectively. For the years ended 31 December 2016, 2017and 2018 and the six months ended 30 June 2018 and 2019, its total revenue, gains and other income wasRMB42,492.3 million, RMB41,324.5 million, RMB38,669.7 million, RMB18,989.6 million and RMB26,073.5million, respectively, and its profit for the year/period was RMB8,930.5 million, RMB9,875.6 million,RMB5,770.7 million, RMB3,459.4 million and RMB6,068.1 million, respectively. As at 30 June 2019, it rankedsecond in terms of total assets and third in terms of net assets among the PRC securities firms. As at 30 June2019, the Group had 330 securities and futures brokerage business departments (including 290 securities businessdepartments and 40 futures business departments) located across 30 provinces, municipalities and autonomousregions in the PRC, as well as branches, subsidiaries and representative offices in 14 countries and regionsincluding Asia, Europe, North America, South America and Oceania. As at 30 June 2019, the Group hadapproximately 15.0 million domestic and overseas customers. The A Shares of the Group have been listed on theShanghai Stock Exchange with stock code 600837 since July 2007 and its H Shares have been listed on the HongKong Stock Exchange with stock code 6837 since April 2012. The Group was admitted to the CSI 300 Index inJuly 2007, the SSE 180 Index in December 2007, the SSE 50 Index and Hang Seng China H-Financials Indexin September 2012, the Hang Seng Mainland 100 Index in September 2012, Morgan Stanley Capital InternationalIndex in November 2012 and Hang Seng China Enterprises Index in February 2013, respectively. In addition, itsA Shares was selected as one of the constituent stocks of the SSE Corporate Governance Index in June 2008.

As at 30 June 2019, the five principal business lines of the Group in the PRC include:

• Wealth management. The Group engages in providing comprehensive financial services and investmentsolutions to retail and high-net-worth customers, including securities and futures brokerage services,investment advisory services, financial planning services, and financing business services such as marginfinancing, securities lending, and stock pledge.

• Investment banking. The Group engages in providing sponsorship and underwriting services for corporateand government customers with regard to financing activities in both equity and debt capital markets, theprovision of financial advisory services to corporate customers for mergers and acquisitions as well as assetrestructurings, and the provision of NEEQ services. Based on the nature of business, the investment bankingbusiness of the Group is further categorised into segments of equity financing business, debt financingbusiness and mergers and acquisitions financing business. The Group strives to provide customers with “onestop” domestic and overseas investment banking services.

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• Asset management. The Group offers comprehensive investment management services on diversifiedproducts to individuals, corporations and institutional clients, including asset management, fundmanagement, public and private equity investment services. Haitong Asset Management carries outbusinesses including targeted asset management, collective asset management, specialised assetmanagement, QDII business, and innovative business. The principal businesses of HFT InvestmentManagement and Fullgoal Fund Management include management of mutual funds (including QDII), assetmanagement for corporate annuities, NSSF and specific customers, providing professional fund investmentfinancing services for investors. The Group also operates a number of professional investment managementplatforms for private equity (PE) investment business, which provides services including management ofindustrial investment funds, investment consultation, promotion and establishment of investment funds, etc.

• Trading and institutional client services. The Group engages in providing stock sale and trading, primebrokerage, stock borrowing and lending and stock research services in major global financial markets forglobal institutional investors, as well as the issuance and market making services for various financialinstruments such as fixed income products, currency and commodity products, futures and options, exchangetraded funds and derivatives. Meanwhile, the Group exerts and enhances the advantage of synergies amongbusiness segments through investment funds and private equity projects and focuses on exploring investmentopportunities with reasonable capital returns and further expands client relationships and promotes theoverall growth of its business.

• Financial leasing. The Group provides innovative financial service and solutions to individuals, enterprisesand governments, including financial leasing, operating leasing, factoring, entrusted loans and relevantadvisory services. Unitrust is the primary leasing business platform of the Group. Currently, Unitrustengages in a wide range of industries, including infrastructure, transportation & logistics, industrials,education, health care, construction & real estate and the chemical industry, etc. Unitrust continually sticksto the development strategies of “One Body, Two Wings (一體兩翼)”, and “One Big One Small (一大一小)”,further clarified the market demand and management resources under the traditional business, optimised andperfected the corresponding supporting system and process, and promoted the specialisation and localisationof various business units so as to improve the efficiency of business operation and the competitiveness ofbusiness in the market. At the same time, Unitrust further explored diversified financing channels andappropriately managed its debt structure to effectively control its capital cost and liquidity risk. It alsoenhanced the comprehensive risk management system and the quantitative and qualitative analysismanagement functions, laying a solid foundation for the efficient implementation of projects.

The Group conducts its overseas business primarily through Haitong International Securities (listed on the HongKong Stock Exchange under stock code 665), a leading full-service securities firm in Hong Kong which providessecurities and futures brokerage, corporate finance, investment management, structured investment and finance,and advisory services, FICC services, asset management services and other securities products and services toa broad range of retail customers and institutional clients in Hong Kong and overseas as well as Haitong Bankwhich is previously known as BESI and is a leading investment bank in Portuguese-speaking and Spanish-speaking regions specialised in securities, research, capital markets, merger and acquisition, financial advisoryand project financing with over 20 years’ experience.

Recent Developments

Issuance of Bonds

In August 2019, Haitong Securities issued the first tranche of financial bonds of 2019 with a total issue size ofRMB7 billion and a term of three years.

In July, September, October and December 2019 and January 2020, Haitong Securities issued in total fivetranches of short-term commercial papers, each with an issue size of RMB5 billion and with a term of 84 days,88 days, 88 days, 89 days and 90 days, respectively. As at the date of this Offering Circular, the short-termcommercial papers issued in July, September and October 2019 were matured and repaid.

In November 2019, Haitong Securities issued the second tranche of corporate bonds of 2019 with an issue sizeof RMB4.5 billion and a term of three years.

In February 2020, Haitong Securities issued the first tranche of corporate bonds of 2020 with an issue size ofRMB5 billion and a term of three years.

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The Third Quarterly Report for the Year 2019

Haitong Securities has published the Group’s third quarterly report for the three quarters ended 30 September2019 (the “September 2019 Financial Information”), financial information in which was prepared accordingto PRC GAAP. The report is available on the website of the Hong Kong Stock Exchange at www.hkexnews.hkand the website of the Guarantor at www.htsec.com.

The Group’s September 2019 Financial Information is not included in and does not form a part of this OfferingCircular. The Group’s September 2019 Financial Information has not been audited or reviewed by the Group’sindependent accountants, or any other independent accountants and may be subject to adjustments if audited andreviewed. Consequently, none of the Managers, the Trustee or any Agent (or any of their respective affiliates,directors, employees, agents, representatives, officers or advisers or any person who controls any of them) makesany representation or warranty, express or implied, regarding the accuracy of such financial statements or theirsufficiency for an assessment of, and potential investors must exercise caution when using such data to evaluatethe Group’s financial condition, results of operations and results. The Group’s September 2019 FinancialInformation should not be taken as an indication of the expected financial condition, results of operations andresults of the Group for the full financial year ending 31 December 2019.

As at 30 September 2019 compared with 31 December 2018, the Group’s refundable deposits increased mainlydue to an increase in deposits for future business; the Group’s debt investments increased significantly mainlydue to the increased debt investment amount; the Group’s construction in progress increased mainly due to anincrease in improvement of office; the Group’s other assets increase mainly due to an increase in receivablesarising from sale-and-leaseback arrangements; the Group’s short-term borrowings increased mainly due to anincrease in borrowings; the Group’s short-term financing bills payable increased mainly due to an increase inshort-term financing bills; the Group’s financial assets sold under repurchase agreements increased mainly dueto an increase in financial assets sold under repurchase agreements; the Group’s accounts payable increasedmainly due to an increase in settlement payable; and the Group’s deferred tax liabilities increased significantlymainly due to an increase in gains from changes in fair value of financial instruments.

For the nine months ended 30 September 2019 compared to the same period in 2018, the Group’s investmentgains increased mainly due to an increase in investment gains from holding and disposal of financial instruments;the Group’s gains arising from fair value changes increased significantly mainly due to an increase in gains fromchanges in fair value of financial instruments; the Group’s foreign exchange gains decreased significantly mainlydue to the impacts of movements in exchange rates; the Group’s other operating income increased mainly dueto an increase in sales income of a subsidiary; the Group’s credit impairment loss increased mainly due to anincrease in credit impairment loss of credit assets; the Group’s other operating cost increased mainly due to anincrease in sales costs of a subsidiary; the Group’s income tax expense increased mainly due to an increase intaxable income; the Group’s other comprehensive income, net of tax increased significantly mainly due to anincrease in gains from changes in fair value of financial instruments.

For the nine months ended 30 September 2019, the Group recognised positive net cash flow from operatingactivities while recognised net cash flow used in operating activities for the same period in 2018 mainly due tonet increase in cash received from securities trading agency services and cash from repurchase business. For thenine months ended 30 September 2019 compared to the same period in 2018, the Group’s net cash flows usedin investing activities decreased mainly due to a decrease in cash paid for investments and the Group’s net cashflow from financing activities decreased mainly due to an increase in cash repayment of borrowings.

Positive Profit Highlight For The 2019 Annual Results

Based on the Guarantors’ preliminary review of financial information available, the profit attributable toshareholders of the Guarantor and the profit attributable to shareholders of the Guarantor after deductingnonrecurring gain or loss for the year of 2019 are expected to increase compared with that for the correspondingperiod of last year. The aforesaid estimation is based on the Guarantor’s preliminary review and the final andaccurate financial data should be those audited and to be disclosed in the annual report of the Guarantor for theyear of 2019. For details, please see the announcement published by the Guarantor available on the website ofthe Hong Kong Stock Exchange at www.hkexnews.hk and the website of the Guarantor at www.htsec.com.Potential investors must exercise caution when using such data to evaluate the Group’s financial condition,results of operations and results.

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Competitive Strengths

The Group believes the following competitive strengths contribute to its success and distinguish the Group fromits competitors:

• Full-service securities firm in the PRC with leading market positions across multiple business lines;

• Strategically located branch network across the PRC with a substantial and stable customer base;

• A pioneer in the PRC securities industry for offering new businesses;

• Forward-looking overseas layout to generate great synergies and first-mover advantages;

• Prudent corporate governance, effective risk management and internal control systems and stable net capitalmanagement;

• Enhancing financial strengths with outstanding business performance; and

• Experienced and stable management team with a highly proficient professional workforce.

Business Strategies

In April 2018, the board of directors of Haitong Securities has considered and approved the three-year plan ofthe company from 2018 to 2020. In the future, the Group plans to continue adhering to customer focus, focusingon intermediary businesses such as brokerage, investment banking and asset management as core businesses;developing capital intermediary business and investment business as the wings which will draw uponconglomeration, internationalisation and informatisation as the driving force; reinforcing the four “pillars”including compliance and risk management, talent, IT and research. Meanwhile, the Group will enhance itscapability building in five areas including capital and investment management, investment banking underwritingand sales pricing, assets management, institutional brokerage and sales transaction and wealth management. Withthe mission of developing a world-class securities company, the Group is committed to transforming itself intoa leading domestic and globally influential Chinese benchmark securities company. The group also aims to createvalue for employees to realize a better life; create value for customers and achieve common growth; create valuefor shareholders and provide excellent returns.

• Further enhance its leading market position and profitability with focus on intermediary businesses such asbrokerage, investment banking and asset management as core businesses;

• Maintain the growth momentum of its investment banking business and further integrate its businessplatform;

• Strategically expand its asset management business to provide comprehensive product offerings to meetincreasing and diversifying customer demands;

• Continue to expand and promote new businesses and products with high growth potential;

• Actively pursue its internationalisation strategy to capture cross-border opportunities; and

• Strengthen the risk management systems, internal controls, IT capabilities, research capabilities and talentmanagement to support its business operations.

4

STRUCTURE OF THE GROUP

The following chart sets out the Group’s simplified shareholding structure and key subsidiaries and affiliates asat 30 June 2019.

Other A ShareShareholders

Top 10Shareholders

Other H ShareShareholders

51.97%

100.00% 100.00%100.00%100.00% 51.00% 66.67% 100.00%

100.00%

67.00% 27.78%

48.02% 0.01%

The Guarantor

HaitongInnovationSecurities

InvestmentCo., Ltd.

ShanghaiHaitong

SecuritiesAsset

ManagementCompany Ltd.

HFTInvestment

ManagementCo., Ltd.

HaitongFutures Co.,

Ltd.

HaitongInternational

HoldingsLimited

Haitong-FortisPrivate Equity

FundManagement

Co., Ltd.

FullgoalFund

ManagementCo., Ltd.

HaitongCapital Co.,

Ltd.

ShanghaiWeitai

PropertyManagement

Co., Ltd.

The Issuer

Note 1: The top ten shareholders of the Group are HKSCC Nominees Limited (29.637%), Bright Food (Group) Co., Ltd. (3.50%), ShanghaiHaiyan Investment Management Company Limited (3.48%), China Securities Finance Corporation Limited (2.99%), ShenergyGroup Company Limited (2.80%), Shanghai Electric (Group) Corporation (2.26%), Shanghai Guosheng Group Co., Ltd. (2.07%),Shanghai Jiushi (Group) Co., Ltd. (2.05%), Shanghai Bailian Group Co., Ltd. (1.86%), and Shanghai United Media Group (1.31%).As at 30 June 2019, no shareholder directly held more than 5% of the shares of the Group (excluding HKSCC Nominees Limited).HKSCC Nominees Limited held the H Shares on behalf of the non-registered shareholders.

5

THE OFFERING

The following is a brief summary of the offering and is qualified in its entirety by the remainder of this OfferingCircular. Some of the terms described below are subject to important limitations and exceptions. Words andexpressions defined in “Terms and Conditions of the Bonds” and “Summary of Provisions Relating to the Bondsin Global Form” shall have the same meanings in this summary. For a more complete description of the termsand conditions of the Bonds, see “Terms and Conditions of the Bonds” in this Offering Circular.

Issuer Haitong International Finance Holdings 2015 Limited.

Guarantor Haitong Securities Co., Ltd. (海通證券股份有限公司).

The Bonds U.S.$[●] [●] per cent. guaranteed bonds due [●].

The Guarantee The Guarantor will unconditionally and irrevocably guarantee the due andpunctual payment of the principal and premium (if any) of and interest on,and all other amounts expressed to be payable by the Issuer, under theBonds and the Trust Deed when and as the same shall become due andpayable, whether on the stated maturity, upon acceleration, by call forredemption or otherwise. The Guarantor’s obligations in respect of theBonds and the Trust Deed will be contained in the Deed of Guarantee.

Issue Price [●] per cent. of the principal amount of the Bonds.

Form and Denomination The Bonds will be issued in registered form in the specified denominationof U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof.

Issue Date [●] 2020.

Interest The Bonds will bear interest on their outstanding principal amount fromand including [●] 2020, at the rate of [●] per cent. per annum, payablesemi-annually in arrear in equal instalments on [●] and [●] in each year,commencing on [●] 2020.

Maturity Date [●].

Status of the Bonds The Bonds will constitute direct, unsubordinated, unconditional andunsecured obligations of the Issuer and shall at all times rank pari passuand without any preference or priority among themselves. The paymentobligations of the Issuer under the Bonds shall, save for such exceptionsas may be provided by mandatory provisions of applicable laws andregulations, at all times rank at least equally with all its other present andfuture unsecured and unsubordinated obligations.

Status of the Guarantee The obligations of the Guarantor under the Guarantee shall, save for suchexceptions as may be provided by mandatory provisions of applicablelaws and regulations, at all times rank at least equally with all its otherpresent and future unsecured and unsubordinated obligations.

Use of Proceeds The net proceeds from the offering of the Bonds will be primarily used torepay the U.S.$670,000,000 3.50 per cent. Guaranteed Bonds due 2020issued by the Issuer in 2015. See “Use of Proceeds”.

Events of Default The Bonds will contain certain events of default as further described inCondition 9 (Events of Default) of the Terms and Conditions.

6

Cross-Acceleration The Bonds will contain a cross-acceleration provision in respect ofpresent or future Indebtedness for or in respect of monies borrowed orraised or any present or future guarantee and/or indemnity thereof of theGuarantor or of any of its Subsidiaries which equals or exceedsU.S.$30,000,000 or its equivalent in any other currency or currencies. SeeCondition 9(c) (Cross-Acceleration) of the Terms and Conditions.

Taxation All payments of principal, premium (if any) and interest by or on behalfof the Issuer or the Guarantor in respect of the Bonds or under theGuarantee shall be made free and clear of, and without set-off orcounterclaim and without withholding or deduction for or on account ofany present or future taxes, duties, assessments or governmental chargesof whatever nature imposed, levied, collected, withheld or assessed by orwithin the British Virgin Islands or the PRC or, in each case, any politicalsubdivision or any authority therein or thereof having power to tax, unlesssuch withholding or deduction is required by law.

Where such withholding or deduction is made by the Issuer or, as the casemay be, the Guarantor for or on account of any taxes, duties, assessmentsor governmental charges of whatever nature imposed, levied, collected,withheld or assessed by or within the PRC up to and including theaggregate rate applicable on [●] 2020 (the “Applicable Rate”), the Issueror, as the case may be, the Guarantor will increase the amounts paid byit to the extent required, so that the net amount received by Bondholdersequals the amount which would otherwise have been receivable by themhad no such withholding or deduction been required.

If (i) the Issuer is required to make any deduction or withholding for oron account of any taxes, duties, assessments or governmental charges ofwhatever nature imposed, levied, collected, withheld or assessed by orwithin the British Virgin Islands, or (ii) the Issuer or, as the case may be,the Guarantor is required to make a deduction or withholding for or onaccount of any taxes, duties, assessments or governmental charges ofwhatever nature imposed, levied, collected, withheld or assessed by orwithin the PRC in excess of the Applicable Rate, then the Issuer (or theGuarantor, as the case may be) shall pay such additional amounts(“Additional Tax Amounts”) as will result in receipt by the Bondholdersof such amounts as would have been received by them had no suchwithholding or deduction been required, except that no Additional TaxAmounts shall be payable in respect of any Bond (or the Guarantee, as thecase may be) in the circumstances as set out in “Terms and Conditions ofthe Bonds – Taxation”.

Final Redemption Unless previously redeemed, or purchased and cancelled, the Bonds willbe redeemed at their principal amount on the Maturity Date.

Redemption forRelevant Events

Following the occurrence of a Relevant Event, the Holder of any Bondwill have the right, at such Holder’s option, to require the Issuer toredeem all, but not some only, of such Holder’s Bonds on the PutSettlement Date (as defined in the Terms and Conditions) at a redemptionprice equal to 101 per cent. (in the case of a redemption for a Change ofControl) or 100 per cent. (in the case of a redemption for a NoRegistration Event), together in each case with any accrued interest to butexcluding the Put Settlement Date, as further described in Condition 6(c)(Redemption for Relevant Events) of the Terms and Conditions.

A “Change of Control” occurs when:

(i) the Guarantor ceases to directly or indirectly own and control all theissued share capital of the Issuer;

7

(ii) the Guarantor consolidates with or merges into or sells or transfersall or substantially all of its assets to any person or persons, actingtogether, other than (a) any of the Guarantor or its Subsidiaries or(b) the State-owned Assets Supervision and AdministrationCommission of the State Council of the PRC (“SASAC”) or itssuccessor or entities controlled (directly or indirectly) by SASAC,or any other Person directly or indirectly controlled by the centralgovernment of the PRC; or

(iii) other than SASAC or its successor or entities controlled (directly orindirectly) by SASAC, or any Person directly or indirectlycontrolled by the central government of the PRC, any Person orPersons, acting as a group, acquiring Control directly or indirectlyor in combination (through Subsidiaries) of the Guarantor.

A “Relevant Event” means a Change of Control or a No RegistrationEvent.

Redemption forTaxation Reasons

The Bonds may be redeemed at the option of the Issuer in whole, but notin part, at any time on giving not less than 30 nor more than 60 days’notice to the Bondholders in accordance with Condition 16 (Notices) ofthe Terms and Conditions (which shall be irrevocable) and in writing tothe Trustee and the Agents at their principal amount, together with anyinterest accrued to but excluding the date fixed for redemption, if theIssuer (or if the Guarantee is called, the Guarantor) satisfies the Trusteeimmediately prior to the giving of such notice that:

(i) it has or will become obliged to pay Additional Tax Amounts as aresult of any change in, or amendment to, the laws or regulations ofthe British Virgin Islands or the PRC or, in each case, any politicalsubdivision or any authority thereof or therein having power to tax,or any change in the application or official interpretation of suchlaws or regulations (including but not limited to any decision by acourt of competent jurisdiction), which change or amendmentbecomes effective on or after [●] 2020; and

(ii) such obligation cannot be avoided by the Issuer (or the Guarantor,as the case may be) taking reasonable measures available to it,

provided that no such notice of redemption shall be given earlier than90 days prior to the earliest date on which the Issuer (or the Guarantor,as the case may be) would be obliged to pay such Additional Tax Amountswere a payment in respect of the Bonds (or the Guarantor, as the case maybe) then due, as further described in Condition 6(b) (Redemption forTaxation Reasons) of the Terms and Conditions.

Further Issues The Issuer may from time to time without the consent of the Bondholderscreate and issue further bonds having the same terms and conditions asthe Bonds in all respects (or in all respects except for the issue date, thefirst payment of interest on them and the timing for complying with theRegistration Condition, for submission of the NDRC Post-issue Filingand for completing the Cross-Border Security Registration) and so thatthe same shall be consolidated and form a single series with theoutstanding Bonds, as further described in Condition 13 (Further Issues)of the Terms and Conditions.

8

Trustee Citicorp International Limited.

Principal Paying Agent andTransfer Agent

Citibank, N.A., London Branch.

Registrar Citibank, N.A., London Branch.

Clearing Systems The Bonds will be represented initially by interests in the GlobalCertificate, which will be registered in the name of a nominee of, anddeposited on or about the Issue Date with, a common depositary forEuroclear and Clearstream. Beneficial interests in the Global Certificatewill be shown on, and transfers thereof will be effected only through,records maintained by Euroclear and Clearstream. Except as described inthe Global Certificate and detailed in this Offering Circular, definitivecertificates for the Bonds will not be issued in exchange for interests inthe Global Certificate.

Clearance and Settlement The Bonds have been accepted for clearance through Euroclear andClearstream under Common Code 212968412 and the ISIN for the Bondsis XS2129684127.

Notices and Payment So long as the Global Certificate is held on behalf of Euroclear orClearstream, any notice to the Bondholders shall be validly given by thedelivery of the relevant notice to Euroclear or Clearstream, forcommunication by the relevant clearing system to entitled accountholdersin substitution for notification as required by the Terms and Conditions.

Governing Law English law.

Jurisdiction Exclusive jurisdiction of the Hong Kong courts.

Listing Application will be made to the Hong Kong Stock Exchange for thelisting of, and permission to deal in, the Bonds by way of debt issues toProfessional Investors only. Such permission is expected to becomeeffective on or about [●] 2020. A confirmation of the eligibility for thelisting of the Bonds has been received from the Hong Kong StockExchange.

Selling Restrictions The Bonds have not been and will not be registered under the SecuritiesAct or under any state securities laws of the United States, are beingoffered only outside the United States to non U.S. persons in reliance ofRegulation S of the Securities Act and will be subject to customaryrestrictions on transfer and resale. See “Subscription and Sale”.

Ratings S&P has assigned a corporate rating of “BBB” with a stable outlook to theGuarantor. Such rating is only correct as at the date of this OfferingCircular. The Bonds are expected to be rated “BBB” by S&P. A rating isnot a recommendation to buy, sell or hold securities and may be subjectto suspension, reduction or withdrawal at any time by the assigning ratingagency.

LEI 549300PDUNVXUNJ7HC63.

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following tables set forth the summary consolidated financial information of the Group as at and for theperiods indicated.

The summary consolidated financial information of the Group as at and for the years ended 31 December 2016,2017 and 2018 set forth below is derived from and should be read in conjunction with the Guarantor’s AuditedConsolidated Financial Statements, included elsewhere in this Offering Circular. The Guarantor’s AuditedConsolidated Financial Statements were prepared and presented in accordance with IFRS and have been auditedby Deloitte Touche Tohmatsu.

The summary consolidated interim financial information of the Group as at and for the six months ended 30 June2018 and 2019 set forth below is derived from and should be read in conjunction with the Guarantor’s 2019Reviewed Consolidated Interim Financial Statements. The Guarantor’s 2019 Reviewed Consolidated InterimFinancial Statements have been reviewed by Deloitte Touche Tohmatsu.

Such unaudited but reviewed consolidated interim financial information has not been audited and should not berelied upon by investors to provide the same quality of information associated with information that has beensubject to an audit. Potential investors must exercise caution when using such data to evaluate the Guarantor’sor the Group’s financial condition, or results of operations. Such unaudited consolidated interim financialinformation as at and for the six months ended 30 June 2019 should not be taken as an indication of the expectedfinancial condition and results of operations for the Guarantor or the Group for the full financial year ending31 December 2019.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 DecemberFor the six months

ended 30 June2018 2017 2016 2019 2018

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(unaudited)

Commission and fee income ������������������������������������� 9,852,687 11,225,083 12,711,293 6,209,922 5,347,240Interest income ��������������������������������������������������� 14,248,355 12,448,565 16,180,548 6,654,733 7,405,059Finance lease income �������������������������������������������� 3,698,412 2,675,752 –1 2,359,689 1,689,926Investment income and gains (net) ������������������������������ 3,483,520 9,327,622 6,107,923 5,846,516 1,636,571

31,282,974 35,677,022 34,999,764 21,070,860 16,078,796Other income and gains ������������������������������������������ 7,386,733 5,647,480 7,492,492 5,002,600 2,910,777Total revenue, gains and other income.. ������������������������� 38,669,707 41,324,502 42,492,256 26,073,460 18,989,573Depreciation and amortisation ����������������������������������� (558,166) (485,337) (379,089) (524,164) (283,673)Staff costs �������������������������������������������������������� (5,929,829) (6,400,066) (6,168,040) (3,442,950) (2,554,605)Commission to account executives ������������������������������ (504,297) (688,301) (710,195) (238,502) (289,468)Brokerage transaction fees and other services expenses ������� (834,025) (980,583) (1,036,089) (1,108,832) (874,917)Interest expenses ������������������������������������������������� (13,126,493) (11,458,392) (12,340,937) (6,761,366) (6,443,120)Impairment losses ������������������������������������������������ – (1,686,658) –2 – –Impairment losses under expected credit loss model ������������ (1,622,167) – – (1,059,233) (682,526)Impairment losses on other assets�������������������������������� (25,060) – – (12,260) (15,303)Other expenses ��������������������������������������������������� (8,532,013) (7,444,255) (10,896,614) (5,073,822) (3,308,268)Total expenses ���������������������������������������������������� (31,132,050) (29,143,592) (31,530,964) (18,221,129) (14,451,880)Share of results of associates and joint ventures ��������������� 32,709 708,487 200,435 151,426 (36,307)Profit before income tax ����������������������������������������� 7,570,366 12,889,397 11,161,727 8,003,757 4,501,386Income tax expense ���������������������������������������������� (1,799,658) (3,013,794) (2,231,209) (1,935,608) (1,042,017)Profit for the period ���������������������������������������������� 5,770,708 9,875,603 8,930,518 6,068,149 3,459,369

Attributable to:Owners of the Company �������������������������������������� 5,211,093 8,618,423 8,043,334 5,526,505 3,030,926Non-controlling interests �������������������������������������� 559,615 1,257,180 887,184 541,644 428,443

5,770,708 9,875,603 8,930,518 6,068,149 3,459,369Earnings per share (Expressed in RMB per share)

– Basic ���������������������������������������������������������� 0.45 0.75 0.70 0.48 0.26– Diluted �������������������������������������������������������� 0.45 0.74 0.70 0.48 0.26

1 Finance lease income for the year ended 31 December 2016 is included in interest income

2 The impairment losses for the year ended 31 December 2016 is included in other expense

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CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 DecemberFor the six months

ended 30 June

2018 2017 2016 2019 2018

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

Profit for the period ���������������������������������������������� 5,770,708 9,875,603 8,930,518 6,068,149 3,459,369

Other comprehensive income (expenses):Items that will not be reclassified subsequently to profit or

loss:Actuarial (losses)/gains on defined benefit obligations ��������� (20,166) 3,838 – (63,879) 4,299Fair value gains/(losses) on equity instruments measured at

fair value through other comprehensive income �������������� (2,039,573) – – 1,086,063 (689,252)Income tax impact ������������������������������������������������ 509,893 – – (264,795) 172,313

Subtotal������������������������������������������������������������ (1,549,846) 3,838 – 757,389 (512,640)Items that may be reclassified subsequently to profit or loss:

Fair value gains/(losses) on:Available-for-sale investments

Net fair value changes during the period����������������� – 4,148,546 1,073,293 – –Reclassification adjustment to profit or loss on

disposal/impairment������������������������������������� – (2,276,811) (1,483,495) – –Income tax relating to components of other

comprehensive income���������������������������������� – (475,647) 123,540 – –Debt instruments measured at fair value through other

comprehensive incomeNet fair value changes during the period����������������� 60,018 – – 79,076 (133,429)Reclassification adjustment to profit or loss on

disposal �������������������������������������������������� (38,370) – – (28,201) 5,311Reclassification adjustment to profit or loss for

expected credit losses����������������������������������� 34,636 – – (4,052) 29,352Income tax relating to components of other

comprehensive income ��������������������������������� (31,274) – – (13,556) 43,997Exchange differences arising on translation of foreign

operation.����������������������������������������������������� 17,109 (227,373) 493,983 62,069 (195,160)Share of other comprehensive income/(expenses) of

associates and joint ventures, net of related income tax ��� (231,985) (23,825) 74,262 66,557 (41,175)Fair value (losses)/gains on hedges of net investments in

foreign operations �������������������������������������������� 152,998 (354,999) – (3,457) 101,392Others ����������������������������������������������������������� – – – 1,002 –

Subtotal������������������������������������������������������������ (36,868) 789,891 281,583 159,438 (189,712)

Other comprehensive income (expenses) for the period(net of tax)������������������������������������������������������ (1,586,714) 793,729 281,583 916,827 (702,352)

Total comprehensive income for the period ��������������������� 4,183,994 10,669,332 9,212,101 6,984,976 2,757,017

Attributable to:Owners of the Company ��������������������������������������� 3,092,588 10,136,216 7,648,626 6,389,628 2,281,030Non-controlling interests ��������������������������������������� 1,091,406 533,116 1,563,475 595,348 475,987

4,183,994 10,669,332 9,212,101 6,984,976 2,757,017

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December As at 30 June

2018 2017 2016 2019

RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

Non-current assetsProperty and equipment �������������������������������������������������� 6,044,423 2,862,370 1,615,839 6,496,853Right-of-use assets�������������������������������������������������������� – – – 1,754,718Investment properties ����������������������������������������������������� 213,429 16,864 18,059 177,283Goodwill ������������������������������������������������������������������ 4,046,190 3,863,520 4,118,734 4,061,541Other intangible assets ��������������������������������������������������� 517,795 494,053 467,750 511,344Investments accounted for using equity method������������������������� 5,312,881 10,062,370 8,749,592 5,293,083Finance lease receivables ������������������������������������������������ 30,824,664 22,212,628 22,035,884 26,794,282Receivables arising from sale-and-leaseback arrangements ������������� – – – 7,387,410Available-for-sale investments ������������������������������������������� – 31,725,358 45,269,933 –Other loans and receivables ��������������������������������������������� 5,647,819 8,098,697 5,684,365 3,439,034Held-to-maturity investments �������������������������������������������� – – 83,509 –Deferred tax assets ������������������������������������������������������� 3,241,202 2,851,450 2,773,812 3,313,900Deposits with exchanges ������������������������������������������������� 1,381,539 1,347,701 1,592,688 1,205,014Restricted bank balances and cash ��������������������������������������� 739,260 675,568 771,029 850,664Loans and advances ������������������������������������������������������ 3,744,563 4,086,897 5,141,634 3,581,220Financial assets held under resale agreements�.������������������������� 11,002,055 21,204,776 20,922,862 6,272,577Financial assets at fair value through profit or loss��������������������� 18,368,406 952,338 – 26,460,990Equity instruments at fair value through other comprehensive

income ������������������������������������������������������������������ 15,228,291 – – 15,932,967Debt instruments at fair value through other comprehensive income �� 5,768,988 – – 6,564,282Debt instruments measured at amortized cost ��������������������������� 679,214 – – 1,736,542Other non-current assets �������������������������������������������������� 1,179,204 1,076,587 319,207 524,265

Total non-current assets ����������������������������������������������������� 113,939,923 111,531,177 119,564,897 122,357,969

Current assetsAdvances to customers on margin financing ���������������������������� 48,861,009 61,560,953 63,212,920 52,096,466Accounts receivable ������������������������������������������������������ 8,257,214 7,442,000 6,929,537 13,167,368Finance lease receivables ������������������������������������������������ 30,828,048 21,323,548 14,519,336 29,575,235Receivables arising from sale-and-leaseback arrangements ������������� – – – 4,083,497Other current assets������������������������������������������������������� 3,031,728 5,544,270 10,228,802 3,336,458Available-for-sale investments ������������������������������������������� – 9,503,398 12,758,905 –Debt instruments at fair value through other comprehensive income �� 9,362,242 – – 6,586,108Debt instruments measured at amortized cost ��������������������������� 4,082 – – 1,411,410Other loans and receivables ���������������������������������������������� 14,043,711 21,147,878 32,787,054 17,873,162Held-to-maturity investments �������������������������������������������� – 78,718 – –Loans and advances. ������������������������������������������������������ 618,924 751,375 470,655 469,900Financial assets held under resale agreements�... ����������������������� 71,676,737 75,345,093 63,600,363 59,558,212Placements to banks and other financial institutions�������������������� 31,144 679,092 705,848 110,378Financial assets at fair value through profit or loss��������������������� 158,837,008 98,904,357 92,347,494 170,270,376Derivative financial assets������������������������������������������������ 1,780,757 2,610,612 3,935,071 1,367,102Deposits with exchanges ������������������������������������������������� 5,601,350 7,180,974 7,359,343 8,060,179Clearing settlement funds ������������������������������������������������ 7,646,561 7,982,729 12,191,899 8,217,968Deposits with central banks ���������������������������������������������� 2,426,236 3,445,696 274,303 1,937,889Deposits with other banks ������������������������������������������������ 253,908 316,134 761,628 231,262Bank balances and cash �������������������������������������������������� 97,423,052 99,358,329 119,217,791 122,196,330

Total current assets���������������������������������������������������������� 460,683,711 423,175,156 441,300,949 500,549,300

Total assets ������������������������������������������������������������������ 574,623,634 534,706,333 560,865,846 622,907,269

12

As at 31 December As at 30 June

2018 2017 2016 2019

RMB’000 RMB’000 RMB’000 RMB’000

(unaudited)

Current liabilitiesBorrowings ��������������������������������������������������������������� 52,489,162 45,511,447 46,659,113 58,204,250Deposits from central banks ��������������������������������������������� 470,838 468,138 – 469,020Deposits from other banks ����������������������������������������������� 19,950 293,733 14,586 21,140Short-term financing bills payables... ������������������������������������ 26,537,968 29,426,762 19,864,117 35,381,594Placements from banks and other financial institutions ���������������� 8,482,577 5,450,000 3,210,521 3,101,419Accounts payable to brokerage clients. ���������������������������������� 71,893,535 83,774,388 104,059,287 90,371,199Customer accounts ������������������������������������������������������� 2,160,326 3,750,621 4,757,573 2,490,178Bonds payable ������������������������������������������������������������ 41,923,410 14,739,105 11,103,335 57,220,798Other payables and accruals ��������������������������������������������� 13,455,014 17,457,987 19,866,992 15,930,742Lease liabilities ����������������������������������������������������������� – – – 332,264Contract liabilities ������������������������������������������������������� 284,005 – – 352,167Provisions ���������������������������������������������������������������� 145,107 167,343 124,622 152,929Tax liabilities ������������������������������������������������������������� 1,535,337 2,198,613 1,748,846 1,215,422Financial liabilities at fair value through profit or loss ���������������� 23,862,827 20,031,099 38,063,861 22,746,698Derivative financial liabilities ������������������������������������������� 2,218,774 3,495,454 2,594,009 2,002,562Financial assets sold under repurchase agreements �������������������� 56,372,903 32,645,727 43,638,525 65,712,895

Total current liabilities �������������������������������������������������� 301,851,733 259,410,417 295,705,387 355,705,277

Net current assets �������������������������������������������������������� 158,831,978 163,764,739 145,595,562 144,844,023

Total assets less current liabilities �������������������������������������� 272,771,901 275,295,916 265,160,459 267,201,992

EquityShare capital ������������������������������������������������������������� 11,501,700 11,501,700 11,501,700 11,501,700Capital reserve ����������������������������������������������������������� 56,405,921 56,357,980 56,338,470 56,301,332Revaluation reserve ������������������������������������������������������ (400,148) 2,071,805 784,435 429,452Translation reserve ������������������������������������������������������� (803,870) (445,275) (675,698) (797,445)General reserves ��������������������������������������������������������� 19,819,343 17,971,724 15,849,581 19,911,451Retained profits ���������������������������������������������������������� 31,335,629 30,297,545 26,331,639 35,048,844

Equity attributable to owners of the Company ������������������������� 117,858,575 117,755,479 110,130,127 122,395,334Non-controlling interests ������������������������������������������������ 12,327,344 11,938,825 11,828,274 14,732,212

Total equity �������������������������������������������������������������� 130,185,919 129,694,304 121,958,401 137,127,546

Non-current liabilitiesDeferred tax liabilities ��������������������������������������������������� 206,710 867,320 557,472 811,765Bonds payable ������������������������������������������������������������ 98,223,447 115,419,164 117,191,857 84,218,934Long-term borrowings ��������������������������������������������������� 27,714,158 15,810,543 14,489,442 28,511,034Long-term payables ������������������������������������������������������ 6,664,935 4,813,699 3,539,521 7,121,977Financial assets sold under repurchase agreements �������������������� – 400,000 93,202 –Financial liabilities at fair value through profit or loss ���������������� 2,338,127 712,400 575,770 1,695,469Lease liabilities ����������������������������������������������������������� – – – 616,918Deposits from central banks ��������������������������������������������� – – 438,408 –Placements from banks and other financial institutions ���������������� 6,241,519 6,361,639 5,598,941 6,222,505Other payables and accruals ��������������������������������������������� 1,197,086 1,216,847 717,445 875,844

Total non-current liabilities ������������������������������������������������ 142,585,982 145,601,612 143,202,058 130,074,446

Total equity and non-current liabilities ������������������������������������ 272,771,901 275,295,916 265,160,459 267,201,992

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RISK FACTORS

An investment in the Bonds is subject to a number of risks. Investors should carefully consider all of theinformation in this Offering Circular and, in particular, the risks described below, before deciding to invest inthe Bonds. The following describes some of the significant risks relating to the Issuer, the Guarantor the Group,the Group’s business, the market in which the Group operates and the value of Bonds. PRC laws and regulationsmay differ from the laws and regulations in other countries. Some risks may be unknown to the Issuer, theGuarantor or the Group and other risks, currently believed to be immaterial, could in fact be material. Any ofthese could materially and adversely affect the business, financial condition, results of operations or prospectsof the Issuer, the Guarantor and the Group or the value of the Bonds. Each of the Issuer and the Guarantorbelieves that the risk factors described below represent the principal risks inherent in investing in the Bonds, butthe ability of the Issuer or the Guarantor, as the case may be, to pay interest, principal or other amounts on orin connection with any Bonds may be affected by some factors that may not be considered as significant risksby the Issuer or the Guarantor on information currently available to them or which they are currently unable toanticipate. All of these factors are contingencies which may or may not occur and the Issuer, the Guarantor orthe Group is not in a position to express a view on the likelihood of any such contingency occurring. ThisOffering Circular also contains forward-looking statements that involve risks and uncertainties. The actualresults of the Group could differ materially from those anticipated in these forward-looking statements as a resultof certain factors, including the risks described below and elsewhere in this Offering Circular.

The Issuer, the Guarantor or the Group does not represent that the statements below regarding the risk factorsof the Issuer, the Guarantor, the Group, the Bonds and the Guarantee are exhaustive. Prospective investorsshould also read the detailed information set out elsewhere in this Offering Circular and reach their own viewsprior to making any investment decision.

RISKS RELATING TO THE GROUP’S BUSINESS AND THE PRC SECURITIES INDUSTRY

General economic and market conditions could materially and adversely affect the business of the Group.

Substantially all of the revenue of the Group is derived from the securities markets. Like other businessesoperating in the same industry, its business is directly affected by the inherent risks associated with the securitiesmarkets, such as market volatility, fluctuations in the trading volume and the credit capacity or perceived creditworthiness of the securities industry in the marketplace. The Group’s business is also subject to general economicand political conditions, such as macroeconomic and monetary policies, legislation and regulations affecting thefinancial and securities industries, upward and downward trends in the business and financial sectors, inflation,currency fluctuations, availability of short-term and long-term market funding sources, cost of funding and thelevel and volatility of interest rates. Due to various factors such as a shift in economic development fromhigh-speed growth to high-quality development, stricter financial regulation and a slow recovery in globaleconomy, profound changes occurred to the securities market and the level of volatility of the securities marketfluctuated for the past three years. For example, the PRC A share market fell sharply from mid-June 2015 withSSE Composite Index closing at 2,737.6 on 29 January 2016. Through 2016 to 2017, SSE Composite Index sawa slow growth closing at 3,307.2 on 29 December 2017, which nevertheless represented a decrease of 36.0%compared to 5,166.4 on 12 June 2015. In 2018, the SSE Composite Index ended with 2,493.9, representing adecrease of 24.6% compared with the end of 2017. In the first half of 2019, the SSE Composite Index saw arecovery and ended with 2,978.9 on the 28 June 2019. The PRC A share market volatility increased and investors’risk appetites reduced on deepened leveraging and escalated trade friction. While Capital Markets in Hong Kongalso saw a steady recovery and growth through 2016 to 2017, the Hang Seng Index became volatile and unstablesince early February 2018, following multiple interest hikes by the U.S. government, currency depreciations ofemerging markets, and escalated China-U.S. trade friction. Market volatility, especially in the PRC and HongKong equity markets, are expected to materially and negatively impact the Group’s business, results ofoperations, financial conditions and prospects.

Turmoil in the financial markets, a downturn in general economic conditions or other risks associated with thebusiness of the Group and the securities industry in general could reduce securities trading and corporate financeactivities and affect the value of certain financial assets, which may consequently have a material adverse effecton the Group’s commission and fees from brokerage, investment banking and asset management businesses, aswell as the returns on financial assets and investments of the Group. A reduction in the Group’s income or a lossresulting from its underwriting, investments, trading or financial leasing activities could have a material adverseeffect on its business, results of operations and financial condition. As a result of these risks, the Group’s incomeand operating results may be exposed to significant fluctuations.

14

The Group faces intense competition and its business could be materially and adversely affected if it wereunable to compete effectively.

The PRC securities industry is highly competitive, and the Group faces intense competition in most of itsbusiness lines. For its wealth management business, the Group competes primarily with other PRC securitiesfirms in terms of pricing and the range of products and services offered. As at the end of 2019, there are 133registered securities firms in the PRC according to CSRC. The intense price competition in recent years haslowered commission rates for the securities brokerage business of the Group. Please see “– The wealthmanagement business, especially the securities and futures brokerage business, of the Group is subject to variousrisks and there is no guarantee that its brokerage commission and fee income can be sustained.”

For its investment banking business, the Group competes primarily with other PRC and Sino-foreign jointventure securities firms as well as PRC commercial banks in terms of brand recognition, marketing anddistribution capability, service quality, financial strength and pricing. Intense competition may result in lowerunderwriting and advisory fees for the investment banking business of the Group. Please see “– The investmentbanking business of the Group is subject to various risks in the underwriting and sponsorship of securities andthere is no guarantee that its underwriting and sponsors fees can be sustained.”

For its asset management business, the Group competes primarily with fund management companies, banks,insurance companies and other financial institutions in the PRC in terms of the range of products and servicesoffered, pricing and quality of customer service. For its trading and institutional client services business, theGroup competes primarily with other PRC securities firms.

In January 2014, the acquisition by the Group of UT Capital Group was completed, marking the Group’s entranceinto the financial leasing industry. The acquisition of UT Capital Group provides the Group with growthpotentials and substantial synergies with its existing businesses, while on the other hand subjects the Group torisks associated with the financial leasing industry. For details, please see “– The financial leasing business ofthe Group is subject to various risks and there is no guarantee that the financial leasing business can maintainrapid growth in the future.”

Some of the competitors of the Group may have certain competitive advantages over the Group, including greaterfinancial resources, stronger brand recognition, broader product and service offerings, more advanced IT systemsand a branch network with wider geographic coverage. They may also have more experience with a broader rangeof services and more complex financial products than the Group does.

In addition, as the Measures for the Administration of Foreign-Funded Securities Companies has taken effect inApril 2018 in the PRC to further open the securities market of the PRC, foreign investors are allowed to controlforeign-funded securities companies. With such regulatory changes and other factors that contribute to thegradual relaxation of the PRC securities regulations, more competitors are seeking to enter, or expand in, the PRCsecurities industry. The Group believes that the PRC securities industry and financial services industry arebecoming increasingly competitive, and its failure to remain competitive will have a material and adverse effecton its business, financial condition, results of operations and prospects.

The wealth management business, especially the securities and futures brokerage business, of the Groupis subject to various risks and there is no guarantee that its brokerage commission and fee income can besustained.

Brokerage commission and fee income represents a significant portion of the revenue of the Group. For the yearsended 31 December 2016 and 2017, revenue from securities and futures brokerage business of the Group(excluding inter-segment revenue) amounted to RMB13,467.8 million and RMB12,048.9 million, respectively,representing 31.7% and 29.2% of its total revenue, gains and other income, respectively. For the year ended 31December 2017 and 2018 and the six months ended 30 June 2018 and 2019, commission and fee income ofsecurities brokerage and futures brokerage amounted to RMB5,470.2 million and RMB4,266.8 million,RMB2,776.6 million and RMB3,210.2 million, respectively, representing 13.2%, 11.0%, 14.6% and 12.3% of itstotal revenue, gains and other income, respectively.

15

The securities and futures brokerage business in the wealth management business segment of the Group isaffected by external factors such as general economic conditions, macroeconomic and monetary policies, marketconditions and fluctuations in interest rates, all of which are beyond its control. In 2016, the CSI 300 Indexdecreased by 4.6% from 3,469.1 as at January 4, 2016 to 3,310.1 as at December 30, 2016. The average dailytrading volume of stocks and funds in China decreased by 47.7% from RMB1,106.9 billion in 2015 to RMB578.8billion in 2016. In 2017, the overall scale of securities companies has been expanding while maintaining stabilitywith continuously strong capital strength with the CSI 300 Index increased by 21.8%. In 2018, the CSI 300 Indexdecreased by 32.6% compared to the end of 2017. However, in the first half of 2019, the CSI 300 Index saw anincrease and as at 30 June 2019 the CSI Index increased by 27.1% compared to that of the end of 2018. Consistentwith the general recovery of the market, the revenue from commission and fee income of securities brokeragebusiness and futures brokerage business increased by 15.6% for the six months ended 30 June 2019 as comparedwith the six months ended 30 June 2018.

In addition, market competition is another key factor affecting the securities and futures brokerage business ofthe Group. The Group monitors its product pricing in relation to competitors and adjust commission rates andother fee structures to enhance its competitiveness.

With the gradual relaxation of the PRC securities regulations, the Group believes that the PRC securities industrywill become increasingly competitive. If the PRC regulatory authorities further relax the restrictions on theopening of brokerage branches, competition may increase and there is no guarantee that it would not furtherlower its brokerage commission rates in order to stay competitive. As a result, there is no guarantee that itsbrokerage commission and fee income can be sustained at current levels.

The investment banking business of the Group is subject to various risks in the underwriting andsponsorship of securities and there is no guarantee that its underwriting and sponsors fees can besustained.

For the year ended 31 December 2016, segment revenue from the investment banking business of the Group(excluding inter-segment revenue) amounted to RMB2,163.5 million, representing 5.1% of its total revenue,gains and other income, respectively. For the years ended 31 December 2017 and 2018 and the six months ended30 June 2018 and 2019, revenue from the investment banking business of the Group amounted to RMB4,238.5million, RMB3,819.4 million, RMB1,663.9 million and RMB1,933.7 million, respectively, representing 10.3%,9.9%, 8.8% and 7.4% of the total revenue, gains and other income, respectively. Although the investment bankingbusiness of the Group has had a rapid growth in revenue and profit in recent years, there is no guarantee that suchgrowth rate will be sustained due to the risks associated with its investment banking business as discussed below.

The investment banking business of the Group is subject to certain risks that are primarily related to theunderwriting of securities. The primary offering of securities in the PRC, especially an IPO, is subject to amerit-based review and approval process conducted by various regulatory authorities. The result and timing ofthese reviews are beyond the control of the Group and may cause substantial delays to, or the termination of,securities offerings it underwrites and sponsors. There is no guarantee that such approvals will be granted in atimely manner or at all in the future. A significant decline in the approval rate of the securities offerings theGroup sponsors could harm its reputation, erode client confidence and reduce its underwriting and sponsors feeincome, because the Group receives most of its fees only after the successful completion of a securities offering.From October 2012 to December 2013, there was not a single A share IPO approved by the CSRC, as a resultof which, the revenues of the Group’s investment banking business and that of its peers have witnessed a drop.In June 2014, the CSRC resumed approval in new equity offerings in the PRC market. However, it is unclearwhen the review of the outstanding offering applications will be completed by the CSRC. In addition, theperformance of the investment banking business of the Group also depends on market conditions. Adverse marketconditions and capital market volatility may also cause delays to, or the termination of, securities offerings theGroup underwrites and sponsors.

In addition, substantial capital market volatility may cause the securities that the Group underwrites to beundersubscribed. Since the Group may underwrite securities offerings on a firm commitment basis, it would thenbe required to purchase some or the entire unsubscribed portion for its own account, which would materially andadversely affect its liquidity. After trading begins, if the Group sells the securities on its own account to investorsbelow the offer price at which it was committed to purchase, it would incur losses on the sales of those securities.

16

Intensifying price competition in investment banking business from other PRC or Sino-foreign joint venturesecurities firms may force the Group to charge a lower underwriting fee rate to stay competitive. This could causethe underwriting and sponsors fees of the Group to be reduced, which could adversely affect its business,financial condition and results of operations. As a result, there is no guarantee that the Group’s underwriting andsponsors fees can be sustained at current levels.

Furthermore, when acting as a sponsor in the underwriting of securities, the Group may be subject to regulatorysanctions, fines, penalties or other disciplinary actions in the PRC for conducting inadequate due diligence inconnection with an offering, fraud or misconduct committed by issuers, their agents, other sponsors or itself,misstatements and omissions in disclosure documents, or other illegal or improper activities that occur during thecourse of the underwriting process.

A significant decline in the size of the Group’s AUM, fee rate or poor management performance maymaterially and adversely affect the asset management business of the Group.

For the year ended 31 December 2016, segment revenue from the asset management business of the Group(excluding inter-segment revenue) amounted to RMB1,911.0 million, representing 4.5% of its total revenue,gains and other income, respectively. For the years ended 31 December 2017 and 2018 and the six months ended30 June 2018 and 2019, segment revenue from the asset management business of the Group amounted toRMB2,264.5 million and RMB2,317.8 million, RMB1,000.1 million and RMB1,459.1 million, respectively,representing 5.5%, 6.0%, 5.3% and 5.6%, of its total revenue, gains and other income, respectively.

The Group receives asset management fees based on the value of its customer portfolios or investment in fundsmanaged by it. In addition, the Group also provides private equity fund management, collective assetmanagement and targeted asset management schemes in which the Group may also earn performance fees.Market volatility, adverse economic conditions or the failure to outperform its competitors or the market mayreduce the Group’s AUM or affect the performance of the assets or funds it manages, which could adverselyaffect the amount of management fees or performance fees it receives.

The trading and institutional client services business of the Group is subject to market volatility and itsinvestment decisions.

For the years ended 31 December 2017, 2018 and the six months ended 30 June 2018 and 2019, segment revenuefrom the trading and institutional client services business of the Group amounted to RMB11,901.9 million andRMB7,356.3 million, RMB3,875.3 million and RMB7,500.4 million, respectively, representing 28.8%, 19.0%,20.4% and 28.8%, of its total revenue, gains and other income, respectively.

The Group trades equity and fixed income securities as well as derivative products for its own account. Theequity and fixed income securities of the Group are subject to market volatility and, therefore, the results of itssecurities trading activities generally correlate with the performance of the PRC securities markets. The Groupalso engages in derivative transactions involving ETFs and stock index futures. The Group uses derivativeinstruments to reduce the impact of price volatility on its investment portfolio. However, the PRC derivativesmarket currently does not provide sufficient means for the Group to hedge against volatile trading markets, whichmay make it difficult for the Group to reduce its exposure to fluctuations in price volatility on its investmentportfolio, and the derivatives it uses may not be as effective as it expects. In addition, derivatives contracts theGroup enters into expose it to the risks associated with these instruments and its underlying assets, which couldresult in substantial losses. The secondary market for derivatives is volatile and the Group may be inexperiencedin managing new products or trading derivative products.

The performance of the trading and institutional client services business of the Group is determined by itsinvestment decisions and judgments based on its assessment of existing and future market conditions. The Groupclosely monitors the market value and financial performance of its proprietary trading portfolio, and activelyadjusts such portfolio and allocates assets based on market conditions and internal risk management guidelines.However, the investment decisions of the Group are a matter of judgment, which involves management discretionand assumptions. If the decision-making process of the Group fails to minimise losses effectively while capturinggains, or its forecasts do not conform to actual changes in market conditions, its trading and institutional clientservices business may not achieve the investment returns it anticipates, and it could even suffer material losses,any of which would materially and adversely affect its business, financial condition and results of operations.

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In addition, certain classes of the assets of the Group, such as its available-for-sale securities, are marked tomarket. A decline in the value of the available-for-sale securities of the Group could result in the recognition ofimpairment losses if management determines that such a decline in value is not temporary. This evaluation is amatter of judgment, which includes the assessment of several factors. If the management of the Group determinesthat an asset is impaired, the book value of the asset is adjusted and a corresponding loss is recognised in currentearnings. Deterioration in the market value of available-for-sale securities could result in the recognition ofimpairment loss.

The financial leasing business of the Group is subject to various risks and there is no guarantee that thefinancial leasing business can maintain rapid growth in the future.

The Group conducts its financial leasing business mainly UT Capital Group. The Group’s revenue in financialleasing business grew rapidly in the recent years. Through the years ended 31 December 2016, 2017 and 2018and the six months ended 30 June 2018 and 2019, its segment revenue from financial leasing business wasRMB3,332.2 million, RMB4,001.9 million and RMB5,688.0 million, RMB2,625.1 million and RMB3,706.0million, respectively, representing 7.8%, 9.7%, 14.7%, 13.8% and 14.2% of its total revenue, gains and otherincome, respectively.

UT Capital Group’s inability to maintain its asset quality may have a material adverse impact on its financialleasing business, financial condition and results of operations. Sustainable business growth of UT Capital Groupdepends significantly on its ability to effectively manage and maintain asset quality. UT Capital Group’s assetquality may deteriorate due to various factors, some of which are beyond control of the Group. These factorsinclude a slowdown in the PRC or global economic growth, the occurrence of a global credit crisis, or otheradverse market trends. In respect of financial leasing business, any significant changes in the Group’s lessees’industries may adversely affect their operations, financial condition and cash flows, which may affect theirability to perform their payment obligations in a timely manner and may lead to default of the lessees. Otherfactors that may affect the Group’s lessees’ financial condition and cash flows, such as an increase in operatingcosts, labour shortage, fluctuations in interest rates and an increase in financing cost, etc.

UT Capital Group has been continually improving its business model and risk management measures and takesinitiatives to mitigate risks to maintain and reduce the levels of its NPAs. The Group takes various measures,including initiating lawsuits, to recover its credit assets at risk. However, the above measures may not be aseffective as UT Capital Group anticipates. If UT Capital Group is unable to maintain its asset quality, the Group’sfinancial leasing business, financial position and business operations may be materially and adversely affected.

In addition, UT Capital Group may not be able to continue to grow if it is not able to expand its product andservice offerings to attract new customers, improve its marketing strategies, or broaden its distribution channels.The Group’s ability to maintain business growth in financial leasing business is highly dependent on variousfactors beyond control of the Group, including the economic growth, interest rate, development of financialleasing and financial industries, as well as changes in laws, regulations and rules applicable to the leasingindustry in China. Any unfavourable change in the above one or more factors may prevent it from maintainingits growth rate.

The Group plans to continue to invest substantial financial, management and operational resources to sustain itsgrowth. However, the Group cannot provide any assurance that it will be able to continually obtain theseresources in the future. For instance, the Group may not be able to obtain additional internal and external capitalto support its business growth on commercially acceptable terms, or to retain and attract sufficient number ofcompetent staff to support its business development.

Any significant disruption in the operations of Haitong International Securities in Hong Kong, theoperations of Haitong Bank in Portugal and the United Kingdom or the other overseas operations of theGroup could have a material adverse effect on its overseas business.

As the Group generates most of the revenue and other income in its overseas business from its operations in HongKong, its overseas business depends on, to a large extent, the results of operations of Haitong InternationalSecurities and the other subsidiaries of the Group incorporated in Hong Kong. However, there is no guaranteethat Haitong International Securities and the Group’s other Hong Kong operations may continue to experiencethe same level of growth or profitability. A variety of external factors that could significantly affect the Group’s

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operations in Hong Kong include, but are not limited to, changes in the general economic and market conditionsin Hong Kong and compliance with various regulatory and legal requirements in Hong Kong. For example, theHong Kong economy has experienced significant downturns in the past, including in connection with theoutbreak of SARS in 2003, the global financial crisis and the market volatility in the second half of 2011. Theseeconomic downturns resulted in substantial losses in the securities markets, significant deterioration incustomers’ asset quality and increases in the cost of funding in the overseas markets. In addition, the outbreakof communicable diseases such as the COVID-19 outbreak on a global scale may also affect investment sentimentand result in sporadic volatility in global capital markets and economic downturns.

In September 2015, the acquisition of BESI, which was then renamed to Haitong Bank by the Group, wascompleted. While this acquisition enriches the Group’s cross-border network in Europe, North America, SouthAmerica, South Asia and Oceania, it also exposes the Group to risks associated with such areas.

Any significant disruption in the operations of Haitong International Securities, Haitong Bank or the otheroverseas operations of the Group could have a material adverse effect on its business, financial condition, resultsof operations and prospects.

The Group may be subject to liability and reputational damage for distribution of financial products issuedby third-party institutions.

The Group distributes, through our branch network and online platform, financial products issued by third-partyinstitutions. The structure of some financial products may be complex and involve various risks. Although as athird-party distributor, the Group is not liable for any investment loss or default directly derived from thefinancial products it distributed to its clients, the Group may be subject to client complaints, litigation, regulatoryinvestigation and negative news or comments, which could have an adverse effect on its reputation, clientsrelationships, business and prospects.

The business of the Group is subject to concentration risks due to significant holdings of financial assetsor significant capital commitments.

Certain of the Group’s business lines are capital intensive, such as its investment banking, proprietary trading,direct investment, margin financing and securities lending, and financial leasing businesses, which may result inthe Group having significant holdings of selected asset classes or bank and other borrowings. Such capitalcommitments expose the Group to concentration risks, including market risk, in the case of its holdings ofconcentrated or illiquid positions in a particular asset class as part of its proprietary trading and direct investmentactivities, and credit risk, in the case of its margin financing and securities lending and financial leasingbusinesses. Any decline in the value of the asset holdings of the Group may reduce its income or result in losses.

A significant decrease in the liquidity of the Group could negatively affect its business and reduce customerconfidence in it.

Maintaining adequate liquidity is crucial to the business operations of the Group as it continues to expand itsmargin financing and securities lending, investment banking, proprietary trading, and other business activitieswith substantial cash requirements. The Group meets its liquidity needs primarily through cash generated byoperating activities and, to a lesser extent, cash provided by external financing. A reduction in the liquidity ofthe Group could reduce the confidence of its customers or counterparties in it, which may result in the loss ofbusiness and customer accounts. In addition, according to the CSRC’s requirements, the ratio between theGroup’s net capital and the summation of all risk capital reserves cannot fall below 100%, the ratio between theGroup’s core net capital and total amount of in-balance-sheet and off-balance-sheet assets cannot fall below 8%,the ratio between the Group’s high-quality liquidity assets and net cash outflow in next 30 days cannot fall below100% and the ratio between the Group’s stable fund available and stable fund required cannot fall below 100%.The regulatory capital requirements are currently under review by the regulator and are subject to furtherrevision. If the Group fails to meet regulatory capital requirements in the PRC, regulatory authorities may imposepenalties on it or limit the scope of its business or withdrawal the license to operate securities business, whichcould, in turn, have a material and adverse effect on its financial condition and results of operations.

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Factors that may adversely affect the liquidity position of the Group include a significant increase in its marginfinancing activities, increased regulatory capital requirements, substantial investments, other regulatory changesor a loss of market or customer confidence. When cash generated from the operating activities of the Group isnot sufficient to meet its liquidity or regulatory capital needs, it must seek external financing. During periods ofdisruptions in the credit and capital markets, potential sources of external financing could be limited and theborrowing costs of the Group could increase. Although the management of the Group believes that it maintainssufficient credit lines and banking facilities, external financing may not be available on acceptable terms or atall due to unfavourable market conditions and disruptions in the credit and capital markets.

The Group has had, and may continue to have, negative cash flows from operating activities.

For the years ended 31 December 2016, 2017 and the six months ended 30 June 2018 and 2019, the Group’s netcash used in operating activities were RMB19,268.4 million, and RMB37,213.5 million, RMB10,432.7 millionand RMB1,477.2 million, respectively. For the year ended 31 December 2018, the Group recorded a RMB5,197.8million net cash from operating activities. The Group cannot provide any assurance that it will not continue torecord negative cash flow from its operating activities in the future, which may limit its working capital and inturn, the Group’s business, financial condition, results of operations and prospects may be materially andadversely affected.

The Group is subject to extensive regulatory requirements, the non-compliance with which could cause itto incur penalties.

As a participant in the securities and financial services industries, the Group is subject to extensive PRC andoverseas (including Hong Kong) regulatory requirements, which are designed to ensure the integrity of thefinancial markets, the soundness of securities firms and other financial institutions and the protection ofinvestors. These regulations often serve to limit the activities of the Group by, among other things, imposingcapital requirements, limiting the types of products and services it may offer, restricting the types of securitiesin which it may invest and limiting the number and location of branches it may establish. The PRC and overseas(including Hong Kong) regulatory authorities conduct periodic or ad hoc inspections, examinations and inquiriesin respect of the Group’s compliance with such requirements. Failure to comply with the applicable regulatoryrequirements could result in sanctions, fines, penalties or other disciplinary actions, including, among otherthings, a downgrade of its regulatory rating and limitations or prohibitions on the future business activities ofthe Group, which may limit its ability to conduct pilot programmes and launch new businesses and harm itsreputation, and consequently materially and adversely affect its financial condition and results of operations.

For the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2019, the Group andits employees had been involved in several incidents of regulatory non-compliance. Please see “Description ofthe Group – Legal and Regulatory – Regulatory non-compliance”. Material incidents of non-compliance maysubject the Group to penalties or restrictions on its business activities, or a downgrade of its regulatory rating.For example, the Group received from the CSRC an “AA” regulatory rating from 2008 to 2012 and from 2014to 2015, while the regulatory rating was downgraded from “AA” to “A” in 2013 and from “AA” to “BBB” in2016. In 2017, the regulatory rating was upgraded from “BBB” in 2016 to “AA”. Such “AA” rating is maintainedin 2018 and 2019. Despite the efforts of the Group to comply with applicable regulations, there are a number ofassociated risks, particularly in areas where applicable regulations may be unclear or where regulatorssubsequently revise their previous guidance.

New legislation or changes in the PRC regulatory requirements may affect the business operations andprospects of the Group.

The PRC securities industry is a highly regulated industry and relevant rules and regulations could be changedfrom time to time based on the development of the securities markets. New rules and regulations and changesin the interpretation or enforcement of currently existing rules and regulations may directly impact the businessstrategies and prospects of the Group. In addition, changes in the rules and regulations could result in limitationson the business lines the Group may conduct, modifications to its business practices or additional costs.

In particular, the Group has been selected by PRC regulators as one of the first securities firms to develop variousnew businesses in the PRC securities industry. However, as the PRC securities industry is still evolving, mostof the newly-introduced businesses require further development and improvement and there are someuncertainties regarding the enforcement of existing rules and regulations in relation to the new businesses.Changes in the interpretation or enforcement of rules and regulations for the new businesses may result inchanges in, or the suspension of, certain of the new businesses of the Group, which could have a material adverseeffect on its business and prospects.

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The risk management policies and procedures and internal controls, as well as the risk management toolsof the Group available to it, may not fully protect it against various risks inherent in its business.

Currently, the Group follows its internal risk management framework and procedures to manage its riskexposures, primarily including market risk, credit risk, liquidity risk and operational risk. The risk managementpolicies, procedures and internal controls of the Group may not be adequate or effective in mitigating its riskexposures or protecting it against unidentified or unanticipated risks. In particular, some methods of managingrisks are based upon observed historical market behaviour and its experience in the securities industry. Thesemethods may fail to predict future risk exposures, which could be significantly greater than those indicated bythe historical measures of the Group. Other risk management methods depend upon an evaluation of availableinformation regarding operating and market conditions and other matters, which may not be accurate, complete,up-to-date or properly evaluated. In addition, in markets that are rapidly developing, the information andexperience data that the Group relies on for its risk management methods may become quickly outdated asmarkets and regulations continue to evolve.

Management of operational, legal and regulatory risks requires, among other things, policies and procedures torecord properly and verify a large number of transactions and business activities, as well as the appropriate andconsistent application of internal control systems. These policies, procedures and internal controls may not beadequate or effective and the business, financial condition and results of operations of the Group could bematerially and adversely affected by the corresponding increase in its risk exposures and actual losses as a resultof failures of the risk management policies, procedures and internal controls of the Group. The risk mitigationstrategies and techniques that the Group adopts may not be fully effective and may leave it exposed tounidentified and unanticipated risks.

Furthermore, the risk management procedures and asset allocation decisions of the Group govern its proprietarytrading and investment portfolio. The Group may not have adequate risk management tools, policies andprocedures, and may not have sufficient access to resources and trading counterparties to implement effectivelyits trading and investment risk mitigation strategies and techniques related to its proprietary trading andinvestment portfolio. If the decision-making process of the Group fails to minimise losses effectively whilecapturing gains, it may experience significant financial losses that could materially and adversely affect itsbusiness, financial condition and results of operations.

The Group may suffer significant losses from its credit exposures.

The businesses of the Group are subject to risks that a customer or counterparty may fail to perform itscontractual obligations or that the value of collateral held to secure the obligations might be inadequate. Whilethe Group has internal policies and procedures designed to manage such risks, these policies and procedures maynot be fully effective. Please see “– The risk management policies and procedures and internal controls, as wellas the risk management tools of the Group available to it, may not fully protect it against various risks inherentin its business”. The credit exposure of the Group mainly results from its margin financing and securities lendingand financial leasing businesses and its role as a counterparty in financial and derivative and lease contracts. Anymaterial non-payment or non-performance by a customer or counterparty could adversely affect the financialposition, results of operations and cash flows of the Group.

In addition, the Group has exposure to credit risk associated with its available-for-sale investments andheld-to-maturity financial assets. These investments may also be subject to price fluctuations as a result ofchanges in the financial market’s assessment of the issuer’s creditworthiness, delinquency and default rates andother factors, which could adversely affect the financial condition and results of operations of the Group.

The Group faces additional risks as it expands its product and service offerings.

The Group is committed to providing new products and services in order to strengthen its leading market positionin the PRC securities industry. The Group has expanded its business to include certain Developing New Business.These new businesses expose it to additional risks. For example, although the Group has established a margincall risk control mechanism through which it monitors the value of its customers’ collateral on a real-time basis,it may be subject to substantial risks if borrowers of margin loans default on payments or if the value of thecollateral for the loans is insufficient to cover the margin loans due to significant market volatility. The Groupmay also suffer losses on stock index futures contracts it enters into if stock indices move unfavourably.

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The Group will continue to expand its product and service offerings as permitted by the PRC regulatoryauthorities, transact with new customers not in its traditional customer base and enters into new markets. Theseactivities expose the Group to new and increasingly challenging risks, including, but not limited to:

• it may have insufficient experience or expertise in offering new products and services and dealing with newcounterparties and customers;

• it may be subject to greater regulatory scrutiny, increased credit risks, market risks and operational risks;

• it may suffer from reputational concerns arising from dealing with less sophisticated counterparties andcustomers;

• it may be unable to provide customers with adequate levels of service for its new products and services;

• it may be unable to hire additional qualified personnel to support the offering of a broader range of productsand services;

• its new products and services may not be accepted by its customers or meet its profitability expectations;

• it may be unable to obtain sufficient financing from internal and external sources to support its businessexpansion; and

• it may not be successful in enhancing its risk management capabilities and IT systems to identify andmitigate all the risks associated with these new products and services, new customers and new markets.

If the Group is unable to achieve the intended commercial results with respect to its offering of new productsand services, its business, financial condition, results of operations and prospects could be materially andadversely affected.

Significant interest rate fluctuations could affect the financial condition and results of operations of theGroup.

The exposure of the Group to interest rate risk is primarily associated with its interest income, interest expensesand fixed income securities.

The Group earns interest income from bank deposits (including its own deposits and customer deposits), marginfinancing and securities lending business, financial assets held under resale agreements and financial leasingbusiness. Interest income from these sources is directly linked to the prevailing market interest rates. Duringperiods of declining interest rates, the interest income of the Group would generally decrease.

The Group makes interest payments on deposits it holds on behalf of its customers, its short-term borrowings,other financing obligations and repurchases transactions. These interest expenses are directly linked to theprevailing market interest rates. During periods of rising interest rates, the interest expenses and financing costsof the Group would generally increase.

In addition, the Group holds fixed income securities. During periods of rising interest rates, market prices andits investment returns on fixed income securities will generally decrease. Significant interest rate fluctuationscould reduce the Group’s interest income or returns on fixed income investments, or increase its interestexpenses, any of which could adversely affect its financial condition and results of operations.

The operations of the Group depend on key management and professional staff and its business may sufferif it is unable to retain or replace them.

The success of the business of the Group is dependent to a large extent on its ability to attract and retain keypersonnel who possess in-depth knowledge and understanding of the securities and financial markets. These keypersonnel include members of its senior management, licensed sponsor representatives, experienced investmentmanagers and industry analysts, IT specialists, sales staff and other personnel. Therefore, the Group devotes

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considerable resources to recruiting and retaining these personnel. However, the market for quality professionalsis highly competitive and the Group faces increasing competition in recruiting and retaining these individuals asother securities firms and financial institutions are competing for the same pool of talent. Intense competitionmay require it to offer higher compensation and other benefits in order to attract and retain qualifiedprofessionals, which could materially and adversely affect its financial condition and results of operations. Asa result, the Group may be unable to attract or retain these personnel to achieve its business objectives and thefailure to do so could severely disrupt its business and prospects.

Some of the key employees of the Group are subject to non-competition arrangements. However, there is noguarantee that such arrangements can be fully and legally enforced. If any of the Group’s senior management orother key personnel joins or establishes a competing business, it may lose some of its customers, which may havea material adverse effect on its business.

Future acquisitions and overseas expansions may not be successful.

In addition to organic growth, the current strategy of the Group also involves growth through acquisitions ofcomplementary businesses and entry into strategic alliances. This strategy entails potential risks that could havea material adverse effect on the business of the Group, financial condition, results of operations and prospects,including:

• unidentified or unanticipated liabilities or risks in the assets or businesses which it may acquire;

• inability to integrate successfully the products, services and personnel of the businesses which it may acquireinto its operations or to realise any expected cost savings or other synergies from the acquisitions;

• the need to incur additional indebtedness, which may reduce its cash available for operations and other usesdue to increased debt repayment obligations;

• inability to retain employees and customer relationships;

• customer overlap or loss of customers; and

• diversion of management attention and other resources.

The Group may not be able to identify attractive acquisition opportunities or make acquisitions on attractiveterms or obtain financing necessary to complete and support such acquisitions. In addition, the anticipated futureexpansion of the operations of the Group through acquisitions will place a significant strain on its management,internal controls and IT systems and resources, and could also result in additional expenditure. In addition totraining, managing and integrating its workforce, the Group will need to continue to develop and improve itsmanagement and financial controls. There is no guarantee that any of such acquisitions will result in long-termbenefits to it or that the Group will be able to manage effectively the integration and growth of its operations.Failure to do so may materially and adversely affect its business, financial condition, results of operations andprospects.

In addition, the overseas acquisitions of the Group (including acquisitions in Hong Kong) may expose it toadditional risks, including, among others:

• difficulties with managing overseas (including Hong Kong) operations, including complying with the variousregulatory and legal requirements of different jurisdictions;

• different approval or licence requirements;

• challenges in providing products, services and support in these overseas (including Hong Kong) markets;

• challenges in managing its sales channels and overseas (including Hong Kong) distribution networkeffectively;

• differences in accounting treatment in different jurisdictions;

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• potential adverse tax consequences;

• foreign exchange losses;

• limited protection for intellectual property rights;

• inability to enforce contractual or legal rights effectively;

• changes in local government laws, regulations and policies; and

• local political and economic instability or civil unrest.

In addition, the Group may not be able to realise any anticipated benefits or achieve the synergies it expects fromacquisitions, the clients of the Group may react unfavourably to its acquisitions and joint venture strategy, andit may be exposed to loss of key personnel or management or additional liabilities of any acquired business orjoint venture. If the Group is unable to avoid or mitigate these risks effectively, its ability to expand its businessoverseas (including Hong Kong) will be impaired, which could have a material and adverse effect on its business,financial condition, results of operations and prospects.

The Group may not be able to detect and prevent fraud or other misconduct committed by its employees,representatives, agents, customers or other third parties.

The Group may be exposed to fraud or other misconduct committed by its employees, representatives, agents,customers or other third parties that could not only subject it to financial losses and sanctions imposed bygovernmental authorities but also adversely affect its reputation.

The internal control procedures of the Group are designed to monitor its operations and ensure overallcompliance. However, the internal control procedures of the Group may be unable to identify all incidents ofnon-compliance or suspicious transactions in a timely manner or at all. Furthermore, it is not always possible todetect and prevent fraud and other misconduct, and the precautions the Group takes to prevent and detect suchactivities may not be effective. There is no guarantee that fraud or other misconduct will not occur in the future.If such fraud or other misconduct does occur, it may cause negative publicity as a result. The Group’s failure todetect and prevent fraud and other misconduct may have a material adverse effect on its business reputation,financial condition and results of operations.

The Group may not fully be able to detect money laundering and other illegal or improper activities in itsbusiness operations on a timely basis.

The Group is required to comply with applicable anti-money laundering, anti-terrorism laws and otherregulations in the PRC and overseas (including Hong Kong). The PRC Anti-money Laundering Law (中華人民共和國反洗錢法) requires financial institutions to establish sound internal control policies and procedures withrespect to anti-money laundering monitoring and reporting activities. Such policies and procedures require theGroup to, among other things, establish or designate an independent anti-money laundering department, establisha customer identification system in accordance with relevant rules, record the details of customer activities andreport suspicious transactions to relevant authorities.

While the Group has adopted policies and procedures aimed at detecting and preventing the use of its businessplatforms to facilitate money laundering activities and terrorist acts, such policies and procedures in some caseshave only been recently adopted and may not completely eliminate instances in which it may be used by otherparties to engage in money laundering and other illegal or improper activities. In the event that the Group failsto comply fully with applicable laws and regulations, the relevant government agencies may freeze its assets orimpose fines or other penalties on it. There is no guarantee that there will not be failures in detecting moneylaundering or other illegal or improper activities which may adversely affect its business reputation, financialcondition and results of operations.

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The Group relies heavily on IT systems to process and record its transactions and offer online products andservices.

The operations of the Group relies heavily on the ability of its IT systems to process accurately a large numberof transactions across numerous and diverse markets and its broad range of products in a timely manner. Thesystem of the Group for processing securities transactions is highly automated. A prolonged disruption to, orfailure of, its information processing or communications systems would limit its ability to process transactions.This would impair the Group’s ability to service its customers and execute trades on behalf of customers and forits own account, which could materially and adversely affect its competitiveness, financial condition and resultsof operations.

The proper functioning of the Group’s financial control, risk management, accounting, customer service andother data processing systems, together with the communication networks between its headquarters and branches,are critical to its business and its ability to compete effectively. The Group has established back-up centres inShanghai and Shenzhen to carry on principal functions in the event of a catastrophe or failure of its systems,including those caused by human error. However, there is no guarantee that its operations will not be materiallydisrupted if any of its systems fail.

In addition, the securities industry is characterised by rapidly changing technology. Online securities tradingplatforms and other new channels, such as mobile devices, are becoming increasingly popular among itscustomers due to their convenience and user-friendliness. The Group relies heavily on technology, particularlythe Internet, to provide high quality online services. However, the technology operations of the Group isvulnerable to disruptions from human error, natural disasters, power failure, computer viruses, spam attacks,unauthorised access and other similar events. Disruptions to, or instability of, technology of the Group orexternal technology that allows its customers to use its online products and services could harm its business andits reputation.

The Group’s business is susceptible to the operational failure of third parties.

The Group faces the risk of operational failure or termination of any of the exchanges, depositaries, clearingagents or other financial intermediaries it uses to facilitate its securities transactions. However, any futureoperational failure or termination of the particular financial intermediaries that the Group uses could adverselyaffect its ability to execute transactions, serve its customers and manage its exposure to various risks.

In addition, as the Group’s interconnectivity with its customers grows, its business also relies heavily on itscustomers’ use of their own systems, such as personal computers, mobile devices and the Internet, and the Groupwill increasingly face the risk of operational failure in connection with its customers’ systems.

The Group may be subject to litigation and regulatory investigations and proceedings and may not alwaysbe successful in defending itself against such claims or proceedings.

The securities industry faces substantial litigation and regulatory risks, including the risk of lawsuits and otherlegal actions relating to information disclosure, sales or underwriting practices, product design, fraud andmisconduct, as well as protection of personal and confidential information of the customers of the Group. TheGroup may be subject to arbitration claims and lawsuits in the ordinary course of its business. The Group mayalso be subject to inquiries, investigations, and proceedings by regulatory and other governmental agencies.Actions brought against the Group may result in settlements, injunctions, fines, penalties or other results adverseto it that could harm its reputation. Even if the Group were successful in defending itself against these actions,the costs of such defence may be significant to it. In market downturns, the number of legal claims and amountof damages sought in litigation and regulatory proceedings may increase. A significant judgment or regulatoryaction against the Group, or a disruption in its business arising from adverse adjudications in proceedings againstits directors, officers or employees, would have a material adverse effect on its liquidity, business, financialcondition, results of operations and prospects. Please see “– The Group is subject to extensive regulationrequirement, the non-compliance with which could cause it to incur penalties.”

Failure to identify and address conflicts of interest appropriately could adversely affect the business of theGroup.

As the Group expands the scope of its business and its client base, it is critical for it to be able to address potentialconflicts of interest, including situations where two or more interests within its business legitimately exist butare in competition or conflict. Please see “Description of the Group – Internal Control and Risk Management –Conflicts of Interest.”

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The Group has extensive internal control and risk management procedures that are designed to identify andaddress conflicts of interest. However, appropriately identifying and dealing with potential conflicts of interestis complex and difficult. The Group’s failure to manage conflicts of interest could harm its reputation and erodeclient confidence in it. In addition, potential or perceived conflicts of interest may also give rise to litigation orregulatory actions. Any of the foregoing could adversely affect the business, financial condition and results ofoperations of the Group.

The Group may be subject to liability and regulatory action if it is unable to protect personal and otherconfidential information of its customers.

Various laws, regulations and rules require the Group to protect the personal data and confidential informationof its customers. The relevant authorities may issue sanctions or orders against the Group if it fails to protect thepersonal information of its customers, and it may have to provide compensation for economic loss arising fromits failure to protect the personal information of its customers in accordance with relevant laws and regulations.Incidents of mishandling the personal information or failure to protect the confidential information of itscustomers could create a negative public or customer perception of its operations or its brand name, which maymaterially and adversely affect its reputation and prospects.

RISKS RELATING TO THE PRC

China has experienced a slowdown in its economic development and the future performance of China’seconomy is uncertain.

The economy of the PRC experienced rapid growth in the past 30 years. There has been a slowdown in the growthof the PRC’s GDP since the second half of 2013 and this has raised market concerns that the historic rapid growthof the economy of the PRC may not be sustainable. According to the National Bureau of Statistics of the PRC,the annual growth rate of China’s GDP in 2015 slowed down to 6.9 per cent. on a year-on-year basis comparedto 7.3 per cent. in 2014, and it further decreased to 6.7 per cent. in 2016 on a year-on-year basis. In 2017 and2018, the PRC reported a year-on-year GDP growth of 6.9 per cent and 6.6 per cent., respectively. In March 2016,Moody’s and S&P changed China’s credit rating outlook to “negative” from “stable”, which highlighted thecountry’s surging debt burden and questioned the government’s ability to enact reforms. On 24 May 2017,Moody’s downgraded China’s long-term local currency and foreign currency issuer ratings to A1 from Aa3 andchanged the outlook to stable from negative. In 2019, Moody’s gave China a A1 rating with a stable outlook. On21 September 2017, S&P’s rating services downgraded China’s credit rating by one notch from AA- to A+. In2018 and 2019, China maintained an A+/A-1 with stable outlook rating at S&P.

The future performance of China’s economy is not only affected by the economic and monetary policies of thePRC Government, but it is also exposed to material changes in global economic and political environments aswell as the performance of certain major developed economies in the world, such as the United States and theEuropean Union. For example, the United Kingdom’s exit from the European Union and the China-U.S. tradefriction have brought uncertainty to the economic conditions of the world, including but not limited to furtherdecreases in global stock exchange indices, increased foreign exchange volatility (in particular a furtherweakening of the pound sterling and euro against other leading currencies) and a possible economic recessioninvolving more countries and areas. Therefore, there exists continued uncertainty for the overall prospects for theglobal and the PRC economies.

Changes in the economic, political and social conditions in the PRC and government policies adopted bythe PRC Government could affect the Group’s business and prospects.

The economy of the PRC differs from the economies of most developed countries in many respects, including,with respect to government involvement, level of development, economic growth rate, control of foreignexchange and allocation of resources. The economy of the PRC has been transitioning from a planned economyto a more market-oriented economy. In recent years, the PRC Government has implemented a series of measuresemphasising market forces for economic reform, the reduction of state ownership of productive assets and theestablishment of sound corporate governance in business enterprises.

However, a large portion of productive assets in the PRC remain owned by the PRC Government. The PRCGovernment continues to play a significant role in regulating industrial development, the allocation of resources,

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production, pricing and management, and there can be no assurance that the PRC Government will continue topursue the economic reforms or that any such reforms will not have an adverse effect on the Group’s business.

The Group’s operations and financial results could also be affected by changes in political, economic and socialconditions or the relevant policies of the PRC Government, such as changes in laws and regulations (or theinterpretation thereof). In addition, the growth of development in the economic and technology developmentzones and infrastructure construction demand in the PRC depends heavily on economic growth. If the PRC’seconomic growth slows down or if the economy of the PRC experiences a recession, the growth of developmentin Chinese economic and technology development zones and infrastructure construction demand may also slowdown, and the Group’s business prospects may be materially and adversely affected. The Group’s operations andfinancial results, as well as its ability to satisfy its obligations under the Bonds, could also be materially andadversely affected by changes to or introduction of measures to control changes in the rate or method of taxationand the imposition of additional restrictions on currency conversion.

Uncertainty with respect to the PRC legal system could affect the Group.

The Group’s major business is conducted in the PRC and the majority of its operations are located in the PRC,hence its business operations are regulated primarily by PRC laws and regulations. The PRC legal system is acivil law system based on written statutes. Unlike the common law system, past court judgments in the PRC havelimited precedential value and may be cited only for reference. Furthermore, PRC written statutes often requiredetailed interpretations by courts and enforcement bodies for their application and enforcement. Since 1979, thePRC Government has been committed to developing and refining its legal system and has achieved significantprogress in the development of its laws and regulations governing business and commercial matters, such as inforeign investment, company organisation and management, commercial transactions, tax and trade. However,China has not developed a fully integrated legal system and the recently enacted laws and regulations may notsufficiently cover all aspects of economic activities in the PRC. In particular, as these laws and regulations arestill evolving, in view of how the PRC’s financial industry is still developing, and because of the limited numberand non-binding nature of published cases, there exist uncertainties about their interpretation and enforcement,and such uncertainties may have a negative impact on the Group’s business.

In addition, the PRC legal system is based, in part, on government policies and internal rules (some of which arenot published on a timely basis or at all) that may have a retroactive effect. As a result, the Group may not beaware of the Group’s violation of these policies and rules until sometime after the violation. In addition, anylitigation in China may be protracted and result in substantial costs and diversion of resources and management’sattention.

Furthermore, the administration of PRC laws and regulations may be subject to a certain degree of discretion bythe executive authorities. This has resulted in the outcome of dispute resolutions not being as consistent orpredictable compared to other more developed jurisdictions. In addition, it may be difficult to obtain a swift andequitable enforcement of laws in the PRC, or the enforcement of judgments by a court of another jurisdiction.These uncertainties relating to the interpretation and implementation of PRC laws and regulations may adverselyaffect the legal protections and remedies that are available to the Group in its operations and to Bondholders.

For example, the NDRC issued the Notice on Promoting the Reform of the Filing and Registration System forIssuance of Foreign Debt by Corporates (Fa Gai Wai Zi [2015] No. 2044) (國家發展改革委關於推進企業發行外債備案登記制管理改革的通知(發改外資[2015]2044號)) (the “NDRC Circular”) on 14 September 2015, whichcame into effect on the same day. According to the NDRC Circular, domestic enterprises and their overseascontrolled entities shall procure the registration of any debt securities issued outside the PRC with a maturity notless than one year with the NDRC prior to the issue of the securities and notify the particulars of the relevantissues within 10 working days after the completion of the issue of the securities. The NDRC Circular is arelatively new regulation, and uncertainties remain regarding its interpretation, implementation and enforcementby the NDRC and, in particular, there is a risk that the NDRC could in the future amend the rules relating to theNDRC Circular or the interpretation thereof (including with retroactive effect), such that debt instruments similarto the Bonds will be subject to the registration and other requirements under the NDRC Circular. As a result ofthese uncertainties with respect to the PRC legal system, lack of uniform interpretation and effectiveenforcement, the Group may be subject to uncertainties in its operations. These uncertainties can also affect thelegal remedies and protections available to investors, and can adversely affect the value of their investment.

Investors may experience difficulties in effecting service of legal process and enforcing judgments againstthe Group and the Group’s management.

The majority of the Group’s assets and the subsidiaries of the Group are located in the PRC. In addition, mostof the Issuer and the Guarantor’s directors, supervisors and executive officers reside within the PRC and the

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assets of the Group’s directors and officers may be located within the PRC. As a result, it may not be possibleto effect service of process outside the PRC upon most of the Group’s directors, supervisors and seniormanagement, including for matters arising under applicable securities law. A judgment of a court of anotherjurisdiction may be reciprocally recognised or enforced if the jurisdiction has a treaty with the PRC or ifjudgments of the PRC courts have been recognised before in that jurisdiction, subject to the satisfaction of otherrequirements. However, the PRC does not have treaties providing for the reciprocal recognition and enforcementof judgments of courts with many countries, including Japan, the United States and the United Kingdom.Therefore, it may be difficult for investors to enforce any judgments obtained from foreign courts against theGroup, the Issuer and the Guarantor, any of their respective directors, supervisors or senior management in thePRC.

PRC economic, political and social conditions, as well as government policies, could affect the Group’sbusiness and prospects.

Substantially all of the Group’s assets are located in the PRC and most of the Group’s revenue is sourced fromthe PRC. Accordingly, the Group’s business, financial condition, results of operations and prospects are subject,to a significant degree, to economic, political and legal developments in the PRC. For more than three decades,the PRC Government has implemented economic reform measures to utilise market forces in the developmentof the PRC economy. In addition, the PRC Government continues to play a significant role in regulatingindustries and the economy through policy measures. The Group cannot predict whether changes in PRCeconomic, political or social conditions and in PRC laws, regulations and policies will adversely affect itsbusiness, financial condition, results of operations or prospects. In addition, many of the economic reformscarried out by the PRC Government are unprecedented or experimental and are expected to be refined andimproved over time. Other political, economic and social factors may also lead to further adjustments of thereform measures. This refining and adjustment process may not necessarily have a positive effect on the Group’soperations and business development.

The Group’s business, financial condition and results of operations may be adversely affected by:

• changes in PRC political, economic and social conditions;

• changes in policies of the PRC Government, including changes in policies in relation to the Group’s businesssegments;

• changes in laws and regulations or the interpretation of laws and regulations;

• changes in the interest rates;

• measures that may be introduced to control inflation or deflation;

• changes in the rate or method of taxation;

• the imposition of additional restrictions on currency conversion and remittances abroad; and

• a reduction in tariff protection and other import restrictions.

Furthermore, the growth of the industries the Group is engaged in depends heavily on economic growth of thePRC. The Group cannot assure that the current growth rate of the PRC will be sustained in the future. From timeto time, the PRC Government has implemented certain measures in order to prevent the PRC economy fromexperiencing excessive inflation. Such governmental measures may cause a decrease in the level of economicactivity and have an adverse impact on economic growth in China. If China’s economic growth fluctuates, theindustries the Group is engaged in may also grow at a slower pace or even decline. Such events could materiallyand adversely affect the Group’s business, financial condition, results of operations and prospects.

Government control of currency conversion may adversely affect the value of investors’ investments.

Most of the Group’s revenue is denominated in Renminbi, which is also the reporting currency of the Group.Renminbi is not a freely convertible currency. A portion of the Group’s cash may be required to be converted intoother currencies in order to meet the Group’s foreign currency needs, including cash payments on declareddividends, if any, on the Bonds.

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However, the PRC government may restrict future access to foreign currencies for current account transactionsat its discretion. If this were to occur, the Group might not be able to pay dividends to the holders of the Bondsin foreign currencies. On the other hand, capital account transactions must be approved by or registered with theSAFE or its local branch. If the foreign exchange control system prevents the Group from obtaining sufficientforeign currency to satisfy its currency demands, the Group’s capital expenditure plans, business operations andconsequently its results of operations and financial condition could be materially and adversely affected.

Future fluctuations in the value of the Renminbi could materially and adversely affect the Group’sbusiness, financial condition and results of operations.

The Group conducts its business mainly in Renminbi. However, a portion of its bank borrowings is denominatedin U.S. dollars, although the Group’s functional currency is the Renminbi. As a result, fluctuations in exchangerates, particularly between the Renminbi and the U.S. dollar, could affect the Group’s profitability and may resultin foreign currency exchange losses of the Group’s foreign currency-denominated liabilities.

The value of the Renminbi against the U.S. dollar, the euro and other currencies fluctuates and is affected by,among other things, changes in China’s political and economic conditions. On 21 July 2005, the PRCGovernment introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuatewithin a regulated band based on market supply and demand and by reference to a basket of currencies. Sincethen, the PRC Government has made, and may in the future make, further adjustments to the exchange ratesystem. The People’s Bank of China (“PBOC”) announces the closing price of a foreign currency traded againstthe Renminbi in the inter-bank foreign exchange market after the closing of the market on each working day, andmakes it the central parity for the trading against the Renminbi on the following working day. PBOC surprisedmarkets in August 2015 by thrice devaluing the Renminbi, lowering its daily mid-point trading price significantlyagainst the U.S. dollar. The currency devaluation of the Renminbi was intended to bring it more in line with themarket by taking market signals into account. Renminbi depreciated significantly against the U.S. dollarfollowing this August 2015 announcement by the PBOC. In January and February 2016, Renminbi experiencedfurther fluctuations in value against the U.S. dollar. With an increased floating range of the Renminbi’s valueagainst foreign currencies and a more market-oriented mechanism for determining the mid-point exchange rates,the Renminbi may further appreciate or depreciate significantly in value against the U.S. dollar, the euro or otherforeign currencies in the long-term. Any significant appreciation of the Renminbi against the U.S. dollar, the euroor other foreign currencies may result in the decrease in the value of the Group’s foreign currency-denominatedassets. Conversely, any significant depreciation of the Renminbi may adversely affect the value of its businessesand its proceeds from the offering of the Bonds. In addition, there are limited instruments available for the Groupto reduce its foreign currency risk exposure at reasonable costs. All of these factors could materially andadversely affect the Group’s businesses, financial conditions and results of operations.

The payment of dividends by the Guarantor’s operating subsidiaries in the PRC is subject to restrictionsunder the PRC law.

The PRC laws require that dividends be paid only out of net profit, calculated according to the PRC accountingprinciples, which differ from generally accepted accounting principles in other jurisdictions. In addition, the PRClaw requires enterprises set aside part of their net profit as statutory reserves before distributing the net profitfor the current financial year. These statutory reserves are not available for distribution as cash dividends. Sincethe availability of funds to fund the Guarantor’s operations and to service its indebtedness depends upondividends received from these subsidiaries, any legal restrictions on the availability and usage of dividendpayments from the Guarantor’s subsidiaries may impact the Guarantor’s ability to fund its operations and toservice its indebtedness, including the Bonds.

The implementation of PRC employment regulations may increase labour costs in the PRC generally.

The PRC Labour Contract Law (中華人民共和國勞動合同法) became effective on 1 January 2008 in the PRC andwas amended on 28 December 2012. It imposes more stringent requirements on employers in relation to entryinto fixed-term employment contracts and dismissal of employees. Pursuant to the PRC Labour Contract Law,the employer is required to make compensation payment to a fixed-term contract employee when the term of theiremployment contract expires, unless the employee does not agree to renew the contract even though theconditions offered by the employer for renewal are the same as or better than those stipulated in the currentemployment contract. In general, the amount of compensation payment is equal to the monthly wage of the

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employee multiplied by the number of full years that the employee has worked for the employer. A minimumwage requirement has also been incorporated into the PRC Labour Contract Law. In addition, unless otherwiseprohibited by the PRC Labour Contract Law or objected to by the employees themselves, the employer is alsorequired to enter into non-fixed-term employment contracts with employees who have previously entered intofixed-term employment contracts for two consecutive terms.

In addition, under the Regulations on Paid Annual Leave for Employees (職工帶薪年休假條例), which becameeffective on 1 January 2008, employees who have worked continuously for more than one year are entitled topaid annual leave ranging from 5 to 15 days, depending on the length of the employees’ work time. Employeeswho consent to waive such vacation at the request of employers shall be compensated an amount equal to threetimes their normal daily salaries for each vacation day being waived. Under the National Leisure and TourismOutline 2013-2020 (國民旅遊休閒綱要2013-2020) which became effective on 2 February 2013, all workers mustreceive paid annual leave by 2020. As a result of the PRC Labour Contract Law, the Regulations on Paid AnnualLeave for Employees and the National Leisure and Tourism Outline 2013-2020, the Group’s labour costs(inclusive of those incurred by contractors) may increase. Further, under the PRC Labour Contract Law, whenan employer terminates its PRC employees’ employment, the employer may be required to compensate them forsuch amount which is determined based on their length of service with the employer, and the employer may notbe able to efficiently terminate non-fixed-term employment contracts under the PRC Labour Contract Lawwithout cause. In the event the Group decides to significantly change or decrease its workforce, the PRC LabourContract Law could adversely affect its ability to effect these changes in a cost-effective manner or in the mannerthat the Group desires, which could result in an adverse impact on the Group’s business, financial condition andresults of operations.

Further, in the event that there is a labour shortage or a significant increase to labour costs, the Group’s businessoperation costs is likely to increase. In such circumstances, the profit margin may decrease and the financialresults may be adversely affected. In addition, inflation in the PRC has increased in recent years. Inflation in thePRC increases the costs of raw materials required by the Group for conducting its business and the costs of labouras well. Rising labour costs may increase the Group’s operating costs and partially erode the cost advantage ofthe Group’s operations and therefore negatively impact the Group’s profitability.

There can be no assurance of the accuracy or comparability of facts and statistics contained in thisOffering Circular with respect to the PRC, its economy or the relevant industry.

Facts, forecasts and other statistics in this Offering Circular relating to the PRC, its economy or the relevantindustry in which the Group operates have been directly or indirectly derived from official governmentpublications and certain other public industry sources and although the Group believes such facts and statisticsare accurate and reliable, it cannot guarantee the quality or the reliability of such source materials. They havenot been prepared or independently verified by the Issuer, the Guarantor, the Trustee or the Agents or any of theirrespective affiliates, directors, employees, agents, representatives, officers or advisers or any person whocontrols any of them, and, therefore, none of the Issuer, the Guarantor, the Trustee or the Agents or any of itsor their respective affiliates, directors, employees, agents, representatives, officers or advisers or any person whocontrols any of them makes no representation as to the completeness, accuracy or fairness of such facts or otherstatistics, which may not be consistent with other information compiled within or outside the PRC. Due topossibly flawed or ineffective collection methods or discrepancies between published information and marketpractice and other problems, the statistics herein may be incomplete, inaccurate or unfair or may not becomparable to statistics produced for other economies or the same or similar industries in other countries andshould not be unduly relied upon. Furthermore, there is no assurance that they are stated or compiled on the samebasis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should giveconsideration as to how much weight or importance they should attach to or place on such facts or other statistics.

RISKS RELATING TO THE BONDS AND THE GUARANTEE

Any failure to complete the relevant filings under the NDRC Circular within the prescribed time framefollowing the completion of the issue of the Bonds may have adverse consequences for the Issuer, theGuarantor and/or the investors of the Bonds.

The NDRC issued the NDRC Circular on 14 September 2015, which came into effect on the same day. Accordingto the NDRC Circular, domestic enterprises and their overseas controlled entities shall procure the registration

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of any debt securities issued outside the PRC with a maturity not less than one year with the NDRC prior to theissue of the securities and notify the particulars of the relevant issues within 10 PRC working days after thecompletion of the issue of the securities. The Guarantor has registered the issuance of the Bonds with the NDRCand obtained a certificate from the NDRC on 30 August 2019 evidencing such registration, and intends to fileor cause to be filed with the NDRC the requisite information and documents within 10 PRC Business Days afterthe Issue Date in accordance with the NDRC Circular. However, there is no clarity on the legal consequencesof non-compliance with the post-issue filing requirement under the NDRC Circular. In the worst case scenario,such non-compliance with the post-issue notification requirement under the NDRC Circular may result in it beingunlawful for the Issuer and the Guarantor to perform or comply with any of their respective obligations underthe Bonds and the Guarantee and the Bonds might be subject to enforcement as provided in Condition 9 (Eventsof Default) of the Terms and Conditions. Potential investors of the Bonds are advised to exercise due cautionwhen making their investment decisions.

If the Guarantor fails to complete registration with SAFE in connection with the Guarantee, there may belogistical and practical hurdles for cross-border payments under the Guarantee.

The Guarantor will unconditionally and irrevocably guarantee the due and punctual payment of all sums fromtime to time payable by the Issuer in respect of the Bonds. The Guarantee will be contained in the Deed ofGuarantee to be executed on the Issue Date. The Guarantor is required to submit the Guarantee to SAFE within15 PRC Business Days upon the execution of the Deed of Guarantee for registration in accordance with theForeign Exchange Administration Rules on Cross-Border Guarantees (跨境擔保外匯管理規定) promulgated bySAFE. Although non-registration would not as a matter of PRC law render the Guarantee ineffective or invalid,SAFE may impose penalties on the Guarantor if registration is not carried out within the stipulated time frame.The Guarantor intends to register the Guarantee as soon as practicable. If the Guarantor fails to completeregistration with SAFE, there may be logistical and practical hurdles at the time of remittance of funds (if anycross-border payment is to be made by the Guarantor under the Guarantee) as domestic banks may requireevidence of registration with SAFE in connection with the Guarantee prior to giving effect to any suchremittance.

The Bonds and the Guarantee are unsecured obligations.

As the Bonds and the Guarantee are unsecured obligations of the Issuer and the Guarantor, respectively, therepayment of the Bonds and under the Guarantee, as the case may be, may be compromised if:

• the Issuer or the Guarantor enters into bankruptcy, liquidation, reorganisation or other winding-upproceedings;

• there is a default in payment under the Issuer’s or the Guarantor’s secured indebtedness or other unsecuredindebtedness; or

• there is an acceleration of any of the Issuer’s or the Guarantor’s indebtedness.

If any of these events were to occur, the Issuer’s or the Guarantor’s assets and any amounts received from thesale of such assets may not be sufficient to pay amounts due on the Bonds or the Guarantee.

The Bonds may not be a suitable investment for all investors.

The Bonds may be purchased as a way to reduce risk or enhance yield with a measured and appropriate additionof risk to the investor’s overall portfolios. A potential investor should not invest in the Bonds unless they havethe expertise (either alone or with the help of a financial adviser) to evaluate how the Bonds will perform underchanging conditions, the resulting effects on the value of such Bonds and the impact this investment will haveon the potential investor’s overall investment portfolio.

Additionally, the investment activities of certain investors are subject to legal investment laws and regulations,or review or regulation by certain authorities. Each potential investor should consult its legal advisers todetermine whether and to what extent (a) Bonds are legal investments for it, (b) Bonds can be used as collateralfor various types of borrowing and (c) other restrictions apply to its purchase of any Bonds. Financial institutionsshould consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Bondsunder any applicable risk-based capital or similar rules.

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Each potential investor in the Bonds must determine the suitability of that investment in light of its owncircumstances. In particular, each potential investor should:

• have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risksof investing in the Bonds and the information contained or incorporated by reference in this Offering Circularor any applicable supplement;

• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particularfinancial situation, an investment in the Bonds and the impact such investment will have on its overallinvestment portfolio;

• have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds;

• understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices andfinancial markets; and

• be able to evaluate (either alone or with the help of a financial adviser) possible economic scenarios, suchas interest rate and other factors which may affect its investment and the ability to bear the applicable risks.

An active trading market for the Bonds may not develop.

The Bonds are a new issue of securities for which there is currently no trading market. Although application willbe made for the listing of the Bonds on the Hong Kong Stock Exchange, no assurance can be given as to theability of holders to sell their Bonds or the price at which holders will be able to sell their Bonds or that a liquidmarket will develop. The liquidity of the Bonds will be adversely affected if the Bonds are held or allocated tolimited investors. One or more initial investors in the Bonds may purchase a significant portion of the aggregateprincipal amount of the Bonds pursuant to the offering. The existence of any such significant Bondholders mayreduce the liquidity of the Bonds in the secondary trading market.

Accordingly, there can be no assurance as to the liquidity of the Bonds or that an active trading market willdevelop. If such a market were to develop, the Bonds could trade at prices that may be higher or lower than theinitial issue price depending on many factors, including prevailing interest rates, the Group’s operations and themarket for similar securities.

None of the Managers is obligated to make a market in the Bonds, and if the Managers do so, they maydiscontinue such market making activity at any time at their sole discretion. In addition, the Bonds are beingoffered pursuant to exemptions from registration under the Securities Act and, as a result, holders will only beable to resell their Bonds in transactions that have been registered under the Securities Act or in transactions notsubject to or exempt from registration under the Securities Act.

Investors in the Bonds may be subject to foreign exchange risks.

The Bonds are denominated and payable in U.S. dollars. An investor who measures investment returns byreference to a currency other than U.S. dollars would be subject to foreign exchange risks by virtue of aninvestment in the Bonds, due to, among other things, economic, political and other factors over which the Issuerand the Guarantor have no control. Depreciation of the U.S. dollar against such currency could cause a decreasein the effective yield of the Bonds below their stated coupon rates and could result in a loss when the return onthe Bonds is translated into such currency. In addition, there may be tax consequences for investors as a resultof any foreign currency gains resulting from any investment in the Bonds.

The liquidity and price of the Bonds following the offering may be volatile.

The price and trading volume of the Bonds may be highly volatile. Factors such as variations in the Issuer’s, theGuarantor’s or the Group’s turnover, earnings and cash flows, proposals for new investments, strategic alliancesand/or acquisitions, changes in interest rates, fluctuations in price for comparable companies, changes ingovernment regulations and changes in general economic conditions nationally or internationally could cause theprice of the Bonds to change. Any such developments may result in large and sudden changes in the tradingvolume and price of the Bonds. There is no assurance that these developments will not occur in the future.

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Developments in other markets may adversely affect the market price of the Bonds.

The market price of the Bonds may be adversely affected by declines in the international financial markets andworld economic conditions. The market for the Bonds is, to varying degrees, influenced by economic and marketconditions in other markets, especially those in Asia. Although economic conditions are different in each country,investors’ reactions to developments in one country can affect the securities markets and the securities of issuersin other countries, including the PRC. Since the global financial crisis in 2008 and 2009, the internationalfinancial markets have experienced significant volatility. If similar developments occur in the internationalfinancial markets in the future, the market price of the Bonds could be adversely affected.

The Issuer is a specifically incorporated special purpose finance vehicle.

The Issuer has not engaged and will not engage in any business or any activities other than the issue of the Bondsand any other Relevant Indebtedness (as defined in the Terms and Conditions) and the lending of the proceedsthereof to any of the Guarantor’s subsidiaries and affiliates and any other activities reasonably incidental thereto.The Issuer does not and will not have any material assets other than amounts due to it from the Guarantor or itssubsidiaries, and its ability to make payments under the Bonds will depend on their receipt of timely remittanceof funds from the Guarantor and/or its subsidiaries. The Issuer might not be able to receive sufficient funds fromthe Guarantor and/or its subsidiaries to make payments under the Bonds.

The Issuer may be unable to redeem the Bonds upon the due date for redemption thereof.

On the Maturity Date, the Bonds will be redeemed at their principal amount, or following the occurrence of aRelevant Event (as defined in the Terms and Conditions), the Issuer may, at the option of any Bondholder, berequired to redeem all, but not some only, of such Bondholder’s Bonds. On the Maturity Date or if any such eventwere to occur, the Issuer may not have sufficient cash in hand and may not be able to arrange financing to redeemthe Bonds in time, or on acceptable terms, or at all. The ability to redeem the Bonds on the Maturity Date or inany such event may also be limited by the terms of other debt instruments. The Issuer’s failure to repay,repurchase or redeem tendered Bonds could constitute an event of default under the Bonds, which may alsoconstitute a default under the terms of the Issuer’s other indebtedness.

The Bonds and the Guarantee will be structurally subordinated to the existing and future indebtedness andother liabilities and commitments of the Issuer’s and the Guarantor’s existing and future subsidiaries andeffectively subordinated to the Issuer’s and the Guarantor’s secured debt to the extent of the value of thecollateral securing such indebtedness.

The Bonds and the Guarantee will be structurally subordinated to any debt and other liabilities and commitments,including trade payables and lease obligations, of the Issuer’s and the Guarantor’s existing or future subsidiaries(in the case of the Guarantor’s subsidiaries other than the Issuer), whether or not secured. The Bonds will notbe guaranteed by any of the Issuer’s or the Guarantor’s subsidiaries, and the Issuer and the Guarantor may nothave direct access to the assets of such subsidiaries unless these assets are transferred by dividend or otherwiseto the Issuer and the Guarantor. The ability of such subsidiaries to pay dividends or otherwise transfer assets tothe Issuer and the Guarantor is subject to various restrictions under applicable laws. The Issuer’s and theGuarantor’s subsidiaries are and will be separate legal entities that have no obligation to pay any amounts dueunder the Bonds or make any funds available therefore, whether by dividends, loans or other payments. TheIssuer’s and the Guarantor’s right to receive assets of any of the Issuer’s and the Guarantor’s subsidiaries,respectively, upon that subsidiary’s liquidation or reorganisation will be effectively subordinated to the claim ofthat subsidiary’s creditors (except to the extent that the Issuer or the Guarantor is creditor of that subsidiary).Consequently, the Bonds will be effectively subordinated to all liabilities, including trade payables and leaseobligations, of any subsidiaries that the Issuer or the Guarantor may in the future acquire or establish.

The Bonds will be the Issuer’s unsecured obligations and will (i) rank at least equally in right of payment withall the Issuer’s other present and future unsecured and unsubordinated obligations; (ii) be effectivelysubordinated to all of the Issuer’s present and future secured indebtedness to the extent of the value of thecollateral securing such obligations; and (iii) be senior to all of the Issuer’s present and future subordinatedobligations, subject in all cases to exceptions as may be provided by applicable laws and regulations. TheGuarantee is the Guarantor’s unsecured obligation and will (i) rank at least equally in right of payment with allthe Guarantor’s other present and future unsecured and unsubordinated obligations; (ii) be effectivelysubordinated to all of the Guarantor’s present and future secured indebtedness to the extent of the value of the

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collateral securing such obligations; and (iii) be senior to all of the Guarantor’s present and future subordinatedobligations, subject in all cases to exceptions as may be provided by applicable laws and regulations.

As a result, claims of secured lenders, whether senior or junior, with respect to assets securing their loans willbe prior with respect to those assets. In the event of the Issuer’s or the Guarantor’s bankruptcy, insolvency,liquidation, reorganisation, dissolution or other winding up, or upon any acceleration of the Bonds, these assetswill be available to pay obligations on the Bonds and the Guarantee only after all other debt secured by theseassets has been repaid in full. Any remaining assets will be available to the Bondholders rateably with all of theIssuer’s and the Guarantor’s other unsecured and unsubordinated creditors, including trade creditors. If there areinsufficient assets remaining to pay all these creditors, then all or a portion of the Bonds then outstanding wouldremain unpaid.

The insolvency laws of the PRC may differ from those of another jurisdiction with which the Bondholdersare familiar.

The Guarantor is incorporated under the laws of the PRC. Any bankruptcy proceeding relating to the Guarantorwould likely involve PRC bankruptcy laws, the procedural and substantive provisions of which may differ fromcomparable provisions of the local insolvency laws of jurisdictions with which the Bondholders are familiar.

If the Issuer or the Guarantor is unable to comply with the restrictions and covenants in its debtagreements (if any), or the Bonds, there could be a default under the terms of these agreements, or theBonds, which could cause repayment of the Issuer’s or the Guarantor’s debt to be accelerated.

If the Issuer or the Guarantor is unable to comply with the restrictions and covenants in the Bonds, or currentor future debt obligations and other agreements (if any), there could be a default under the terms of theseagreements. In the event of a default under these agreements, the holders of the debt could terminate theircommitments to lend to the Issuer or the Guarantor, accelerate repayment of the debt, declare all amountsborrowed due and payable or terminate the agreements, as the case may be. Furthermore, some of the debtagreements of the Issuer and the Guarantor contain cross-acceleration or cross-default provisions. As a result, thedefault by the Issuer or the Guarantor under one debt agreement may cause the acceleration of repayment of debt,including the Bonds, or result in a default under its other debt agreements, including the Bonds. If any of theseevents occur, there can be no assurance that the Issuer’s or the Guarantor’s assets and cash flows would besufficient to repay all of the Issuer’s and the Guarantor’s indebtedness in full, or that it would be able to findalternative financing. Even if the Issuer and the Guarantor could obtain alternative financing, there can be noassurance that it would be on terms that are favourable or acceptable to the Issuer and the Guarantor.

A change in English law which governs the Bonds may adversely affect Bondholders.

The Terms and Conditions are governed by English law. No assurance can be given as to the impact of anypossible judicial decision or change English law or administrative practice after the date of issue of the Bonds.

Modifications and waivers may be made in respect of the Terms and Conditions and the Trust Deed by theTrustee or less than all of the Bondholders, and decisions may be made on behalf of all Bondholders thatmay be adverse to the interests of the individual Bondholders.

The Terms and Conditions will contain provisions for calling meetings of the holders of the Bonds to considermatters affecting their interests generally. These provisions will permit defined majorities to bind allBondholders including those Bondholders who did not attend and vote at the relevant meeting and thoseBondholders who voted in a manner contrary to the majority. There is a risk that the decision of the majority ofholders of the Bonds may be adverse to the interests of individual holders of the Bonds.

The Terms and Conditions will also provide that the Trustee may, without the consent of the Bondholders, agreeto any modification of the Trust Deed and/or the Terms and Conditions (other than in respect of a reserved matter)which in the opinion of the Trustee will not be materially prejudicial to the interests of the Bondholders and toany modification of the Bonds or the Trust Deed which in the opinion of the Trustee is of a formal, minor ortechnical nature or is to correct a manifest error or to comply with any mandatory provision of law.

In addition, the Trustee may, without the consent of the Bondholders, authorise or waive any proposed breachor breach of the Bonds or the Trust Deed (other than a proposed breach, or a breach relating to the subject ofcertain reserved matters) if, in the opinion of the Trustee, the interests of the Bondholders will not be materiallyprejudiced thereby.

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The Trustee may request Bondholders to provide an indemnity and/or security and/or pre-funding to itssatisfaction.

In certain circumstances (including without limitation the giving of notice pursuant to Condition 9 (Events ofDefault) of the Terms and Conditions and the taking of enforcement steps and actions pursuant to Condition 14(Enforcement) of the Terms and Conditions), the Trustee may (in its sole discretion) request the Bondholders toprovide an indemnity and/or security and/or pre-funding to its satisfaction before it takes any action on behalfof Bondholders. The Trustee shall not be obliged to take any such actions if not indemnified and/or securedand/or pre-funded to its satisfaction. Negotiating and agreeing to any indemnity and/or security and/orpre-funding can be a lengthy process and may impact on when such steps and actions can be taken. The Trusteemay not be able to take steps or actions, notwithstanding the provision of an indemnity and/or security and/orpre-funding to it, in breach of the terms of the Trust Deed (as defined in the Terms and Conditions) or the Termsand Conditions and in such circumstances, or where there is uncertainty or dispute as to the applicable laws orregulations, to the extent permitted by the agreements and the applicable law, it will be for the Bondholders totake such steps or actions directly.

The Issuer may be treated as a PRC resident enterprise for PRC tax purposes, which may subject theIssuer to PRC income taxes on its worldwide income and PRC withholding taxes on interest the Issuer payson the Bonds.

Under the new PRC Enterprise Income Tax Law (the “EIT Law”) and the implementation rules which both tookeffect on 1 January 2008, enterprises established outside the PRC whose “de facto management bodies” arelocated in China are considered “resident enterprises” for PRC tax purposes.

The implementation rules define the term “de facto management body” as a management body that exercises fulland substantial control and management over the business, personnel, accounts and properties of an enterprise.In April 2009, the State Administration of Taxation specified certain criteria for the determination of the “de factomanagement bodies” for foreign enterprises that are controlled by PRC enterprises. The Issuer may hold itsshareholders’ meetings and certain board meetings outside China and keep its shareholders’ list outside China.However, most of its directors and senior management are currently based inside China and it may keep its booksof account inside China. The above elements may be relevant for the tax authorities to determine whether theIssuer is a PRC resident enterprise for tax purposes. However, there is no clear standard published by the taxauthorities for making such a determination.

Although it is unclear under PRC tax law whether the Issuer has a “de facto management body” located in Chinafor PRC tax purposes, we take the position that the Issuer is not a PRC resident enterprise for tax purposes. Wecannot assure you that the tax authorities will agree with our position. If the Issuer is deemed to be a PRC residententerprise for EIT purposes, the Issuer would be subject to the PRC enterprise income tax at the rate of 25% onits worldwide taxable income.

Furthermore, pursuant to the EIT Law, the PRC Individual Income Tax Law (the “IIT Law”) which took effecton 30 June 2011, and the implementation regulations in relation to both the EIT Law and IIT Law, the Issuer maybe obligated to withhold PRC income tax at a rate of 10 per cent. for non-resident enterprise Bondholders andat a rate of 20 per cent. for non-resident individual Bondholders (or a lower treaty rate, if any) on payments ofinterest and certain other amounts on the Bonds to the non-resident Bondholders, because the interest and otheramounts may be regarded as being derived from sources within the PRC. In addition, if the Issuer fails to do so,it may be subject to fines and other penalties. Similarly, any gain realised by such non-resident enterpriseinvestors from the transfer of the Bonds may be regarded as being derived from sources within the PRC and mayaccordingly be subject to withholding tax.

The Bonds will be represented by a Global Certificate and holders of a beneficial interest in the GlobalCertificate must rely on the procedures of the Clearing Systems.

The Bonds will be represented by beneficial interests in a Global Certificate. Such Global Certificate will beregistered in the name of a nominee for, and deposited with, a common depositary for Euroclear and Clearstream(the “Clearing Systems”). Except in the circumstances described in the Global Certificate, investors will not beentitled to receive definitive certificates. The Clearing Systems will maintain records of the beneficial interestsin the Global Certificate. While the Bonds are represented by the Global Certificate, investors will be able totrade their beneficial interests only through the Clearing Systems.

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While the Bonds are represented by the Global Certificate, the Issuer will discharge its payment obligationsunder the Bonds by making payments to the relevant Clearing System for distribution to their accountholders.A holder of a beneficial interest in the Global Certificate must rely on the procedures of the relevant ClearingSystem to receive payments under the Bonds. The Issuer has no responsibility or liability for the records relatingto, or payments made in respect of, beneficial interests in the Global Certificate.

Bondholders of beneficial interests in the Global Certificate will not have a direct right to vote in respect of theBonds. Instead, such Bondholders will be permitted to act only to the extent that they are enabled by the relevantClearing System to appoint appropriate proxies.

Bondholders should be aware that a definitive certificate which has a principal amount that is not anintegral multiple of the minimum specified denomination may be illiquid and difficult to trade.

In relation to any Bond which has a principal amount consisting of a minimum specified denomination plus anintegral multiple of another smaller amount, it is possible that the Bonds may be traded in amounts in excess ofthe minimum specified denomination that are not integral multiples of such minimum specified denomination.In such a case a Bondholder who, as a result of trading such amounts, holds a principal amount of less than theminimum specified denomination will not receive a definitive certificate in respect of such holding (shoulddefinitive Bonds be printed) and would need to purchase a principal amount of Bonds such that it holds anamount equal to one or more specified denominations. If definitive Bonds are issued, holders should be awarethat a definitive certificate which has a principal amount that is not an integral multiple of the minimum specifieddenomination may be illiquid and difficult to trade.

The Bonds may be redeemed by the Issuer prior to maturity.

The Issuer may redeem the Bonds at its option, in whole but not in part, at a redemption price equal to theirprincipal amount, together with any interest accrued to but excluding the date fixed for redemption if, subjectto certain conditions, as a result of a change in or amendment to tax laws or regulations, the Issuer (or, if theGuarantee was called, the Guarantor) has or will become obliged to pay Additional Tax Amounts (as defined inthe Terms and Conditions), as further described in Condition 6(b) (Redemption for Taxation Reasons) of theTerms and Conditions.

If the Issuer redeems the Bonds prior to the Maturity Date, investors may not receive the same economic benefitsthey would have received had they held the Bonds to maturity, and they may not be able to reinvest the proceedsthey receive in a redemption in similar securities. In addition, the Issuer’s ability to redeem the Bonds mayreduce the market price of the Bonds.

The ratings assigned to the Bonds may be downgraded or withdrawn in the future.

The Bonds are expected to be assigned a rating of “BBB” by S&P. The rating represents only the opinion of therating agency and its assessment of the ability of the Issuer and the Guarantor to perform their respectiveobligations under the Bonds, the Guarantee, the Trust Deed and the Agency Agreement (each as defined in theTerms and Conditions) and credit risks in determining the likelihood that payments will be made when due underthe Bonds and the Guarantee. Ratings are not recommendations to buy, sell or hold the Bonds and may be subjectto revision, qualification, suspension, reduction or withdrawn at any time. There is no assurance that a rating willremain for any given period of time or that a rating will not be lowered or withdrawn entirely by the relevantrating agency if in its judgment circumstances in the future so warrant. Each rating should be evaluatedindependently of any other rating of the Bonds or other securities of the Issuer or the Guarantor (if any). Arevision, qualification, suspension or withdrawal at any time of any rating assigned to the Bonds may adverselyaffect the market price of the Bonds.

The Issuer may issue additional Bonds in the future.

The Issuer may, from time to time, and without the consent of the Bondholders, create and issue further bondshaving the same terms and conditions as the Bonds in all respects (or in all respects except for the issue date,the first payment of interest on them and the timing for complying with the Registration Condition (as definedin the Terms and Conditions), for submission of the NDRC Post-issue Filing and for making the Cross-Border

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Security Registration (each as defined in the Terms and Conditions)) (see “Terms and Conditions of the Bonds– Further Issues”) or otherwise raise additional capital through such means and in such manner as it may considernecessary. There can be no assurance that such future issuance or capital raising activity will not adversely affectthe market price of the Bonds.

Changes in market interest rates may adversely affect the value of the Bonds.

The Bonds will carry a fixed rate of interest. Consequently, investment in the Bonds involves the risk thatsubsequent changes in market interest rates may adversely affect the value of the Bonds. If Bondholders sell theBonds they hold before the maturity of such Bonds, they may receive an offer less than their investment.

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EXCHANGE RATES

RENMINBI

The PBOC sets and publishes on a daily basis a base exchange rate with reference primarily to the supply anddemand of Renminbi against a basket of currencies in the market during the prior day. The PBOC also takes intoaccount other factors, such as the general conditions existing in the international foreign exchange markets. On21 July 2005, the PRC Government introduced a managed floating exchange rate system to allow the value ofthe Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to abasket of currencies. On the same day, the value of the Renminbi appreciated by two per cent. against the U.S.dollar. The PRC Government has since made and in the future may make further adjustments to the exchange ratesystem. On 18 May 2007, the PBOC enlarged, effective on 21 May 2007, the floating band for the trading pricesin the inter-bank spot exchange market of Renminbi against the U.S. dollar from 0.3 per cent. to 0.5 per cent.around the central parity rate. This allows the Renminbi to fluctuate against the U.S. dollar by up to 0.5 per cent.above or below the central parity rate published by the PBOC. The floating band was further widened to 1.0 percent. on 16 April 2012. These changes in currency policy resulted in the Renminbi appreciating against the U.S.dollar by approximately 26.9 per cent. from 21 July 2005 to 31 December 2013. On 14 March 2014, the PBOCfurther widened the floating band against the U.S. dollar to 2.0 per cent. On 11 August 2015, the PBOCannounced to improve the central parity quotations of Renminbi against the U.S. dollar by authorisingmarket-makers to provide central parity quotations to the China Foreign Exchange Trading Centre daily beforethe opening of the interbank foreign exchange market with reference to the interbank foreign exchange marketclosing rate of the previous day, the supply and demand for foreign exchange as well as changes in majorinternational currency exchange rates. Following the announcement by the PBOC on 11 August 2015, Renminbidepreciated significantly against the U.S. dollar. In January and February 2016, Renminbi experienced furtherfluctuation in value against the U.S. dollar. Following the gradual appreciation against U.S. dollar in 2017,Renminbi experienced a recent depreciation in value against U.S. dollar followed by a fluctuation in 2018 andearly 2019. In August 2019, the People’s Bank of China on 5 August 2019 set the RMB’s daily reference rateabove RMB7.0 per U.S. dollar for the first time in over a decade amidst an uncertain trade and global economicclimate. The PRC Government may adopt further reforms of its exchange rate system, including making theRenminbi freely convertible in the future.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollarfor the periods presented:

Renminbi per U.S. dollar Noon Buying Rate(1)

Period End Average(2) High Low

(CNY per U.S.$1.00)

2015����������������������������������������������������������������� 6.4778 6.2869 6.4896 6.18702016����������������������������������������������������������������� 6.9430 6.6549 6.9580 6.44802017����������������������������������������������������������������� 6.5063 6.7350 6.9575 6.47732018����������������������������������������������������������������� 6.8755 6.6090 6.9737 6.26492019����������������������������������������������������������������� 6.9618 6.9014 7.1786 6.6822

August ���������������������������������������������������������� 7.1543 7.0629 7.1628 6.9872September ����������������������������������������������������� 7.1477 7.1137 7,1786 7.0659October ��������������������������������������������������������� 7.0379 7.0961 7.0379 7.1473November������������������������������������������������������ 7.0308 7.0199 7.0389 6.9766December ������������������������������������������������������ 6.9618 7.0137 7.0609 6.9618

2020January ��������������������������������������������������������� 6.9161 6.9184 6.9749 6.8589February (through 21 February) ���������������������� 7.0255 6.9915 7.0255 6.9650

Notes:

(1) Exchange rates between Renminbi and U.S. dollars represent the noon buying rates as set forth in the H.10 statistical release of theBoard of Governors of the Federal Bank System.

(2) Annual averages have been calculated from month-end rate. Monthly averages have been calculated using the average of the daily ratesduring the relevant period.

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TERMS AND CONDITIONS OF THE BONDS

The following, subject to modification and other than the words in italics, is the text of the terms and conditionsof the Bonds which will appear on the reverse side of each of the definitive certificates evidencing the Bonds.

The issue of the U.S.$[●] [●] per cent. guaranteed bonds due [●] (the “Bonds” which term shall include, unlessthe context requires otherwise, any further bonds issued in accordance with Condition 13 and consolidated andforming a single series therewith) was authorised by a resolution of the board of directors of HaitongInternational Finance Holdings 2015 Limited (the “Issuer”) passed on 28 February 2020. The Bonds areconstituted by a Trust Deed dated on or about [●] 2020 (as amended and/or supplemented from time to time, the“Trust Deed”) between the Issuer, Haitong Securities Co., Ltd. as guarantor (the “Guarantor”) and CiticorpInternational Limited (the “Trustee”, which expression shall, where the context so permits, include all personsfor the time being the trustee or trustees under the Trust Deed) as trustee for itself and the holders of the Bonds.The Bonds are the subject of an agency agreement dated on or about [●] 2020 (as amended and/or supplementedfrom time to time, the “Agency Agreement”) relating to the Bonds between the Issuer, the Guarantor, theTrustee, Citibank, N.A., London Branch (a national banking association organised under the laws of the UnitedStates of America with limited liability acting through its branch in London) as initial paying agent (the“Principal Paying Agent”), as registrar (the “Registrar”) and as transfer agent (the “Transfer Agent”) and anyother agents named in it. References herein to “Agents” means the Principal Paying Agent, the Registrar, theTransfer Agent and any other agent or agents appointed from time to time with respect to the Bonds. The Bondswill be unconditionally and irrevocably guaranteed (the “Guarantee”) by the Guarantor pursuant to a Deed ofGuarantee dated on or about [●] 2020 (as amended and/or supplemented from time to time, the “Deed ofGuarantee”) entered into by the Guarantor and the Trustee and executed in favour of the Trustee. The givingof the Guarantee was authorised by resolutions of the board of directors of the Guarantor passed on 25 April 2019and resolutions of the shareholders of the Guarantor passed on 26 May 2016 and 18 June 2019. The Bondholdersare entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deedand the Deed of Guarantee, and are deemed to have notice of those provisions of the Agency Agreementapplicable to them. Copies of the Trust Deed, the Deed of Guarantee and the Agency Agreement are availablefor inspection by Bondholders at all reasonable times during usual business hours (being between 9:00 a.m.(Hong Kong time) to 3:00 p.m. (Hong Kong time) from Monday to Friday (other than public holidays) at theprincipal place of business of the Trustee (being as at the Issue Date (as defined in Condition 4(f)) at 20/F, CitiTower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong) following prior written request andproof of holding and identity to the satisfaction of the Trustee.

All capitalised terms that are not defined in these terms and conditions (the “Conditions”) will have themeanings given to them in the Trust Deed.

1 FORM, SPECIFIED DENOMINATION AND TITLE

The Bonds are issued in registered form in the specified denomination of U.S.$200,000 and integral multiplesof U.S.$1,000 in excess thereof.

The Bonds are represented by registered certificates (“Certificates”) and, save as provided in Condition 2(b),each Certificate shall represent the entire holding of Bonds by the same holder.

Title to the Bonds shall pass by transfer and registration in the Register as described in Condition 2. The holderof any Bond shall (except as ordered by a court of competent jurisdiction or as otherwise required by law) betreated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice ofownership, trust or any interest in it, any writing on the Certificate (other than the endorsed form of transfer)representing it or the theft or loss of such Certificate and no person shall be liable for so treating the holder.

In these Conditions, “Bondholder” or “holder” in relation to a Bond means the person in whose name a Bondis registered in the Register (or in the case of a joint holding, the first name thereof).

Upon issue, the Bonds will be represented by a global certificate (the “Global Certificate”) registered in thename of a nominee of, and deposited with, a common depositary for Euroclear Bank SA/NV and ClearstreamBanking S.A.. These Conditions are modified by certain provisions contained in the Global Certificate while anyof the Bonds are represented by the Global Certificate.

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Except in the limited circumstances described in the Global Certificate, owners of interests in the Bondsrepresented by the Global Certificate will not be entitled to receive definitive Certificates in respect of theirindividual holdings of Bonds. The Bonds are not issuable in bearer form.

2 TRANSFERS OF BONDS

(a) Register

The Issuer will cause the register (the “Register”) to be kept at the specified office of the Registrar and inaccordance with the terms of the Agency Agreement, on which shall be entered the names and addresses ofthe holders and the particulars of the Bonds held by them and of all transfers of the Bonds. Each holder shallbe entitled to receive only one Certificate in respect of its entire holding of Bonds.

(b) Transfer

A holding of Bonds may, subject to Conditions 2(e) and 2(f) and the terms of the Agency Agreement, betransferred in whole or in part upon the surrender (at the specified office of the Registrar or any TransferAgent) of the Certificate(s) representing such Bonds to be transferred, together with the form of transferendorsed on such Certificate(s) (or another form of transfer substantially in the same form and containingthe same representations and certifications (if any), unless otherwise agreed by the Issuer), duly completedand executed and any other evidence as the Registrar or the relevant Transfer Agent may require. In the caseof a transfer of part only of a holding of Bonds represented by one Certificate, a new Certificate shall beissued to the transferee in respect of the part transferred and a further new Certificate in respect of thebalance of the holding not transferred shall be issued to the transferor. In the case of a transfer of Bonds toa person who is already a holder, a new Certificate representing the enlarged holding shall only be issuedagainst surrender of the Certificate representing the existing holding. No transfer of title to a Bond will bevalid unless and until entered on the Register.

Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance withthe rules of the relevant clearing systems.

(c) Delivery of New Certificates

Each new Certificate to be issued pursuant to Condition 2(b) shall be made available for delivery withinseven business days of receipt by the Registrar or, as the case may be, any Transfer Agent of a dulycompleted form of transfer and surrender of the existing Certificate(s). Delivery of the new Certificate(s)shall be made at the specified office of the Transfer Agent or of the Registrar (as the case may be) to whomdelivery or surrender of such form of transfer and Certificate shall have been made or, at the option of theholder making such delivery or surrender as aforesaid and as specified in the relevant form of transfer orotherwise in writing, be mailed by uninsured post at the risk of the holder entitled to the new Certificate tosuch address as may be so specified, unless such holder requests otherwise and pays in advance to therelevant Transfer Agent or the Registrar (as the case may be) the costs of such other method of deliveryand/or such insurance as it may specify. In this Condition 2(c), “business day” means a day, other than aSaturday or Sunday or public holiday, on which banks are generally open for business in the place of thespecified office of the relevant Transfer Agent or the Registrar (as the case may be).

(d) Formalities Free of Charge

Certificates, on transfer, shall be issued and registered without charge to the relevant holder by or on behalfof the Issuer, the Registrar or any Transfer Agent, but upon (i) payment by the relevant holder of any andall tax or other governmental charges that may be imposed in relation to any of them (or the giving of suchindemnity and/or security and/or pre-funding as the Registrar or the relevant Transfer Agent may require);and (ii) subject to Condition 2(f).

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(e) Closed Periods

No holder may require the transfer of a Bond to be registered during the period of (i) seven business daysending on (but excluding) the due date for any payment of principal in respect of that Bond, and (ii) duringthe period of seven business days ending on (and including) any Record Date (as defined in Condition 7(a)),(iii) during the period of seven business days prior to (and including) any date on which Bonds may be calledfor redemption by the Issuer pursuant to Conditions 6(b), or (iv) after any such Bond has been put forredemption pursuant to Condition 6(c).

(f) Regulations

All transfers of Bonds and entries on the register of holders will be made subject to the detailed regulationsconcerning transfer and registration of Bonds scheduled to the Agency Agreement. The regulations may bechanged by the Issuer with the prior written approval of the Registrar and the Trustee or by the Registrar withthe prior written approval of the Trustee. A copy of the current regulations will be made available forinspection by the Registrar at its specified office to any holder who requests in writing and provides proofof holding and identity satisfactory to the Registrar.

3 STATUS AND GUARANTEE

(a) Status

The Bonds constitute direct, unsubordinated, unconditional and unsecured obligations of the Issuer and shallat all times rank pari passu and without any preference or priority among themselves. The paymentobligations of the Issuer under the Bonds shall, save for such exceptions as may be provided by mandatoryprovisions of applicable laws and regulations, at all times rank at least equally with all its other present andfuture unsecured and unsubordinated obligations.

(b) Guarantee

The Guarantor has, in the Deed of Guarantee, unconditionally and irrevocably guaranteed the due andpunctual payment of the principal and premium (if any) of and interest on, and all other amounts expressedto be payable by the Issuer under, the Trust Deed and the Bonds when and as the same shall become due andpayable, whether on the stated maturity, upon acceleration, by call for redemption or otherwise.

The obligations of the Guarantor under the Guarantee shall, save for such exceptions as may be provided bymandatory provisions of applicable laws and regulations, at all times rank at least equally with all its otherpresent and future unsecured and unsubordinated obligations.

4 COVENANTS

(a) Issuer Activities

The Issuer undertakes, inter alia, that so long as any Bond remains outstanding, save with the approval ofan Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders, it will not conduct anybusiness or any activities other than the issue of the Bonds and any other Relevant Indebtedness and thelending of the proceeds thereof to any of the Guarantor’s Subsidiaries and affiliates and any other activitiesreasonably incidental thereto.

(b) Undertakings in relation to NDRC Post-issue Filing

The Guarantor undertakes to file or cause to be filed with the NDRC the requisite information and documentswithin 10 PRC Business Days after the Issue Date in accordance with the Notice on Promoting the Reformof the Administrative System on the Issuance by Enterprises of Foreign Debt Filings and Registrations (國家發展改革委關於推進企業發行外債備案登記制管理改革的通知(發改外資[2015]2044號)) promulgated bythe NDRC and effective as of 14 September 2015 and any implementation rules as issued by the NDRC fromtime to time (the “NDRC Post-issue Filing”).

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(c) Undertakings in relation to the Guarantee

The Guarantor undertakes to file or cause to be filed with the Shanghai Branch of SAFE, the Deed ofGuarantee within 15 PRC Business Days after the execution of the Deed of Guarantee in accordance withthe Provisions on the Foreign Exchange Administration of Cross-Border Guarantees (跨境擔保外匯管理規定) promulgated by SAFE on 12 May 2014 which came into effect on 1 June 2014 (the “Cross-BorderSecurity Registration”). The Guarantor shall use its best endeavours to complete the Cross-Border SecurityRegistration and obtain a registration certificate from SAFE (or any other document evidencing thecompletion of registration issued by SAFE) on or before the Registration Deadline and shall comply with allapplicable PRC laws and regulations in relation to the issue of the Bonds and the Guarantee.

(d) Notice of the Cross-Border Security Registration and the NDRC Post-issue Filing

The Guarantor shall, on or before the Registration Deadline and within ten PRC Business Days after,whichever is later, (i) the receipt of the registration certificate from SAFE (or any other document evidencingthe completion of registration issued by SAFE) and (ii) the submission of the NDRC Post-issue Filing,provide the Trustee with (A) a certificate in English substantially in the form set out in the Trust Deed signedby an Authorised Signatory of the Guarantor confirming (I) the completion of the Cross-Border SecurityRegistration and the submission of the NDRC Post-issue Filing and (II) that no Change of Control, Eventof Default or Potential Event of Default has occurred; and (B) copies of the relevant documents evidencingthe Cross-Border Security Registration and the NDRC Post-issue Filing, each certified in English by anAuthorised Signatory of the Guarantor as being a true and complete copy of the original (the items specifiedin (A) and (B) together, the “Registration Documents”).

In addition, the Guarantor shall procure that, within ten PRC Business Days after the Registration Documentsare delivered to the Trustee, the Issuer gives notice to the Bondholders (in accordance with Condition 16)confirming the completion of the Cross-Border Security Registration and the submission of the NDRCPost-issue Filing.

The Trustee may rely conclusively on the Registration Documents and shall have no obligation or duty tomonitor or to assist with the Cross-Border Security Registration or the NDRC Post-issue Filing or to ensurethat the Cross-Border Security Registration or the NDRC Post-issue Filing is made or submitted on or beforethe deadlines referred to in Conditions 4(b) or 4(c) or on or before the Registration Deadline or to verify theaccuracy, completeness, validity and/or genuineness of any documents in relation to or in connection withthe Cross-Border Security Registration, the NDRC Post-issue Filing and/or the Registration Documents orto procure that any Registration Document or any other certificate, confirmation or other document whichis not in English is translated into English or to verify the accuracy of any English translation of anyRegistration Document or any other certificate, confirmation or other document or to give notice to theBondholders confirming the completion of the Cross-Border Security Registration and the NDRC Post-issueFiling, and the Trustee shall not be liable to Bondholders or any other person for not doing so.

(e) Financial Information

So long as any Bond remains outstanding (as defined in the Trust Deed), the Issuer and the Guarantor will,at the time of their issue, and, in the case of annual audited financial statements in any event within 180 daysof the end of each financial year, furnish the Trustee with three copies in English of every balance sheet,profit and loss account, report or other notice, statement or circular issued to the members or creditors (orany class of them) of the Guarantor generally in their capacity as such.

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(f) Definitions

In these Conditions:

(i) “Issue Date” means [●] 2020;

(ii) “NDRC” means the National Development and Reform Commission of the PRC or its local counterparts;

(iii) “PRC” means the People’s Republic of China, which shall for the purposes of these Conditions, excludethe Hong Kong Special Administrative Region of the People’s Republic of China, the Macau SpecialAdministrative Region of the People’s Republic of China and Taiwan;

(iv) “PRC Business Day” means a day (other than a Saturday, Sunday or public holiday) on which commercialbanks are generally open for business in Beijing;

(v) “Registration Deadline” means the day falling 90 PRC Business Days after the Issue Date;

(vi) “Relevant Indebtedness” means any indebtedness in the form of or represented by any note, bond,debenture, debenture stock, loan stock or other similar security which is issued outside the PRC and is forthe time being, or is capable of being, quoted, listed or ordinarily dealt in on any stock exchange,over-the-counter or other securities market;

(vii) “SAFE” means the State Administration of Foreign Exchange of the PRC; and

(viii) “Subsidiary” means any entity whose financial statements at any time are required by law or in accordancewith generally accepted accounting principles to be fully consolidated with those of the Issuer and theGuarantor.

5 INTEREST

The Bonds bear interest on their outstanding principal amount from and including the Issue Date at the rate of[●] per cent. per annum, payable semi-annually in arrear in equal instalments of U.S.$[●] per Calculation Amount(as defined below) on [●] and [●] in each year (each an “Interest Payment Date”), commencing [●] 2020. Inthese Conditions, the period beginning on and including the Issue Date and ending but excluding the first InterestPayment Date and each successive period beginning on and including an Interest Payment Date and ending onbut excluding the next succeeding Interest Payment Date is called an “Interest Period”.

Each Bond will cease to bear interest from the due date for redemption unless, upon surrender of the Certificaterepresenting such Bond, payment of principal or premium (if any) is improperly withheld or refused. In suchevent it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlierof (a) the day on which all sums due in respect of such Bond up to that day are received by or on behalf of therelevant holder, and (b) the day falling seven days after the Trustee or the Principal Paying Agent has notifiedBondholders of receipt of all sums due in respect of all the Bonds up to that seventh day (except to the extentthat there is failure in the subsequent payment to the relevant holders under these Conditions).

If interest is required to be calculated for a period of less than a complete Interest Period, the relevant day-countfraction will be determined on the basis of a 360-day year consisting of 12 months of 30 days each and, in thecase of an incomplete month, the number of days elapsed.

Interest in respect of any Bond shall be calculated per U.S.$1,000 in principal amount of the Bonds (the“Calculation Amount”). The amount of interest payable per Calculation Amount for any period shall (save asprovided above in relation to equal instalments) be equal to the product of the rate of interest specified above,the Calculation Amount and the day-count fraction for the relevant period, rounding the resulting figure to thenearest cent (half a cent being rounded upwards).

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6 REDEMPTION AND PURCHASE

(a) Final Redemption

Unless previously redeemed, or purchased and cancelled, the Bonds will be redeemed at their principalamount on [●] (the “Maturity Date”). The Bonds may not be redeemed at the option of the Issuer other thanin accordance with this Condition 6.

(b) Redemption for Taxation Reasons

The Bonds may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving notless than 30 nor more than 60 days’ notice to the Bondholders in accordance with Condition 16 (which noticeshall be irrevocable) and in writing to the Trustee and the Agents, at their principal amount, (together withany interest accrued to but excluding the date fixed for redemption), if the Issuer (or, if the Guarantee wascalled, the Guarantor) satisfies the Trustee immediately prior to the giving of such notice that (i) the Issuer(or, if the Guarantee was called, the Guarantor) has or will become obliged to pay Additional Tax Amountsas provided or referred to in Condition 8 as a result of any change in, or amendment to, the laws orregulations of the British Virgin Islands or the PRC or, in each case, any political subdivision or anyauthority thereof or therein having power to tax, or any change in the application or official interpretationof such laws or regulations (including but not limited to any decision by a court of competent jurisdiction),which change or amendment becomes effective on or after [●] 2020, and (ii) such obligation cannot beavoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it,provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date onwhich the Issuer (or the Guarantor, as the case may be) would be obliged to pay such Additional Tax Amountswere a payment in respect of the Bonds (or the Guarantee, as the case may be) then due. Prior to the givingof any notice of redemption pursuant to this Condition 6(b), the Issuer (or the Guarantor, as the case maybe) shall deliver to the Trustee (A) a certificate in English signed by an Authorised Signatory of the Issuer(or the Guarantor, as the case may be) stating that the obligation referred to in Condition 6(b)(i) above cannotbe avoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to itand (B) an opinion, addressed to and in form and substance satisfactory to the Trustee, of independent taxor legal advisers of recognised standing to the effect that the Issuer (or the Guarantor, as the case may be)has or will become obliged to pay such Additional Tax Amounts as a result of such change or amendments.The Trustee shall be entitled (but shall not be obliged) to accept such certificate and opinion without furtherinvestigation or query and without liability to the Bondholders or any other person and may accept the sameas sufficient evidence of the satisfaction of the conditions precedent set out in (i) and (ii) above, in whichevent the same shall be conclusive and binding on the Bondholders. All Bonds in respect of which any noticeof redemption is given under this Condition 6(b) shall be redeemed on the date specified in such notice inaccordance with this Condition 6(b).

(c) Redemption for Relevant Events

At any time following the occurrence of a Relevant Event, the holder of any Bond will have the right, at suchholder’s option, to require the Issuer to redeem all, but not some only, of that holder’s Bonds on the PutSettlement Date at a redemption price equal to 101 per cent. (in the case of a redemption for a Change ofControl) or 100 per cent. (in the case of a redemption for a No Registration Event) of their principal amount,together in each case with any accrued interest to but excluding the Put Settlement Date. To exercise suchright, the holder of the relevant Bond must deposit at the specified office of the Principal Paying Agent aduly completed and signed notice of redemption, substantially in the form scheduled to the AgencyAgreement, obtainable from the specified office of the Principal Paying Agent (a “Put Exercise Notice”),together with the Certificate evidencing the Bonds to be redeemed, by not later than 30 days following aRelevant Event, or, if later, 30 days following the date upon which notice thereof is given to Bondholdersby the Issuer in accordance with Condition 16.

The “Put Settlement Date” shall be the fourteenth day (in the case of a redemption for a Change of Control)or the fifth day (in the case of a redemption for a No Registration Event) after the expiry of such period of30 days as referred to above in this Condition 6(c).

A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem the Bonds the subjectof the Put Exercise Notices delivered as aforesaid on the Put Settlement Date.

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The Issuer shall give notice to the Bondholders (in accordance with Condition 16) and to the Trustee and thePrincipal Paying Agent in writing by not later than 14 business days (in the case of a redemption for a Changeof Control) or five business days (in the case of a redemption for a No Registration Event) following the firstday on which it becomes aware of the occurrence of a Relevant Event, which notice shall specify theprocedure for exercise by holders of their rights to require redemption of the Bonds pursuant to thisCondition 6(c).

The Trustee and the Agents shall not be required to take any steps to ascertain or monitor whether a RelevantEvent or any event which could lead to a Relevant Event has occurred or may occur and each of them shallbe entitled to assume that no such event has occurred until it has received written notice to the contrary fromthe Issuer, and none of the Trustee or the Agents shall be responsible or liable to Bondholders, the Issuer,the Guarantor or any other person for any loss or liability arising from any failure to do so.

The Trustee shall not be required to investigate or verify the accuracy, content, completeness or genuinenessof any document provided to it by the Issuer, the Guarantor or any other person as part of or in connectionwith or to enable satisfaction of the Registration Condition, and may rely conclusively on any suchdocument, and shall not be responsible or liable to Bondholders, the Issuer, the Guarantor or any other personfor any loss or liability arising from so doing.

For the purposes of these Conditions:

a “Change of Control” occurs when:

(i) the Guarantor ceases to directly or indirectly own and control all the issued share capital of the Issuer;

(ii) the Guarantor consolidates with or merges into or sells or transfers all or substantially all of its assetsto any person or persons, acting together, other than (A) any of the Guarantor or its Subsidiaries or (B)the State-owned Assets Supervision and Administration Commission of the State Council of the PRC(“SASAC”) or its successor or entities controlled (directly or indirectly) by SASAC, or any Persondirectly or indirectly controlled by the central government of the PRC; and

(iii) other than the SASAC or its successor or entities controlled (directly or indirectly) by SASAC, or anyPerson directly or indirectly controlled by the central government of the PRC, any Person or Persons,acting as a group, acquiring Control directly or indirectly or in combination (through Subsidiaries) ofthe Guarantor;

“Control” means:

(i) the ownership, acquisition or control of more than 50 per cent. of the voting rights of the issued sharecapital of the Guarantor;

(ii) the right to appoint and/or remove the majority of the members of the Guarantor’s board of directorsor other governing body, whether obtained directly or indirectly, and whether obtained by ownershipof share capital, the possession of voting rights, contract or otherwise; and

(iii) the possession, directly or indirectly, of the power to direct or cause the direction of the managementpolicies of a person and the terms “controlling” and “controlled” have meanings correlative to theforegoing;

a “No Registration Event” occurs when the Registration Condition is not complied with by the RegistrationDeadline;

a “Person” includes any individual, company, corporation, firm, partnership, joint venture, undertaking,association, organisation, trust, state or agency of state (in each case whether or not being a separate legalentity);

“Registration Condition” means the receipt by the Trustee of the Registration Documents as set forth inCondition 4(d); and

a “Relevant Event” means a Change of Control or a No Registration Event.

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(d) Notice of redemption

All Bonds in respect of which any notice of redemption is given under this Condition 6 shall be redeemedon the date, in such place and in such manner as specified in such notice in accordance with this Condition6(d). If there is more than one notice of redemption given in respect of any Bond (which shall include anynotice given by the Issuer pursuant to Condition 6(b) and any Put Exercise Notice given by a Bondholderpursuant to Condition 6(c)), the notice given first in time shall prevail and in the event of two notices beinggiven on the same date, the first to be given shall prevail. Neither the Trustee nor any of the Agents shallbe responsible for calculating or verifying any calculations of any amounts payable under any notice ofredemption or Put Exercise Notice, and none of them shall be liable to the Bondholders, the Issuer, theGuarantor or any other person for not doing so.

So long as the Bonds are represented by the Global Certificate, a right of a Bondholder to redemption of theBonds following the occurrence of a Relevant Event will be effected in accordance with the rules of therelevant clearing systems.

(e) Purchase

The Issuer, the Guarantor and their respective Subsidiaries may at any time purchase Bonds in the openmarket or otherwise at any price. The Bonds so purchased, while held by or on behalf of the Issuer, theGuarantor or any such Subsidiary, shall not entitle the holder to vote at any meetings of the Bondholders andshall not be deemed to be outstanding for certain purposes, including without limitation for the purposes ofcalculating quorums at meetings of the Bondholders and for the purposes of Conditions 9, 12(a) and 14.

(f) Cancellation

All Certificates representing Bonds purchased or beneficially held by or on behalf of the Issuer, theGuarantor or any of their respective Subsidiaries shall be surrendered for cancellation to the Registrar and,upon surrender thereof, all such Bonds shall be cancelled forthwith. Any Certificates so surrendered forcancellation may not be reissued or resold and the obligations of the Issuer and the Guarantor in respect ofany such Bonds shall be discharged.

7 PAYMENTS

(a) Method of Payment

(i) Payments of principal and premium (if any) shall be made (subject to surrender of the relevantCertificates at the specified office of any Paying Agent or of the Registrar if no further payment fallsto be made in respect of the Bonds represented by such Certificates) in the manner provided inCondition 7(a)(ii).

(ii) Interest on each Bond shall be paid to the person shown on the Register at the close of business on thefifth business day before the due date for payment thereof (the “Record Date”). Payments of intereston each Bond shall be made in U.S. dollars by transfer to the registered account of the Bondholder. Forthe purposes of this Condition 7(a)(ii), a Bondholder’s “registered account” means the U.S. dollardenominated account maintained by or on behalf of it with a bank, details of which appear on theRegister at the close of business on the Record Date. In this Condition 7(a)(ii), “business day” meansa day, other than a Saturday, a Sunday or a public holiday, on which the Registrar is open for businessin the place of its specified office.

(iii) If the amount of principal being paid upon surrender of the relevant Certificate is less than theoutstanding principal amount of such Certificate, the Registrar will annotate the Register with theamount of principal so paid and will (if so requested in writing by the Issuer or a Bondholder) issuea new Certificate with a principal amount equal to the remaining unpaid outstanding principal amount.If the amount of interest being paid is less than the amount then due, the Registrar will annotate theRegister with the amount of interest so paid.

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Notwithstanding the foregoing, so long as the Global Certificate is held on behalf of Euroclear Bank SA/NV,Clearstream Banking S.A. or any other clearing system, each payment in respect of the Global Certificatewill be made to the person shown as the holder in the Register at the close of business of the relevant clearingsystem on the Clearing System Business Day before the due date for such payments, where “Clearing SystemBusiness Day” means a weekday (Monday to Friday, inclusive) except 25 December and 1 January.

(b) Payments subject to Fiscal Laws

All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives inthe place of payment but without prejudice to the provisions of Condition 8 and (ii) any withholding ordeduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Codeof 1986, as amended (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code,any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to theprovisions of Condition 8) any law implementing an intergovernmental approach thereto. No commission orexpenses shall be charged to the Bondholders in respect of such payments.

(c) Payment Initiation

Payment instructions (for value the due date or, if that is not a Payment Business Day, for value the firstfollowing day which is a Payment Business Day) will be initiated on the due date or, if that is not a PaymentBusiness Day, on the first following day which is a Payment Business Day or, in the case of payments ofprincipal where the relevant Certificate has not been surrendered at the specified office of any Paying Agentor of the Registrar, on a Payment Business Day on which the Principal Paying Agent is open for businessand on which the relevant Certificate is surrendered.

(d) Agents

The Principal Paying Agent, the Registrar and the Transfer Agent initially appointed by the Issuer and theGuarantor and their respective specified offices are listed below. The Principal Paying Agent, the Registrarand the Transfer Agent act solely as agents of the Issuer and the Guarantor and do not assume any obligationor relationship of agency or trust for or with any Bondholder. The Issuer and the Guarantor reserve the rightat any time in accordance with the terms of the Agency Agreement to vary or terminate the appointment ofthe Principal Paying Agent, the Registrar, any Transfer Agent or any of the other Agents and to appointadditional or other Agents, provided that the Issuer and the Guarantor shall at all times maintain (i) aPrincipal Paying Agent, (ii) a Registrar and (iii) a Transfer Agent, in each case appointed as contemplatedin the Agency Agreement.

Notice of any such termination or appointment or any change of any specified office shall promptly be givenby the Issuer to the Bondholders in accordance with Condition 16 and to the Trustee.

(e) Delay in Payment

Bondholders will not be entitled to any interest or other payment for any delay after the due date in receivingthe amount due on a Bond if the due date is not a Payment Business Day, if the Bondholder is late insurrendering or cannot surrender its Certificate (if required to do so) or if a transfer made in accordance withCondition 7(a)(ii) reaches the registered account of the relevant Bondholder after the due date for payment.

(f) Non-Payment Business Days

If any date for payment in respect of any Bond is not a Payment Business Day, the holder shall not be entitledto payment until the next following Payment Business Day nor to any interest or other sum in respect of suchpostponed payment.

In this Condition 7, “Payment Business Day” means a day (other than a Saturday or a Sunday or a publicholiday) on which commercial banks and foreign exchange markets are generally open for business andsettlement of U.S. dollars payments in New York City, Hong Kong and in the place in which the specifiedoffice of the Principal Paying Agent is located and (if surrender of the relevant Certificate is required) therelevant place of presentation.

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8 TAXATION

All payments of principal, premium (if any) and interest by or on behalf of the Issuer or the Guarantor in respectof the Bonds or under the Guarantee shall be made free and clear of and without set off or counterclaim andwithout withholding or deduction for or on account of, any present or future taxes, duties, assessments orgovernmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the BritishVirgin Islands or the PRC or in each case any political subdivision or any authority therein or thereof havingpower to tax, unless such withholding or deduction is required by law.

Where such withholding or deduction is made by the Issuer or, as the case may be, the Guarantor for or onaccount of any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected,withheld or assessed by or within the PRC up to and including the aggregate rate applicable on [●] 2020 (the“Applicable Rate”), the Issuer or, as the case may be, the Guarantor will increase the amounts paid by it to theextent required, so that the net amount received by Bondholders equals the amount which would otherwise havebeen receivable by them had no such withholding or deduction been required.

If (i) the Issuer is required to make any deduction or withholding for or on account of any taxes, duties,assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by orwithin the British Virgin Islands, or (ii) the Issuer or, as the case may be, the Guarantor is required to make adeduction or withholding for or on account of any taxes, duties, assessments or governmental charges ofwhatever nature imposed, levied, collected, withheld or assessed by or within the PRC in excess of the ApplicableRate, then the Issuer (or the Guarantor, as the case may be) shall pay such additional amounts (“Additional TaxAmounts”) as will result in receipt by the Bondholders of such amounts as would have been received by themhad no such withholding or deduction been required, except that no Additional Tax Amounts shall be payable inrespect of any Bond (or the Guarantee, as the case may be):

(a) Other Connection: held by or on behalf of a holder who is liable to such taxes, duties, assessments orgovernmental charges in respect of such Bond by reason of his having some connection with the BritishVirgin Islands or the PRC other than the mere holding of the Bond; or

(b) Surrender More Than 30 Days after the Relevant Date: in respect of which the Certificate representing itis surrendered or presented (where presentation or surrender is required) for payment more than 30 days afterthe Relevant Date except to the extent that the holder of it would have been entitled to such Additional TaxAmounts on presenting or surrendering the Certificate representing such Bond for payment on the last dayof such period of 30 days.

References in these Conditions to principal, premium and interest shall be deemed also to refer to any AdditionalTax Amounts which may be payable under this Condition 8 or any undertaking or covenant given in additionthereto or in substitution therefor pursuant to the Trust Deed or the Deed of Guarantee.

“Relevant Date” in respect of any Bond means the date on which payment in respect of it first becomes due or(if any amount of the money payable is improperly withheld or refused) the date on which payment in full of theamount outstanding is made or (if earlier) the date falling seven days after that on which notice is duly given tothe Bondholders that, upon further presentation or surrender of the Certificate representing such Bond beingmade in accordance with the Conditions, such payment will be made, provided that payment is in fact made uponsuch surrender.

Neither the Trustee nor any Agent shall in any event be responsible for paying any tax, duty, withholding,assessment, governmental charge or other payment referred to in this Condition 8 or for determining whethersuch amounts are payable or the amount thereof, and none of them shall be responsible or liable for any failureby the Issuer, the Guarantor, the Bondholders or any other person to pay such tax, duty, withholding, assessment,governmental charge or other payment in any jurisdiction or be responsible to provide any notice or informationin relation to the Bonds in connection with payment of such tax, duty, withholding, assessment, governmentalcharge or other payment.

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9 EVENTS OF DEFAULT

If an Event of Default (as defined below) occurs, the Trustee at its discretion may, and if so requested in writingby holders of at least 25 per cent. of the aggregate principal amount of the Bonds then outstanding or if sodirected by an Extraordinary Resolution shall (provided in any such case that the Trustee shall have beenindemnified and/or secured and/or pre-funded to its satisfaction), give notice to the Issuer and the Guarantor thatthe Bonds are, and they shall immediately become, due and payable at their principal amount together (ifapplicable) with accrued and unpaid interest. An “Event of Default” occurs if:

(a) Non-Payment: there has been a failure to pay the principal or any premium (if any) of or interest on any ofthe Bonds when due and, in the case of interest, such failure continues for a period of seven days; or

(b) Breach of Other Obligations: the Issuer or the Guarantor defaults in the performance or observance of anyof their other obligations under or in respect of the Bonds or the Trust Deed or the Guarantee (other thanthose the breach of which would give rise to a right of redemption pursuant to Condition 6(c)) and suchdefault (i) is in the opinion of the Trustee incapable of remedy or, (ii) being a default which is in the opinionof the Trustee capable of remedy, is not remedied for 30 days after the Trustee has given written noticethereof to the Issuer or the Guarantor, as the case may be; or

(c) Cross-Acceleration:

(i) any Indebtedness for Borrowed Money of the Issuer, the Guarantor or any of their respectiveSubsidiaries is not paid when due or (as the case may be) within any originally applicable grace period;

(ii) any such Indebtedness for Borrowed Money becomes due and payable prior to its stated maturityotherwise than at the option of the Issuer, the Guarantor or (as the case may be) or the relevantSubsidiary or (provided that no event of default, howsoever described, has occurred) any personentitled to such Indebtedness for Borrowed Money; or

(iii) the Issuer, the Guarantor or any of their respective Subsidiaries fails to pay when due any amountpayable by it under any guarantee of any Indebtedness for Borrowed Money;

provided that (A) the amount of Indebtedness for Borrowed Money referred to in (i) and/or (ii) above of thisCondition 9(c) and/or the amount payable under any guarantee referred to in (iii) above of this Condition 9(c)individually or in the aggregate exceeds U.S.$30,000,000 (or its equivalent in any other currency orcurrencies) and (B) such Indebtedness for Borrowed Money (other than any such Indebtedness for BorrowedMoney of the Issuer) has an original maturity of more than 365 days; or

(d) Unsatisfied judgment: one or more judgment(s) or order(s) for the payment of an aggregate amount in excessof U.S.$25,000,000 (or its equivalent in any other currency or currencies) is rendered against the Issuer, theGuarantor or any of the Material Subsidiaries and continue(s) unsatisfied and unstayed for a period of 60days after the date(s) thereof or, if later, the date therein specified for payment; or

(e) Security Enforced: an encumbrancer takes possession or an administrative or other receiver or anadministrator or other similar officer is appointed of the whole or any material part of the property, assetsor revenues of the Issuer, the Guarantor or any of the Material Subsidiaries and such appointment is notdischarged within 45 days; or

(f) Insolvency: the Issuer, the Guarantor or any of the Material Subsidiaries is (or is, or could be, deemed bylaw or a court to be) insolvent or bankrupt or unable to pay its debts as and when such debts fall due, stops,suspends or threatens to stop or suspend payment of all or a material part of its debts, proposes or makesa general assignment or an arrangement or composition with or for the benefit of the relevant creditors inrespect of any of such debts or a moratorium is agreed or declared in respect of or affecting all or anymaterial part of the debts of the Issuer, the Guarantor or any of the Material Subsidiaries; or

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(g) Winding-up: an order of any court of competent jurisdiction is made or an effective resolution passed forthe winding-up or dissolution of the Issuer, the Guarantor or any of the Material Subsidiaries (except for amembers’ voluntary solvent winding-up of any of the Material Subsidiaries), or the Issuer, the Guarantor orany of the Material Subsidiaries ceases or threatens to cease to carry on all or substantially all of its businessor operations, except (i) for the purpose of and followed by a solvent winding-up, dissolution, reconstruction,amalgamation, reorganisation, merger or consolidation (A) on terms approved by an ExtraordinaryResolution of the Bondholders, or (B) in the case of any of the Material Subsidiaries, whereby theundertaking and assets of such Material Subsidiary are transferred to or continue to be otherwise vested inthe Issuer, Guarantor or their respective Subsidiaries and (ii) for the disposal of any assets on an arm’s lengthbasis where all of the undertaking and assets resulting from such disposal are vested in the Issuer, theGuarantor and/or their respective Subsidiaries provided such disposal does not result in the Guarantorbecoming a cash company; or

(h) Nationalisation: any step is taken by any person with a view to the seizure, compulsory acquisition orexpropriation of all or a substantial part of the assets of the Issuer, the Guarantor or any of the MaterialSubsidiaries provided that the value of the assets subject to such seizure, compulsory acquisition orexpropriation, individually or in the aggregate, exceeds 50 per cent. of the total assets of the Guarantor andits Subsidiaries (taken together, the “Group”); or

(i) Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of anynecessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at anytime required to be taken, fulfilled or done in order (i) to enable the Issuer and the Guarantor to lawfully enterinto, exercise their respective rights and perform and comply with their respective obligations under theBonds, the Trust Deed and the Deed of Guarantee, (ii) to ensure that those obligations are legally bindingand enforceable and (iii) to make the Bonds, the Trust Deed and the Deed of Guarantee admissible inevidence in the courts of Hong Kong is not taken, fulfilled or done; or

(j) Illegality: it is or will become unlawful for the Issuer or the Guarantor to perform or comply with any oneor more of their respective obligations under any of the Bonds, the Trust Deed and the Deed of Guarantee;or

(k) Guarantee: the Guarantee is not (or is claimed by the Guarantor not to be) in full force and effect, or theGuarantee is modified, amended or terminated other than strictly in accordance with its terms or theseConditions; or

(l) Analogous Events: any event occurs which under the laws of any relevant jurisdictions has an analogouseffect to any of the events referred to in any of Conditions 9(d) to 9(g) (both inclusive).

In this Condition 9:

“Indebtedness for Borrowed Money” means any indebtedness (whether being principal, premium, interest orother amounts) for or in respect of any borrowed money or any liability under or in respect of any notes, bonds,debentures, debenture stock, loan stock or other securities; and

“Material Subsidiary” means any Subsidiary of the Guarantor whose total amount of gross assets or revenue(excluding intra-group items) represents 5 per cent. or more of the gross assets or revenue of the Group calculatedon a consolidated basis, as determined by reference to the latest audited consolidated financial statements of thatSubsidiary (consolidated in the case of a Subsidiary which itself has Subsidiaries) and the latest auditedconsolidated financial statements of the Group.

A certificate in English signed by an Authorised Signatory of the Guarantor confirming that a Subsidiary is oris not, or was or was not, a Material Subsidiary shall, in the absence of manifest error, be conclusive and bindingon all parties.

10 PRESCRIPTION

Claims against the Issuer and the Guarantor for payment in respect of the Bonds shall be prescribed and becomevoid unless made within 10 years (in the case of principal or premium) or five years (in the case of interest) fromthe appropriate Relevant Date in respect of them.

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11 REPLACEMENT OF CERTIFICATES

If any Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws,regulations or other relevant regulatory authority regulations, at the specified office of the Registrar or anyTransfer Agent from time to time designated by the Issuer for that purpose and notice of whose designation isgiven to Bondholders, in each case on payment by the claimant of the fees and costs incurred in connectiontherewith and on such terms as to evidence, security, indemnity, pre-funding and otherwise as the Issuer, theRegistrar or the relevant Transfer Agent may require. Mutilated or defaced Certificates must be surrendered tothe Registrar before replacements will be issued.

12 MEETINGS OF BONDHOLDERS, MODIFICATION AND WAIVER

(a) Meetings of Bondholders

The Trust Deed contains provisions for convening meetings of Bondholders to consider matters affectingtheir interests, including without limitation the sanctioning by Extraordinary Resolution of a modification ofany of these Conditions or any provisions of the Trust Deed, the Agency Agreement or the Deed ofGuarantee. Such a meeting may be convened by the Issuer, the Guarantor or the Trustee, and shall beconvened by the Trustee if so requested in writing by Bondholders holding not less than 10 per cent. inaggregate principal amount of the Bonds for the time being outstanding and subject to the Trustee beingindemnified and/or secured and/or pre-funded to its satisfaction against all costs and expenses. The quorumfor any meeting convened to consider an Extraordinary Resolution will be two or more persons holding orrepresenting more than 50 per cent. in aggregate principal amount of the Bonds for the time beingoutstanding, or at any adjourned meeting two or more persons being or representing Bondholders whateverthe aggregate principal amount of the Bonds held or represented, unless the business of such meetingincludes consideration of proposals, inter alia, (i) to modify the maturity of the Bonds or the dates on whichinterest is payable in respect of the Bonds, (ii) to reduce or cancel the principal amount of, or interest on,or any premium payable in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv)to modify the provisions concerning the quorum required at any meeting of Bondholders or the majorityrequired to pass an Extraordinary Resolution, or (v) to modify or terminate the Guarantee other than asprovided in Condition 12(b) or the Deed of Guarantee, in which case the necessary quorum will be two ormore persons holding or representing not less than 75 per cent., or at any adjourned meeting not less than25 per cent., in aggregate principal amount of the Bonds for the time being outstanding. Any ExtraordinaryResolution duly passed shall be binding on Bondholders (whether or not they were present at the meetingat which such resolution was passed).

The Trust Deed provides that a resolution (A) in writing signed by or on behalf of the holders of not lessthan 90 per cent. in aggregate principal amount of the Bonds for the time being outstanding or (B) passedby Electronic Consent (as defined in the Trust Deed) shall for all purposes be as valid and effective as anExtraordinary Resolution passed at a meeting of Bondholders duly convened and held. Such a resolution inwriting may be contained in one document or several documents in the same form, each signed by or onbehalf of one or more Bondholders.

(b) Modification of the Trust Deed, Agency Agreement and Deed of Guarantee

The Trustee may (but shall not be obliged to) agree (and is entitled to rely on external opinions for thispurpose), without the consent of the Bondholders, to (i) any modification of these Conditions or any of theprovisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee that is, in its opinion, of aformal, minor or technical nature or to correct a manifest error or to comply with any mandatory provisionof law, and (ii) any other modification (except as mentioned in the Trust Deed or the Deed of Guarantee),and any waiver or authorisation of any breach or proposed breach by the Issuer or the Guarantor, of theseConditions or any of the provisions of the Trust Deed, the Agency Agreement or the Deed of Guarantee thatis in the opinion of the Trustee not materially prejudicial to the interests of the Bondholders. Any suchmodification, authorisation or waiver shall be binding on the Bondholders and, unless the Trustee otherwiseagrees, such modification, authorisation or waiver shall be notified by the Issuer, failing whom theGuarantor, to the Bondholders as soon as practicable in accordance with Condition 16.

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(c) Directions from Bondholders

Notwithstanding anything to the contrary in these Conditions, the Trust Deed, the Deed of Guarantee or theAgency Agreement, whenever the Trustee is required or entitled by the terms of these Conditions, the TrustDeed, the Deed of Guarantee or the Agency Agreement to exercise any discretion or power, take any action,make any decision or give any direction or certification, the Trustee is entitled, prior to exercising any suchdiscretion or power, taking any such action, making any such decision, or giving any such direction orcertification, to seek directions from the Bondholders by way of an Extraordinary Resolution and to havebeen indemnified and/or secured and/or pre-funded to its satisfaction against all action, proceedings, claimsand demands to which it may be or become liable and all costs, charges, damages, expenses (including legalexpenses) and liabilities which may be incurred by it in connection therewith, and the Trustee is notresponsible for any loss or liability incurred by any person as a result of any delay in it exercising suchdiscretion or power, taking such action, making such decision, or giving such direction or certification wherethe Trustee is seeking such directions or in the event that no such directions are received.

(d) Entitlement of the Trustee

In connection with the exercise of its functions, rights, powers and/or discretions (including but not limitedto those referred to in this Condition 12), the Trustee shall have regard to the interests of the Bondholdersas a class and shall not have regard to the consequences of such exercise for individual Bondholders, andthe Trustee shall not be entitled to require on behalf of any Bondholder, nor shall any Bondholder be entitledto claim, from the Issuer, the Guarantor or the Trustee (as the case may be) any indemnification or paymentin respect of any tax consequence of any such exercise upon individual Bondholders.

13 FURTHER ISSUES

The Issuer may from time to time without the consent of the Bondholders create and issue further bonds havingthe same terms and conditions as the Bonds in all respects (or in all respects except for the issue date, the firstpayment of interest on them and the timing for complying with the Registration Condition, for submission of theNDRC Post-issue Filing and for completing the Cross-Border Security Registration) and so that such furtherissue shall be consolidated and form a single series with the outstanding Bonds. References in these Conditionsto the Bonds include (unless the context requires otherwise) any other bonds issued pursuant to this Condition13. However, such further bonds may only be issued if such supplemental documents are executed and furtheropinions are obtained as the Trustee may require, as further set out in the Trust Deed and such further bonds shallbe guaranteed by the Guarantor pursuant to a deed supplemental to the Deed of Guarantee.

14 ENFORCEMENT

At any time after the Bonds become due and payable, the Trustee may, at its discretion and without further notice,take such actions and/or steps and/or institute such proceedings against the Issuer or the Guarantor as it may thinkfit to enforce the terms of the Trust Deed, the Deed of Guarantee and the Bonds, but it need not take any suchactions and/or steps and/or institute any such proceedings unless (a) it shall have been so directed by anExtraordinary Resolution or so requested in writing by Bondholders holding at least 25 per cent. in principalamount of the Bonds outstanding, and (b) it shall have been indemnified and/or secured and/or pre-funded to itssatisfaction. No Bondholder may proceed directly against the Issuer or the Guarantor unless the Trustee, havingbecome bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

15 INDEMNIFICATION OF THE TRUSTEE

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibilityincluding without limitation, provisions relieving it from taking steps and/or actions and/or institutingproceedings to enforce its rights under the Trust Deed, the Agency Agreement, the Deed of Guarantee and/orthese Conditions and in respect of the Bonds and payment or taking other actions unless first indemnified and/orsecured and/or pre-funded to its satisfaction and to be paid or reimbursed for any fees, costs, expenses andindemnity payments and for liabilities incurred by it in priority to the claims of Bondholders. The Trustee isentitled to enter into business transactions with the Issuer, the Guarantor and any entity related (directly orindirectly) to the Issuer or the Guarantor without accounting for any profit.

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The Trustee may rely without liability to Bondholders, the Issuer, the Guarantor or any other person on anyreport, confirmation, information or certificate from or any opinion or advice of any legal advisers, accountants,financial advisers, financial institution or any other expert, whether or not addressed to it and whether theirliability in relation thereto is limited (by its terms or by any engagement letter relating thereto or in any othermanner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitledto rely on any such report, confirmation, certificate, information, opinion or advice, in which event such report,confirmation, certificate, information, opinion or advice shall be binding on the Issuer, the Guarantor and theBondholders.

Neither the Trustee nor any of the Agents shall have any obligation to monitor compliance with the provisionsof the Trust Deed, the Agency Agreement, the Deed of Guarantee or these Conditions or to monitor or take anysteps to ascertain whether an Event of Default or a Potential Event of Default or a Relevant Event has occurred,and none of them shall be responsible or liable to the Issuer, the Guarantor, the Bondholders or any other personfor not doing so.

None of the Trustee or any of the Agents shall be responsible for the performance by the Issuer, the Guarantorand any other person appointed by the Issuer or the Guarantor in relation to the Bonds of the duties andobligations on their part expressed in respect of the same and, unless it has written notice from the Issuer or theGuarantor to the contrary, the Trustee and each Agent shall be entitled to assume that the same are being dulyperformed. None of the Trustee or any Agent shall be liable to any Bondholder, the Issuer, the Guarantor or anyother person for any action taken by the Trustee or such Agent in accordance with the instructions of theBondholders. The Trustee shall be entitled to rely on any direction, request or resolution of Bondholders givenby Bondholders holding the requisite principal amount of Bonds outstanding or passed at a meeting ofBondholders convened and held in accordance with the Trust Deed.

Each Bondholder shall be solely responsible for making and continuing to make its own independent appraisaland investigation into the financial condition, creditworthiness, condition, affairs, status and nature of the Issuer,the Guarantor and their respective Subsidiaries, and the Trustee shall not at any time have any responsibility forthe same and each Bondholder shall not rely on the Trustee in respect thereof.

16 NOTICES

Notices to the holders of Bonds shall be mailed to them at their respective addresses in the Register and deemedto have been given on the fourth workday (being a day other than a Saturday, Sunday or public holiday) afterthe date of mailing. The Issuer shall also ensure that notices are duly published in a manner that complies withthe rules and regulations of any stock exchange or other relevant authority on which the Bonds are for the timebeing listed. Any such notice shall be deemed to have been given on the date of such publication or, if publishedmore than once or on different dates, on the first date on which such publication is made.

Until such time as any definitive certificates are issued and so long as the Global Certificate is held in its entiretyon behalf of Euroclear Bank SA/NV and Clearstream Banking S.A., any notice to the Bondholders shall be validlygiven by the delivery of the relevant notice to Euroclear Bank SA/NV and Clearstream Banking S.A., forcommunication by the relevant clearing system to entitled accountholders in substitution for notification asrequired by the Conditions and shall be deemed to have been given on the date of delivery to such clearingsystem.

17 CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

Save as contemplated in Condition 14, no person shall have any right to enforce any term or condition of theBonds under the Contracts (Rights of Third Parties) Act 1999 but this shall not affect any right or remedy whichexists or is available apart from such Act and is without prejudice to the rights of the Bondholders as set out inCondition 14.

18 GOVERNING LAW AND JURISDICTION

(a) Governing Law

The Trust Deed, the Agency Agreement, the Deed of Guarantee and the Bonds and any non-contractualobligations arising out of or in connection with them are governed by, and shall be construed in accordancewith, English law.

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(b) Jurisdiction

The courts of Hong Kong are to have exclusive jurisdiction to settle any disputes that may arise out of orin connection with the Bonds, the Deed of Guarantee or the Trust Deed and accordingly any legal action orproceedings arising out of or in connection with any Bonds (“Proceedings”) may be brought in such courts.Pursuant to the Trust Deed, each of the Issuer and the Guarantor has irrevocably submitted to the exclusivejurisdiction of such courts and has waived any objection to Proceedings in any such courts whether on theground of venue or on the ground that the Proceedings have been brought in an inconvenient forum.

(c) Service of Process

Each of the Issuer and the Guarantor agrees to receive service of process at the Guarantor’s principal placeof business (being at the Issue Date, in Hong Kong at 21/F, Li Po Chun Chambers, 189 Des Voeux RoadCentral, Central, Hong Kong) in any Proceedings in Hong Kong based on any of the Bonds, the Guaranteeor the Trust Deed. If for any reason the Guarantor ceases to have such a principal place of business in HongKong, each of the Issuer and the Guarantor will promptly appoint a substitute process agent and notify theTrustee of such appointment within 30 days of such cessation. Nothing herein shall affect the right to serveprocess in any other manner permitted by law.

(d) Waiver of Immunity

Each of the Issuer and the Guarantor has waived any right to claim sovereign or other immunity fromjurisdiction or execution and any similar defence, and has irrevocably consented to the giving of any reliefor the issue of any process, including, without limitation, the making, enforcement or execution against anyproperty whatsoever (irrespective of its use or intended use) of any order or judgment made or given inconnection with any Proceedings.

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SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM

The Global Certificate contains provisions which apply to the Bonds while they are in global form, some of whichmodify the effect of the Terms and Conditions set out in this Offering Circular. The following is a summary ofcertain of those provisions.

Terms defined in the Terms and Conditions set out in this Offering Circular have the meaning in the paragraphsbelow.

The Bonds will be represented by a Global Certificate which will be registered in the name of a nominee of, anddeposited with, a common depositary on behalf of Euroclear and Clearstream.

Under the Global Certificate, the Issuer, for value received, will promise to pay such principal, interest andpremium (if any) on the Bonds to the holder of the Bonds on such date or dates as the same may become payablein accordance with the Terms and Conditions.

Owners of interests in the Bonds in respect of which the Global Certificate is issued will be entitled to have titleto the Bonds registered in their names and to receive individual definitive certificates if either Euroclear orClearstream or any other clearing system through which the Bonds are cleared (an “Alternative ClearingSystem”) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutoryor otherwise) or announces an intention permanently to cease business or does in fact do so.

Individual definitive certificates will be issued in an aggregate principal amount equal to the principal amountof the Global Certificate. Such exchange will be effected in accordance with the provisions of the Trust Deed,the Agency Agreement and the regulations concerning the transfer and registration of the Bonds scheduledthereto and, in particular, shall be effected without charge to any holder of the Bonds or the Trustee, but againstsuch indemnity and/or security as the Registrar or the relevant Agent may require in respect of any tax or otherduty of whatsoever nature which may be levied or imposed in connection with such exchange.

The Issuer will cause sufficient individual definitive certificates to be executed and delivered to the Registrar forcompletion, authentication and despatch to the relevant Bondholders. A person with an interest in the Bonds inrespect of which the Global Certificate is issued must provide the Registrar not less than 30 days’ notice at itsspecified office of such holder’s intention to effect such exchange and a written order containing instructions andsuch other information as the Issuer and the Registrar may require to complete, execute and deliver suchindividual definitive certificates.

In addition, the Global Certificate will contain provisions which modify the Terms and Conditions as they applyto the Bonds evidenced by the Global Certificate. The following is a summary of certain of those provisions:

PAYMENT

So long as the Bonds are represented by the Global Certificate, each payment in respect of the Global Certificatewill be made to, or to the order of, the person shown as the holder of the Bonds in the Register at the close ofbusiness (of the relevant clearing system) on the Clearing System Business Day immediately prior to the due datefor such payments, where “Clearing System Business Day” means Monday to Friday, inclusive except 25December and 1 January.

CALCULATION OF INTEREST

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf ofEuroclear or Clearstream or an Alternative Clearing System, the Issuer has promised, inter alia, to pay interestin respect of such Bonds from the Issue Date in arrear at the rates, on the dates for payment, and in accordancewith the method of calculation provided for in the Terms and Conditions, save that the calculation is made inrespect of the total aggregate amount of the Bonds represented by the Global Certificate.

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NOTICES

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf ofEuroclear or Clearstream or any Alternative Clearing System, notices to Bondholders shall be given by deliveryof the relevant notice to Euroclear or Clearstream or such Alternative Clearing System, for communication byit to accountholders entitled to an interest in the Bonds in substitution for notification as required by the Termsand Conditions.

MEETINGS

For the purposes of any meeting of Bondholders, the holder of the Bonds represented by the Global Certificateshall (unless the Global Certificate represents only one Bond) be treated as two persons for the purposes of anyquorum requirements of a meeting of Bondholders and as being entitled to one vote in respect of each U.S.$1,000in principal amount of the Bonds for which the Global Certificate is issued.

BONDHOLDER’S REDEMPTION

The Bondholder’s redemption option in Condition 6(c) (Redemption for Change of Control) of the Terms andConditions may be exercised by the holder of the Global Certificate giving notice to the Principal Paying Agentof the principal amount of Bonds in respect of which the option is exercised within the time limits specified inthe Terms and Conditions.

ISSUER’S REDEMPTION

The option of the Issuer provided for in Condition 6(b) (Redemption for Taxation Reasons) of the Terms andConditions shall be exercised by the Issuer giving notice to the Bondholders within the time limits set out in andcontaining the information required by the Terms and Conditions.

TRANSFERS

Transfers of interests in the Bonds will be effected through the records of Euroclear and Clearstream (or anyAlternative Clearing System) and their respective participants in accordance with the rules and procedures ofEuroclear and Clearstream (or any Alternative Clearing System) and their respective direct and indirectparticipants.

CANCELLATION

Cancellation of any Bond by the Issuer following its redemption or purchase by the Issuer or its respectiveSubsidiaries will be effected by a reduction in the principal amount of the Bonds in the register of Bondholders.

TRUSTEE’S POWERS

In considering the interests of Bondholders while the Global Certificate is registered in the name of a nomineefor a clearing system, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, butwithout being obligated to do so, (a) have regard to any information as may have been made available to it byor on behalf of the relevant clearing system or its operator as to the identity of its accountholders (eitherindividually or by way of category) with entitlements in respect of the Bonds and (b) consider such interests onthe basis that such accountholders were the Bondholders in respect of which the Global Certificate is issued.

The Global Certificate shall not become valid for any purpose until authenticated by or on behalf of the Registrar.

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USE OF PROCEEDS

The Issuer estimates that the net proceeds from the offering of the Bonds, after deducting commissions and otherestimated expenses payable in connection with the offering of the Bonds, will be approximately U.S.$[●]. Thenet proceeds will primarily be used to repay the U.S.$670,000,000 3.50 per cent. Guaranteed Bonds due 2020issued by the Issuer in 2015.

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CAPITALISATION AND INDEBTEDNESS

The following table sets forth on Guarantor’s audited consolidated capitalisation and indebtedness as at 30 June2019 and as adjusted to give effect to the issue of the Bonds before deducting the underwriting fees andcommissions and other estimated expenses payable in connection with the offering:

As at 30 June 2019

Actual Actual As adjusted As adjusted

RMB U.S.$(4) RMB U.S.$(4)

(in millions) (in millions)(unaudited) (unaudited)

Borrowings(1) ������������������������������������������� 86,715.3 12,631.5 86,715.3 12,631.5Bond payables ����������������������������������������� 141,439.7 20,603.0 141,439.7 20,603.0Short-term financing bills payables ��������� 35,381.6 5,153.9 35,381.6 5,153.9Bonds to be issued ����������������������������������� – – [●] [●]Total��������������������������������������������������������� 263,536.6 38,388.4 263,536.6 38,388.4

Total equity(2) ������������������������������������������ 137,127.5 19,974.9 137,127.5 19,974.9

Total capitalisation(3) ������������������������������� 400,664.1 58,363.3 [●] [●]

Notes:

(1) Borrowings comprises borrowings and long-term borrowings.

(2) Total equity comprises share capital, reserves and retained profits, and non-controlling interests.

(3) Total capitalisation equals the total of borrowings, bond payables, short-term financing bills payables and total equity, which is affectedby borrowings, debt and equity financing activities of the Group after 30 June 2019, mainly including the first tranche of financial bondsof 2019 in August 2019 with a total issue size of RMB7 billion and a term of three years; five tranches of short-term commercial papersin July, September, October and December 2019 and January 2020, each with an issue size of RMB5 billion and with a term of 84 days,88 days, 88 days, 89 days and 90 days, respectively of which the short-term commercial papers issued in July, September and October2019 were matured and repaid as at the date of this Offering Circular; the second tranche of corporate bonds of 2019 in November 2019with an issue size of RMB4.5 billion and a term of three years; and the first tranche of corporate bonds of 2020 in February 2020 withan issue size of RMB5 billion and a term of three years.

(4) Translation of Renminbi amounts to U.S. dollar amounts was made at a rate of RMB6.8650 to U.S.$1.00 (the noon buying rate in NewYork City on 28 June 2019 as set forth in the weekly H.10 statistical release of the Board of Governors of the Federal Reserve System).

Except as otherwise disclosed above, there has been no material change in the Guarantor’s consolidatedcapitalisation and indebtedness since 30 June 2019.

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DESCRIPTION OF THE ISSUER

FORMATION

The Issuer, Haitong International Finance Holdings 2015 Limited, is a BVI business company with limitedliability incorporated in the British Virgin Islands under the laws of the British Virgin Islands on 23 December2014 with company number 1854707. Its registered office is located at Maples Corporate Services (BVI)Limited, Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. The Issuer is awholly-owned subsidiary of Haitong International Holdings, a Hong Kong subsidiary wholly-owned by HaitongSecurities.

BUSINESS ACTIVITY

So long as any of the Bonds remains outstanding, save with the approval of an extraordinary resolution of theBondholders, the Issuer will not, and the Guarantor will ensure that the Issuer will not, conduct any business orany activities other than the issue of the Bonds or any other Relevant Indebtedness (as defined in the Terms andConditions), and the lending of the proceeds thereof to any of the Guarantor’s subsidiaries and affiliates and anyother activities reasonably incidental thereto. As of the date of this Offering Circular, the Issuer has not engaged,since its incorporation, in any material activities other than those relating to the issue of U.S.$670,000,000 3.50per cent. guaranteed bonds due 2020, the C220,000,000 1.60 per cent. guaranteed bonds due 2021 and theproposed issue of the Bonds and the on-lending of the proceeds thereof to the Guarantor or its subsidiaries oraffiliates, and the authorisation of documents and agreements referred to in this Offering Circular to which it isor will be a party.

DIRECTORS AND OFFICERS

The directors of the Issuer are Mr. ZHANG Shaohua, Mr. ZHANG Xinjun and Mr. SUN Tong. The businessaddress of Mr. ZHANG Shaohua is at Room 1701, Haitong Securities Building, No. 689 Guangdong Road,Shanghai, PRC. The business address of Mr. ZHANG Xinjun is at 12/F., No.689 Guangdong Road, HaitongSecurities Building, Shanghai, PRC. The business address of Mr. SUN Tong is at 22/F, Li Po Chun Chambers,189 Des Voeux Road, Central, Hong Kong. There are no potential conflicts of interest between any duties of theIssuer’s directors to the Issuer, and their private interests and/or other duties. As at the date of this OfferingCircular, the telephone number of the Issuer is +852-3926 8888.

SHARE CAPITAL

As of the date of this Offering Circular, the Issuer is authorised to issue a maximum of 50,000 shares of one classof U.S.$1.00 par value. As of the date of this Offering Circular, one share, which is held by Haitong InternationalHoldings, a wholly-owned subsidiary of Haitong Securities, had been issued and credited as fully paid,representing the entire issued shares of the Issuer. None of the equity securities of the Issuer was listed or dealtin on any stock exchange and no listing or permission to deal in such securities was being or was proposed tobe sought as of the date of this Offering Circular.

FINANCIAL INFORMATION

As of the date of this Offering Circular, the Issuer has no material assets or revenues and has no outstandingborrowings or contingent liabilities other than those relating to the issue of U.S.$670,000,000 3.50 per cent.guaranteed bonds due 2020, the C220,000,000 1.60 per cent. guaranteed bonds due 2021 and the proposedissuance of the Bonds. Under British Virgin Islands law, the Issuer is not required to publish interim or annualfinancial statements. The Issuer has not published, and does not propose to publish, any financial statements inthe future. The Issuer is, however, required to keep such records that are sufficient to show and explain theIssuer’s transactions and will, at any time, enable the financial position of the Issuer to be determined withreasonable accuracy.

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DESCRIPTION OF THE GROUP

OVERVIEW

The Group is a leading full-service securities firm in the PRC with an integrated business platform, extensivebranch network and substantial customer base. The Group has established prudent operating strategies and is theonly major PRC securities firm established in the 1980s that remains in continuous operation under the samebrand without receiving government-backed capital injections or being the target of a successful acquisition orrestructuring. Leveraging its integrated business platform, the Group provides a comprehensive range offinancial products and services domestically and overseas, and primarily focuses on five principal business linesin the PRC, comprising wealth management, investment banking, asset management, trading and institutionalclient services, and financial leasing. The Group has gained leading market positions across multiple businesslines in the PRC securities industry, and it also provides a variety of securities products and services overseas.In addition, the Group has a long track record of brokerage operation across business cycles and enjoys a strongmarket position in China’s retail brokerage segment. The Group has become one of the leading players in China’sfinancial leasing segment following the acquisition of Haitong UT Capital Group Co., Limited.

The Group is one of the largest securities firms in the PRC. As at 31 December 2016, 2017 and 2018 and 30 June2019, the Group had total assets of RMB560,865.8 million, RMB534,706.3 million, RMB574,623.6 million andRMB622,907.3 million, respectively, and total equity of RMB121,958.4 million, RMB129,694.3 million,RMB130,185.9 million and RMB137,127.5 million, respectively. For the years ended 31 December 2016, 2017and 2018 and the six months ended 30 June 2018 and 2019, its total revenue, gains and other income wasRMB42,492.3 million, RMB41,324.5 million, RMB38,669.7 million, RMB18,989.6 million and RMB26,073.5million, respectively, and its profit for the year/period was RMB8,930.5 million, RMB9,875.6 million,RMB5,770.7 million, RMB3,459.4 million and RMB6,068.1 million, respectively. As at 30 June 2019, it rankedsecond in terms of total assets and third in terms of net assets among the PRC securities firms. As at 30 June2019, the Group had 330 securities and futures brokerage business departments (including 290 securities businessdepartments and 40 futures business departments) located across 30 provinces, municipalities and autonomousregions in the PRC, as well as branches, subsidiaries and representative offices in 14 countries and regionsincluding Asia, Europe, North America, South America and Oceania. As at 30 June 2019, the Group hadapproximately 15.0 million domestic and overseas customers. The A Shares of the Group have been listed on theShanghai Stock Exchange with stock code 600837 since July 2007 and its H Shares have been listed on the HongKong Stock Exchange with stock code 6837 since April 2012. The Group was admitted to the CSI 300 Index inJuly 2007, the SSE 180 Index in December 2007, the SSE 50 Index and Hang Seng China H-Financials Indexin September 2012, the Hang Seng Mainland 100 Index in September 2012, Morgan Stanley Capital InternationalIndex in November 2012 and Hang Seng China Enterprises Index in February 2013, respectively. In addition, itsA Shares was selected as one of the constituent stocks of the SSE Corporate Governance Index in June 2008.

As at 30 June 2019, the five principal business lines of the Group in the PRC include:

• Wealth management. The Group engages in providing comprehensive financial services and investmentsolutions to retail and high-net-worth customers, including securities and futures brokerage services,investment advisory services, financial planning services, and financing business services such as marginfinancing, securities lending, and stock pledge.

• Investment banking. The Group engages in providing sponsorship and underwriting services for corporateand government customers with regard to financing activities in both equity and debt capital markets, theprovision of financial advisory services to corporate customers for mergers and acquisitions as well as assetrestructurings, and the provision of NEEQ services. Based on the nature of business, the investment bankingbusiness of the Group is further categorised into segments of equity financing business, debt financingbusiness and mergers and acquisitions financing business. The Group strives to provide customers with “onestop” domestic and overseas investment banking services.

• Asset management. The Group offers comprehensive investment management services on diversifiedproducts to individuals, corporations and institutional clients, including asset management, fundmanagement, public and private equity investment services. Haitong Asset Management carries outbusinesses including targeted asset management, collective asset management, specialised assetmanagement, QDII business, and innovative business. The principal businesses of HFT Investment

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Management and Fullgoal Fund Management include management of mutual funds (including QDII), assetmanagement for corporate annuities, NSSF and specific customers, providing professional fund investmentfinancing services for investors. The Group also operates a number of professional investment managementplatforms for private equity (PE) investment business, which provides services including management ofindustrial investment funds, investment consultation, promotion and establishment of investment funds, etc.

• Trading and institutional client services. The Group engages in providing stock sale and trading, primebrokerage, stock borrowing and lending and stock research services in major global financial markets forglobal institutional investors, as well as the issuance and market making services for various financialinstruments such as fixed income products, currency and commodity products, futures and options, exchangetraded funds and derivatives. Meanwhile, the Group exerts and enhances the advantage of synergies amongbusiness segments through investment funds and private equity projects and focuses on exploring investmentopportunities with reasonable capital returns and further expands client relationships and promotes theoverall growth of its business.

• Financial leasing. The Group provides innovative financial service and solutions to individuals, enterprisesand governments, including financial leasing, operating leasing, factoring, entrusted loans and relevantadvisory services. Unitrust is the primary leasing business platform of the Group. Currently, Unitrustengages in a wide range of industries, including infrastructure, transportation & logistics, industrials,education, health care, construction & real estate and the chemical industry, etc. Unitrust continually sticksto the development strategies of “One Body, Two Wings (一體兩翼)”, and “One Big One Small (一大一小)”,further clarified the market demand and management resources under the traditional business, optimised andperfected the corresponding supporting system and process, and promoted the specialisation and localisationof various business units so as to improve the efficiency of business operation and the competitiveness ofbusiness in the market. At the same time, Unitrust further explored diversified financing channels andappropriately managed its debt structure to effectively control its capital cost and liquidity risk. It alsoenhanced the comprehensive risk management system and the quantitative and qualitative analysismanagement functions, laying a solid foundation for the efficient implementation of projects.

The Group conducts its overseas business primarily through Haitong International Securities (listed on the HongKong Stock Exchange under stock code 665), a leading full-service securities firm in Hong Kong which providessecurities and futures brokerage, corporate finance, investment management, structured investment and finance,and advisory services, FICC services, asset management services and other securities products and services toa broad range of retail customers and institutional clients in Hong Kong and overseas as well as Haitong Bankwhich is previously known as BESI and is a leading investment bank in Portuguese-speaking and Spanish-speaking regions specialised in securities, research, capital markets, merger and acquisition, financial advisoryand project financing with over 20 years’ experience.

The Group has experienced rapid growth and achieved leading market positions in Developing New Businessesin the PRC securities industry. The Group is the first to conduct OTC business in the PRC securities market andis one of the first market makers eligible for commodity options on the Dalian Commodity Exchange and theZhengzhou Commodity Exchanges, as well as among the first batch of securities firms eligible as a leadunderwriter under the “Bond Connect” scheme.

Leveraging its prudent operating strategies and proven execution capabilities, the Group has gained leadingmarket positions in securities and futures brokerage, investment banking and other traditional businesses in thePRC. According to the data obtained from the SAC, the Shanghai Stock Exchange, the Shenzhen StockExchange, the CSRC and Wind Info, among all PRC securities firms, the Group ranked:

• first among all investment banks in Hong Kong in terms of the number of IPO and equity financing projectsunderwritten for the six months ended 30 June 2019;

• first among global financial institutions in terms of both number and amount of bonds underwritten for thesix months ended 30 June 2019;

• first in the industry in terms of both number and amount of enterprise bonds underwritten for the six monthsended 30 June 2019;

• second in terms of number of non-financial enterprises credit bonds underwritten (including enterprisebonds, corporate bonds, debt financing tools for non-financial enterprises) for the six months ended 30 June2019;

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• third in the market in terms of number of M&A transactions completed for the six months ended 30 June2019;

• third in the industry in terms of the net income of domestic investment banking business for the six monthsended 30 June 2019;

• first in the industry in terms of the total trading volume of futures commissioned through it for the year ended31 December 2018;

• first in the industry in terms of the trading volume of futures commissioned through it on the ShanghaiFutures Exchange for the year ended 31 December 2018;

• first among all investment banks based in Hong Kong in terms of the number of IPO projects underwrittenfor the year ended 31 December 2018;

• first among all PRC investment banks based in Hong Kong in terms of the number of equity financingprojects underwritten for the year ended 31 December 2018;

• first among all international financial institutions in terms of the number of U.S. dollar high-yield bond (inAsia excluding Japan) projects underwritten for the year ended 31 December 2018;

• second in the industry in terms of in terms of both the enterprise bond underwritten amount and debtfinancing instrument underwritten amount for the year ended 31 December 2018;

• fifth in the industry in terms of in terms of the corporate bond underwritten amount for the year ended 31December 2018;

• first in terms of the trading volume of the southbound trading business for the year ended 31 December 2017;

• second in terms of the trading volume of financing business for the year ended 31 December 2017;

• fourth in terms of stock and fund trading value for the year ended 31 December 2017;

• first in terms of the agency trading amounts of futures business for the year ended 31 December 2017;

• second in terms of the total number of IPO projects managed and total revenue for the year ended 31December 2017;

• second in terms of the number of financial advisory services in Merger and Acquisition deals for the yearended 31 December 2017;

• first in terms of the underwritten amount of enterprise bonds and second in terms of the underwritten numberof corporate bonds for the year ended 31 December 2017;

• fourth in terms of the underwritten amount of corporate bonds and third in terms of the underwritten numberof corporate bonds for the year ended 31 December 2017;

• first in respect of its strategic research, petrochemicals and non-bank finance in New Fortune MagazineCompetition of Best Analyst in 2017; and

• third in respect of “Most Influential Research Teams” in New Fortune Magazine Competition of Best Analystin 2017.

The Group is frequently designated by the PRC regulatory authorities as one of the first PRC securities firms toparticipate in pilot programmes for new securities products and services such as stock pledge financing, stockrepo trading and OTC products. Benefiting from its strong capital position, substantial customer base and provenexecution capabilities, the Group has experienced rapid growth and achieved leading market positions inDeveloping New Businesses in the PRC securities industry.

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In recent years, the Group has received a number of awards and honours in recognition of its outstandingperformance and management capabilities, including, among others:

• “Top Ten Most Respected Investment Banks” by Securities Times in 2019;

• “Top Ten Securities Firm of Golden Bull Award” by China Securities Journal in 2019;

• first place of “Most Influential Research Institutions” by New Fortune in 2019;

• “2018 Outstanding Enterprises” by China Business Network in 2019;

• “Most Influential Chinese Securities Brokers”, “Most Influential Brokerage Brokers” and “Most PopularApp” by National Business Daily in 2019;

• “Class A Evaluation of Information Disclosure of Listed Companies in 2018-2019” by Shanghai StockExchange in 2019;

• “Best Securities Firm” jointly warded by Eastmoney and Tiantian Fund in 2018;

• “Company with Most Valuable Brand” at the International Development Forum for Chinese ListedCompanies and the “Golden Lion Award” Hong Kong Listed Companies Selection held by Sina Finance in2018;

• “2018 China Outstanding Futures Company Junding Award” and “2018 China’s Fixed Income InvestmentTeam” by Securities Times;

• “Best China Offshore Fund Company” and “Best Business Development Team” in Asia Pacific Region byAsia Investor to Haitong International Securities in 2018;

• first place in comprehensive assessment of the lead underwriters of corporate bond by the NationalDevelopment and Reform Commission in 2017;

• “Outstanding Underwriting Institution Award” and “Innovation Business Award” by the China CentralDepository and Clearing Co., Ltd. in 2017;

• “Best Product Innovation Award of Fund Industry in the Past 20 Years in the PRC – Best Alternative ProductPortfolio Innovation Award” by China Fund;

• second prize of “Shanghai Financial Innovation Achievement Award” in terms of the issuance volume of itsgreen bonds in 2017;

• “Excellent Energy Saving” and “Excellent Organization” awards for the 2017 Shanghai Special Competitionfor Energy Conservation and Emission Reduction of Key Energy Use Organizations in Financial System;

• “2016 Best Chinese Wealth Management Institution”, “2016 Best Chinese Securities Broker”, “2016 BestChinese Absolute Income Product”, “2016 Best Chinese Fixed-income Investment Team” and “2016Excellent Chinese Futures Asset Management Brand” awards by Securities Times;

• “2016 Excellent Underwriter of Corporate Bonds” award by the Shanghai Stock Exchange;

• “2016 Best Securities Trading Partner” award by Hong Kong Exchanges and Clearing Limited;

• “2016 Best Securities Trader in Internet+ Spirit” award by Securities Daily;

• “2016 Best Propagation Force Securities Company” award by 21st Century Business Herald;

• “2015 Best Merger and Acquisition Team”, “2015 Best PRC Securities Brokerage” and “2015 best MarginFinancing Services Provider” awards by Securities Times;

• “2015 Best PRC Securities Company” in 2015 Golden Orientation Award by 21st Century Media and 21stCentury Business Herald;

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• “2015 Securities Company of the Year” award for Haitong International Securities by BloombergBusinessweek;

• “2015 Best Investment Bank” for Haitong International Securities in the 2015 China Securities GoldenBauhinia Award by Ta Kung Pao; and

• “2015 Best Equity Derivatives House – Rising Star in Hong Kong” award for Haitong InternationalSecurities by The Asset’s Triple A Private Banking, Wealth Management and Investment Awards.

The following chart sets out the Group’s simplified shareholding structure and key subsidiaries and affiliates asat 30 June 2019.

Other A ShareShareholders

Top 10Shareholders

Other H ShareShareholders

51.97%

100.00% 100.00%100.00%100.00% 51.00% 66.67% 100.00%

100.00%

67.00% 27.78%

48.02% 0.01%

The Guarantor

HaitongInnovationSecurities

InvestmentCo., Ltd.

ShanghaiHaitong

SecuritiesAsset

ManagementCompany Ltd.

HFTInvestment

ManagementCo., Ltd.

HaitongFutures Co.,

Ltd.

HaitongInternational

HoldingsLimited

Haitong-FortisPrivate Equity

FundManagement

Co., Ltd.

FullgoalFund

ManagementCo., Ltd.

HaitongCapital Co.,

Ltd.

ShanghaiWeitai

PropertyManagement

Co., Ltd.

The Issuer

Note 1: The top ten shareholders of the Group are HKSCC Nominees Limited (29.637%), Bright Food (Group) Co., Ltd. (3.50%), ShanghaiHaiyan Investment Management Company Limited (3.48%), China Securities Finance Corporation Limited (2.99%), ShenergyGroup Company Limited (2.80%), Shanghai Electric (Group) Corporation (2.26%), Shanghai Guosheng Group Co., Ltd. (2.07%),Shanghai Jiushi (Group) Co., Ltd. (2.05%), Shanghai Bailian Group Co., Ltd. (1.86%), and Shanghai United Media Group (1.31%).As at 30 June 2019, no shareholder directly held more than 5% of the shares of the Group (excluding HKSCC Nominees Limited).HKSCC Nominees Limited held the H Shares on behalf of the non-registered shareholders.

Recent Developments

Issuance of Bonds

In August 2019, Haitong Securities issued the first tranche of financial bonds of 2019 with a total issue size ofRMB7 billion and a term of three years.

In July, September, October and December 2019 and January 2020, Haitong Securities issued in total fivetranches of short-term commercial papers, each with an issue size of RMB5 billion and with a term of 84 days,88 days, 88 days, 89 days and 90 days, respectively. As at the date of this Offering Circular, the short-termcommercial papers issued in July, September and October 2019 were matured and repaid.

In November 2019, Haitong Securities issued the second tranche of corporate bonds of 2019 with an issue sizeof RMB4.5 billion and a term of three years.

In February 2020, Haitong Securities issued the first tranche of corporate bonds of 2020 with an issue size ofRMB5 billion and a term of three years.

The Third Quarterly Report for the Year 2019

Haitong Securities has published the Group’s third quarterly report for the three quarters ended 30 September2019 (the “September 2019 Financial Information”), financial information in which was prepared accordingto PRC GAAP. The report is available on the website of the Hong Kong Stock Exchange at www.hkexnews.hkand the website of the Guarantor at www.htsec.com.

The Group’s September 2019 Financial Information is not included in and does not form a part of this OfferingCircular. The Group’s September 2019 Financial Information has not been audited or reviewed by the Group’s

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independent accountants, or any other independent accountants and may be subject to adjustments if audited andreviewed. Consequently, none of the Managers, the Trustee or any Agent (or any of their respective affiliates,directors, employees, agents, representatives, officers or advisers or any person who controls any of them) makesany representation or warranty, express or implied, regarding the accuracy of such financial statements or theirsufficiency for an assessment of, and potential investors must exercise caution when using such data to evaluatethe Group’s financial condition, results of operations and results. The Group’s September 2019 FinancialInformation should not be taken as an indication of the expected financial condition, results of operations andresults of the Group for the full financial year ending 31 December 2019.

As at 30 September 2019 compared with 31 December 2018, the Group’s refundable deposits increased mainlydue to an increase in deposits for future business; the Group’s debt investments increased significantly mainlydue to the increased debt investment amount; the Group’s construction in progress increased mainly due to anincrease in improvement of office; the Group’s other assets increase mainly due to an increase in receivablesarising from sale-and-leaseback arrangements; the Group’s short-term borrowings increased mainly due to anincrease in borrowings; the Group’s short-term financing bills payable increased mainly due to an increase inshort-term financing bills; the Group’s financial assets sold under repurchase agreements increased mainly dueto an increase in financial assets sold under repurchase agreements; the Group’s accounts payable increasedmainly due to an increase in settlement payable; and the Group’s deferred tax liabilities increased significantlymainly due to an increase in gains from changes in fair value of financial instruments.

For the nine months ended 30 September 2019 compared to the same period in 2018, the Group’s investmentgains increased mainly due to an increase in investment gains from holding and disposal of financial instruments;the Group’s gains arising from fair value changes increased significantly mainly due to an increase in gains fromchanges in fair value of financial instruments; the Group’s foreign exchange gains decreased significantly mainlydue to the impacts of movements in exchange rates; the Group’s other operating income increased mainly dueto an increase in sales income of a subsidiary; the Group’s credit impairment loss increased mainly due to anincrease in credit impairment loss of credit assets; the Group’s other operating cost increased mainly due to anincrease in sales costs of a subsidiary; the Group’s income tax expense increased mainly due to an increase intaxable income; the Group’s other comprehensive income, net of tax increased significantly mainly due to anincrease in gains from changes in fair value of financial instruments.

For the nine months ended 30 September 2019, the Group recognised positive net cash flow from operatingactivities while recognised net cash flow used in operating activities for the same period in 2018 mainly due tonet increase in cash received from securities trading agency services and cash from repurchase business. For thenine months ended 30 September 2019 compared to the same period in 2018, the Group’s net cash flows usedin investing activities decreased mainly due to a decrease in cash paid for investments and the Group’s net cashflow from financing activities decreased mainly due to an increase in cash repayment of borrowings.

Positive Profit Highlight For The 2019 Annual Results

Based on the Guarantors’ preliminary review of financial information available, the profit attributable toshareholders of the Guarantor and the profit attributable to shareholders of the Guarantor after deductingnonrecurring gain or loss for the year of 2019 are expected to increase compared with that for the correspondingperiod of last year. The aforesaid estimation is based on the Guarantor’s preliminary review and the final andaccurate financial data should be those audited and to be disclosed in the annual report of the Guarantor for theyear of 2019. For details, please see the announcement published by the Guarantor available on the website ofthe Hong Kong Stock Exchange at www.hkexnews.hk and the website of the Guarantor at www.htsec.com.Potential investors must exercise caution when using such data to evaluate the Group’s financial condition,results of operations and results.

Business Milestones in the History of the Group

1990����������������� In November, the Group became one of the founding members of the Shanghai StockExchange.

1992����������������� In January, the Group started its B share business. In July, the Group was admitted as amember of the Shenzhen Stock Exchange.

2005����������������� In May, the Group was qualified by the SAC as one of the pilot innovative securitiescompanies.

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2007����������������� In July, its wholly-owned subsidiary Haitong Finance Holding (HK) Co., Ltd. (currentlyknown as Haitong International Holdings) was incorporated in Hong Kong, through whichthe Group provides securities and futures brokerage, margin financing, securities lending,corporate finance and advisory services and asset management products and services.

In July, its A Shares were listed on the Shanghai Stock Exchange with the stock code 600837.

2008����������������� In January, the Group was approved by the CSRC as a QDII.

In April, the Group was permitted by the CSRC to provide futures IB business.

In July, the Group was approved by the CSRC as one of the pilot companies in directinvestment, and then in October, the Group incorporated Haitong Capital Investment, awholly-owned subsidiary, to develop the direct investment business.

In July, the Group was granted an “AA” rating by the CSRC, and has received such a ratingfrom 2008 to 2012 and from 2014 to 2015.

2009����������������� In December, through Haitong Finance Holding (HK) Co., Ltd. (currently known as HaitongInternational Holdings), the Group acquired 52.86% of Taifook Securities (currently knownas Haitong International Securities), a company listed on the Hong Kong Stock Exchangewith stock code 665, and through a series of purchase and loan capitalisation, the Groupincreased its equity interest to 61.78% as at 31 December 2016.

2010����������������� In February, Haitong Futures qualified as one of the first companies to open accounts forstock index futures trading.

In March, the Group qualified as one of the first PRC securities companies to participate inthe pilot programme of margin financing and securities lending.

In August, Taifook Securities (currently known as Haitong International Securities)successfully launched the first offshore RMB fixed income fund in Hong Kong.

In November, Taifook Securities was renamed as Haitong International Securities.

2011 ����������������� In June, the Group applied to the CSRC to establish a subsidiary engaging in the investmentservice of alternative financial products.

2012����������������� In January, the Group pioneered the successful roll-out of the first RQFII product, andbecame the first Chinese institution in Hong Kong to receive QFII and RQFLP qualificationsand the only Mainland-funded financial institution in Hong Kong to own all of the RQFII,QFII and RQFLP qualifications in 2012.

In April, its H Shares were listed on the Hong Kong Stock Exchange with stock code 06837.

In September, the Group was approved by the CSRC to manage funds of insurancecompanies.

2013����������������� In January, the Group became the first securities firm to conduct OTC business in the PRCsecurities market.

In April, Haitong Capital (International) Investment Co., Limited, a wholly subsidiary ofHaitong International Holdings, was established with a registered capital of HK$10,000.0,which is the platform to raise QFLP Funds overseas for Haitong Innovation CapitalManagement Co., Limited, a subsidiary of Haitong Capital Investment. In June, the Groupwas among the first nine securities firms to participate in the pilot programme of stockpledge financing.

In July, the Group obtained approval from the CSRC Shanghai Branch for expansion of itsbusiness scope to include financial products sales agent.

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In September, Haitong International Holdings entered into a sale and purchase agreementwith UT Capital Holdings to acquire 100.0% equity interest in the UT Capital Group for theexpansion of its business in the field of financial leasing. The acquisition of the UT CapitalGroup by the Group was completed on 15 January 2014.

2014����������������� In January, the Group’s acquisition of the UT Capital Group was completed.

In August, the Group became one of the first few PRC securities firms admitted as membersof Shanghai Gold Exchange.

In November, Haitong International (BVI) Limited, a wholly-owned subsidiary of HaitongInternational Securities, and Japaninvest Group plc (“Japaninvest”) reached an agreement,pursuant to which Haitong International (BVI) Limited agreed to acquire the entire issuedand to be issued ordinary share capital of Japaninvest. The proposed acquisition values theentire issued and to be issued ordinary share capital of Japaninvest at approximatelyJPY2,878,200,000. Japaninvest provides unbiased, detailed and insightful pan-Asia equityresearch, analysis and sales advice for the benefit of investing clients, in order to generatesuperior long-term returns to shareholders. This acquisition was completed in March 2015.

In December, Haitong International Holdings entered into the Sale and Purchase Agreementwith Novo Banco, S.A. to acquire the entire issued share capital of BESI. Such acquisitionwas completed in September 2015 and BESI was renamed to Haitong Bank thereafter andwas awarded as “2015 Best FIG Deal” by FinanceAsia.

In December, Haitong Securities entered into subscription agreements with seveninstitutional investors, pursuant to which Haitong Securities conditionally agreed to allot andissue, and the investors respectively conditionally agreed to subscribe for a total of1,916,978,820 new H Shares. The issuance of 1,916,978,820 new H Shares was completedin May 2015.

2015����������������� In January, Haitong Securities received the Notice on Admission of Haitong Securities Co.,Ltd. as a Stock Options Trading Participant on the Shanghai Stock Exchange (Shang ZhengHan [2015] No. 68) from the Shanghai Stock Exchange, which approved the admission ofHaitong Securities as a stock options trading participant on the Shanghai Stock Exchangeand the trading permission to commence stock options brokerage and proprietary tradingbusinesses by the Shanghai Stock Exchange.

In February, Haitong Securities was approved to engage in stock options market makingbusiness following receipt of the Approval relating to the Qualification of the Stock OptionsMarket Making Business of Haitong Securities Co., Ltd. (Zheng Jian Xu Ke [2015] No. 153)from the CSRC.

In February, Haitong Securities was approved as a principal market maker in SSE 50 ETFoptions contracts following receipt of the Notice relating to the Commencement of the SSE50 ETF Options Market Making Business of Haitong Securities Co., Ltd. (Shang Zheng[2015] No. 214) from the Shanghai Stock Exchange.

In October, Haitong Securities was approved to conduct the interbank gold price askingtransactions through the Shanghai Gold Exchange following receipt of the Reply regardingApproval of Conducting Interbank Gold Price Asking Transactions by Haitong SecuritiesCo., Ltd. (Shang Jin Jiao Fa [2015] No. 120) from the Shanghai Gold Exchange.

2016����������������� In April, Haitong Securities was approved to conduct the listing and transfer of non-publicissuance of short term corporate bonds of security company following receipt of the NoComment Letter to Haitong Securities Co., Ltd. on the Listing and Transfer of Non-publicIssuance of Short-term Corporate Bonds of Security Company in 2016 (Shang Zheng Han[2016] No. 880) from the Shanghai Stock Exchange.

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In November, Haitong Securities was approved as a trial securities company in Note Dealingplatform following receipt of the Notice on Preparing well for access to Note Dealingplatform (Yin Ban Fa [2016] No. 224) from the PBOC.

2017����������������� In January, Haitong Securities received the qualification for relevant business on toolsmitigating credit risk.

2018����������������� In July, Haitong Securities obtained the qualification for secondary dealers for OTC optionsbusiness.

In December, Haitong Securities completed registration of Haitong International (UK)Limited as the UK Cross-border Transfer Institution of Shanghai-London Stock ConnectGDR (Shang Zheng Han (2018) No. 1474).

2019����������������� In February, Haitong Securities obtained qualification for credit derivatives business (Ji GouBu Han (2019) No. 469).

In June, Haitong Securities obtained qualification for public issuance of financial bonds inthe national inter-bank bond market (Ji Gou Bu Han (2019) No. 1624).

In December, Haitong Securities obtained qualification for stock index option marketmaking business (Ji Gou Bu Han (2019) No. 3073).

Competitive Strengths

The Group believes the following competitive strengths contribute to its success and distinguish the Group fromits competitors:

Full-service securities firm in the PRC with leading market positions across multiple business lines

The Group is one of the largest securities firms in the PRC. In 2018, the Group restructured its business linesto primarily focus on five principal business lines in the PRC, including wealth management, investmentbanking, asset management, trading and institutional client services and financial leasing. Each of thesebusinesses contributed 29.7%, 7.4%, 5.6%, 28.8% and 14.2%, respectively, to its total revenue, gains and otherincome for the six months ended 30 June 2019.

Starting from securities business, the Group has continuously expanded the scope of its financial products andservices and extended the boundaries of financial services through establishment and acquisition of professionalsubsidiaries. The Group has developed into a financial service conglomerate with businesses covering wealthmanagement, investment banking, asset management, trading and institutional client services and financialleasing. The Group’s brokerage business boasts a solid customer base; its investment banking business has highmarket influence; the AUM of actively managed assets business increases steadily; the scale and profit of itsprivate equity investment business ranks top in the industry; the performance indicators of its Hong Kongbusiness are in the forefront among all market players; its financial leasing business establishes anindustry-leading position; and its research services business enjoys strong market influence. The integratedfinancial platform generates strong scale effect and cross-selling potentiality, which vigorously supports thebusiness development and enables comprehensive financing services for customers.

The diversified business model of the Group has allowed it to achieve sustainable growth. The wealthmanagement and asset management businesses have achieved good results and provided it with stable revenuestreams. Its penetration into China’s fast growing financial leasing business by acquiring the UT Capital Grouphas facilitated the Group to diversify its sources of revenue, mitigate market volatility risk, provide a morecomprehensive service portfolio and better meet the diversifying financial needs from its institutional clients. Inaddition, its investment banking and trading and institutional client services have served as additional growthdrivers. The Group believes its business model generates balanced revenue streams which provide sustainableprofits and strong growth prospects.

The Group believes its integrated business platform has allowed it to benefit from revenue and cost synergiesacross different business lines and enhanced its capabilities to attract and retain customers by maximisingcross-selling opportunities and the sharing of business resources, which will eventually enable comprehensivefinancing services for customers and help to increase the customer loyalty of the Group.

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Strategically located branch network across the PRC with a substantial and stable customer base

The Group has an extensive nationwide branch network in the PRC. As at 30 June 2019, the Group had 330securities and futures brokerage business departments (including 290 securities business departments and 40futures business departments) spanning across 30 provinces, municipalities and autonomous regions in the PRC,as well as branches, subsidiaries and representative offices in 14 countries and regions including Asia, Europe,North America, South America and Oceania operated through its subsidiaries, Haitong International Securitiesand Haitong Bank. In addition, in order to adapt to the evolving competitive landscape and development trendsspecific to different regions, the Group has established 27 branch offices in Beijing, Shanghai and several otherprovinces. Such branch offices directly manage and supervise regional securities brokerage business departmentsand allow the Group to enhance management efficiency and resource allocation at its business departments.

The branches are also strategically located. The Group is headquartered in PRC’s financial centre, Shanghai,where the free trade zone (“FTZ”) is located. The Group first expanded into the Yangtze River Delta, Pearl RiverDelta and Bohai Rim where high net worth customers and SMEs are concentrated. The Group also establishedbranches in less penetrated regions such as the north-eastern, central and western regions of the PRC. Whileexpanding its traditional branch network, the Group has also developed a web-based platform, which itscustomers can use to trade online. In addition, its customer service representatives at its branches offer real-timeadvisory services to its customers. This has provided a solid foundation for attracting new customers andexpanding its businesses. For instance, as a leading securities group based in Shanghai and listed on bothdomestic and overseas markets, the Group is expected to obtain the support from Shanghai government. TheGroup will also benefit from the development of Shanghai’s position as international financial center and FTZ.The Group believes that its balanced geographic coverage of branches in the PRC has enabled it to benefit fromthe rapid economic growth and accelerating urbanisation in certain developing regions.

The Group believes its strategic geographic coverage has enabled it to provide localised services to its customersand capture growth potential and cross-selling opportunities among multiple business lines. For example, theGroup has identified investment banking opportunities from its numerous SME customers covered by its branchnetwork. The extensive branch network and localised services of the Group also support its distribution ofdifferentiated and value-added products and services, such as its wealth management products.

By leveraging its extensive and strategically located branch network, the Group has also built a large and stablecustomer base. As at 30 June 2019, the Group had approximately 15.00 million domestic and overseas customers.

A pioneer in the PRC securities industry for offering new businesses

In recognition of its strong capital position, effective risk management and internal controls, and provenexecution capabilities, the Group is frequently designated by the regulatory authorities as one of the first fewsecurities firms to participate in pilot programmes for various new businesses in the PRC securities industry andhave established leading market positions in new businesses, for example, recently:

• in February 2015, the Group became one of the first few PRC securities firms approved by the CSRC toconduct stock options market making business;

• in February 2015, the Group became one of the first few PRC securities firms approved by the ShanghaiStock Exchange as a principal market maker in SSE 50 ETF options contracts;

• in May 2015, the Group became one of the first few PRC securities firms approved by the CSRC to conductoffshore proprietary business;

• in May 2016, the Group became one of the first few securities companies approved by Shanghai InternationalGold Exchange as a Class-A international member of Shanghai Gold Exchange;

• in November 2016, the Group became one of the first few securities companies approved by the PBOC asa member in the pilot membership on the Shanghai Commercial Paper Exchange Corporation Ltd;

• in December 2016, the Group became one of the first few securities companies approved by NSSF to conductbasic pension insurance fund securities investment management;

• in March 2017, the Group became one of the first market makers eligible for commodity options on theDalian Commodity Exchange and the Zhengzhou Commodity Exchanges in April 2017, as well as among thefirst batch of securities firms eligible as a lead underwriter under the “Bond Connect” scheme;

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• In the first half of 2018, the Group’s FTZ branch, UniTrust FTZ, became one of the first securitiesinstitutions to participate in the free trade accounting unit system of the FTZ; and

• In the first half of 2019, the UniTrust FTZ gradually formed a comprehensive cross-border business platformin the FTZ by virtue of the cross-border capital advantage.

In addition, the Group is the first domestic security firm with a listed subsidiary in Hong Kong, the first domesticsecurity firm holding financial leasing business and the first PRC security firm to acquire an investment bankheadquartered in Europe. The Group also participated in the first batch of China fund management companies.The Group is also a founding member of SAC, the first security firm qualified to the custody business ofsecurities investment fund, one of the first few security firms qualified to on-line transaction, one of the first fewqualified sponsors, one of the first few fund evaluation agencies, one of the first few security firms qualified toentrusted asset management business and one of the first few security firms obtaining FOF fund approval.

The Group believes its substantial customer base, strong capital position, extensive branch network, strongcross-selling and execution capabilities have enabled it to gain a first-mover advantage in offering newbusinesses. In addition, the Group believes its integrated business platform has enabled it to expand its newbusinesses quickly. In recent years, the Group has pioneered in product innovation, for example:

• it has successfully issued the first domestic renewable corporate bond, the first super long-term bond and thefirst project revenue bond in China;

• it has successfully issued the first credit asset-backed securitisation product with credit card instalmentbonds as underlying assets in the inter-bank market in China;

• it is among the first-tier dealers in the interest rate swap market and has steadily promoted the developmentof equity return swap; and

• it is among the first batch of companies who obtained the qualification for piloting margin financing andsecurities lending business in the STAR Market.

The Group believes that its leadership in new businesses could enable it to further expand its market share in thetraditional securities businesses. The Group expects the CSRC to continue to launch pilot programmes andencourage the introduction of new businesses in the PRC securities markets. With the gradual relaxation of thePRC securities regulations, the Group believes it is well-positioned to capture future market opportunities byleveraging its leading market positions in multiple business lines and its first-mover advantage in newbusinesses.

Forward-looking overseas layout to generate great synergies and first-mover advantages

The Group has established an industry-leading international business platform through the acquisition andconsolidation of Haitong International Securities and Haitong Bank, the establishment of branch in FTZ, andacquired the first-mover advantages in the Asian-Pacific region, as well as the forward-looking strategic reservein Europe and America.

Haitong International Securities is one of the leading local full-service securities firms in Hong Kong, with over40 years of operating history, and has been recognised as the best equity house in Hong Kong for 16 consecutiveyears by internationally renowned financial media, such as FinanceAsia and Asiamoney. As a pioneer incross-border Renminbi business and being able to capture the abundant business opportunities from financialmarket reforms such as Renminbi internationalisation, exchange rate reform, interest rate liberalisation andcapital accounts liberalisation, Haitong International Securities is the first financial institution in Hong Kong tosuccessfully launch the Renminbi-denominated and settled public fund in 2010 and is among the first batch offinancial institutions which received RQFII qualification in 2012. In the first half of 2019, Haitong InternationalSecurities maintained its leading position in Hong Kong, with its principal businesses maintaining strong marketcompetitiveness. In respect of corporate financing business, Haitong International Securities ranked third amongall the investment banks based in Hong Kong in terms of the number of IPO projects, and ranked fourth amongall the investment banks based in Hong Kong in terms of the number of equity financing transactions. In addition,Haitong International Securities ranked first among financial institutions in the world in terms of underwritingamount for the issuance of Asian (excluding Japan) USD high yield bonds and ranked third in Hong Kong marketin terms of the number of warrants issuance.

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In September 2015, the Group completed its acquisition of the entire issued share capital of BESI and renamedit to Haitong Bank. Haitong Bank is an important part of the Group’s globalisation strategy specialising in thelocal market in the European Union and South America with over 20 years’ experience. Haitong Bank aims tosupport cross-border business cooperation among China, Europe and South America, and to expand the Group’sbusiness to wider geographic regions as well as to prepare the Group for its accelerated globalisation.

The Group’s FTZ branch, UniTrust FTZ, as one of the first securities institutions participating in the free tradeaccounting unit system of the FTZ, became the first PRC securities firm that completed the cross-borderfinancing project under FT. In the first half of 2019, the UniTrust FTZ, paid close attention to the policy trendof financial reforms in the FTZ, docked the global capital market platform of the Group, and gradually formeda comprehensive cross-border business platform in the FTZ by virtue of the cross-border capital advantage.

These market leading, well-established and multi-jurisdiction international business platforms help the Groupseize the opportunities for the growing cross-border businesses, meet customers’ demands for cross-borderbusiness and improve the Group’s international influence.

Prudent corporate governance, effective risk management and internal control systems and stable net capitalmanagement

The Group has adhered to the risk control philosophy of “prudence and even conservativeness” and has navigatedthrough multiple market and business cycles, regulatory reforms and industry transformations and developmentsin the past 30 years. Among the Chinese securities firms established in 1980s, the Group is the only largescalesecurities firm that has been continuously operating under the same brand without state-owned capital injectionor being acquired or restructured. The Group has effectively implemented a company-wide comprehensive riskmanagement system to robustly implement the requirements for overall risk management and to effectivelymanage market risks, credit risks, liquidity risks and operational risks. The Group has also established effectiverisk isolation mechanism and appropriate precautionary mechanism across its business lines to prevent potentialconflicts of interests. In addition, the Group has established an independent and centralised internal audit andcompliance system to effectively monitor and supervise the compliance, authenticity, completeness, andeffectiveness of its operations and transactions.

As a public company listed in both Mainland China and Hong Kong, the Group has been operating in strictaccordance with laws and regulations and regulatory requirements of the two jurisdictions where it is listed andhas maintained effective and transparent corporate governance measures as required by the Shanghai StockExchange and the CSRC. The Group has established a wide risk management system to robustly implement therequirements for overall risk management so as to effectively manage compliance risks, market risks, credit risks,liquidity risks, operation risks and reputation risk The Group has also carried out effective risk isolationmechanism and appropriate precautionary mechanism across the business lines to prevent potential conflicts ofinterests. In addition, the Group has established an independent and centralized internal auditing and compliancesystem to supervise the authenticity, integrity and effectiveness of various operations and transactions.

In addition, the Group has no single shareholder owning more than 5.0% of its total outstanding Shares as at 30June 2019. Such shareholding structure allows its board of directors and senior management team to exerciseindependent judgment and maintain a high level of professionalism, with a view to maximising its corporatevalue in the best interest of all shareholders.

The Group adheres to net-capital-focused governance policies and ensures satisfaction of regulatoryrequirements for each risk indicator. The Group also aims to ensure adequate capitalisation and structure tosatisfy requirements for the its strategic development and facilitate the healthy and efficient development of theGroup’s operations. Meanwhile, via stable net capital management, the Group optimizes its structure andimproves its capital allocation mechanism by taking prudent management, liquidity and profitability intoconsideration, maximizes effective capital usage and satisfies shareholders’ interests.

The Group adopts several approaches to achieve stable net capital management. Firstly, the Group optimizescapital allocation in each business line based on the its development strategies and overall risk appetite. TheGroup also makes reasonable adjustments to its business structure and customer structure through capitalallocation to improve capital efficiency. Secondly, the Group makes decision by balancing various factors suchas business development, regulatory requirements and shareholder returns. The Group also develops forward-looking capital management plans. Besides, the Group adopts effective and dynamic management of capitalamount and structure, using optimized capital structure to reduce capital cost and improve capital utilizationefficiency. Thirdly, the Group leverages on equity and bond markets to supplement capital with flexibility inchoosing capital replenishment mechanism and timing.

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The Group has also established diversified and dynamic funding raising channels through onshore and offshoremarkets for capital replenishment. Fourthly, the Group’s capital utilization and leverage are balanced, withoptimized debt structure, strengthened capital utilization planning and strictly enforced financial settlementdisciplines.

The Group also maintains reasonable asset liquidity and has established a multi-level liquidity reserve. TheGroup has established an emergency response mechanism, providing liquidity risk warning mechanism forimproved pre, concurrent and post-control.

Enhancing financial strengths with outstanding business performance

From 2007 to 2018, the Group seized the market opportunities and rapidly enhanced its capital strength throughseveral strategic equity financing and bond financing transactions. In the first half of 2019, the Group completeda series of domestic financing activities raising an aggregate amount of RMB30.0 billion through the issuanceof public offering bonds to qualified investors, margin financing and securities lending ABS and beneficiarycertificates. While the liquidity supervision indicators continued to satisfy the regulatory requirements, theGroup properly arranged the replacement of matured debts with new debts and effectively satisfied the businesscapital requirements.

The Group has also been actively expanding overseas financing channels to ensure the healthy and orderlydevelopment of overseas business. Adequate capital has laid a solid foundation for the Group’s businessoptimisation and transformation.

As at 31 December 2016, 2017 and 2018 and 30 June 2019, the total assets and net assets of the Group amountedto RMB560.9 billion and RMB122.0 billion, RMB534.7 billion and RMB129.7 billion, RMB574.6 billion andRMB130.2 billion, and RMB622.9 billion and RMB137.1 billion, respectively. The Group ranked the second interms of the total assets and total revenue, gains and other income in 2016, 2017, 2018 and the first half of 2019among PRC securities companies according to Wind Info. In terms of net assets, the Group ranked the secondin 2016 and the third in 2017, 2018 and the first half of 2019 in PRC securities industry according to Wind Info.As at 31 December 2016, 2017 and 2018 and 30 June 2019, in terms of net capital among PRC securities industry,the Group all ranked the third among PRC securities companies according to Wind Info.

For the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2018 and 2019, thetotal revenue, gains and other income of the Group was RM42.5 billion, RMB41.3 billion, RMB38.7 billion,RMB19.0 billion and RMB26.1 billion, respectively, all ranking the second in the PRC securities industry.

Experienced and stable management team with a highly proficient professional workforce

The success of the Group is attributable to the sound leadership of its directors and senior management. Themajority of the Guarantor directors, including its chairman, and members of its senior management, including itsgeneral manager, deputy general manager, chief financial officer and general compliance officer, have an averageof 20 years of experience in the PRC financial and securities industries. Most of them have served the Group forover ten years. The Group also has more than 70 corporate financing and investment bankers with profoundprofessional knowledge and rich practical experience. They have an average of more than eight years ofexperience in sponsor issuance, corporate merger and acquisition, and financial advisory.

The Group believes that the strategic vision of its senior management team has distinguished it from itscompetitors and has allowed it to capture business opportunities arising from product innovation andglobalisation of the PRC securities industry. The Group has a highly proficient professional workforce. As at 31December 2018, approximately 91% of its employees held a bachelor’s degree or above.

The directors of the Group believe that the retention of key employees is attributable to its well-recognised brandname, business prospects, successful recruitment and customised professional training programmes.

Business Strategies

In April 2018, the board of directors of Haitong Securities has considered and approved the three-year plan ofthe company from 2018 to 2020. In the future, the Group plans to continue adhering to customer focus, focusingon intermediary businesses such as brokerage, investment banking and asset management as core businesses;developing capital intermediary business and investment business as the wings which will draw upon

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conglomeration, internationalisation and informatisation as the driving force; reinforcing the four “pillars”including compliance and risk management, talent, IT and research. Meanwhile, the Group will enhance itscapability building in five areas including capital and investment management, investment banking underwritingand sales pricing, assets management, institutional brokerage and sales transaction and wealth management. Withthe mission of developing a world-class securities company, the Group is committed to transforming itself intoa leading domestic and globally influential Chinese benchmark securities company. The group also aims to createvalue for employees to realize a better life; create value for customers and achieve common growth; create valuefor shareholders and provide excellent returns.

Further enhance its leading market position and profitability with focus on intermediary businesses such asbrokerage, investment banking and asset management as core businesses

The intermediary businesses such as brokerage, investment banking and asset management is one of the Group’score businesses with stable revenue streams and considerable growth potential. With the deregulating of the PRCcapital market and, as a result of which, foreign investors’ involvement in it, the Group believes value-addingbrokerage businesses will be the growth engine of the PRC capital market. In addition, with the development ofInternet finance, an increasing number of individual investors are flooding the market, which will be anothergrowth engine of the PRC capital market.

With an aim to promote the overall transformation of brokerage business to wealth management business, thesecurities and futures brokerage business was restructured as the wealth management business together withinvestment advisory services, financial planning services, and financing business services in 2018. The Groupbelieves its securities and futures brokerage business will continue to be a major source of revenue and willcontinue to enhance the core capacities of wealth management business of securities firms, such as investmentadvisory services, trading services and product sales based on asset allocation and. The Group will continue tofocus on serving retail customers, institutional clients and high net worth customers, and expanding its futuresand cross-border brokerage businesses. The Group plans to enhance its leading market position and profitabilityin the securities and futures brokerage business by improving its market share, increasing customer loyalty andenhancing pricing power through the implementation of the following strategies:

• further improving customer segmentation by offering tailor-made investment solutions and differentiatedproducts and services, such as investment advisory services, wealth management services, futures IBservices and research reports support, to its high-end retail customers, institutional clients and high net worthcustomers;

• increasing resource investments in Internet finance to constantly enhance the customer base, studying andformulating the development plan of Internet finance and improving the business procedures through Internetto popularise the awareness of Internet and to improve the concept of services;

• leveraging Haitong International Securities’ presence in Hong Kong to develop cross-border brokeragebusinesses in the PRC and overseas markets by offering comprehensive financial products and services tooverseas customers to further expand its customer base while providing its domestic customers with accessto international markets so as to further strengthen its competitiveness; and

• capturing market consolidation and acquisition opportunities of selected securities firms in the PRC toenhance its geographic reach and market share.

Maintain the growth momentum of its investment banking business and further integrate its business platform

The investment banking business of the Group grew rapidly in recent years, and the Group believes it hassignificant growth potential. In addition, the rapid growth of its investment banking business will substantiallyenhance its brand name and provide cross-selling opportunities across different business lines. The Group plansto strengthen its market leadership in its investment banking business by implementing the following strategies:

• enhancing its customised investment banking solutions to clients, in particular those in the PRC financial,technology and cultural industries, while strengthening its coverage of both large corporations and SMEs.The Group covers large corporations by industry sectors and provide localised services to SMEs, includingprivate enterprises;

• strengthening its debt underwriting capabilities and financial advisory services to capture the growthpotential of debt financing and merger and acquisition activities in the PRC capital markets, and increasetheir revenue contribution;

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• further developing its equity and debt capital markets divisions to enhance its pricing and distributioncapabilities;

• integrating the back office operations of equity underwriting, debt underwriting and financial advisoryservices to improve operating efficiency; and

• maximising synergies between its PRC and overseas business platforms to capture new businessopportunities, such as the increasing offshore fund raising by PRC enterprises and the potential launch of theinternational board in the PRC, and to capitalise on potential cross-selling opportunities.

Strategically expand its asset management business to provide comprehensive product offerings to meetincreasing and diversifying customer demands

The Group believes its asset management business is a strategically important business with long-term growthpotential and will allow it to improve its revenue composition and more effectively serve its retail andinstitutional clients which have sizable investment assets. Investment banks in China derive their revenue mainlyfrom brokerage, trading, investment banking and asset management businesses. The Group believes that with thedevelopment of the PRC asset management industry, institutional investors such as investment banks will playan increasingly significant role, and with the deregulation of the PRC asset management industry, the PRC assetmanagement industry will enjoy more growth potentials and more room for innovation.

The Group will leverage its extensive branch network and substantial customer base to capture potentialcross-selling opportunities between its asset management business and other business lines and to further developits asset management products and services in order to increase the range of its product suites, its AUM andoperating income.

The Group plans to implement the following strategies to broaden its product and service offerings, enhance itsability to design new and customised products, integrate its distribution channels and improve the quality ofcustomer service:

• continuing to enhance HFT Investment Management and Fullgoal Fund Management’s brand name andexpediting the development of product distribution channels; and

• positioning Haitong Asset Management as a platform for both business innovation and investors-and-financiers’ connection, and Haitong Asset Management will adopt an optimised investment decision-makingprocess and an enhanced performance appraisal system with market-driven incentive schemes to attract andretain professionals.

Continue to expand and promote new businesses and products with high growth potential

The development of new businesses is the key to the continued growth and successful transformation of theGroup. These new businesses will enhance its service quality and customer loyalty, strengthen its competitiveadvantage in traditional businesses and contribute to additional revenue growth. The Group will keep abreast ofmarket dynamics and continue to expand and compete through new and differentiated products and services withhigh growth potential.

In 2019, the Group obtained the qualification to conduct credit derivatives business and the qualification forpublic issuance of financial bonds in the PRC inter-bank bond market. Going forward, the Group will continueto seek opportunities in new businesses in response to changes in PRC regulatory requirements, market trendsand customer demands, and to capture new business opportunities, such as the potential launch of theinternational board, margin and securities refinancing and financial derivatives in the PRC, by capitalising on itsstrong capital position, integrated business platform, innovation, execution and risk management capabilities.

Actively pursue its internationalisation strategy to capture cross-border opportunities

The internationalisation strategy of the Group forms an important part of its overall business strategy. The Groupaims to implement a customer-focused strategy to satisfy its customers’ increasing demands for cross-borderfinancial services and further improve its services to its customers in the PRC and overseas, thereby optimisingits revenue composition and enhancing its brand recognition overseas.

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By leveraging Haitong International Holdings as the flagship of its overseas business, the Group plans to expandthe scale of its overseas operations and business platform through organic growth and/or acquisitions. Thecriteria for overseas acquisition targets of the Group include: (i) adequate presence in overseas local markets; (ii)complementary business and synergies with its business; (iii) ability for it to exercise control in the target; and(iv) likelihood to strengthen its existing customer base, distribution network and professional expertise. In March2015, Haitong International Holdings completed the acquisition of the entire issued and to be issued ordinaryshare capital of Japaninvest, which is expected to strengthen the Group’s research service capability with regardto international institutional investors. In September 2015, Haitong International Holdings completed theacquisition of the entire issued share capital of BESI and renamed it to Haitong Bank, which is expected toexpand the Group’s international business presence in mature markets in Europe and America and emergingmarkets in South America and Africa and the Group’s capability of providing global services.

The Group also intends to implement the following strategies with respect to its existing international platform:

• maintaining and strengthening Haitong International Securities’ leading position in Hong Kong market andtaking advantage of its proximity to overseas markets, its sales network and its international customer base;

• continuing Haitong International Securities’ business innovation and client-focus services;

• developing cross-border business and realising synergies between its PRC and overseas businesses,especially in the areas of investment banking, asset management, securities brokerage and research. Forexample, its PRC and overseas businesses can refer investment banking, assets management and securitiesbrokerage customers to each other and share research resources.

Strengthen the risk management systems, internal controls, IT capabilities, research capabilities and talentmanagement to support its business operations

The Group believes an effective risk management system, internal controls, research and IT capabilities andtalent management are essential to developing a sustainable business and maintaining its market leadership. TheGroup plans to strengthen its overall risk management and regulatory compliance by implementing the followingstrategies:

• enhancing its internal control and risk management framework with a focus on material areas and criticalsectors with consist improvement of all systems, policies and processes, to ensure no deficiencies in systemdesign or blind spots in control system in practice;

• strengthening its overall risk management capabilities through the construction of risk management systemand expanding of the scope of information control in accordance with relevant laws and regulations;

• carrying out daily monitor and information report and continuously assessing the implementation of systemto perfect and improve risk control and management strategies in a timely manner;

• absorbing new knowledge and new concepts of internal control management, revising the internal controlevaluation manual, and improving the efficiency and effectiveness of internal control; and

• strengthening the promotion and training on the standard for internal control to further upgrade the level ofinternal control and risk management.

The Group recognises the importance of a strong research team to the development of its principal business lines.The Group will continue to enhance its research capability by:

• expanding its research team and enhancing its market recognition;

• upgrading research knowledge management and database infrastructure; and

• increasing its research coverage for PRC-listed companies and developing its overseas research capabilitiesin a focused manner.

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The Group also plans to devote more resources to enhance its IT systems in order to provide efficient, secure andstable technology services to support its business operations. The Group plans to strengthen its IT systems byimplementing the following strategies:

• conducting a full review of its IT infrastructure when the Group sees fit and strengthening its ITadministration and risk management capabilities;

• further strengthening the development of its IT infrastructure; and

• upgrading critical IT applications relating to its operational and management functions when the Group seesfit.

The success of the Group, to a large extent, depends on its ability to attract, motivate and retain professional andexperienced personnel. In order to maintain its competitive advantage in the marketplace, the Group intends to:

• continue to attract and retain qualified professionals, such as senior management, licensed sponsorrepresentatives and experienced investment managers with international vision;

• continue to focus on recruiting and cultivating the technical expertise and industrial knowledge of itsworkforce, provide training and development programmes to enhance the knowledge and capability of itsprofessionals, and create a supportive culture that promotes personal and professional development; and

• promote a merit-based compensation system across all business lines and continue to support and recognisethe importance of a market-driven compensation system that rewards performance and results.

The Business and Operations of the Group

For the years ended 31 December 2016 and 2017, the business lines of the Group in the PRC comprise securitiesand futures brokerage (including margin financing and securities lending and margin and securities refinancing),investment banking, asset management, proprietary trading, direct investment and financial leasing. The Group’sbusiness lines were restructured in 2018. As at 31 December 2018 and 30 June 2019, the Group mainly engagesin five businesses, namely wealth management (including securities and futures brokerage services, investmentadvisory services, financial planning services, and financing business services such as margin financing,securities lending, and stock pledge), investment banking, asset management, trading and institutional clientservices and financial leasing.

The following table sets forth the breakdown of the Group’s total revenue, gains and other income by businesssegments and segment revenue (excluding inter-segment revenue) for the years ended 31 December 2016 and2017:

Year ended 31 December

2016 2017

(RMB inmillions) %

(RMB inmillions) %

Securities and futures brokerage������������������������� 13,467.8 31.7 12,048.9 29.2Investment banking ������������������������������������������� 2,163.5 5.1 2,217.3 5.4Asset management��������������������������������������������� 1,911.0 4.5 2,405.4 5.8Proprietary trading �������������������������������������������� 8,932.6 21.0 7,556.6 18.3Direct investment ���������������������������������������������� 1,038.4 2.4 1,928.3 4.7Financial leasing ����������������������������������������������� 3,332.2 7.8 4,273.2 10.3Headquarters and others(1) ��������������������������������� 3,737.8 8.8 3,231.9 7.8Overseas business ��������������������������������������������� 7,840.1 18.5 7,728.4 18.7Eliminations������������������������������������������������������ 68.9 0.2 (65.5) (0.2)

Total ���������������������������������������������������������������� 42,492.3 100.0 41,324.5 100.0

(1) The Headquarters and others segment mainly represents head office operations, investment holding as well as interest income andinterest expense incurred for general working capital purpose.

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Since the Group has restructured its business line in 2018, the following table sets forth the revenue of eachbusiness segment after the restructure for the year ended 31 December 2018 and the six months ended 30 June2018 and 2019:

Year ended 31 December Six months ended 30 June

2017 2018 2018 2019

(RMB inmillions) %

(RMB inmillions) %

(RMB inmillions) %

(RMB inmillions) %

Wealth management����������������������������� 14,563.1 35.2 14,030.7 36.3 7,796.0 41.0 7,754.9 29.7Investment banking ����������������������������� 4,238.5 10.3 3,819.4 9.9 1,663.9 8.8 1,933.7 7.4Asset management ������������������������������ 2,264.5 5.5 2,317.8 6.0 1,000.1 5.3 1,459.1 5.6Trading and institutional client services ���� 11,901.9 28.8 7,356.3 19.0 3,875.3 20.4 7,500.4 28.8Financial leasing �������������������������������� 4,001.9 9.7 5,688.0 14.7 2,625.1 13.8 3,706.0 14.2Others ��������������������������������������������� 4,354.6 10.5 5,457.5 14.1 2,029.1 10.7 3,719.3 14.3

Total����������������������������������������������� 41,324.5 100.0 38,669.7 100.0 18,989.5 100.0 26,073.4 100.0

Wealth Management

Overview

Wealth management mainly refers to the provision of comprehensive financial services and investment solutionsto retail and high-net-worth customers, including securities and futures brokerage services, investment advisoryservices, financial planning services, and financing business services such as margin financing, securitieslending, and stock pledge.

As at 30 June 2019, the Company has 330 securities and futures business departments (including 290 securitiesbusiness departments and 40 futures business departments) spanning across 30 provinces, municipalities andautonomous regions in the PRC, through which the Group provides comprehensive financial services andinvestment solutions to retail and high-net-worth customers, including securities and futures brokerage services,investment advisory services, financial planning services, and financing business services such as marginfinancing, securities lending, and stock pledge.

The Company has been continuing to enhance the core capacities of wealth management business, such asinvestment advisory services, trading services and product sales based on asset allocation, with an aim to promotethe overall transformation from the brokerage business to the wealth management business. For the six monthsended 30 June 2019, the trading volume of stocks and funds of the Group amounted to RMB55.8 billion,representing a year-on-year increase of 27.9%. As at the end of June 2019, the total number of customers in thewealth management business was 11.04 million (excluding dormant accounts), representing an increase of 6.36%compared with that at the beginning of the year. In addition, of the Yimatong (一碼通) accounts newly createdin the first half of 2019, 9.03% were registered with the Group. The Group’s wealth management business mainlycomprises retail and internet finance businesses, wealth management for high-net-worth customers, futuresbrokerage and financing business.

Retail brokerage business

In the retail brokerage business, the Group continues adopting a customer-centred approach and implementingsolid marketing and intensified services, to effectively improve the market competitiveness of the branches ofthe Group. In the first half of 2019, the Group fully implemented its account manager system, strengthenedtechnology-driven business management, reshaped the customer service system by effectively using the Internetplatform, and enhanced the vitality of branches. The layout of the Group’s outlets was further optimised with twonew branches being opened and the application for 15 securities business departments being officially approved.The Group also expands its network coverage outlets in key areas and improves its service by applyingpreferential treatments to and allocating more resources in Guangdong-Hong Kong-Macau Greater Bay Area, theEconomic Zone on the West Side of the Straits, the Beijing-Tianjin-Hebei Economic Zone, the Chengdu-Chongqing Economic Zone and the Yangtze River Delta Economic Zone.

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Internet finance business

In internet finance business, the Group provides its clients with services through online platforms. The Groupcontinues to improve the development of its Internet integrated financial services with “e-HaitongCai” as its corebrand, and promotes the digital transformation of its wealth management services. As a result, the Group hascontinuously made breakthroughs in targeted marketing, customer analysis and personalised services, improvedits customer and service grading system and designed more differentiated services to customers. Together withthe digital transformation of wealth management, the Group strengthened its four major capabilities comprisingthe research and development capability for Internet finance smart tools, the capability of the investment researchteam to integrate services, the capability of the Group to customise wealth management products, and onlinesales synergy.

The Group has released its e-HaitongCai mobile APP and its PC version. In addition, the Group launched the“Universal Membership” (通享會員) club, combining four major categories of membership privileges includinginvestment and wealth management, investment information, investment services and value-added services,continuously enriching the services provided to members. As at 30 June 2019, the total number of devices thatinstalled e-HaitongCai exceeded 28 million with the number of the monthly active users exceeds 3.5 million. Thenumber of the APP active users ranked among the top in the industry and the daily using time per user rankedfirst in the industry according to APP Annie. The APP won important awards such as the “2018 Top Ten Brandsof APP of Securities Companies (2018證券公司APP十大品牌)” awarded by the Securities Times ChinaSecurities Firms and the “Annual Top Ten APP (年度十佳APP)” awarded by Sina Finance. E-HaitongCai APPhas built up an excellent reputation in the industry and great influence outside the industry.

Financing business

Based on the development strategy of “stabilise the size, adjust the structure and reduce the risk”, the Groupactively combed its existing businesses, and optimised its capital intermediary business layout through enhancingproject review, promoting special fund account management, reinforcing risk monitoring, and strengtheningcapital gain management. The financing business segment exhibited a stable and slightly reduced size. As at theend of June 2019, the total balance of the financing business of the Group reached RMB88.5 billion, of whichthe balance of stock pledge business was RMB48.8 billion, representing a decrease of RMB4.6 billion from thebeginning of the year, and the balance of margin financing and securities lending business was RMB39.6 billion,representing an increase of RMB4.9 billion from the beginning of the year. The overall percentage of theperformance of the stock pledge projects reached 245.22%, representing an increase of 49.91 percentage pointsover the end of last year, and the risk in financing business was at a low level. In addition, the Group activelyexplores new business opportunities and is among the first batch of companies that obtain the qualification forpiloting margin financing and securities lending business in the STAR Market.

Financing business of the Group mainly includes margin financing and securities lending, stock repo trading andstock pledge financing.

Margin financing and securities lending

In March 2010, the Group was authorised by the CSRC as one of the first six PRC securities firms to pilot amargin financing and securities lending business. Securities lending allows its brokerage customers to borrowsecurities to take advantage of potential short selling opportunities in the markets.

The Group has adopted strict criteria for acquiring new customers and established a rigorous risk managementsystem in its margin financing and securities lending business in accordance with applicable laws, regulationsand regulatory guidelines. The Group determines the credit limit the Group extends to its customers based onvarious factors, such as the value of their total assets maintained with the Group and their creditworthiness. TheGroup determines a customer’s eligibility for a new transaction based on the credit line available to the clientand the balance of the client’s deposits. The Group has also established a margin call risk control mechanismthrough which it monitors the value of its customers’ collateral on a real-time basis.

As at the end of 30 June 2019, the Group has a balance of RMB39.610 billion of margin financing and securitieslending business, compared to RMB34.698 billion as at the end of 2018.

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Stock repo trading and stock pledge financing

In October 2011, the Group was authorised by the CSRC as one of the first three PRC securities firms to pilota stock repo trading programme. The stock repo trading business offers short-term financing services to holdersof listed companies’ shares, which shareholders prefer not to lose ownership on a permanent basis. The Groupagrees with such customers to purchase from such customers their securities at an agreed price and sell suchsecurities back to such customers at a later time at certain agreed price. This business facilitates customers withneeds for short-term financing services in that it’s easy to purchase and sell with no requirement of priornotification, and the interests are charged on a daily basis. The Group generates commission and interest incomefrom such business.

In June 2013, the Group was authorised by the CSRC as one of the nine PRC securities firms to pilot a stockpledge financing programme. The stock pledge financing business offers financing services to customers bylending funds to customers who guarantee the loan by pledging the listed companies’ shares that they hold. Thisbusiness facilitates customers in that it’s easy to obtain funds with low cost. The Group generates service fee andinterest income from such business.

As at the end of 30 June 2019, the Group has a balance of RMB0.80 billion of stock repo transaction and abalance of RMB488.35 billion of stock pledge business, compared to RMB3.79 billion and RMB534.49 billion,respectively, as at the end of 2018.

Supporting the development of private enterprises

In the wealth management segment, the Group also takes the initiative to support the development of privateenterprises. As at the end of June 2019, the Group has cooperated with local government platforms in Shanghai,Anhui, Xiamen, Xi’an, Qingdao and Anshan to jointly support the development of private enterprises and thetarget size of the fund that supports the development of private enterprises amounts to RMB45,620 million,including RMB15,050 million sub-fund to be established. The actual investment amount was RMB4,511 million,including an investment of RMB2,416 million in the fund that supports the development of private enterprises,and an investment of RMB2,095 million in other asset management plans that support the development of privateenterprises. The Group has accumulatively provided comprehensive financial solutions for 11 private listedcompanies and shareholders in more than ten provinces and cities.

The sales of financial products

The financial products the Group sells include cash management products, quantitative hedging products andprivate equity trust products. The Group continues to improve its financial products system and further promoteits development of wealth management business. As at the 30 June 2019, in respect of cash managementproducts, the asset under the “Tongcai wallet (通財錢包)” amounted to RMB6 billion, representing an increaseof 200% from the beginning of the year of 2019; the asset under “Cash Winner (現金贏家)” amounted to RMB8.2billion, representing an increase of 32% from the beginning of the year of 2019. In respect of the quantitativehedging products, as at the end of 30 June 2019, eight tranches of products under the “Tongjuhuicui (通聚薈萃)”series were newly issued with a total of 23 tranches of products issued and the accumulated asset under“Tongjuhuicui (通聚薈萃)” series was RMB3.1 billion with a daily average inventory of RMB2.7 billion,representing an increase of RMB1.1 billion as compared with the end of 2018. The average annualised rate ofreturn of the products was 10% in the first half of 2019, with a maximum drawdown of less than 0.9%, whichmaintained a good performance. In respect of the private equity trust products, the total sales amounted toRMB4.06 billion for the six months ended of 30 June 2019, representing an increase of 151% as compared withthe same period in 2018; the issuance size of income certificate amounted to nearly RMB17 billion in the firsthalf of 2019 and the stock volume of income certificate exceeded RMB31 billion, representing an increase of42% as compared with the beginning of 2019.

Investment Banking

Overview

The Group provides corporate finance services, including equity financing, debt financing and M&A financingservices. The Group strives to provide customers with “one stop” domestic and overseas investment bankingservices and is committed to offering its clients customised corporate finance services and expandingcross-selling opportunities across multiple business lines through its integrated investment banking platform.

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The Group has gained a leading position in the PRC investment banking industry and aims to continue to improvethis position. As at 30 June 2019, the Group was one of the top PRC securities firms in terms of the amount ofequity securities lead-underwritten and debt securities lead-underwritten and the total value of merger andacquisition transactions.

Equity financing

Equity financing is the core strength of the investment banking business of the Group in the PRC. The Groupsponsors and underwrites IPOs, follow-on offerings and rights issues on the A share market (including the STARMarket) to assist its clients’ equity financing activities.

The number of sponsor representatives is the key to the scale of a securities firm’s equity underwriting businessin the PRC. In the first half of 2019, the Group applied for 34 equity financing projects to the CSRC. In the PRCmarket, in terms of the number of IPO applications and the number of IPO and refinancing projects, the Groupranked first and fourth, respectively, in the industry. For the six months ended 30 June 2019, the Group completed10 equity issuance projects in the PRC market and had eight projects being in the CSRC approval process. TheGroup completed two listing projects, five private placement projects, and provided advisory services to 128companies on an on-going basis on the NEEQ. In addition, the equity financing business of the Group seized theopportunities brought by the launch of the STAR Market. In accordance with the requirements of the STARMarket, the Group continues to take forward systems setup, process optimisation and systems refinement, andmade progress on preparatory works for capturing opportunities offered by the STAR Market. The Groupsuccessfully submitted listing application for six companies to list on the STAR Market, among which, SuzhouTZTEK Technology Co., Ltd. and Advanced Micro-Fabrication Equipment Inc. China, were two of the first batchof listed companies on the STAR Market, listed on 22 July 2019.

In respect of overseas equity financing, in the first half of 2019, Haitong International Securities completed 24IPO projects and 27 equity financing projects. In terms of the number of projects underwritten, HaitongInternational Securities ranked the first among all investment banks in Hong Kong. The “Luckin Coffee” IPOproject is the largest IPO project of Asian companies on NASDAQ by the end of June 2019.

The Group divides its institutional clients into large corporate clients and SME clients based on the scale of theirbusiness, and provides customised coverage and equity underwriting services based on prevailing marketconditions and customer needs. The Group has established sector-focused groups of designated relationshipmanagers to serve its large corporate clients. The Group covers its SME clients through local relationshipmanagers deployed in strategically important markets in the PRC. The Group has participated in a number oflandmark equity offerings involving large corporate clients in the PRC and has established long-term businessrelationships with them.

The Group also focused on providing equity underwriting services to SMEs, especially non-state-ownedcompanies, which have contributed significantly to its fast-growing investment banking business. In addition,based on the equity offerings in which the Group participated in the past, underwriting fee rates of the SME boardand the ChiNext Board are generally higher than those of the main board in the PRC.

Debt financing

The Group underwrites enterprise bonds, corporate bonds, financial bonds, medium-term notes, short-termcommercial papers and asset-backed securities to assist its clients’ debt financing activities. The debtunderwriting business of the Group primarily serves large corporate clients.

The Group believes that it has established a competitive advantage in the marketing and innovation capabilitiesof its debt underwriting business. The Group has established a distribution network for fixed income productsthat covers major investors such as large commercial banks, insurance companies, fund management companiesand rural credit cooperation associations. The Group assigns its sales and marketing personnel to cover specificgeographic regions and maintain nationwide sales coverage. The Group is a pioneer in product innovation andis committed to assisting its clients to achieve lower financing costs. For example, in 2015, the Group issued thefirst credit asset-backed securitisation product with credit card instalment bonds as underlying assets in theinter-bank market and underwrote the corporate bonds of Guangdong Hengjian Investment Holding Co., Ltd. inthe amount of RMB20 billion, which was the first projects collective bonds of platform company at provincial

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level. In 2016, the Group was the first securities company to introduce three types of bonds to the market,including the first green financial bond (“SPD Bank Green Financial Bond” in the amount of RMB30,000million), the first green corporate bond (“BAIC Motor Green Bond” in the amount of RMB2,500 million) andthe first regional collective corporate bond (“Hengjian Bond” in the amount of RMB2,300 million). In 2017, thedebt financing business had achieved innovation in nine major aspects including gold price-linked bonds andgreen bonds, and thus won the first place in the comprehensive assessment of corporate bond lead underwritersby the National Development and Reform Commission, and the “Outstanding Underwriting Institution Award”and “Innovative Business Award” by the China Central Depository and Clearing Co., Ltd. In 2019, with thecontinuous innovation-driven development in its debt financing business, the Group successfully issued manyinnovative products, including the first credit protection contract with ABS as the contract object, the first creditprotection contract with poverty alleviation debt as the contract object, and the first venture capital fund specialdebt in the central region of China, which explored new paths to support the development of the private economyand support the national strategy.

The Group closely followed the market changes and enhanced the bonds risk management and risk investigationin the duration of the bonds. In the context of frequent market defaults, all the due bonds in the first half of 2019underwritten by the Group as the lead underwriter were paid on schedule with no risk incidents occurred. TheGroup was recognised by all the mainstream investment institutions for its professional capability. In the firsthalf of 2019, the Group completed 574 tranches of underwriting bond projects as the lead underwriter, with atotal underwritten amount of RMB184.3 billion, ranking the first in the industry in terms of both number andamount of enterprise bonds underwritten, the second in terms of number of non-financial enterprises credit bondsunderwritten (including enterprise bonds, corporate bonds, debt financing tools for non-financial enterprises) andthe third in terms of amount of non-financial enterprises credit bonds underwritten.

In China’s offshore bond issuance market, Haitong International Securities ranked second and third among globalfinancial institutions in terms of the number and the amount of bonds underwritten. In the ranking of Asian G3High-yield Bond Issuance Markets (excluding Japan), Haitong International Securities ranked first among globalfinancial institutions in terms of both number and amount of bonds underwritten. Haitong Bank activelyexpanded the “China Element (中國元素)” investment banking business and completed eight bond underwritingprojects. Haitong Bank continued to maintain its leading position in the Portuguese domestic market, and actedas the sole global coordinator for the largest corporate bond issuance project in the Portuguese market in the pastseven years, the EUR200 million bond issuance of Portugal Airlines.

M&A financing

The Group provides financial advisory services on merger and acquisition, restructuring, stock option schemesof listed companies and private financing transactions. For the years ended 31 December 2016, 2017 and 2018,the Group mainly provided financial advisory services to listed companies across different industries in the PRC.In 2018, the Group completed seven projects of major assets restructuring of listed companies as a financialadviser, with a total transaction amount of RMB66.3 billion, ranking second in the industry. The Group provideslocalised customer coverage through its branch network nationwide in order to develop an in-depthunderstanding of its customers’ needs and provide customised financial advisory services. In the first half of2019, the Group completed six M&A transactions, ranking third among PRC securities companies in the market.

Haitong International Securities has completed five cross-border M&A projects by the end of 30 June 2019 andentered the Middle East market for the first time in the first half of 2019. Among them, Haitong InternationalSecurities advised United Energy, a Hong Kong-listed company, in the acquisition of Kuwait Energy with atransaction amount of U.S.$500 million, and advised Sinochem International in the acquisition of Spanishcompanies with a transaction amount of more than EUR 200 million. Haitong Bank out-competed otherinternationally renowned investment banks and successfully won the bid for Zhejiang Energy’s overseas M&Aprojects. The investment banking service capability of Haitong Bank of the Group was further recognised in the“Belt and Road” regional market.

Asset Management

Overview

Asset management mainly refers to the provision of comprehensive investment management services ondiversified products to individuals, corporations and institutional clients, including asset management, fundmanagement, public and private equity investment services.

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The Group offers asset management products and services through Haitong Asset Management, HFT InvestmentManagement, Fullgoal Fund Management, private investment funds subsidiaries and the overseas assetmanagement business. As at the end of June 2019, the total AUM of the Group amounted to RMB1.1 trillion ofwhich RMB307.9 billion was managed by Haitong Asset Management, RMB215.8 billion by HFT Investment,RMB519.8 billion by Fullgoal Fund, RMB21.7 billion by its industrial investment fund subsidiary and overHK$48 billion by Haitong International Securities.

Haitong Asset Management

Haitong Asset Management carries out businesses including targeted asset management, collective assetmanagement, specialised asset management, QDII business, and innovative business.

Collective asset management schemes typically have a minimum subscription amount of RMB1 million percustomer. In order to meet investors’ demands with different risk profiles, Haitong Asset Management providesdiversified products, such as equity funds, bond funds, fund of funds, quant funds and money market funds.Targeted asset management schemes are customised wealth management plans designed for individual customersand typically have a minimum subscription amount of RMB1 million. Through its targeted asset managementschemes, Haitong Asset Management provides customised investment plans to its customers based on theircharacteristics and investment needs, as well as the most suitable financial products available in the market, suchas fixed income funds, balanced funds, selected fund of funds, selected equity funds and stock index futures.Specialised asset management schemes are to serve clients’ specialised investment purpose and are designedbased on specific requirements and conditions of the base asset of a client, which currently takes up a smallpercentage of the Group’s AUM.

Haitong Asset Management has formulated different marketing strategies and established various sales channelsfor its products. The collective asset management products of Haitong Asset Management are promoted throughthe branches of the Group nationwide or through agency banks. Haitong Asset Management cross-sells itsdiversified asset management products and services to the brokerage customers of the Group through itsnationwide sales network. The customer relationship managers of the Group analyse customers’ needs in orderto identify suitable candidates for targeted asset management products. Institutional clients are also referred byinvestment banking business and securities brokerage business.

As at the end of June 2019, the AUM of the active management assets of Haitong Asset Management wasRMB137.3 billion, representing an increase of 27% from the beginning of the year of 2019, among whichRMB86.4 billion was fixed income products, representing an increase of 26% from the beginning of the year of2019. In the first half of 2019, 53 small collective asset management schemes were newly issued, with anissuance size of around RMB14 billion, representing an increase of 2,073% as compared to the correspondingperiod of the year of 2018 and 12 ABS special asset management schemes were issued, with an issuance size ofRMB14.5 billion, representing an increase of 215% as compared to the corresponding period of the year of 2018.

Fund management

The principal businesses of HFT Investment Management and Fullgoal Fund Management include managementof mutual funds (including QDII), asset management for corporate annuities, NSSF and specific customers,providing professional fund investment financing services for investors.

HFT Investment Management, in which the Group owns a 51.0% equity interest, is a fully-licensed fundmanagement company offering asset management products such as mutual funds, segregated accountmanagement services and enterprise annuity plans. HFT Investment Management is also licensed to provide assetmanagement services to QDIIs. Its customer base ranges from retail individuals to high net worth andinstitutional customers. In 2017, the registered capital of HFT Investment Management was increased toRMB300 million by way of turning retained earning into registered capital, in which the Group still owns a 51%equity interest.

As at the end of June 2019, the AUM of public funds reached RMB78 billion. HFT Alpha Hedge Fund wasawarded three major awards including “Gold Fund • Three-year Flexible-Configuration Hybrid Fund (金基金•三年期靈活配置型基金)” awarded by Shanghai Securities News, and the AUM of the HFT Alpha Hedge Fundincreased by 32% from the beginning of the year of 2019.

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Fullgoal Fund Management is an affiliate fund management company in which the Group owns an equity interestof 27.775% and is a fully-licensed fund management company offering asset management products such asmutual funds, segregated account management services and enterprise annuity plans. Fullgoal Fund Managementis also licensed to provide asset management services to QDIIs. Fullgoal Fund Management primarily distributesinvestment management products to retail and institutional customers nationwide through banks, securities firmsand its branches.

In the first half of 2019, the products performance of Fullgoal Fund Management maintains outstanding in themarket, by further consolidation of its traditional business of active equity investment, fixed income investmentand qualitative investment through the enrichment and improvement of products lines. As at 30 June 2019, theAUM of public funds was RMB263 billion, representing an increase of 33% as compared to the beginning of theyear of 2019. The Group took the initiative in developing business in the STAR Market and issued two funds inthe STAR Market, making it the first to issue such fund in the industry. In addition, the Group further developedbusiness opportunities in pension business market, with a total AUM in this field exceeding RMB100 billion.

Private investment fund

The Group also operates a number of professional investment management platforms for private equity (PE),which provides services including management of industrial investment funds, investment consultation andpromotion and establishment of investment funds.

The Group established Haitong-Fortis PE Fund Management in 2004 to manage the assets of the China-BelgiumDirect Equity Investment Fund, which principally invests in domestic high-tech SMEs that are at high-growthstage with a clear path to IPO and adhering to its prudent investment strategy. Haitong-Fortis Private Equity FundManagement was the first industry investment fund management company in the PRC, approved by the NDRC.As at 30 June 2019, Haitong-Fortis Private Equity Fund Management is a joint venture fund managementcompany in which the Group and BNP Paribas Investment Partners BE Holding SA (formerly known as “FortisInvestment Management SA/NV”) hold equity interests of 67.0% and 33.0%, respectively.

In the first half of 2019, Haitong-Fortis PE Fund Management enhanced the process management “offering,investment, management and withdrawal (募投管退)”, completed the development and on-line trial operation ofthe integrated PE business system and promoted the centralised management of the middle and back end of thePE business. The Group has strengthened the management of the private investment projects, increased thefrequency and intensity of post-investment tracking of the invested projects, strengthened liquidity managementand actively supported and promoted the listing process of the projects in the CSRC approval process. The Grouphas also strived to improve the investment professionalisation, management standardisation and operationmarketization of the PE business line. In the first half of 2019, the Group’s direct investment business and thePE equity investment funds managed by its subsidiaries realised a total of RMB600 million income from projectdivestment.

Overseas asset management

The Group’s overseas asset management are majorly conducted though Haitong International Securities. TheAUM of the overseas asset management of the Group reached HK$48 billion, increasing approximately five-foldin the past seven years. Various fund products managed by Haitong International Securities maintained excellentperformance in the first half of 2019. For example, the net value of Haitong China A-share Fund increased bymore than 20%, ranking among the top products of similar funds. With outstanding brand and the advantages inthe Hong Kong market, Haitong Asia High Yield Bond Fund became Hong Kong’s first fund for northboundtrading issued by a Hong Kong-based Chinese brokerage firm.

Trading and Institutional Client Services

Overview

The Group engages in the provision of stock sale and trading, prime brokerage, stock borrowing and lending andstock research in major global financial markets for global institutional investors, as well as the issuance andmarket making services for various financial instruments such as fixed income products, currency andcommodity products, futures and options, exchange traded funds and derivatives. Meanwhile, the Group exertsand enhances the advantage of cooperation among business segments through investment funds and privateequity projects. The Group focuses on exploring investment opportunities with reasonable return on investmentcapital, so as to expand customer relationships and promote overall growth of its business.

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For years ended 31 December 2017 and 2018 and the six months ended 30 June 2018 and 2019, segment revenuefrom its trading and institutional client services business amounted to RMB11,901.9 million and RMB7,356.3million, RMB3,875.3 million and RMB7,500.4 million, respectively, representing 28.8% and 19.0%, 20.4% and28.8% of its total revenue, respectively.

The Group established Haitong Innovation Securities Investment on 24 April 2012, the registered capital ofwhich is RMB4.1 billion, as its designated platform for alternative financial product investments. The Group hasestablished a team of professional staff with two to five years of relevant experience and has established a riskcontrol management system through which the Group can designate directors, impose investment limitations,formulate risk control indicators, establish reporting structure and perform regular inspections and reviews onHaitong Innovation Securities Investment.

The Group has strengthened its efforts in the innovation of trading and institutional clients services, optimisedthe capital allocation, seized the market opportunities and diversified its profit-making models.

Trading

The Group conducts fixed income investment, derivatives trading, interest swap, equity investment, ETFmarket-making, international gold trading and cross-border investment businesses in its trading segment. In thefirst half of 2019, the in respect of fixed income investment and derivatives trading, the Group increased theprincipal amount in fixed income investment and actively engaged in derivatives trading. The Group was againawarded the SSE 50 ETF option main market maker Class A rating. As at the end of June 2019, the Group signedthe NAFMII agreement with 74 institutions, ranking among the top in the industry. In respect of interest swapbusiness, the Group’s nominal principal of interest rate swaps reached RMB21.04 billion. In respect of the ETFmarket-making business, the Group actively carried out and extended this business with the turnover of core ETFmarket-making products keeping ranking first in the market.

In the first half of 2019, Haitong International Securities, as the first Chinese market maker on NASDAQ,established a cross-border, cross-market and cross-sector transaction clearing system and nearly 100 institutionalclients have directly traded through Haitong International Securities algorithms. The FICC business of the Groupwas reorganized into three categories of credit products, macro and hybrid products, and institutional customersolutions, to improve the management efficiency. In the first half of 2019, the revenue from the FICC businessrepresented a year-on-year increase of over 150%. A total of 1,397 warrants and CBBCs were issued in the firsthalf of 2019, with a turnover of HK$380 billion, ranking second in the Hong Kong market. As the first Chinesesecurities company to develop and conduct Inline Warrants business in the Hong Kong Stock Exchange, HaitongInternational Securities provides investors with more diversified listed structured products.

Institutional client services

The Group’s institutional clients mainly include listed companies in Chinese mainland, Hong Kong, Macau,Taiwan, the United States, Japan, India, and South Korea.

In the first half of 2019, the Group further strengthened its services to institutional clients in public funds,insurance, private investment funds and other business, and published more than 2,600 reports, held 230 on-sitemeetings and teleconferences, and served more than 7,500 customers in various institutions. The Group’s marketshare of public funds (including special accounts and social security) reached 4.55%, representing an increaseof 0.14% as compared to the end of 2018. The net income of the Group’s trading unit seats ranked second in theindustry in the first half of 2019. Driven by capital and services, the Group actively expands private equitycustomers. As at the end of June 2019, the Group had over 500 private placement customers with a totaltransaction volume of over RMB650 billion.

With the overall recovery of the market, the size and number of custody projects grew rapidly. The Groupactively expands its business the public fund custody market. Among them, Hua’an Csi Private-OwnedEnterprises Growth ETF Fund has completed fundraising and became the first ETF fund formed by a domesticsecurities company. in the first half of 2019, the Group also actively developed the WOFE market and launchedfive new products for existing WFOE customers, and perfected the personalized service of product design andoperation. In addition, Haitong International Securities has set up prime brokerage trading business and bondincome swap business, providing customers with investment plans across asset classes. It also independentlydeveloped the Exotics pricing model library, which provides quotations for more than 60 structured productscovering bills, over the-counter swaps and OTC options in multiple markets around the world.

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Financial Leasing

Overview

Financial leasing became a business line of the Group following its acquisition of UT Capital Group. The Groupoffers financial leasing, operating leasing, factoring, entrusted loans and relevant advisory services. through UTCapital Group.

Currently, UT Capital Group engages in a wide range of industries, including infrastructure, transportation &logistics, industrials, education, health care, construction & real estate and the chemical industry. UT CapitalGroup conducts its business through its four wholly owned PRC incorporated subsidiary UniTrust. UT CapitalGroup leverages rich industrial experience and market channels and works with renowned domestic and overseasequipment manufacturers to provide comprehensive financing solutions and services for the businessdevelopment of customers. In the past two years, UT Capital Group has taken the initiatives to explore thebusiness model of securities firm-featured financial leasing and has launched a diversified product portfoliowhich integrates equity investment with debt investment to provide more innovative structured financingsolutions to customers.

The financial leasing business of UT Capital Group primarily engages in the following activities:

• direct leasing; and

• sale-and-leaseback;

Direct Leases

A typical direct lease involves three parties, namely the lessor, the lessee, and the equipment supplier. The Group,as the lessor, purchases the equipment from the equipment supplier and leases it to the lessee (customer) in returnfor periodic lease payments. In a direct lease, the Group, as a lessor, has the title of leased equipment within thelease term, while substantially all of the risks and rewards associated with the title of the leased equipment havebeen transferred to the lessee.

At the end of the lease term, the lessee has the option, upon prior notice to the Group, to purchase the leasedequipment, renew the lease, or return the leased equipment to the Group, if there is no default on the part of thelessee or if the lessee’s default has been cured. If the lessee selects to purchase the leased equipment, it shouldpay the Group the consideration prior to the expiry of the lease term. The Group transfers the title of the leasedequipment to the lessee after receiving the consideration.

Sale-and-leaseback

Sale-and-leaseback is a form of financial leasing where the lessor purchases the asset from the lessee whooriginally owned such asset but subsequently sells it to the lessor to satisfy its financing needs, and the lesseethen leases the asset back from the lessor for a relatively long term, thereby permitting the lessee to continue tobe able to use the asset as a lessee (and not as an owner). At the end of the lease term, the lessee has the optionto repurchase the leased equipment thus regaining the title of the leased equipment.

The Group retains legal ownership of the asset during the lease term while the lessee controls the asset with thebenefits and risks of economic ownership. A typical sale-and-leaseback contract cannot be terminated without thelessor’s consent during its term which typically ranges from three to five years, with an option by the lessee topurchase the assets for a nominal value upon expiry of the term.

As at the end of June 2019, the total assets of UniTrust reached RMB90,357.2 million. Both the headquarters andthe branches were developed actively. The localised operation mode was further enhanced with the developmentof institutional business in parallel with the retail business. The Group initiated the establishment anddevelopment of the risk model and improved quantitative risk management capacity was improved. The publicsentiment monitoring system was gradually transformed from manual detection to automatic system detection.As a result, a full-process and full coverage customer risk monitoring system was realised, and the overall assetquality maintained at a rational level. UniTrust continued to expand financing channels and actively developedvarious direct financing means, including medium-term bills, short-term financing and ABS. It has successfullycompleted the formation of overseas syndicate. UniTrust was successfully listed on the Hong Kong StockExchange on 3 June 2019 under the stock code of 01905, raising a total of about HK$2,322 million, whichinjected new capital into UniTrust and provided a strong guarantee for its subsequent development.

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Research

The research capability of the Group is one of its core competencies and plays a key role in the development ofits principal business lines. In recent years, the Group has increased its resource allocation to strengthen itsresearch capability. The number of employees on its research team is 456 as at 31 December 2016, 438 as at 31December 2017, 454 as at 31 December 2018 and 436 as at 30 June 2019, respectively. A number of its researchanalysts hold professional qualifications, such as CFA, FRM and CIIA. The research team of the Group providesresearch reports and regular company updates to external customers, including domestic fund managementcompanies, insurance companies, private equity funds and institutional investors, assisting them in identifyingand evaluating investment opportunities. In addition, the research team of the Group provides support to its otherbusiness lines, such as investment banking, asset management and trading and institutional client servicesbusiness businesses strictly in compliance with its five-level governance protocol.

The Group has broad research coverage, including macroeconomic analysis, investment strategies, industrysector and company research, fixed income products, derivatives, financial engineering and policy studies. In2019, the Group was among the first batch of companies who obtained the qualification for piloting marginfinancing and securities lending business in the STAR Market.

In addition to the research department of Haitong Securities, its subsidiary, Haitong Futures, has established adedicated research team focusing on technical analysis of futures products and providing recommendations to itscustomers to maximise their returns while minimising investment risks.

In addition, Hong Kong-based research team under Haitong International Securities provides research coverageon Hong Kong-listed companies, which serves to complement its research coverage on domestic listedcompanies.

Treasury Management

The Group believes the management of its liquidity and capital resources is critical to its success. The planningand finance department of the Group actively monitors its capital structure, source of financing and liquidity, andis responsible for ensuring the liquidity and safety of its capital while improving yields on surplus cash.

The Group has a comprehensive budgeting system that forecasts its cash inflow, cash outflow and cash balanceand estimates its liquidity needs for business expansion and other investments. The Group has also establishedstringent treasury management measures based on its Net Capital, which require stress tests on overall liquidityand other financial indicators before the Group makes any capital investments.

To manage its liquidity while improving yields on surplus cash, in addition to bank deposits and inter-bankborrowings, the Group actively manages its liquid assets through money market and bond market operations byinvesting in liquid financial instruments with low risk, such as fixed income securities and financial assets heldunder resale agreements.

The Group seeks to diversify its source and type of financing to meet various liquidity needs in its operations.Currently, the Group derives short-term financing for its PRC operations primarily from bond repurchasetransactions in the interbank market or through stock exchanges, inter-bank borrowings and issuing short-termcommercial papers.

Income from treasury management activities is included in the revenue and other income of headquarters andothers.

Business Network

As at 30 June 2019, the Group had 330 securities and futures business departments, including 290 securitiesbusiness departments and 40 futures business departments. As at 30 June 2019, the Group had branches,subsidiaries and representative offices in 14 countries and regions including Asia, Europe, North America, SouthAmerica and Oceania. The business network of the Group in the PRC covers 30 provinces, municipalities andautonomous regions in the PRC, as at 30 June 2019. In addition, the Group has 27 branch offices in Beijing,Shanghai and several other provinces to manage its brokerage branches locally, which could contribute to greateroperating efficiency and more effective resource allocation.

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In expanding its branch network, the Group also considers the differences in securities market developments andthe regulatory requirements of different regions. The branches of the Group are strategically located in theeconomically well-developed coastal regions in Eastern China and Southern China with high concentrations ofaffluent individuals and SME clients, such as Shanghai, Zhejiang, Shandong, Jiangsu and Guangdong. The Groupalso sets up branches in less penetrated regions with high growth potential but less price competition, such asHeilongjiang, Gansu, Jiangxi and Anhui. As such, the Group has developed a strategically located branchnetwork, with coverage spanning from first-tier cities to third-tier cities. The Group accelerated its new networklayout.

The extensive network and market presence of the Group in strategic locations in the PRC has enabled it toprovide regionally focused customer service and coverage. In addition, through its branch network and togetherwith its substantial customer base, the Group believes it can maximise cross-selling opportunities across itsbusiness segments. For example, products such as margin financing and securities lending, asset management andstock index futures may be cross-sold to retail customers, while business opportunities with investment bankingand customised financial products may be developed among institutional customers.

The Group has been actively developing and expanding its branch network and it strives to achieve a balancebetween branch network expansion and profitability at individual branches. Specifically, its criteria for openinga brokerage branch in a particular location typically take into consideration the size of the local brokerage marketas compared to the overall PRC brokerage market, as well as its growth potential.

The Group has been actively adjusting and optimising its existing network coverage by establishing newbranches in fast-growing second-and third-tier cities and relocating branches from highly competitive andconcentrated regions to regions with relatively low penetration, moderate competition and high growth potential.The Group will continue to establish new branches in order to expand its brokerage network coverage to increaseits revenue.

Development and maintenance of its futures business network has always been one of the Group’s businessfocuses. The Group had 42, 41, 40 and 40 futures brokerage departments as at 31 December 2016, 2017 and 2018and as at 30 June 2019, respectively. The futures brokerage branches and securities brokerage branches of theGroup are complementary to each other. In regions where its securities brokerage business has less customerpenetration, the Group intends to devote more resources to develop its futures business platform in order tocapture a larger market share. The Group intends to allocate resources towards developing its futures businessnetwork to capture a dominant market position.

Sales and Marketing

The sales and marketing team of the Group not only has extensive sales and marketing experience in the financialand securities industries, but also possesses a broad knowledge of financial products. In order to maintain itscompetitive advantage, the Group requires its sales and marketing professional staff to complete rigorous trainingand examinations. In addition, the Group has implemented a competitive incentive scheme to reward sales andmarketing personnel who demonstrate outstanding performance.

To support local sales and marketing teams, the branches of the Group have established service centres withsufficient customer service staff members to handle customers’ enquiries, account-opening procedures and theoffering of after-sales services and technical support.

The licensed brokers system was amended in accordance with Provisional Measures on Management ofSecurities Brokers (《證券經紀人管理暫行規定》) promulgated by the CSRC in March 2009 pursuant to whichsecurities brokers are required to pass a qualifying exam, complete certain professional training and register theirqualification status with the SAC. To comply with these provisions, the Group does not allow its brokers toengage in securities brokerage activities until they have passed the qualification exam, completed requiredprofessional training and registered their qualification status with the SAC.

To maximise its sales and marketing efforts, the Group leverages cross-selling opportunities among its variousbusiness operations, as well as between its PRC and overseas platforms. For example, the investment bankingbusiness of the Group may refer high net worth customers and institutional clients to its securities and futuresbrokerage business, while its securities and futures business may refer potential institutional clients to its directinvestment business. In addition, its brokerage business may also refer customers to its asset managementbusiness.

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To enhance brand awareness, the sales and marketing team of the Group conducts face-to-face meetings withprospective customers, hosts public relations and investor education events and attends industry conferences. Thesales and marketing team of the Group also distributes its featured research reports and provides othervalue-added financial advisory services to its customers in order to enhance customers’ loyalty.

Customer Services

The Group operates a customer service network that provides a full range of services through different channels,including its nationwide branch network, customer service hotline and online platform. The customer servicesof the Group principally include:

• Branches: The Group offers customised services at its branches. Many of its branches in the PRC havedifferent service zones to provide specific types of services to its customers.

• Customer service hotline: The customer service hotline is a comprehensive platform that combines trading,information, consultation and marketing functions.

• Online platform: The online platform allows its customers to execute real-time trades, record trading statusand records and check position and account information. The Group also offers stock quotes, financial news,global market updates and financial commentaries, as well as research reports on stocks through its onlineplatform.

In addition, the Group actively provides customised and value-added services to institutional clients to satisfytheir demands through its nationwide branch network and comprehensive services, such as productrecommendations, advice on asset allocation and distribution of featured research reports.

Internal Control and Risk Management

Governance structure

The Group believes effective risk management and internal controls are crucial to its success. The Group hasestablished an effective and comprehensive risk management and internal control system to identify, evaluate andmanage the risks it faces in its business operations. As a result of its sound internal controls and risk managementcapabilities, since 2008, Haitong Securities has received highest rating among securities companies from ChinaSEC over the years. The Group has received an “AA” regulatory rating, the highest rating given to a PRCsecurities firm to date, from the CSRC in 2015, a “BBB” regulatory rating in 2016. In 2017, the regulatory ratingwas upgraded from “BBB” to “AA” and remained “AA” in 2018 and 2019. By establishing and improving thecompliance management system and organizational system, the Group carried out compliance consultation,training, review, compliance monitoring, inspections and accountability to penetrate the compliance work intovarious business sectors, which has been recognized by the regulatory authorities.

The Group has established a five-level risk management and internal control governance structure, whichincludes: (i) the board and compliance and risk control committee; (ii) chief risk control executive and generalcompliance officer; (iii) compliance and risk control department; (iv) functional management departments; and(v) relevant departments or positions in all business departments, all departments branches and subsidiaries. Thefollowing chart sets forth a brief overview of the five-level governance structure of the Group:

functional management departments

board and compliance and risk control committee

compliance and risk control department

relevant departments or positions in all business departments,all departments branches and subsidiaries

chief risk control executive/general compliance officer

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The board and the compliance and risk control committee of the Group are the highest level of the riskmanagement and internal control structure of the Group.

Organised under the board of the Guarantor, the compliance and risk control committee is designed to assist itsboard in overseeing its compliance with the laws and regulations applicable to its business operations.

The chief risk control executive and the general compliance officer appointed by the board of the Group areindependent from its management and report directly to its board and other PRC regulatory authorities. The chiefrisk control executive and general compliance officer of the Group serve as the counsels to the compliance andrisk control committee and advise the board and the compliance and risk control committee on a regular basis.

The compliance and risk control department reports directly to the board of the Group and its general complianceofficer on a regular basis and plays a critical role in implementing its internal control policies through assistingits general compliance officer.

The functional management departments of the Group primarily include its brokerage operation centre, financeand planning department and IT department. The functional departments cooperate with the compliance and riskcontrol department to manage risk exposure arising from the securities trading, capital deployment and assetallocation, financial, accounting and IT systems, as well as to implement department-specific risk managementprocedures.

The Group has risk management staff in its principal business lines to monitor and manage risks specific to itsbusiness activities, and these staff work closely with its compliance and risk control department. The Group hasimplemented a series of risk management and internal control procedures to manage risks that are specific to itsbusiness activities.

Wealth Management Business

To ensure its wealth management businesses are conducted in compliance with the applicable laws andregulations and to standardise the wealth management practice, the Group has established comprehensive internalrules and guidelines for its wealth management business. The Group manages its branch network based on athree-level governance structure: (i) head office; (ii) branch offices; and (iii) brokerage branches.

In response to the increasing risks associated with the margin financing and securities lending business, theGroup:

• has established a monitoring system based on Net Capital requirements to strictly control the scale of itsmargin financing and securities lending business and to prevent concentration of business in a singlecustomer or single kind of stock;

• performs a credit check on each margin financing and securities lending customer, assign different creditratings to different customers based on standardised customer selection and rating systems and grant creditto customers based on decisions made by its margin financing and securities lending credit grantingmanagement committee;

• determines different financing limits for different customers and set warning notices, margin call notices andclosing notices to ensure that the Group holds an adequate amount of collateral from each customer; and

• uses a mark-to-market system to monitor customer transactions on a real-time basis and issue margin callnotices and closing notices or impose compulsory liquidation if its customers fail to cover shortfalls oncollaterals or repay the financing granted after the Group issues warning notices.

Investment Banking Business

The Group controls and manages the risk exposures associated with its investment banking business through theinternal review group, the quality control group and the compliance and risk control department, which aregenerally involved in project approval, on-site due diligence, documents review, internal review meetings andcontinuous supervision.

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Asset Management Business

The compliance and risk control department of the Group monitors and evaluates its exposure to potential marketrisks, operational risks, credit risks and regulatory risks arising from its asset management business. It cooperateswith its risk management staff working for its asset management business to monitor market risks, operationalrisks, credit risks and regulatory risks in order to ensure effective implementation of its entrusted responsibilities,the accuracy of its disclosure of risk-related information, prudence to develop its business and the protection ofits legal interests and the rights of its investors.

At the subsidiary level, the Group has appointed directors, supervisors and senior management to supervise andmonitor the risk management and internal control measures of its asset management subsidiaries. The Grouprequires its asset management subsidiaries to establish their own risk management and internal control systemsbased on applicable PRC regulations and its internal policies.

The Group oversees and monitors these subsidiaries’ implementation of its internal policies and review theeffectiveness of their risk management and internal control systems on a regular basis. The Group also has areporting system which requires the compliance officer of each subsidiary to report its overall risk managementand internal controls to it at least twice a year and to notify the Group on a timely basis of any material riskmanagement issues.

Trading and Institutional Client Services Business

The Group has established a comprehensive risk management governance structure to manage the risksassociated with its trading and institutional client services business, which includes: the board of directors, theinvestment decision committee, the compliance and risk control department and the trading and institutionalclient services department.

In addition, the internal audit department and the compliance and risk control department of the Group schedulequarterly on-site reviews and special audits of its overall trading and institutional client services business withrespect to its internal controls, ordinary business operations, financial and accounting management and theoperational performance of its trading and institutional client services business.

Financial Leasing Business

UT Capital Group adopts a prudent risk management philosophy in conducting financial leasing businesses. Itmaintains a comprehensive risk management system and implements various risk management measuresthroughout its business operations. UT Capital Group continually improves its comprehensive risk managementsystem to enhance its overall risk management capability and core competitiveness. The goal of its riskmanagement efforts is to maintain risks at a tolerable level and to maximise its risk-adjusted return.

The risk management of UT Capital Group is incorporated into the comprehensive risk management frameworkof the Group. UT Capital Group reports key risk indicators to the Group and is supervised by the Group in termsof the reporting of such risk indicators. Financial leasing business maintained satisfactory asset quality duringthe recent years.

Anti-money Laundering

The Group is fully committed to establishing and enforcing appropriate policies and procedures to prevent moneylaundering and terrorist financing and is compliant with all relevant legal and regulatory requirements. Moneylaundering covers a wide range of activities intended to mask or alter the source of illegally obtained money. Thestaff of the Group is required to comply with PRC laws and regulations. When new customers apply to opentrading accounts, its staff must manually check their identities and backgrounds. Staff members who know,suspect or have reasonable grounds to believe that a customer might have engaged in money laundering activitiesmust immediately report the details to the general compliance officer and the compliance and risk controldepartment of the Guarantor.

In addition, the Group has established a risk-based approach in its customer acceptance policy which aims toidentify those types of customers that are likely to pose a higher than average risk of money laundering andterrorist financing. This approach is based on a customer due diligence process that takes into account factorssuch as the customer’s background, the nature of its business, its origin or residence, associated persons orentities, its structure of ownership and any other information that may suggest that the customer presents any riskin respect of money laundering and terrorist financing.

The Group has never engaged in or knowingly assisted any money laundering activities.

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Risk management

The Group has historically been focused on risk prevention and control in line with its prudent and conservativeinvestment policies and was among the first PRC securities firms to establish comprehensive internal control andrisk management systems. The Group has developed dedicated systems for its securities brokerage, investmentbanking, asset management and proprietary trading businesses. The Group has also built sophisticated riskmonitoring systems for new-businesses development.

In accordance with the five-level internal control and risk management structure set forth above, the complianceand risk control committee, the chief risk control executive and general compliance officer and its complianceand risk control department of the Group work together in managing and monitoring these exposures to ensureappropriate measures are implemented in a timely and efficient manner.

Legal and Regulatory

Licensing requirements

The Group conducts its securities business mainly in the PRC and Hong Kong and is therefore, subject to therestrictions and regulatory requirements of the PRC and Hong Kong.

For the years ended 31 December 2016, 2017 and 2018 and the six months ended 30 June 2019, the Group hadcomplied with the relevant regulatory requirements and guidelines in material respects and obtained the permitsand licences necessary for its operations in accordance with Hong Kong’s laws and regulations.

Legal proceedings

As at 30 June 2019, none of the legal proceedings to which the Group was a party, individually or in theaggregate, would have a material effect on its business, financial condition or results of operations.

Regulatory non-compliance

The Group had been involved in several incidents of regulatory non-compliance from time to time. Please seethe following table for details of the one major incident for the years ended 31 December 2016, 2017 and 2018and the six months ended 30 June 2019.

Non-compliance incidents Brief explanation and its primary remedialmeasures

On 23 May 2017, Haitong Securities received from theCSRC an Advance Notice of Administrative Penalty(Chu Fa Zi [2017] No. 59) in relation to the failure toexecute business contracts with customers inaccordance with relevant provisions or failure tocontain necessary terms in business contracts withcustomers in accordance with relevant provisions asdescribed in Article 84(7) of the Regulations onSupervision and Administration of Securities Firms, inthe conduct of its margin financing and securitieslending business. The CSRC intended to: (i) impose anorder for rectification on and issue a warning to theHaitong Securities, (ii) confiscate the gains ofRMB509,653.15 arising from violations and impose afine of RMB2,548,265.75 on Haitong Securities, and(iii) issue warnings to and impose a fine ofRMB100,000 on each of the employees involved. On 5November 2018, the Haitong Securities received fromthe CSRC the Notice of Case Closure (Jie An Zi [2018]No. 20) in respect of the case, pursuant to which, theCSRC considered that the suspected violations of lawsof the Haitong Securities and relevant staff were notestablished and decided to close the case.

Haitong Securities took corrective measures asrequired by the regulatory authorities and made fullprovision in the principle of prudence.

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As part of its on-going practice, the Group reviews the performance of its sponsor representatives on a regularbasis.

The Group believes that the regulatory non-compliance incident disclosed in this Offering Circular is notsignificant to its business operations and did not have any material adverse effect on its business, financialcondition and results of operations. Save for the regulatory non-compliance incidents disclosed in this OfferingCircular, the Group or its employees are not involved in other regulatory non-compliance incidents which mayhave a material adverse effect on its business, financial condition and results of operations.

Information Technology

The IT system of the Group has been an integral part of its operations since its inception. The IT system consistsof three key components: front office, middle office and back office systems that generally cover transactionmanagement, customer service and internal management. The IT system of the Group serves not only as anintegral part of its operations, but also its business development platform. The IT system utilises productsprovided by IBM, HP, CISCO and other leading IT system providers. The Group believes its well-developed ITsystem will improve its operational efficiency and transaction management, customer service and quality ofinternal management.

The IT system of the Group has three key features that distinguish it from its competitors. On transactionmanagement, its system is among the best in terms of processing capacity. The IT system can process thetransactions on a real-time basis in a timely and cost-efficient manner, which facilitates new businessesdevelopment and promotion. In addition, the IT system assists management to gain a better understanding of itsproducts’ profitability. On customer service, the Group is committed to meeting its customer needs throughdiversified channels, including but not limited to online transactions, mobile transactions and SMS platforms. Inaddition, the internal risk management modules of its system can identify risks promptly and obtain detailedrisk-related data in order to respond to the risks imposed in a timely and succinct fashion. Meanwhile, its ITsystem allows the Group to standardise its internal procedures. As such, it facilitates its record-keeping, improvesits reliability and enhances its communication and operational efficiency. The system also allows the Group tohave a better understanding of its financial position. The Group adopts multiple layers of security measures,including firewalls and digitalised verification and intrusion prevention systems, in order to achieve its networksecurity.

Competition

The PRC securities industry is highly competitive. The Group believes that competition in the PRC securitiesindustry is based on several principal factors, including:

• the range of products and services offered;

• pricing;

• customer service;

• network coverage;

• marketing and distributing capacities;

• perceived financial strength; and

• brand recognition.

For its wealth management business, the Group competes primarily with other PRC securities firms, in terms ofpricing and the range of products and services offered. As at the end of 2019, there are 133 registered securitiesfirms in the PRC according to CSRC. Intense price competition in recent years has lowered commission rates forits securities brokerage business.

For its investment banking business, the Group competes primarily with other PRC and Sino-foreign jointventure securities firms as well as PRC commercial banks in terms of brand recognition, marketing anddistribution capacity, service quality, execution capacity, financial strength and pricing.

For its asset management business, the Group competes primarily with fund management companies, banks,insurance companies and other financial institutions in the PRC in terms of the range of products and servicesoffered, pricing and quality of customer service.

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For its trading and institutional client services business, the Group competes primarily with other PRC securitiesfirms.

For its financial leasing business, the Group competes primarily with other market players in the PRC financialleasing industry, especially those with strong shareholder backgrounds and capital strength.

Employees

The Group has not experienced any strikes or other material labour disturbances that have interfered with itsoperations to date and the Group believes that its management, the labour union and employees have maintainedgood relationships with each other

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MANAGEMENT OF THE GUARANTOR

DIRECTORS

The following table sets forth information regarding the directors of the Guarantor as at the date of this OfferingCircular:

Name Position

Mr. ZHOU Jie (周杰) ���������������������������������������� Executive Director, Chairman of the BoardMr. QU Qiuping (瞿秋平) ���������������������������������� Executive DirectorMr. REN Peng (任澎) ���������������������������������������� Executive DirectorMr. TU Xuanxuan (屠旋旋)�������������������������������� Non-executive DirectorMs. YU Liping (余莉萍) ������������������������������������ Non-executive DirectorMr. CHEN Bin (陳斌) ��������������������������������������� Non-executive DirectorMr. XU Jianguo (許建國)����������������������������������� Non-executive DirectorMr. ZHANG Ming (張鳴) ���������������������������������� Independent Non-executive DirectorMr. LAM Lee G. (林家禮) ��������������������������������� Independent Non-executive DirectorMr. ZHU Hongchao (朱洪超) ����������������������������� Independent Non-executive DirectorMr. ZHOU Yu (周宇)����������������������������������������� Independent Non-executive Director

EXECUTIVE DIRECTORS

Mr. ZHOU Jie (周杰), born in 1967, a holder of master’s degree of engineering, has served as the Chairman ofthe Board since 28 October 2016 and the secretary of CPC party committee of the Guarantor since July 2016.From February 1992 to June 1996, Mr. Zhou served in the investment banking department of ShanghaiInternational Securities Co., Ltd. (上海萬國證券有限公司). From June 1996 to December 2001, Mr. Zhou served,successively, as the manager of investment department, the vice general manager, and the chairman of the boardof directors and the general manager of Shanghai SIIC Asset Operation Co., Ltd. (上海上實資產經營有限公司).From December 2001 to April 2003, he was the director and general manager of SIIC Medical Science andTechnology (Group) Limited. (上海實業醫藥科技(集團)有限公司). From January 2002 to July 2016, he acted,successively, as the executive director and the vice executive officer, the executive director and the executivevice president, the vice chairman and chief executive officer of Shanghai Industrial Holdings Limited (listed onthe Hong Kong Stock Exchange under the stock code of 0363). From August 2004 to July 2016, he served,successively, as the chief planning officer, the executive director and vice president, the executive director andexecutive vice president, and the president and secretary of CPC party committee of SIIC Shanghai (Holding)Co., Ltd. (上海上實(集團)有限公司). From March 2010 to May 2012, he was the chairman of the supervisorycommittee of Shanghai Pharmaceuticals Holding Co., Ltd. (上海醫藥集團股份有限公司, listed on the ShanghaiStock Exchange under the stock code of 601607; listed on the Hong Kong Stock Exchange under the stock codeof 02607), of which he was the chairman of the board of directors and the secretary of CPC party committee fromJune 2012 to June 2013 and from May 2016 to July 2016. Mr. Zhou has been a non-executive director ofSemiconductor Manufacturing International Corporation (中芯國際集成電路製造有限公司, listed on the NewYork Stock Exchange under the ticker symbol of “SMI”; listed on the Hong Kong Stock Exchange under thestock code of 00981) since January 2009. Mr. Zhou has been a supervisor, the chairman of the remunerationcommittee of the Shanghai Stock Exchange, the president of Shanghai Securities Association (上海證券同業公會), and the representative of members of National Internet Finance Association of China (中國互聯網金融協會)since 2016, the vice chairman of Shanghai Financial Association (上海金融業聯合會), the president of ShanghaiAssociation of Financial Planners (上海金融理財師協會), and an arbitrator of Shanghai Arbitration Commission(上海仲裁委員會) since 2017.

Mr. QU Qiuping (瞿秋平), born in 1961, a holder of master’s degree in economics, a senior accountant, hasserved as an executive Director, the general manager and the deputy secretary of CPC party committee of theGuarantor since 25 June 2014. He was the accountant, deputy section chief, Youth League secretary of NanshiDistrict Office of the People’s Bank of China Shanghai (中國人民銀行上海市南市區辦事處) from September1980 to December 1983; the deputy section chief and section chief of Nanshi District Office of the Industrial andCommercial Bank of China Shanghai (中國工商銀行上海市南市區辦事處) from January 1984 toSeptember 1992; the vice president of Nanshi Sub-branch of the Industrial and Commercial Bank of ChinaShanghai Branch (中國工商銀行上海市分行南市支行) from September 1992 to November 1995; the deputy headof the accounting and cashier department of the Industrial and Commercial Bank of China Shanghai Branch (中

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國工商銀行上海市分行) from November 1995 to December 1996 (he was in charge of the party and politicalwork of Shanghai Jiading Sub-branch of the Industrial and Commercial Bank of China (中國工商銀行上海市嘉定支行) from December 1995 to December 1996); the president and deputy secretary of CPC party committeeof Shanghai Baoshan Sub-branch of the Industrial and Commercial Bank of China (中國工商銀行上海市寶山支行) from December 1996 to March 1999; the head of the accounting and clearing department of the Industrialand Commercial Bank of China Shanghai Branch from March 1999 to December 1999; the assistant to thepresident of the Industrial and Commercial Bank of China Shanghai Branch from December 1999 to June 2000;the vice president of the Industrial and Commercial Bank of China Shanghai Branch from June 2000 to February2005 (he was a visiting scholar at University of Pennsylvania from September 2002 to September 2003); the vicepresident of the Industrial and Commercial Bank of China Jiangsu Branch (中國工商銀行江蘇省分行) fromFebruary 2005 to September 2008; the deputy secretary of CPC party committee and the vice chairman of theboard of directors of Bank of Shanghai (上海銀行) from September 2008 to November 2008; the president,deputy secretary of CPC party committee and the vice chairman of the board of directors of Bank of Shanghaifrom November 2008 to December 2010; the head of the Work Coordination Department of the DispatchedOffices of the CSRC (中國證監會派出機構工作協調部) from December 2010 to August 2012; and the head ofthe Department of Unlisted Public Company Supervision of the CSRC (中國證監會非上市公眾公司監管部) fromAugust 2012 to April 2014. Mr. Qu has been the director of Finance Service Committee of the China Associationfor Public Companies (中國上市公司協會金融服務專業委員會) since November 2015, the member of ExpertCommittee of the Finance Research Centre of Counselors’ Office of the State Council (國務院參事室金融研究中心) since October 2016, the director of the Shenzhen Stock Exchange since April 2017, the member of theChinese People’s political Consultative Conference Shanghai Committee since December 2017, vice president ofthe Securities Association of China (中國證券業協會) since January 2018, and the Chairman of the SupervisoryCommittee of the council of the Listed Companies Association of Shanghai (上海上市公司協會) since June 2018.Mr. Qu has been the chairman of the board of directors of Haitong International Holdings Limited (海通國際控股有限公司), the chairman of the board of directors, a non-executive director, the chairman of the nominationcommittee and the strategic development committee, and a member of remuneration committee of HaitongInternational Securities Group Limited (海通國際證券集團有限公司, listed on the Hong Kong Stock Exchangeunder the stock code of 00665) since February 2018.

Mr. REN Peng (任澎), born in 1962, a holder of master’s degree in business and administration, an economist,joined the Guarantor in March 1996 and has been the Deputy General Manager since November 1997 and anexecutive Director of the Guarantor since June 2019. Mr. Ren served in several managerial positions in the XihuOffice of the Industrial and Commercial Bank of China (中國工商銀行) from June 1982 to February 1988 andserved in various positions in Bank of Communications (Hangzhou Branch) (中國交通銀行(杭州分行)) fromMarch 1988 to March 1996 including head of saving business and manager of securities department. In addition,Mr. Ren was manager of Hangzhou business department of the Guarantor from March 1996 to November 1997.Mr. Ren was a director of Haitong Capital Investment Co., Ltd. from October 2008 to August 2011. He has beena director of China-Belgium Direct Equity Investment Fund (中國-比利時直接股權投資基金) since March 2011.Mr. Ren served as the chairman of the board of directors of Haitong UniTrust International Leasing Corporation(海通恒信國際租賃有限公司) from June 2014 to May 2017, the chairman of the board of directors of HaitongUniTrust International Leasing Co., Ltd. (海通恒信國際租賃股份有限公司) since May 2017. He has beenchairman of the board of Haitong UT Capital Group Co., Limited (海通恒信金融集團有限公司) since June 2014,the chairman of the board of directors of Haitong UniFortune International Leasing Co., Ltd. and a director ofShanghai UniCircle Investment & Development Corporation (上海泛圓投資發展有限公司) since July 2014, andthe chairman of the board of directors of Haitong UniTrust Finance & Leasing Corporation (Shanghai) (海通恒信融資租賃(上海)有限公司) since November 2014 to August 2018. Mr. Ren has been served as the chairman ofthe board of directors of Haitong UniTrust International Leasing Co., Ltd. (海通恆信國際租賃股份有限公司)since May 2017.

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NON-EXECUTIVE DIRECTORS

Mr. TU Xuanxuan (屠旋旋), born in 1973, a holder of bachelor’s degree in economics, an economist, has beenthe non-executive Director of the Guarantor since June 2019. He has served as a deputy general manager (incharge of operations) of the asset management division of Shanghai Guosheng (Group) Co., Ltd. (上海國盛(集團)有限公司) from January 2019. Mr. Tu has served as chairman of Shanghai Zhenghao Asset ManagementCompany (上海正浩資產管理有限公司) since March 2017, the general manager of Shanghai Economy AlmanacAgency (上海經濟年鑒社) since May 2018, the director of Dongxing Securities since August 2007. Mr. Tu servedas an intern and office staff of Centre of Safe Deposit Box (保險箱中心) of Shanghai Trust ConsultancyCorporation of the Bank of China (中國銀行上海信託諮詢公司) from July 1993 to March 1997, and office staffand clerk of the Leasing Guarantee Division of the Management Department of Separate Operation (分業管理處租賃擔保科) of Bank of China, Shanghai Branch from March 1997 to March 2001. Mr. Tu served successivelyas the senior employee and the director of the Second Asset Management Department of Shanghai Office ofChina Orient Asset Management Corporation (中國東方資產管理公司上海辦事處資產經營二部) from March2001 to October 2004. Mr. Tu served successively as the senior manager and the deputy general manager of theAsset Management Department of Shanghai Dasheng Assets Co., Ltd. (上海大盛資產有限公司) from October2004 to September 2009, the deputy director of the Asset Management Centre of Shanghai Guosheng (Group)Co., Ltd. from September 2009 to October 2012. Mr. Tu served successively as the assistant to the president, amember of CPC party committee and the vice president of Shanghai Guosheng Group Assets Co., Ltd. (上海國盛集團資產有限公司) from June 2012 to January 2019 (during which he served as the deputy director (on jobposition) of the Intellectual Property Department of State-owned Assets Supervision and AdministrationCommission of Shanghai Municipal Government (上海市國資委產權處) from July 2014 to July 2015).

Ms. YU Liping (余莉萍), born in 1962, a holder of MBA degree, a senior accountant, has served as anon-executive Director of the Guarantor since 8 June 2015 and as the vice president of Bright Food (Group) Co.,Ltd. (光明食品(集團)有限公司) since August 2010. Ms. Yu served in several positions in Shanghai Light IndustryBureau (上海輕工業局) and Shanghai Light Industry Company (Group) (上海輕工控股(集團)公司) from August1996 to April 2006, including deputy chief of finance department, manager of finance department and vice chiefaccountant. She was a member of CPC party committee, vice president and chief financial officer of ShanghaiYimin Food Plant No. 1 (Group) Co., Ltd. (上海益民食品一廠(集團)有限公司) from August 2006 to August2008. Ms. Yu served as the chief financial officer of Shanghai Guangdian (Group) Co., Ltd. (上海廣電(集團)有限公司) from August 2008 to August 2010. Ms. Yu served as the chairman of supervisory committee of ShanghaiYimin Food Group (上海益民食品集團) from March 2015 to May 2017. Ms. Yu has been the chairman of thesupervisory committee of the NGS Supermarket (Group) Co., Ltd. (農工商超市(集團)有限公司) since September2013; the legal representative of Shanghai Light Industry Company (Group) since March 2014; and the chairmanof supervisory committee of Bright Food Group Finance Co., Ltd. (光明食品集團財務有限公司) since September2014.

Mr. CHEN Bin (陳斌), born in 1981, a master postgraduate, has served as a non-executive Director of theGuarantor since 30 December 2014. He has been the the deputy general manager of Pudong Tobacco, Sugar andWine Co., Ltd. of Shanghai Tobacco Group (上海煙草集團浦東煙草糖酒有限公司) from June 2019. Mr. Chenserved as an officer of the investment management department of Shanghai Tobacco (Group) Company (上海煙草(集團)公司) from July 2003 to January 2010. He served, successively, as assistant to section chief, sectionchief and assistant to head of investment management department of Shanghai Tobacco (Group) Company (nowrenamed as Shanghai Tobacco Group Co, Ltd., 上海煙草集團有限責任公司) during January 2010 to October2016. He was the assistant to general manager of Shanghai Haiyan Investment Management Company Limited(上海海煙投資管理有限公司) from April 2014 to February 2017. He was the deputy general manager of ShanghaiHaiyan Investment Management Company Limited (上海海煙投資管理有限公司) from February 2017 to June2019. Mr. Chen has been a non-executive director of Orient Securities Company Limited (東方證券股份有限公司, listed on the Shanghai Stock Exchange under the stock code of 600958; listed on the Hong Kong StockExchange under the stock code of 03958) since October 2014.

Mr. XU Jianguo (許建國), born in 1964, a holder of master of professional accountancy degree, a senioraccountant, has served as a non-executive Director of the Guarantor since 18 October 2016. He has been the headof the financial budget department of Shanghai Electric (Group) Corporation (上海電氣(集團)總公司) since April2013, the chairman of Shanghai Haiya Industry Company Limited (上海亥雅實業有限公司) from March 2019,and the chairman of Shanghai Kaihai Industry Company Limited (上海開亥實業有限公司) from June 2019.. Mr.Xu worked in the finance department and audit office of Shanghai Cable Works (上海電纜廠) from July 1984 to

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December 2001, inspection office of Shanghai Electric (Group) Corporation from January 2002 to March 2004and the assets and finance department of Shanghai Electric Assets Management Company Limited (上海電氣資產管理有限公司) from April 2004 to September 2005, respectively. He served as an assistant to the financialmanager of the first management department of Shanghai Electric Assets Management Company Limited fromSeptember 2005 to August 2008 during which period he also served as the chief financial officer of Shanghai LiDa Heavy Industrial Manufacturing Limited (上海力達重工製造有限公司) from March 2006 to August 2008.From August 2008 to December 2009, Mr. Xu was the deputy head of the assets and finance department ofShanghai Electric Assets Management Company Limited. Form December 2009 to April 2013, he served as thedeputy head of the financial budget department of Shanghai Electric (Group) Corporation. Mr. Xu served as adirector of Shanghai Highly (Group) Co., Ltd. (上海海立(集團)股份有限公司) (listed on the Shanghai StockExchange under the stock code of 600619) from June 2016 to December 2017, a director of Shanghai ElectricGroup Finance Co., Ltd. (上海電氣集團財務有限責任公司) since April 2013. Mr. Xu has been a director ofShanghai Life Insurance Company Ltd. (上海人壽保險股份有限公司) since March 2015, the chairman of thesupervisory committee of Shanghai Prime Machinery Co., Ltd. (listed on the Hong Kong Stock Exchange underthe stock code of 02345) since May 2016. Mr. Xu also served as a director of Shanghai Micro ElectronicsEquipment Co., Ltd. (上海微電子裝備股份有限公司) since June 2016, and a non-executive director of OrientSecurities Company Limited (東方證券股份有限公司, listed on the Shanghai Stock Exchange under the stockcode of 600958; listed on the Hong Kong Stock Exchange under the stock code of 03958) since November 2016.Mr. Xu has been the chairman of the supervisory committee of Shanghai Highly (Group) Co., Ltd. sinceDecember 2017.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. ZHANG Ming (張鳴), born in 1958, a holder of doctor’s degree in economics, a professor and seniorresearcher, has served as an independent non-executive Director of the Guarantor since 12 June 2016. Hecurrently lectures at the School of Accountancy of Shanghai University of Finance and Economics (上海財經大學會計學院). Mr. Zhang has lectured in Shanghai University of Finance and Economics since graduation fromthis university in 1983 and has been the director of the teaching office, the deputy director and then the deputyhead of the School of Accountancy. He is now a professor and doctoral supervisor in the same university. Mr.Zhang served as an independent non-executive Director of the Shanghai Shenda Co., Ltd. (上海申達股份有限公司, listed on the Shanghai Stock Exchange under the stock code of 600626) from May 2010 to May 2016, anindependent director of Shanggong Shenbei (Group) Co., Ltd. (上工申貝(集團)股份有限公司, listed on theShanghai Stock Exchange under the stock code of 600843) from May 2009 to April 2017. He was an independentnon-executive director of Shanghai Jinqiao Export Processing Zone Development Co., Ltd. (上海金橋出口加工區開發股份有限公司, listed on the Shanghai Stock Exchange under the stock code of 600639) since June 2011to June 2019. He has been an independent non-executive director of Wuxi Commercial Mansion Grand OrientCo., Ltd. (無錫商業大廈大東方股份有限公司, listed on the Shanghai Stock Exchange under the stock code of600327) since May 2015, and an independent director of Shanghai Pudong Development Bank Co., Ltd. (上海浦東發展銀行股份有限公司, listed on the Shanghai Stock Exchange under the stock code of 600000) since May2016.

Mr. LAM Lee G. (林家禮), born in 1959, a holder of doctor’s degree in philosophy, a Solicitor (formerly abarrister-at-law) of the High Court of Hong Kong, a senior Fellow of the Hong Kong Institute of Arbitrators andthe Hong Kong Institute of Directors, an Honorary Fellow of CPA Australia (CPPA), a senior Fellow of CMAAustralia, and an Honorary Fellow of the University of Hong Kong School of Professional and ContinuingEducation, has served as an independent non-executive Director of the Guarantor since 6 April 2017,Non-Executive Chairman – Hong Kong and ASEAN Region and Chief Adviser of Macquarie Infrastructure andReal Assets Asia since May 2015, an independent non-executive director of Aurum Pacific (China) GroupLimited (listed on the Hong Kong Stock Exchange under the stock code of 8148) since January 2019, anindependent non-executive director of TMC Life Sciences Berhad (listed on the London Securities Exchangeunder the stock code of 0101) since January 2019, and an independent non-executive director of ThomsonMedical Group Limited (listed on the Singapore Exchange under the stock code of A50) since May 2019. Mr.Lam has international experience in multinational corporation management, management consulting, corporategovernance, investment banking, direct investment and fund management across the telecommunications/media/technology (TMT), consumer/healthcare, infrastructure/real estates, energy/resources and financial servicessectors. He currently serves as independent or non-executive directors of several listed companies and investmentfunds in the Asia Pacific region. From 1981 to 2001, Mr. Lam held various senior management positions,including chief executive officer, chief operating officer and general manager, at leading enterprises in the

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telecommunications/media/high-tech, retail/consumer, infrastructure/real estates and financial services sectors,including Bell Canada (from June 1981 to December 1988), Ernst & Young (from April 1989 to November 1989),Hong Kong Telecommunications Ltd. (from November 1989 to August 1993), New World Telephone GroupLimited (from January 1995 to December 1996) and Singapore Technologies Telemedia Pte Ltd which operatesunder Temasek Holdings, a Singapore sovereign wealth fund (from April 2000 to September 2001). Mr. Lamserved as the vice president and partner, head of Greater China and head of telecommunications/media/high-tech– Asia at the management consulting firm A.T. Kearney, Inc. from July 1993 to January 1995; partner and Head– Global Chinese at Heidrick & Struggles International, Inc. from December 1998 to October 1999; vicechairman and chief operating officer of the investment banking division of BOC International Holdings Limitedfrom September 2001 to April 2003; and chairman of the board, director and chief executive officer of CPGroup/Chia Tai Group’s various Asian subsidiaries from January 2003 to September 2006. From May 2007 toMarch 2015, he was Chairman-Indochina, Myanmar and Thailand (and formerly Chairman-Hong Kong) ofMacquarie Capital (Hong Kong) Limited. Mr. Lam was formerly non-executive directors of ZH InternationalHoldings Limited (formerly known as Heng Fai Enterprises Limited, stock code: 185), DTXS Silk RoadInvestment Holdings Company Limited (formerly known as UDL Holdings Limited, stock code: 620) and RomaGroup Limited (Stock Code: 8072) (with a term of office from 13 September 2017 to 11 December 2017); alsoindependent non-executive directors of Ruifeng Petroleum Chemical Holdings Limited (stock code: 8096),Mingyuan Medicare Development Company Limited (stock code: 233) and Imagi International Holdings Limited(stock code: 585), the shares of all of which are listed on the Hong Kong Stock Exchange. Mr. Lam currentlyserves as independent non-executive directors of CSI Properties Limited (stock code: 497), Mei AhEntertainment Group Limited (stock code: 391), Vongroup Limited (stock code: 318), Glorious Sun EnterprisesLimited (stock code: 393), Elife Holdings Limited (Stock Code: 223, formerly known as Sino Resources GroupLimited), Xi’an Haitiantian Holdings Co., Ltd. (Stock Code: 8227, formerly known as Xi’an Haitian AntennaHoldings Co., Ltd.), Hua Long Jin Kong Company Limited (Stock Code: 1682, formerly known as HighlightChina Iot International Limited), Huarong Investment Stock Corporation Limited (Stock Code: 2277) andKidsland International Holdings Limited (Stock Code: 2122); non-executive directors of Sunwah KingswayCapital Holdings Limited (stock code: 188), China LNG Group Limited (stock code: 931), China ShandongHi-Speed Financial Group Limited (Stock Code: 412), National Arts Entertainment and Culture Group Limited(Stock Code: 8228) and Tianda Pharmaceuticals Limited (stock code: 455), the shares of all of which are listedon the Hong Kong Stock Exchange. He currently serves as independent non-executive directors of Asia-PacificStrategic Investments Limited (stock code: 5RA), Rowsley Limited (stock code: A50), Top Global Limited (stockcode: 519) and Singapore eDevelopment Limited (stock code: 40V), the shares of all of which are listed on theSingapore Exchange. Mr. Lam is also an independent director of Sunwah International Limited (stock code:SWH), whose shares are listed on the Toronto Stock Exchange; an independent non-executive director ofVietnam Equity Holding (stock code: 3MS), the shares of which are listed on the Stuttgart Stock Exchange; andan independent non-executive director of AustChina Holdings Limited (stock code: AUH, formerly known asCoalbank Limited), whose shares are listed on the Australian Stock Exchange, and a non-executive director ofAdamas Finance Asia Limited (stock code: ADAM), whose shares are listed on the London Stock Exchange.

Mr. ZHU Hongchao (朱洪超), born in 1959, a holder of master’s degree in law, a senior lawyer, has been anindependent non-executive Director of the Guarantor since June 2019, the director and senior partner of ShanghaiUnited Law Firm (上海市聯合律師事務所) since June 1986. Mr. Zhu currently serves as an arbitrator of ChinaInternational Economic and Trade Arbitration Commission, Shanghai International Economic and TradeArbitration Commission (Shanghai International Arbitration Centre) and Shanghai Arbitration Commission, thevice president of the Procedure Law Studies at the Shanghai Law Society, a mediator of Shanghai CommercialMediation Centre, and a part-time professor of Shanghai University Law School, East China University ofPolitical Science and Law and Shanghai University of Political Science and Law. Mr. Zhu was selected as oneof Shanghai Leading Talents (上海市領軍人才), is entitled to the special government allowance of the StateCouncil, and is a member of the legal experts of CPC Shanghai Committee (中共上海市委法律專家庫). Mr. Zhuserved as a lawyer at Shanghai First Law Firm (上海市第一律師事務所) from July 1983 to June 1986. Mr. Zhouserved as the deputy president of the third, fourth, fifth and sixth session of All China Lawyers Association, thepresident of the sixth session of Shanghai Bar Association and the chief supervisor of the seventh session ofShanghai Bar Association and a representative member of the 13th and 14th Shanghai Municipal People’sCongress from 1994 to 2010. Mr. Zhu has served as an independent director of Wonders Information Co. Ltd.(listed on the Shenzhen Stock Exchange under the stock code of 300168(SHE)) since December 2013; anindependent director of Jupai Holdings Limited (listed on NYSE under the stock code of JP (NYSE)) since June2015; an independent director of Leju Holdings Limited (listed on NYSE under the stock code of LEJU (NYSE))since March 2017; an independent director of E-House (China) Enterprise Holdings Limited (listed on Hong

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Kong Stock Exchange under the stock code of 2048 (HK)) since July 2018; an independent director of ChihoEnvironmental Group Limited (listed on Hong Kong Stock Exchange under the stock code of 0976 (HK)) sinceApril 2018. Mr. Zhu served as an independent director of Sinochem International Corporation (listed on theShanghai Stock Exchange under the stock code of 600500.SH) from February 2010 to December 2017; anindependent director of Shanghai Guangdian Electric Group Co., Ltd. (listed on the Shanghai Stock Exchangeunder the stock code of 601616.SH) from November 2013 to December 2017; an independent director of TengdaConstruction Group Co., Ltd. (listed on the Shanghai Stock Exchange under the stock code of 600521.SH) fromOctober 2013 to November 2016, an independent director of Shanghai No.1 Pharmacy Co., Ltd. (listed on theShanghai Stock Exchange under the stock code of 600833.SH) from September 2012 to June 2018.

Mr. ZHOU Yu (周宇), born in 1959, a holder of doctor’s degree in economics, a researcher and a doctoralsupervisor in economics. He is an expert entitled to the special government allowance of the State Council andan executive director of China Association of World Economic Research (中國世界經濟學會). Mr. Zhou hasserved as an independent non-executive Director of the Guarantor since June 2019, the director of theInternational Finance Research Institution of the Institute of World Economy of Shanghai Academy of SocialSciences (上海社會科學院世界經濟研究所國際金融研究室), the director of the International Finance MonetaryResearch Centre of Shanghai Academy of Social Sciences (上海社會科學院國際金融貨幣研究中心) sinceOctober 2008, as well as the chief expert and principal of the International Finance Discipline Innovation Projectof the Shanghai Academy of Social Sciences (上海社會科學院國際金融學科創新工程) since January 2015. Mr.Zhou served as a teacher of the Finance Department at Xinjiang University of Finance and Economics fromAugust 1982 to March 1992, among which, he served as a guest research fellow at Osaka University ofCommerce from April 1990 to March 1992. He pursued a master’s degree and a doctor’s degree at theDepartment of Economics of Osaka City University from April 1992 to March 2000, served as a guest researchfellow at the Graduate School of Economics of Osaka City University from April 2000 to November 2000, servedin various positions at the Institute of World Economy of Shanghai Academy of Social Sciences includingassistant researcher, associate researcher, deputy director of the Finance Research Institution from December2000 to October 2008, among which, he served as a post-doctoral fellow of economic theory at ShanghaiAcademy of Social Sciences from January 2001 to December 2002.

SUPERVISORS

The following table sets forth information regarding the supervisors of the Guarantor as at the date of thisOffering Circular:

Name Position

Mr. WU Hongwei (吳紅偉) �������������������������������� Employee Representative Supervisor, Vice Chairman ofthe Supervisory Committee

Mr. SHI Xu (侍旭) �������������������������������������������� Employee Representative SupervisorMs. WU Xiangyang (武向陽) ����������������������������� Employee Representative SupervisorMr. XU Renzhong (徐任重) ������������������������������� SupervisorMr. CAO Yijian (曹奕劍)����������������������������������� SupervisorMr. DAI Li (戴麗)��������������������������������������������� SupervisorMs. ZHENG Xiaoyun (鄭小蕓) �������������������������� SupervisorMr. FENG Huang (馮煌)������������������������������������ Supervisor

Mr. WU Hongwei (吳紅偉), born in 1966, a holder of MBA degree, a researcher, has served as a Supervisor ofthe Guarantor since 13 December 2017 and the vice chairman of the Supervisory Committee since 15 December2017. Mr. Wu has been serving as the deputy secretary of CPC party committee and secretary of disciplineinspection committee of the Guarantor since September 2017. From July 1990 to June 2001, Mr. Wu served thefollowing positions in Unit 801 of Shanghai Aerospace Administration (上海航天局801所): a designer, projectleader, assistant to the director, deputy director of the Research Plan Office (later renamed as the Science andTechnology Office) from July 1990 to January 1997, during which period, he also served as the secretary of theScience and Technology Committee from August 1995 to January 1997; the director of the Personnel SecurityDepartment and the secretary of the Science and Technology Committee from January 1997 to March 1997; thedirector of the Administration Department and the director of Personnel Security Department from March 1997to October 2000; the deputy secretary of CPC party committee, the secretary of discipline inspection committee,and the director of the Administration Department from October 2000 to June 2001, during which period, he alsoserved as the chairman of the Labor Union from March 2001 to June 2001. From June 2001 to April 2004, Mr. Wu

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served as the secretary of CPC party committee of Shanghai Xinguang Telecom Factory (上海新光電訊廠). FromApril 2004 to January 2015, Mr. Wu served the following positions in the Social Work Committee of CPCShanghai Municipal Committee (中共上海市社會工作委員會): the deputy director of the Human ResourcesDepartment (in charge of affairs) from April 2004 to January 2006; the director of the Human ResourcesDepartment from January 2006 to June 2011; and the Secretary-General from June 2011 to January 2015. Mr. Wuwas appointed as the secretary of the discipline inspection committee of the State-owned Assets Supervision andAdministration Commission of Shanghai Municipal Government (the “Shanghai SASAC”, 上海市國有資產監督管理委員會) from January 2015 to April 2015, the leader of Dispatched Discipline Inspection Office of theDiscipline Inspection Committee of CPC Shanghai Municipal Committee to the CPC party committee of theShanghai SASAC (中共上海市紀律檢查委員會駐上海市國資委黨委紀檢組), and a member of CPC partycommittee of the Shanghai SASAC from April 2015 to September 2017.

Mr. SHI Xu (侍旭), born in 1972, a holder of master’s degree in management, an accountant, has served as anemployee representative Supervisor of the Guarantor since April 2019, deputy general manager of the auditdepartment of the Guarantor since March 2018 and the director of Haitong Capital Co., Ltd. (海通開元投資有限公司) since July 2019.. Mr. Shi served in the following various positions in the Guarantor since July 1999,including: project assistant, deputy manager of the off-site audit department and manager of the off-site auditdepartment when working in the audit department from July 1999 to November 2007; manager of the fourth auditdepartment of the risk control headquarters from November 2007 to June 2009; manager of the fourth on-siteaudit department of the risk control headquarters from June 2009 to March 2011; manager of the fourth on-siteaudit department of the audit department from March 2011 to March 2014; manager of the fourth auditdepartment of the audit department from March 2014 to November 2014; and assistant to general manager of theaudit department from November 2014 to March 2018. Mr. Shi served as a supervisor of Fullgoal FundManagement Co., Ltd. (富國基金管理有限公司) from November 2016 to March 2018. He has served as asupervisor of Haitong Auspicate Capital Management Co., Ltd. (海通新創投資管理有限公司) since December2016 and a supervisor of Liaoning Haitong New Energy Low-carbon Industry Equity Investment Fund Limited(遼寧海通新能源低碳產業股權投資基金有限公司) since December 2016.

Mr. WU Xiangyang (武向陽), born in 1966, a holder of master’s degree in law, an economist, has served as anemployee representative Supervisor of the Guarantor since April 2019, an assistant to general manager of thecompliance and legal department of the Guarantor since March 2018 and the chairman of the supervisorycommittee of Haitong Futures Co., Ltd. (海通期貨股份有限公司) since July 2019.Mr. Wu served as a teacher atHuibu Middle School in Fengxin County, Jiangxi Province from July 1985 to September 1987, and an officer ofthe Publicity Department of the CPC party committee and secretary of the general Communist Youth Leaguebranch of electric department at Nanchang Hangkong College from July 1991 to September 1995. He pursuedhis master’s degree in the economic law department of East China University of Political Science and Law fromSeptember 1995 to July 1998 and obtained a master’s degree in law when graduated. Mr. Wu served as the assetadministrator of the legal affairs office of Bank of Communications Shanghai Branch from August 1998 to April2000. Mr. Wu has served in the following various positions in the Guarantor since January 2001, including:project manager of the investment banking headquarter from January 2001 to September 2002; legal counsel ofthe general manager office from September 2002 to July 2007; deputy manager of the legal affairs departmentof the office of general manager from July 2007 to January 2008; deputy manager of the legal compliancedepartment of the compliance office from January 2008 to November 2008; manager of the legal compliancedepartment of the compliance department from November 2008 to March 2010; manager of the complianceinspection department of the compliance department from March 2010 to March 2011; manager of thecompliance inspection department of the compliance and risk management headquarters from March 2011 toMarch 2014; manager of the compliance review department of the compliance and risk management headquartersfrom March 2014 to August 2015; and assistant to general manager of the compliance and risk managementheadquarters from August 2015 to May 2017. He has worked in the compliance and legal department since May2017.

Mr. XU Renzhong (徐任重), born in August 1972, a holder of MBA degree, a senior accountant, has been servingas a Supervisor of the Guarantor and the chief financial officer of Shanghai Huahong (Group) Co., Ltd. (上海華虹(集團)有限公司)since June 2019. Mr. Xu served as an employee of Shanghai Shenergy Real Estate Company(上海申能房地產公司) from July 1994 to December 1997, and served successively as clerk, deputy head, head,assistant to the manager and deputy manager (in charge of operations) at the finance department of ShenergyCompany Limited (listed on the Shanghai Stock Exchange under the stock code of 600642) from January 1998to October 2009. He served as manager of the internal control department of Shenergy Company Limited fromOctober 2009 to July 2016 and manager of the finance department of Shenergy (Group) Company Limited fromJuly 2016 to June 2019.

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Mr. CAO Yijian (曹奕劍), born in 1976, a holder of master’s degree in science, an economist, has been servingas Supervisor of the Guarantor since June 2019 and the general manager of the investment developmentdepartment of Shanghai Jiushi (Group) Co., Ltd. (上海久事(集團)有限公司) since April 2018. He served as a staffmember of Shanghai Huipu Technology Investment Company Limited (上海匯浦科技投資有限公司) from March2001 to February 2003 and a staff member of Shanghai Qiangsheng Holding Co., Ltd. (上海強生控股股份有限公司) (listed on the Shanghai Stock Exchange under the stock code of 600662) from February 2003 to July 2003.He served as the manager of the asset management department of Shanghai Huipu Technology InvestmentCompany Limited from July 2003 to July 2007 and a staff member of the asset operation department at ShanghaiQiangsheng Group Co., Ltd. (上海強生集團有限公司) from August 2007 to November 2008. He also worked asan assistant to the manager of the asset operation department of Shanghai Qiangsheng Group Co., Ltd. (上海強生集團有限公司) from November 2008 to June 2009 and the deputy manager of the asset operation departmentof Shanghai Qiangsheng Group Co., Ltd. (上海強生集團有限公司) from June 2009 to April 2012. He then servedas the manager of the asset operation department of Shanghai Qiangsheng Group Co., Ltd. (上海強生集團有限公司) from April 2012 to June 2013 and the manager of the asset operation department at Shanghai JiushiProperties Co., Ltd. (上海久事置業有限公司) from June 2013 to May 2015. He worked at the investmentdevelopment department of Shanghai Jiu Shi Company (上海久事公司) from May 2015 to October 2015, servingas the deputy general manager. He was the deputy general manager of the investment development departmentof Shanghai Jiushi (Group) Co., Ltd. from October 2015 to April 2018. Mr. Cao has been a director of ShanghaiPublic Traffic Card Co., Ltd. since April 2018 and a director of Shanghai Qiangsheng Holding Co., Ltd. sinceOctober 2018.

Ms. ZHENG Xiaoyun (鄭小蕓), born in 1962, a holder of master’s degree in accounting, a senior accountant,has been serving as a Supervisor of the Guarantor since 21 September 2015. She has been the chief financialofficer of Shanghai Bailian Group Co., Ltd. (上海百聯集團股份有限公司, listed on the Shanghai Stock Exchangeunder the stock code of 600827, the “Shanghai Bailian”) since June 2015, and the secretary to the board ofShanghai Bailian since August 2015 and a director of Shanghai Bailian since June 2017. Ms. Zheng held variouspositions at Shanghai Forever Co., Ltd. (上海永久股份有限公司) where she successively served as theaccountant, the assistant to manager and the deputy manager of the finance department from September 1982 toJuly 1999. From July 1999 to March 2002, she served as the chief financial officer of Shanghai Advertising andDecorating Company (上海廣告裝潢公司). She served as the deputy manager of the finance department ofShanghai Yibai (Group) Co., Ltd. (上海一百(集團)有限公司) from March 2002 to December 2002, served as thechief financial officer of Shanghai Quanfang Investment Management Co., Ltd. (上海全方投資管理有限公司)from December 2002 to October 2003, served as the chief financial officer of general operation department ofShanghai Bailian. From October 2003 to July 2005 and served as the chief financial officer of Shanghai BailianInvestment Management Co., Ltd. (上海百聯投資管理有限公司) from July 2005 to August 2010. She served asthe chief financial officer of Shanghai Bailian Group Assets Management Co., Ltd. (上海百聯集團資產經營管理有限公司) from August 2010 to July 2014, served as the chief financial officer of Shanghai Bailian E-CommerceCo., Ltd. (上海百聯電子商務有限公司) from July 2014 to June 2015, and served as a director of ShanghaiBaihong Trading Co., Ltd. (上海百紅商業貿易有限公司) and the chairman of the board of directors of HualianGroup Assets Custody Co., Ltd. (華聯集團資產託管有限公司) from March 2014 to July 2014.

Ms. DAI Li (戴麗), born in 1973, a holder of master’s degree in law, a mid-level economist, has been servingas a Supervisor of the Guarantor since June 2019 and the head of the asset operation department of ShanghaiUnited Media Group (上海報業集團) since June 2018. Ms. Dai worked as a teaching assistant intern at NanyangInstitute of Technology (南陽理工學院) from July 1995 to August 1996, a clerk at Nanyang Customs (南陽海關)from August 1996 to August 2000, a legal counsel, head of investment and deputy-director level propagandistof Wenhui Xinmin United Press Group (文匯新民聯合報業集團) from July 2002 to October 2013, the deputydirector-level cadre and the deputy director of the asset operation department of Shanghai United Media Groupfrom October 2013 to June 2018. Ms. Dai has served as a director of Shanghai DongJie Advertising Media Co.,Ltd. (上海東傑廣告傳媒有限公司) since December 2016 and a director of Shanghai Evening News Media Co.,Ltd. (上海新聞晚報傳媒有限公司董事) since November 2018.

Mr. FENG Huang (馮煌), born in 1971, a holder of MBA degree, an economist and an in-house legal counsel,has been serving as a Supervisor of the Guarantor since December 2014. Mr. Feng joined SIIC Investment(Shanghai) Co., Ltd. (上實投資(上海)有限公司) in January 1999 and served in various positions, including thepresident and director since December 2012, and concurrently the vice chairman since September 2014. Mr. Fenghas been a director of Shanghai Lujiazui Finance & Trade Zone United Development Co., Ltd. (上海陸家嘴金融貿易區聯合發展有限公司) since July 2004, the chairman of SIIC Investment Co., Ltd. (上海實業投資有限公

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司) and South Pacific Hotel Hong Kong Co., Ltd. (南洋酒店(香港)有限公司) since April 2012, the vice chairmanof Shanghai Guojin Leasing Co., Ltd. (上海國金租賃有限公司) since January 2014, a director of SIIC GroupFinance Co., Ltd. (上海上實集團財務有限公司) since May 2014, the chairman of Shanghai SIIC Asset OperationCo. Ltd. (上海上實資產經營有限公司) since December 2014, the chairman and president of Shanghai SIICInvestment Management Consulting Co., Ltd. (上海上實投資管理諮詢有限公司) since December 2014, adirector of Shanghai SIIC Financial Service Holding Ltd. (上海上實金融服務控股有限公司) since February2015, a non-executive director of Shanghai International Shanghai Growth Investment Limited (listed on theHong Kong Stock Exchange, under stock code of 0770) since December 2015, and a listed director of ShanghaiShangtou Asset Operation Co., Ltd. (上海上投資產經營有限公司) since December 2015. Mr. Feng was a Directorof the Guarantor from 16 May 2011 to 30 December 2014.

SENIOR MANAGEMENT

The following table sets forth information regarding the senior management of the Guarantor as of the date ofthis Offering Circular:

Name Position

Mr. QU Qiuping (瞿秋平) ���������������������������������� General ManagerMr. REN Peng (任澎) ���������������������������������������� Deputy General ManagerMr. PEI Changjiang (裴長江) ����������������������������� Deputy General ManagerMr. MAO Yuxing (毛宇星)��������������������������������� Deputy General Manager and Chief Information OfficerMr. WANG Jianye (王建業) ������������������������������� General Compliance OfficerMr. CHEN Chunqian (陳春錢)���������������������������� Assistant to the General MangerMr. LI Jianguo (李建國) ������������������������������������ Assistant to the General MangerMr. ZHANG Xiangyang (張向陽) ����������������������� Assistant to the General MangerMr. LIN Yong(林湧) ������������������������������������������ Assistant to the General MangerMs. JIANG Chengjun (姜誠君) �������������������������� Assistant to the General Manger and

the Secretary of the BoardMr. DU Hongbo (杜洪波) ���������������������������������� Chief Risk OfficerMr. PAN Guangtao (潘光韜) ������������������������������ Assistant to the General MangerMr. ZHANG Xinjun (張信軍)����������������������������� Chief Financial Officer

For Mr. QU Qiuping’s experience, please see “Directors” in this section.

For Mr. REN Peng’s experience, please see “Directors” in this section.

Mr. PEI Changjiang (裴長江), Deputy General Manager, born in 1965, a holder of master’s degree ineconomics, joined the Guarantor in August 2013. Since then, he has been serving as Deputy General Managerof the Guarantor. From July 1993 to July 1996, Mr. Pei successively held various positions in ShanghaiInternational Securities Co., Ltd., (上海萬國證券公司) including research fellow of research department, andassistant to the general manager, general manager of Zhabei Business Department. From August 1996 to October2002, he held the position of general manager of Zhabei Business Department, deputy general manager ofZhejiang Management Headquarters and deputy general manager of Brokerage Headquarters of Shenyin WanguoSecurities Co., Ltd., (申銀萬國證券公司). From October 2002 to August 2013, he successively served asinvestment director of Fortune Trust & Investment Co., Ltd. (華寶信託投資有限責任公司) and a director andgeneral manager of Fortune SGAM Fund Management Co., Ltd. (華寶興業基金管理有限公司). Mr. Pei has beena director of Fullgoal Fund Management Co., Ltd. (富國基金管理有限公司) since August 2014, chairman ofShanghai Haitong Securities Asset Management Company Ltd. (上海海通證券資產管理有限公司) sinceNovember 2014, and chairman of the board of directors of Haitong Futures Corporation from September 2015to March 2016, and the chairman of the board of directors of Haitong Futures Co., Ltd. since March 2016.

Mr. MAO Yuxing (毛宇星), Chief Information Officer (Deputy General Manager level), born in 1971, a holderof doctor’s degree in Science and a post-doctoral degree in management, a senior engineer (professor level), hasserved as Chief Information Officer (Deputy General Manager level) and director of IT management committeeof the Guarantor since 19 September 2016. From August 1993 to September 2001, Mr. Mao successively heldvarious positions in Information Technology Department of Shanghai branch of the Industrial and CommercialBank of China (中國工商銀行) including programmer, deputy section chief, section chief and deputy director.

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From September 2001 to November 2011, he successively served as assistant to the general manager (deputydepartment director level and department director level), deputy general manager and member of CPC partycommittee in Data Centre (Shanghai) of the Industrial and Commercial Bank of China. From November 2011 toApril 2016, he served as deputy general manager of Information Technology Department of the Industrial andCommercial Bank of China. Mr. Mao was a member of the Expert Committee of People’s Bank of China (中國人民銀行), China Banking Regulatory Commission (中國銀監會), Ministry of Public Security (公安部) of Chinaand Ministry of Industry and Information Technology (工信部) of China.

Mr. WANG Jianye (王建業), General Compliance Officer (enjoying the Guarantor’s Deputy General Managerlevel benefits), born in 1960, a holder of master’s degree, a senior economist, joined the Guarantor in August1994 and has been the General Compliance Officer since July 2010, and the general manager of Compliance andLegal Department of the Guarantor since March 2017. He is mainly in charge of compliance managementdepartments. Mr. Wang is also a deputy director of Compliance Committee of the Securities Association of China(中國證券業協會合規專業委員會), and the deputy director of Compliance and Self-discipline SupervisionCommittee of Shanghai Securities Association (上海證券同業公會合規與自律監察專業委員會). Mr. Wang wassuccessively deputy section chief level clerk, trainee deputy director and deputy director of education divisionof PBOC (中國人民銀行) Inner Mongolia Branch from August 1984 to August 1990, deputy director of FinancialAdministration Division of PBOC Inner Mongolia Branch from August 1990 to May 1992, deputy generalmanager of the securities department of Inner Mongolia Securities Company (內蒙古自治區證券公司) from May1992 to March 1993 and deputy general manager of the same company from March 1993 to July 1994. Mr. Wangpreviously served in various positions in the Guarantor including head of trading department from August 1994to March 1996, deputy general manager of business management headquarters from March 1996 to September1998, and general manager of integrated business management headquarters from September 1998 to August2004. Mr. Wang was assistant to general manager of the Guarantor from June 2001 to February 2011, generalmanager of brokerage business headquarters from March 2005 to June 2006 and general manager of risk controlheadquarters from October 2008 to March 2011, and was successively in charge of integrated businessmanagement headquarters, brokerage business headquarters, I.T. department, brokerage operations centre, salesand transactions headquarters, customer asset management department and risk control department. Mr. Wangconcurrently served as the Chief Risk Office (enjoying the Guarantor’s deputy general manager level benefits)from May 2011 to March 2017.

Mr. CHEN Chunqian (陳春錢), assistant to the General Manager (enjoying the Guarantor’s Deputy GeneralManager level benefits), born in 1963, a holder of doctor’s degree in economics, joined the Guarantor in October1997 and has been the assistant to General Manager since March 2012, responsible for the brokerage businessof the Guarantor. Mr. Chen is also the director of the brokerage committee, the deputy director of IT managementcommittee, and a member of international business coordination committee. He has enjoyed the Guarantor’sdeputy general manager level benefits since February 2017. He is also a deputy director of Financing SecuritiesBusiness Committee under the Securities Association of China (中國證券業協會融資融券業務委員會), thedeputy director of Securities Conflict Resolution Committee of Shanghai Securities Association (上海證券同業公會證券糾紛調解專業委員會). Mr. Chen also served in various positions in the Guarantor, including the headof business department of Shenzhen Branch from October 1997 to January 1998, the deputy general manager ofinternational business department from January 1998 to March 2000, the deputy general manager of ShenzhenBranch from March 2000 to December 2000, the general manager of investment management department(Shenzhen) from December 2000 to May 2006, the general manager of sales and trading headquarters from May2006 to February 2013 and the general manager of the institutional department during the period of November2007 to March 2009. Mr. Chen has been a director of E-Capital Transfer Co., Ltd. (證通股份有限公司) sinceJanuary 2015.

Mr. LI Jianguo (李建國), assistant to the General Manager, born in 1963, a holder of doctor’s degree ineconomics, joined the Guarantor in 1998, and has been the assistant to the General Manger of the Guarantor since2008. Mr. Li served as a general manager of Henan Securities Co., Ltd. (河南省證券有限公司) from 1992 to1998, a deputy general manager of Haitong Securities Co., Ltd. from 1998 to 1999, a vice chairman and generalmanger of Fullgoal Fund Management Co., Ltd. from May 1999 to August 2008. Mr. Li served as the chairmanof Haitong International Holdings from October 2008 to August 2010. He has been the vice chairman of HaitongInternational Holdings since August 2010, an executive director of Haitong International Securities since January2010 and vice chairman of the Board of Haitong International Securities since March 2010.

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Mr. ZHANG Xiangyang (張向陽), assistant to the General Manager, born in 1965, a holder of bachelor’s degreein engineering, a senior economist, joined the Guarantor in May 1996 and has been the assistant to the GeneralManager since December 2014 and the director of the PE and industrial capital investment committee of theGuarantor since March 2013, mainly responsible for the direct equity investments. Mr. Zhang previously workedin Xinhua Bookstore in Taiyuan from December 1983 to April 1988, in Shanxi Radio & TV University (山西廣播電視大學) from April 1988 to December 1991, and in the Bank of Communications Taiyuan Branch (交通銀行太原分行) from December 1991 to May 1996. Mr. Zhang served in various positions in the Guarantor,including deputy general manager (in charge of operations) and general manager of Taiyuan business departmentfrom May 1996 to April 2002, deputy general manager and general manager of integrated business managementheadquarters from April 2002 to May 2006, general manager of risk control headquarters from May 2006 toOctober 2008, a director, general manager and the director of the investment decision committee of HaitongCapital Investment from October 2008 to November 2012, a director of Haitong Creative Capital ManagementCo., Ltd. (海通創意資本管理有限公司) from June 2012 to August 2015, chairman of Haitong Innovative CapitalManagement Co., Limited (海通創新資本管理有限公司) from November 2011 to July 2015, chairman of HaitongCreative Capital Management Co., Ltd. from August 2015 to March 2016, a director of Haitong New EnergyEquity Investment Management Co., Ltd. (海通新能源股權投資管理有限公司) from July 2013 to May 2016, andchairman of Haitong New Energy Equity Investment Management Co., Ltd. from July 2015 to May 2016. Mr.Zhang has been chairman and the director of the investment decision committee of Haitong Capital Investmentsince November 2012, chairman of Haitong Creative Capital Management Co., Ltd. since March 2016, and thechairman of Haitong M&A Capital Management (Shanghai) Co., Ltd. (海通併購資本管理(上海)有限公司) sinceJune 2016, a director of Haitong-Fortis Private Equity Fund Management Co., Ltd. (海富產業投資基金管理有限公司) since March 2018. Mr. Zhang currently serves as the director of Direct Investment Committee under theSecurities Association of China (中國證券業協會直接投資業務專業委員會) and the vice president of PEAssociation of Shanghai (上海股權投資協會).

Mr. LIN Yong (林湧), assistant to the General Manger, born in 1969, a holder of doctor’s degree in economics,joined the Guarantor in December 1996 and has been the assistant to the General Manager since December 2014,and general manager of Haitong International Holdings since July 2007. Mr. Lin served in various positions inthe Guarantor, including as a deputy general manager in investment banking department from December 1996to July 2003, and as deputy general manager (in charge of operations) from January 2001 to July 2003, deputygeneral manager of the fixed income department from July 2003 to May 2004, successively deputy generalmanager (in charge of operations) and general manager of the investment bank department (Shanghai) from May2004 to July 2007, Mr. Lin has been an executive director of Haitong International Securities since December2009, an executive director and the joint chief executive of Haitong International Securities from March 2010to March 2011. Mr. Lin has been an executive director, the vice chairman of the board of directors, managingdirector and chief executive officer of Haitong International Securities since April 2011, a non-executive directorof Haitong Bank since June 2016, and the chairman of the board of director of Haitong Bank since October 2017.

Mr. JIANG Chengjun (姜誠君), assistant to the General Manger and the Secretary of the Board, born in 1975,a holder of master’s degree in economics, an economist, has been assistant to the General Manger and theSecretary of the Board since 29 March 2017, the joint Company Secretary and joint Authorized Representativeof the Guarantor since 5 April 2017, the general manager of investment banking headquarter of the Guarantorsince April 2017. Mr. Jiang has been a cadre of Xiamen ITG Group Co., Ltd. (廈門國貿集團股份有限公司) fromJuly 1993 to July 1994, a deputy manager of finance and securities department, a manager of investmentmanagement and development department, an assistant to general manager, a secretary to the board of directorsand a deputy general manager of Xiamen Guotai Enterprises Co., Ltd. (廈門國泰企業股份有限公司) from July1994 to August 2000. He joined the Guarantor in August 2000, and served in various positions in the Guarantor,including a deputy manager in the investment banking department from August 2000 to July 2007, a vicemanager (in charge of operations) in the investment banking department from July 2007 to April 2009, a memberof investment banking committee from March 2010 to February 2011, a member of international businesscoordination committee from February 2011 to March 2014, the general manager of investment bankingdepartment of the Guarantor from April 2009 to April 2017. Mr. Jiang has been a deputy director of investmentbanking committee of the Guarantor since February 2011.

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Mr. DU Hongbo (杜洪波), Chief Risk Officer, born in 1963, a holder of bachelor’s degree in industrialautomation, an engineer, has been the Chief Risk Officer of the Guarantor since May 2017 and the generalmanager of the Risk Management Department of the Guarantor since March 2017. Mr. Du worked at WuhanComputer Application Institute (武漢市電子電腦應用開發研究所) from August 1984 to December 1990, WuhanBranch of Stone Group Corp. (四通集團武漢分公司) from December 1990 to August 1992, Wuhan SoftwareResearch Centre (武漢軟體研究中心) from August 1992 to August 1996, the information technology centre ofGuotai Junan Securities Co., Ltd. (國泰君安證券股份有限公司) from August 1996 to March 2002. Mr. Du wasthe assistant to the general manager of the website management department of the Guarantor from March 2002to May 2005, the assistant to the general manager of the brokerage business headquarters of the Guarantor fromMay 2003 to May 2005, the deputy general manager of integrated business management headquarters of theGuarantor from May 2005 to May 2006. He worked at the risk control headquarters of the Guarantor from May2006 to March 2011, served, successively, as the deputy general manager and the deputy general manager (withbenefits as a general manager). He was the general manager of the compliance and risk management headquartersof the Guarantor from March 2011 to January 2013, the general manager of OTC department of the Guarantorfrom January 2013 to February 2014, the general manager of securities finance department of the Guarantor fromFebruary 2014 to March 2017. Mr. Du was an Employee Representative Supervisor of the Guarantor from 16May 2011 to 30 December 2014.

Mr. PAN Guangtao (潘光韜), assistant to the General Manger, born in 1971, a holder of MBA degree, anengineer and assistant economist, has been the assistant to the General Manger of the Guarantor since May 2017and the general manager of the Equity Investment Trading Department of the Guarantor since March 2013. Mr.Pan worked as head of IT at IT Department of Brokerage Headquarter of Shenyin Wanguo Securities Co., Ltd.(申銀萬國證券股份有限公司) from July 1994 to July 1998. He worked at First Securities Investment Departmentof Securities Investment Headquarter of Shenyin Wanguo Securities Co., Ltd. from July 1998 to July 2002,served, successively, as assistant to manager, deputy manager. Mr. Pan worked as assistant to general managerof Second Trading Department of the Guarantor from August 2002 to June 2003. He worked at TradingHeadquarter from July 2003 to August 2004, served, successively, assistant to general manager, deputy generalmanager. He worked as deputy general manager of Investment Management Department from August 2004 toAugust 2006. He worked at Securities Investment Department from August 2006 to March 2013, served as deputygeneral manager, deputy general manager (in charge of operations). He has been a non-executive director ofHaitong Bank since November 2015.

Mr. ZHANG Xinjun (張信軍), Chief Financial Officer, born in 1975, a holder of master’s degree inmanagement, an accountant, joined the Guarantor in July 2001 and has been the chief financial officer of theGuarantor since 27 March 2018. Mr. Zhang worked at the Finance and Accounting Department of the Guarantorfrom July 2001 to June 2007, served in various positions including clerk, deputy section chief and section chiefof asset management section. He has worked at Haitong International Holdings since July 2007, and has beenthe head of finance from July 2007 to February 2009, the chief financial officer since March 2009. Mr. Zhangserved as chief financial officer of Haitong International Securities from March 2010 to March 2018. He has beenthe non-executive director, members of the audit committee and strategic development committee of HaitongInternational Securities since 27 March 2018,a non-executive director of Haitong Bank since January 2018 anda director of Fullgoal Fund Management Co., Ltd since February 2019.

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PRC REGULATIONS

This section is a high-level overview of the PRC legal system and a summary of the principal PRC laws andregulations relevant to the issue of the Bonds by the Issuer and giving of the Guarantee by the Guarantor. As thisis a summary, it does not contain a detailed analysis of the PRC laws and regulations.

MAJOR LAWS AND REGULATIONS

Regulation on the Issuance of Foreign Bonds

Pursuant to the NDRC Circular, which was promulgated by the NDRC and became effective on 14 September2015, where domestic enterprises, overseas enterprises controlled by them or their overseas branches issueforeign debts, which are debt instruments of no less than one year of tenor that are denominated in domesticcurrency or foreign currency with the capital repaid and interest paid as agreed, including bonds issued overseasand long and medium-term international commercial loans, the enterprises shall apply to the NDRC for dealingwith the formalities of record-filing and registration before issuance. The NDRC shall decide to accept it or notwithin five working days upon the receipt of the application and provide the Record-filing and RegistrationCertification of Issuance of Foreign Debts by Enterprises within seven working days after acceptance. Theenterprises shall submit the issuance information to the NDRC within 10 working days after the end of issuanceeach time.

Employment Contracts

The Labour Contract Law (勞動合同法), promulgated by the Standing Committee of the National People’sCongress on 29 June 2007, which became effective on 1 January 2008 and was amended on 28 December 2012and became effective on 1 July 2013, governs the relationship between employers and employees and providesfor specific provisions in relation to the terms and conditions of an employee contract. The Labour Contract Lawstipulates that employee contracts shall be in writing and signed. It imposes more stringent requirements onemployers in relation to entering into fixed-term employment contracts, hiring of temporary employees anddismissal of employees. Pursuant to the Labour Contract Law, employment contracts lawfully concluded priorto the implementation of the Labour Contract Law and continuing as at the date of its implementation shallcontinue to be performed. Where an employment relationship was established prior to the implementation of theLabour Contract Law, but no written employment contract was concluded, a contract shall be concluded withinone month after its implementation.

Employee Funds

Under applicable PRC laws, regulations and rules, including the Social Insurance Law (社會保險法),promulgated by the Standing Committee of the National People’s Congress on 28 October 2010, which becameeffective on 1 July 2011 and as amended on 29 December 2018, the Interim Regulations on the Collection andPayment of Social Insurance Premiums (社會保險費徵繳暫行條例), promulgated by the State Council on 22January 1999, which became effective on 22 January 1999 and as amended on 23 March 2019, andAdministrative Regulations on the Housing Provident Fund (住房公積金管理條例), promulgated by the StateCouncil on 3 April 1999, which became effective on 3 April 1999 and as amended on 24 March 2002 and 23March 2019, employers are required to contribute, on behalf of their employees, to a number of social securityfunds, including funds for basic pension insurance, unemployment insurance, basic medical insurance,occupational injury insurance, maternity leave insurance, and to housing provident funds. These payments aremade to local administrative authorities and any employer who fails to contribute may be fined and ordered topay the outstanding amount within a stipulated time period.

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REGULATIONS REGARDING OVERSEAS INVESTMENT, FINANCING AND ACQUISITIONACTIVITIES

NDRC Supervision

According to the Administrative Measures for the Outbound Investment by Enterprises (企業境外投資管理辦法)effective from 1 March 2018, sensitive projects to be carried out by investors either directly or through overseasenterprises controlled thereby shall be subject to the approval of the NDRC. Other projects shall be subject tothe filing with the competent government body.

Specifically, overseas investment projects carried out by enterprises under central management, or those carriedout by local enterprises in which the amount of Chinese investment reaches or exceeds U.S.$300 million shallbe subject to the filing with the NDRC. Those carried out by local enterprises in which the amount of Chineseinvestment is below U.S.$300 million shall be subject to filing with competent investment departments of theprovincial government.

Investment projects to be carried out in Hong Kong and/or the Macau Special Administrative Region shall begoverned by the Administrative Measures for the Outbound Investment by Enterprises.

According to the NDRC Circular, which was issued by the NDRC on 14 September 2015 and came into effecton the same day, if a PRC enterprise or an offshore enterprise controlled by a PRC enterprise wishes to issuebonds outside of the PRC with a maturity of more than one year, such enterprise must in advance of issuing suchbonds, file certain prescribed documents with the NDRC and procure a registration certificate from the NDRCin respect of such issue.

The NDRC Circular relates to the matters as listed below:

• remove the quota review and approval system for the issuance of foreign debts by enterprises, reform andinnovate the ways that foreign debts are managed, and implement the administration of record-filing and theregistration system. Realise the supervision and administration of the size of foreign debts borrowed on amacro level with the record-filing, registration, and information reporting of the issuance of foreign debtsby enterprises;

• before the issuance of foreign debts, enterprises shall first apply to the NDRC for the handling of therecord-filing and registration procedures and shall report the information on the issuance to NDRC within10 working days of completion of each issuance;

• record-filing and registration materials to be submitted by an enterprise for the issuance of foreign debts shallinclude: application report for the issuance of foreign debts and issuance plan, including the currency, size,interest rate, and maturity of foreign debts, the purpose of the funds raised, back flow of funds, etc. Theapplicant shall be responsible for the authenticity, legality, and completeness of the application materials andinformation;

• the NDRC shall decide whether to accept the application for record-filing and registration within 5 workingdays of receiving it and shall issue a Certificate for Record-filing and Registration of the Issuance of ForeignDebts by Enterprises within seven working days of accepting the application and within the limit of the totalsize of foreign debts;

• the issuer of foreign debts shall handle the procedures related to the outflow and inflow of foreign debt fundswith the Certificate for Record-filing and Registration according to the regulations. When the limit of thetotal size of foreign debts is exceeded, the NDRC shall make a public announcement and no longer acceptapplications for record-filing and registration; and

• if there is a major difference between the actual situation of the foreign debts issued by the enterprises andthe situation indicated in the record-filing and registration, an explanation shall be given when reportingrelevant information. The NDRC shall enter the poor credit record of an enterprise which maliciously andfalsely reports the size of its foreign debts for record-filing and registration into the national creditinformation platform.

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CROSS-BORDER SECURITY LAWS

On 12 May 2014, the SAFE promulgated the Circular concerning Promulgation of the Foreign ExchangeAdministration Rules on Cross-Border Guarantees and the Relating Implementation Guidelines (國家外匯管理局關於發佈《跨境擔保外匯管理規定》的通知) (collectively, “Circular 29”). Circular 29, which came into forceon 1 June 2014, replaced 12 other regulations regarding cross-border security and introduces a number ofsignificant changes, including: (i) abolishing prior SAFE approval and quota requirements for cross-bordersecurity; (ii) requiring SAFE registration or filing for two specific types of cross-border security only; (iii)removing eligibility requirements for providers of cross-border security; (iv) the validity of any cross-bordersecurity agreement is no longer subject to SAFE approval, registration, filing, and any other SAFE administrativerequirements; (v) removing SAFE verification requirement for performance of cross-border security. Across-border guarantee is a form of security under Circular 29. Circular 29 classifies cross-border security intothree types:

• Nei Bao Wai Dai (內保外貸) (“NBWD”): security/guarantee provided by an onshore security provider for adebt owing by an offshore debtor to an offshore creditor.

• Wai Bao Nei Dai (外保內貸) (“WBND”): security/guarantee provided by an offshore security provider fora debt owing by an onshore debtor to an onshore creditor.

• Other Types of Cross-border Security (其他形式跨境擔保): any cross-border security/guarantee other thanNBWD and WBND.

In respect of NBWD, in the case where the onshore security provider is a non-bank institution, it shall conducta registration of the relevant security/guarantee with SAFE within 15 PRC Business Days after the execution ofthe Deed of Guarantee. In the event of changes to the major clauses of the Deed of Guarantee, it shall conducta change registration for the relevant security/guarantee. According to Circular 29, the funds borrowed offshoreshall not be directly or indirectly repatriated to or used onshore by means of loans, equity investments orsecurities investments without SAFE approval. According to Circular of the State Administration of ForeignExchange on Further Advancing Foreign Exchange Administration Reform to Enhance Authenticity andCompliance Reviews (國家外匯管理局關於進一步推進外匯管理改革完善真實合規性審核的通知) issued by theSAFE on 26 January 2017, funds for overseas loans under domestic guarantees are allowed to be repatriated intothe PRC for domestic use. Debtors can repatriate, directly or indirectly, the funds under guarantees for domesticuse through issuing loans to or equity participation in domestic institutions. Further, according to the PolicyQ&As (Issue II) on the Circular of the State Administration of Foreign Exchange on Further Advancing theReform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance, in thecase where the offshore debtor transfers the funds borrowed offshore by means of foreign loans onshore, theonshore borrower shall meet the relevant requirements for foreign debt administration and control the scale offunds repatriated according to the relevant requirements of the mode of macro-prudential management offull-covered cross-border financing or the mode required in the Administration Measures for Registration ofForeign Debts. In the case where the offshore debtor transfers the funds by means of equity investment onshore,it shall meet the requirements from the competent authorities in the area of foreign direct investment.

Upon enforcement, the onshore security provider can pay to the offshore creditor directly (by effectingremittance through an onshore bank) where the NBWD has been registered with SAFE. In addition, if anyonshore security provider under a NBWD provides any security or guarantee for an offshore bond issuance, theoffshore issuer’s equity shares must be fully or partially held directly or indirectly by the onshore securityprovider. Moreover, the proceeds from any such offshore bond issuance must be applied towards the offshoreproject(s), where an onshore entity holds equity interest, and in respect of which the related approval,registration, record, or confirmation have been obtained from or made with the competent authorities subject toPRC laws.

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The Guarantor will unconditionally and irrevocably guarantee the due payment of all sums expressed to bepayable by the Issuer under the Bonds. The Guarantor’s obligations in respect of the Bonds are contained in theDeed of Guarantee. The Deed of Guarantee will be executed by the Guarantor on or before the Issue Date. UnderCircular 29, the Deed of Guarantee does not require any pre-approval by SAFE and is binding and effective uponexecution. The Guarantor is required to submit the Deed of Guarantee to the local SAFE for registration within15 business days after its execution. The SAFE registration is merely a post signing registration requirement,which is not a condition to the effectiveness of the Guarantee of the Bonds.

Under Circular 29, the local SAFE will go through a procedural review (as opposed to a substantive examinationprocess) of the Guarantor’s application for registration. Upon completion of the review, the local SAFE will issuea registration notice or record to the Guarantor to confirm the completion of the registration.

Under Circular 29:

• non-registration does not render the Guarantee of the Bonds ineffective or invalid under PRC law althoughSAFE may impose penalties on the Guarantor if submission for registration is not carried out within thestipulated time frame of 15 business days; and

• there may be logistical hurdles at the time of remittance (if any cross-border payment is to be made by theGuarantor under the Guarantee of the Bonds) as domestic banks require evidence of SAFE registration inorder to effect such remittance, although this does not affect the validity of the Guarantee of the Bonds itself.

The Terms and Conditions Bonds provide that the Guarantor will register, or cause to be registered, the Deed ofGuarantee with SAFE within 15 PRC Business Days after the execution of the Deed of Guarantee in accordancewith, and within the time period prescribed by, Circular 29 and use its best endeavours to complete theregistration and obtain a registration Certificate from SAFE (or any other document evidencing completion ofregistration issued by SAFE) on or before the date following 90 days after the Issue Date (the “SAFERegistration Deadline”). If the Guarantor fails to complete the SAFE registration and (i) provide the Trusteewith, among other things, the certificate confirming the completion the SAFE registration; and (ii) give noticeto the Bondholders in accordance with Condition 16 (Notices) before the Registration Deadline, the Bondholderswill have a put option to require the Issuer to redeem the Bonds held by them at their principal amount togetherwith accrued interest (see Condition 6(c) (Redemption for Relevant Events) of the Terms and Conditions).

MOFCOM SUPERVISION

MOFCOM issued the new version of the Overseas Investment Administration Rules (境外投資管理辦法) on 6September 2014, effective from 6 October 2014 (the “New Overseas Investment Rules”). Under the NewOverseas Investment Rules, a domestic enterprise intending to carry out any overseas investment shall report tothe competent department of commerce for verification or filing and the competent department of commerceshall, with regard to an enterprise so verified or filed, issue thereto an Enterprise Overseas Investment Certificate(企業境外投資證書). If two or more enterprises make joint investment to establish an overseas enterprise, thelarger (or largest) shareholder shall be responsible for the verification or filing procedure after obtaining writtenconsent of other investing parties.

An enterprise that intends to invest in a sensitive country or region or a sensitive industry shall apply for theverification by MOFCOM. “Sensitive countries and regions” refer to those countries without a diplomaticrelationship with the PRC, or subject to the UNSC sanctions or otherwise under the list of verified countries andregions published by MOFCOM from time to time. “Sensitive industries” refer to those industries involving theproducts and technologies which are restricted from being exported, or affecting the interests of more than onecountry (or region). In accordance with the New Overseas Investment Rules, a central enterprise shall apply toMOFCOM for verification and MOFCOM shall, within 20 working days after accepting such application, decidewhether or not the verification is granted. For a local enterprise, it shall apply through the provincial departmentof commerce to MOFCOM for such verification. The provincial department of commerce shall give a preliminaryopinion within 15 working days after accepting such local enterprise’s application, and submit all applicationdocuments to MOFCOM. MOFCOM shall decide whether or not to grant the verification within 15 working daysof receipt of such preliminary opinion from the provincial department of commerce. Upon verification, theEnterprise Overseas Investment Certificate shall be issued to the investing enterprise by MOFCOM.

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All overseas investments other than those subject to MOFCOM verification as described above are subject to afiling procedure. The investing enterprise shall complete the filing form through the Overseas InvestmentManagement System, an online system maintained by MOFCOM, print out a copy of such filing form forstamping with the company chop, and then submit such stamped filing form together with a copy of its businesslicence for filing at MOFCOM (for a central enterprise (中央企業)) or the provincial department of commerce(for a local enterprise) respectively.

MOFCOM or the provincial department of commerce shall accept the filing and issue the Enterprise OverseasInvestment Certificate within three working days upon receipt of such filing form.

The investing enterprise must carry out the investment within two years of the date of the relevant EnterpriseOverseas Investment Certificate, otherwise such certificate will automatically become invalid and a new filingor verification application has to be made by the investing enterprise. In addition, if any item specified in suchcertificate is changed, the investing enterprise shall make the change of registration at MOFCOM or theprovincial department of commerce (as the case may be).

If an overseas invested company carries out a re-investment activity offshore, the investing enterprise shall reportsuch re-investment activity to MOFCOM or the provincial department of commerce (as the case may be) afterthe legal process of the investment is completed offshore. The investing enterprise shall complete and print outa copy of the Overseas Chinese-invested Enterprise Re-investment Report Form (境外中資企業再投資報告表)from the Overseas Investment Management System and stamp and submit such form to MOFCOM or theprovincial department of commerce.

Foreign Exchange Administration

According to the Notice of the State Administration of Foreign Exchange on Further Improvements andAdjustments to Foreign Exchange Control Policies for Direct Investments (國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知) (Hui Fa [2015] No. 13) and its appendix, the banks will review and carry outforeign exchange registration under overseas direct investment directly.

According to the Administrative Measures for Foreign Debt Registration and its operating guidelines, effectiveas at 13 May 2013, issuers of foreign debts are required to register with the SAFE. Issuers other than banks andfinancial departments of the government shall go through registration or record-filing procedures with the localbranch of the SAFE within 15 business days of entering into a foreign debt agreement. If the receipt and paymentof funds related to the foreign debt of such issuer is not handled through a domestic bank, the Issuer shall, inthe event of any change in the amount of money withdrawn, principal and interest payable or outstanding debt,go through relevant record-filing procedures with the local branch of the SAFE.

On 12 January 2017, the PBOC issued the Notice of People’s Bank of China on Matters ConcerningMacro-prudential Management on All-round Cross-border Financing (Yin Fa [2017] No. 9) (中國人民銀行關於全口徑跨境融資宏觀審慎管理有關事宜的通知), which came into effect on the same date and established amechanism aimed at regulating cross border financing activities based on the capital or net asset of the borrowingentities using a prudent management principle on a macro nationwide scale.

REMITTANCE OF RENMINBI INTO AND OUTSIDE THE PRC

The Renminbi is not a freely convertible currency. The remittance of Renminbi into and outside the PRC issubject to controls imposed under PRC law.

Current Account Items

Under PRC foreign exchange control regulations, current account item payments include payments for importsand exports of goods and services, payments of income and current transfers into and outside the PRC.

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Prior to July 2009, all current account items were required to be settled in foreign currencies. On July 2009, thePRC government promulgated Measures for the Administration of the Pilot Programme of Renminbi Settlementof Cross-Border Trades (跨境貿易人民幣結算試點管理辦法) (the “Measures”) and its implementation rules,pursuant to which designated and eligible enterprises are allowed to settle their cross-border trade transactionsin Renminbi. Since July 2009, subject to the Measures and its implementation rules, the PRC has commenceda scheme pursuant to which Renminbi may be used for settlement of cross-border trade between approved pilotenterprises in five designated cities in the PRC including Shanghai, Guangzhou, Dongguan, Shenzhen andZhuhai and enterprises in designated offshore jurisdictions including Hong Kong and Macau. On 17 June 2010,the PRC government promulgated the Circular on Issues concerning the Expansion of the Scope of the PilotProgramme of Renminbi Settlement of Cross-Border Trades (關於擴大跨境貿易人民幣結算試點有關問題的通知), pursuant to which (i) the list of designated pilot districts was expanded to cover 20 provinces includingBeijing, Shanghai, Tianjin, Chongqing, Guangdong, Jiangsu, Zhejiang, Liaoning, Shandong and Sichuan, and (ii)the restriction on designated offshore districts was lifted. Accordingly, any enterprises in the designated pilotdistricts and offshore enterprises are entitled to use Renminbi to settle any current account items between them(except in the case of payments for exports of goods from the PRC, such Renminbi remittance may only beeffected by approved pilot enterprises in 16 provinces within the designated pilot districts in the PRC). On1 August 2011, the PRC government promulgated the Circular on the Expansion of the Regions of RenminbiSettlement of Cross-Border Trades (關於擴大跨境貿易人民幣結算地區的通知), pursuant to which the list ofdesignated pilot districts was expanded to the whole country. On 3 February 2012, the PRC governmentpromulgated the Circular on the Relevant Issues Pertaining to Administration over Enterprises Engaging in RMBSettlement of Export of Goods (關於出口貨物貿易人民幣結算企業管理有關問題的通知), pursuant to which anyenterprises in China which are qualified to engage in import and export trade are allowed to settle their goodsexport trade in Renminbi. On 23 March 2018, PBOC promulgated Issuance of Notice of People’s Bank of Chinaon Business Rules of Cross Border Interbank Payment System (中國人民銀行關於印發《人民幣跨境支付系統業務規則的通知》). The notice regulates cross border interbank payment conducts, clarifies management rules onparticipants and protects legitimate rights of operating institutions and participants of cross border interbankpayment system. On 5 January 2018, the PBOC promulgated Notice of the People’s Bank of China on FurtherImproving Policies of Cross-Border RMB Business to Promote Trade and Investment Facilitation (Yin Fa [2018]No. 3) (中國人民銀行關於進一步完善人民幣跨境業務政策促進貿易便利化的通知) (銀發[2018]3號]). The YinFa [2018] No. 3 provides any cross-border transactions that use a foreign exchange currency can use Renminbifor settlement. Domestic enterprises which issue RMB bonds abroad may, upon completing relevant formalitiesin accordance with macro-prudential regulations on comprehensive cross-border financing, remit the funds raisedoverseas to the PRC for their use as actually needed. The RMB funds raised by domestic enterprises throughissuing overseas shares may be remitted to China for use upon actual demands.

The Measures and the subsequent circulars will be subject to interpretation and application by the relevant PRCauthorities. Local authorities may adopt different practices in applying the Measures and impose conditions forsettlement of current account items.

Capital Account Items

Under PRC foreign exchange control regulations, capital account items include cross-border transfers of capital,direct investments, securities investments, derivative products and loans. Capital account payments are generallysubject to approval of the relevant PRC authorities. Capital account items are generally required to be made inforeign currencies. For instance, foreign investors (including any Hong Kong investors) are generally requiredto make any capital contribution to foreign invested enterprises in a foreign currency in accordance with theterms set out in the relevant joint venture contracts and/or articles of association as approved by the relevantauthorities. Foreign invested enterprises or any other relevant PRC parties are also generally required to makecapital account item payments including proceeds from liquidation, transfer of shares, reduction of capital andprincipal repayment under foreign debt to foreign investors in a foreign currency. That said, the relevant PRCauthorities may approve a foreign entity to make a capital contribution or shareholder’s loan to a foreign investedenterprise with Renminbi lawfully obtained by it outside the PRC and for the foreign invested enterprise toservice interest and principal repayment to its foreign investor outside the PRC in Renminbi on a trial basis. Theforeign invested enterprise may also be required to complete registration and verification process with therelevant PRC authorities before such Renminbi remittances.

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On 7 April 2011, the SAFE issued the Notice on Relevant Issues regarding Streamlining the Business Operationof Cross-border Renminbi Capital Account Items, which clarifies, among other things, that the borrowing by anonshore entity (including a financial institution) of Renminbi loans from an offshore creditor shall in principlefollow the current regulations on borrowing foreign debts and the provision by an onshore entity (including afinancial institution) of external guarantee in Renminbi shall in principle follow the current regulations on theprovision of external guarantee in foreign currencies.

On 3 June 2011, the PBOC promulgated the Circular on Clarifying Issues concerning Cross-border RenminbiSettlement (中國人民銀行關於明確跨境人民幣業務相關問題的通知) (the “PBOC Circular”). The PBOCCircular provides instructions to local PBOC authorities on procedures for the approval of settlement activitiesfor non-financial Renminbi foreign direct investment into the PRC. The PBOC Circular applies to allnon-financial Renminbi foreign direct investment into the PRC, and includes investment by way of establishinga new enterprise, acquiring an onshore enterprise, transferring the shares, increasing the registered capital of anexisting enterprise, or providing loan facilities in Renminbi. The domestic settlement banks of foreign investorsor foreign invested enterprises in the PRC are required to submit written applications to the relevant local PBOCauthorities which include, inter alia, requisite approval letters issued by the relevant MOFCOM authorities. ThePBOC Circular only applies to cases where the receiving onshore enterprise is not a financial institution. On 13October 2011, the PBOC issued the PBOC RMB FDI Measures, to commence the PBOC’s detailed RMB FDIadministration system, which covers almost all aspects of RMB FDI, including capital injection, payment ofpurchase price in the acquisition of PRC domestic enterprises, repatriation of dividends and distribution, as wellas RMB denominated cross-border loans. Under the PBOC RMB FDI Measures, special approval for RMB FDIand shareholder loans from the PBOC which was previously required by the PBOC Circular is no longernecessary.

On 14 June 2012, the PBOC issued the Notice on Clarifying the implementation of Settlement of Cross-BorderRenminbi Direct Investment (中國人民銀行關於明確外商直接投資人民幣結算業務操作細則的通知), whichprovides more detailed rules for cross-border Renminbi direct investments and settlements.

On 5 July 2013, PBOC promulgated the Notice on Simplifying the Procedures of Cross-border RenminbiBusiness and Improving Relevant Policies (the “PBOC Notice”), which simplifies the operating procedures oncurrent account cross-border Renminbi settlement and further publishes policies with respect to issuance ofoffshore Renminbi bonds by onshore non-financial institutions. The PBOC Notice intends to improve theefficiency of cross-border Renminbi settlement and facilitate the use of cross-border Renminbi settlement bybanks and enterprises.

On 3 December 2013, MOFCOM promulgated the MOFCOM RMB FDI Circular, which has become effectiveon 1 January 2014, to further facilitate FDI by simplifying and streamlining the applicable regulatory framework.Pursuant to the MOFCOM RMB FDI Circular, the competent counterpart of MOFCOM will grant writtenapproval for each FDI and specify “Renminbi Foreign Direct Investment” and the amount of capital contributionin the approval. Unlike previous MOFCOM regulations on FDI, the MOFCOM RMB FDI Circular removes theapproval requirement for changes in the relevant joint venture contract or the articles of association of the jointventure company where foreign investors change the currency of its existing capital contribution from a foreigncurrency to Renminbi. In addition, the MOFCOM RMB FDI Circular also clearly prohibits the FDI funds frombeing used for any direct or indirect investment in securities and financial derivatives (except for strategicinvestment in the PRC listed companies) or for entrustment loans in the PRC. On 9 June 2016, the SAFE issuedthe Notice on Reforming and Streamlining the Policies of Foreign Exchange Settlement Management of CapitalAccount Items (國家外匯管理局關於改革和規範資本項目結匯管理政策的通知) (the “SAFE Notice”), whichclarifies, among other things, as for foreign exchange income of capital account which implement the “at-will”foreign exchange settlement according to relevant regulations, domestic enterprises can complete the settlementin banks according to the actual operation.

As the MOFCOM RMB FDI Circular, the PBOC RMB FDI Measures and SAFE Notice are relatively new rules,they will be subject to interpretation and application by the relevant PRC authorities.

Further, if any new PRC regulations are promulgated in the future which have the effect of permitting orrestricting (as the case may be) the remittance of Renminbi for payment of transactions categorised as capitalaccount items, then such remittances will need to be made subject to the specific requirements or restrictions setout in such rules.

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TAXATION

The following summary of certain tax consequences of the purchase, ownership and disposition of the Bonds isbased upon applicable laws, regulations, rulings and decisions in effect as at the date of this Offering Circular,all of which are subject to change (possibly with retroactive effect). This discussion does not purport to be acomprehensive description of all the tax considerations that may be relevant to a decision to purchase, own ordispose of the Bonds and does not purport to deal with consequences applicable to all categories of investors,some of which may be subject to special rules. Neither these statements nor any other statements in this OfferingCircular are to be regarded as advice on the tax position of any Bondholder or any persons acquiring, sellingor otherwise dealing in the Bonds or on any tax implications arising from the acquisition, sale or other dealingsin respect of the Bonds. Persons considering the purchase of the Bonds should consult their own tax advisorsconcerning the possible tax consequences of buying, holding or selling any Bonds under the laws of their countryof citizenship, residence or domicile.

PRC

The following summary accurately describes the principal PRC tax consequences of ownership of the Bonds bybeneficial owners who, or which, are not residents of China for PRC tax purposes. These beneficial owners arereferred to as non-PRC Bondholders in this “Taxation-PRC” section. In considering whether to invest in theBonds, investors should consult their individual tax advisors with regard to the application of PRC tax laws totheir particular situations as well as any tax consequences arising under the laws of any other tax jurisdiction.Reference is made to PRC taxes from the taxable year beginning on or after 1 January 2008.

Pursuant to the EIT Law, enterprises that are established under laws of foreign countries and regions (includingHong Kong, Macau and Taiwan) but whose “de facto management organisation” are within the territory of thePRC shall be PRC tax resident enterprises for the purpose of the EIT Law and they shall pay enterprise incometax at the rate of 25 per cent. in respect of their income sourced from both within and outside the PRC. If therelevant PRC tax authorities decide, in accordance with applicable tax rules and regulations, that the Issuer’s “defacto management organisation” is within the territory of the PRC, it may be held to be a PRC tax residententerprise for the purpose of the EIT Law and be subject to enterprise income tax at the rate of 25 per cent. forits income sourced from both within and outside the PRC. As at the date of this Offer Circular, the Issuerconfirms that it has not received notice or has been informed by the PRC tax authorities that it is considered asa PRC tax resident enterprise for the purpose of the EIT Law. However, there is no assurance that the Issuer willnot be treated as a PRC tax resident enterprise under the EIT Law and related implementation regulations in thefuture. Pursuant to the EIT Law and its implementation regulations, any non-resident enterprise without anestablishment within the PRC or whose income has no actual connection to its establishment within the PRC,shall be required to pay an income tax at the rate of 10 per cent. on the income sourced inside the PRC. Suchincome tax shall be withheld by the PRC payer that is acting as the obligatory withholder and such PRC payershall withhold the tax amount from each payment or payment due. Although as confirmed by the Issuer, as at thedate of this Offering Circular, the Issuer has not been notified or informed by the PRC tax authorities that it isconsidered as a PRC tax resident enterprise for the purpose of the EIT Law, in the event the Issuer is deemedto be a PRC tax resident enterprise by the PRC tax authorities in the future, it will be required to withhold incometax from the payments of interest in respect of the Bonds for any non-PRC Bondholder.

In addition, in the event that the Guarantor is required to discharge its obligations under the Guarantee, theGuarantor will be obliged to withhold PRC enterprise income tax at a rate of 10 per cent. for non-residententerprise Bondholders and at a rate of 20 per cent. for non-resident individual Bondholders on the payments ofinterest made by it under the Guarantee to relevant Bondholders as such payments of interest will be regardedas being derived from sources within the PRC. To the extent that the PRC has entered into arrangements relatingto the avoidance of double taxation with any jurisdiction, such as Hong Kong, that allow a lower rate ofwithholding tax, such lower rate may apply to qualified non-resident Bondholders.

According to the double taxation arrangement between China and Hong Kong and relevant PRC tax regulations,residents of Hong Kong will not be subject to PRC tax on any capital gains from a sale or exchange of the Bonds.Other non-PRC Bondholders will also not be subject to the PRC tax on any capital gains derived from a sale orexchange of Bonds consummated outside the PRC between non-PRC Bondholders, except however, if the Issueris treated as a PRC tax resident enterprise under the EIT Law and related implementation regulations in thefuture, any gain realized by the non-PRC Bondholders from the transfer of the Bonds may be regarded as being

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derived from sources within the PRC and accordingly would be subject to up to 10% of PRC withholding tax.No PRC stamp duty will be imposed on non-PRC Bondholders either upon issuance of the Bonds or upon asubsequent transfer of Bonds.

On 23 March 2016, the Ministry of Finance and the State Administration of Taxation issued the Circular of FullImplementation of Business Tax to Value-added Tax Reform (Cai Shui [2016] No. 36) (《關於全面推開營業稅改徵增值稅試點的通知》(財稅[2016]36號)) (“Circular 36”) which introduced a new value-added tax (“VAT”)from 1 May 2016. VAT is applicable where entities or individuals provide services within the PRC. The servicesare treated as being provided within PRC where either the service provider or the service recipient is located inPRC. The services subject to VAT include the provision of financial services such as the provision of loans. Itis further clarified under Circular 36 that the “loans” refers to the activity of lending capital for another’s useand receiving the interest income thereon.

There is no assurance that the Issuer will not be treated as PRC tax residents. PRC tax authorities could take theview that the Bondholders are providing loans within the PRC because the Issuer is treated as PRC tax residentsor because the Guarantor is located in PRC. In which case, the issuance of the Bonds could be regarded as theprovision of financial services within the PRC that is subject to VAT at the rate of 6 per cent. when receivingthe interest payments under the Bonds. Pursuant to Interim Regulation of the PRC on City Maintenance andConstruction Tax (中華人民共和國城市維護建設稅暫行條例(2011修訂)), Interim Provisions on the Collection ofEducational Surcharges (徵收教育費附加的暫行規定(2011修訂)), Notice of the Ministry of Finance on theRelevant Matters regarding Unifying the Policies on Local Education Surcharges (財政部關於統一地方教育附加政策有關問題的通知) and based on consultation with the Shanghai local taxation bureau, a city maintenance andconstruction tax (7 per cent.), an educational surcharge (3 per cent.) and a local educational surcharge (2 percent.) will be applicable when entities and individuals are obliged to pay VAT (for an aggregate of 6.72 per cent.on any VAT payable).

VAT is unlikely to be applicable to any transfer of Bonds between entities or individuals located outside of thePRC and therefore unlikely to be applicable to gains realised upon such transfers of the Bonds, but there isuncertainty as to the applicability of VAT if either the seller or buyer of the Bonds is located inside the PRC.Circular 36 together with other laws and regulations pertaining to VAT are relatively new, the interpretation andenforcement of such laws and regulations involve uncertainties.

However, despite the withholding of the PRC tax by the Issuer or the Guarantor, the Issuer and the Guarantorhave agreed to pay additional amounts to Bondholders so that Bondholders would receive the full amount of thescheduled payment, as further set out in “Terms and Conditions of the Bonds – Taxation”.

No PRC stamp duty will be imposed on non-PRC Bondholders either upon issuance of the Bonds or upon asubsequent transfer of Bonds to the extent that the register of Bondholders is maintained outside the PRC andthe issuance and the sale of the Bonds is made outside of the PRC.

HONG KONG

Withholding tax

No withholding tax is payable in Hong Kong in respect of payments of principal, premium (if any) or intereston the Bonds or in respect of any capital gains arising from the sale of the Bonds.

Profits tax

Hong Kong profits tax is chargeable on every person carrying on a trade, profession or business in Hong Kongin respect of profits arising in or derived from Hong Kong from such trade, profession or business (excludingprofits arising from the sale of capital assets).

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Interest on the Bonds may be deemed to be profits arising in or derived from Hong Kong from a trade, professionor business carried on in Hong Kong in the following circumstances:

(i) interest on the Bonds is derived from Hong Kong and is received by or accrues to a corporation carrying ona trade, profession or business in Hong Kong;

(ii) interest on the Bonds is derived from Hong Kong and is received by or accrues to a person, other than acorporation, carrying on a trade, profession or business in Hong Kong and is in respect of the funds of thattrade, profession or business;

(iii) interest on the Bonds is received by or accrues to a financial institution (as defined in the Inland RevenueOrdinance (Cap. 112) of Hong Kong (the “IRO”)) and arises through or from the carrying on by the financialinstitution of its business in Hong Kong; or

(iv) interest on the Bonds is received by or accrues to a corporation, other than a financial institution, and arisesthrough or from the carrying on in Hong Kong by the corporation of its intra-group financing business(within the meaning of section 16(3) of the IRO).

Sums received by or accrued to a financial institution by way of gains or profits arising through or from thecarrying on by the financial institution of its business in Hong Kong from the sale, disposal and redemption ofBonds will be subject to Hong Kong profits tax. Sums received by or accrued to a corporation, other than afinancial institution, by way of gains or profits arising through or from the carrying on in Hong Kong by thecorporation of its intra-group financing business (within the meaning of section 16(3) of the IRO) from the sale,disposal or other redemption of Bonds will be subject to Hong Kong profits tax.

Sums derived from the sale, disposal or redemption of Bonds will be subject to Hong Kong profits tax wherereceived by or accrued to a person, other than a financial institution, who carries on a trade, profession orbusiness in Hong Kong and the sum has a Hong Kong source unless otherwise exempted. The source of suchsums will generally be determined by having regard to the manner in which the Bonds are acquired and disposedof.

In certain circumstances, Hong Kong profits tax exemptions (such as concessionary tax rates) may be available.Investors are advised to consult their own tax advisors to ascertain the applicability of any exemptions to theirindividual position.

Stamp Duty

No Hong Kong stamp duty will be chargeable upon the issue or transfer of a Bond.

BRITISH VIRGIN ISLANDS

Under existing British Virgin Islands law, payments of interest and principal on the Bonds will not be subjectto taxation in the British Virgin Islands and no withholding will be required on the payment of interest andprincipal to any holder of the Bonds nor will gains derived from the disposal of the Bonds be subject to BritishVirgin Islands income or corporation tax, provided that the payments are made to persons who are not residentin the British Virgin Islands.

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are notresident in the British Virgin Islands with respect to the Bonds.

If neither the Issuer nor any subsidiary holds an interest in real estate in the British Virgin Islands, no stamp dutyis payable in respect of the issue of the Bonds or on an instrument of transfer in respect of the Bonds.

There are currently no withholding taxes or exchange control regulations in the British Virgin Islands applicableto the Issuer or its members.

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FATCA

Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986, commonly known as FATCA, a“foreign financial institution” may be required to withhold on certain payments it makes (“foreign passthrupayments”) to persons that fail to meet certain certification, reporting, or related requirements. The Issuer maybe a foreign financial institution for these purposes. A number of jurisdictions have entered into, or have agreedin substance to, intergovernmental agreements with the United States to implement FATCA (“IGAs”), whichmodify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently ineffect, a foreign financial institution in an IGA jurisdiction would generally not be required to withhold underFATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions andIGAs to instruments such as the Bonds, including whether withholding would ever be required pursuant toFATCA or an IGA with respect to payments on instruments such as the Bonds, are uncertain and may be subjectto change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments oninstruments such as the Bonds, such withholding would not apply prior to the date what is two years after thedate on which final regulation defining “foreign passthru payments”. Holders should consult their own taxadvisors regarding how these rules may apply to their investment in the Bonds. In the event any withholdingwould be required pursuant to FATCA or an IGA with respect to payments on the Bonds, no person will berequired to pay additional amounts as a result of the withholding.

THE PROPOSED FINANCIAL TRANSACTIONS TAX (“FTT”)

On 14 February 2013, the European Commission published a proposal (the “Commission’s Proposal”) for aDirective for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal,Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will notparticipate.

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in the Bonds(including secondary market transactions) in certain circumstances.

Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within andoutside of the participating Member States. Generally, it would apply to certain dealings in the Bonds where atleast one party is a financial institution, and at least one party is established in a participating Member State. Aparty may be deemed to be “established” in a participating Member State in a broad range of circumstances,including (a) by transacting with a person established in a participating Member State or (b) where the financialinstrument which is the subject of the transaction is issued in a participating Member State.

However, the FTT proposal remains subject to negotiation between the participating Member States. It maytherefore be altered prior to any implementation, the timing of which remains unclear. Additional EU MemberStates may decide to participate.

Prospective holders of the Bonds are advised to seek their own professional advice in relation to the FTT.

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SUBSCRIPTION AND SALE

The Issuer and the Guarantor have entered into a subscription agreement with the Managers dated [●] 2020 (the“Subscription Agreement”), pursuant to which and subject to certain conditions contained therein, the Issuerhas agreed to sell to the Managers, the Guarantor has agreed to guarantee, and the Managers have agreed to,severally but not jointly, subscribe and pay for, or to procure subscribers to subscribe and pay for, the aggregateprincipal amount of the Bonds indicated in the following table:

Principal amountof the Bonds

to be subscribed

U.S.$

Haitong International Securities Company Limited �������������������������������������������������� [●]Haitong Bank, S.A. ����������������������������������������������������������������������������������������������� [●]ICBC International Securities Limited �������������������������������������������������������������������� [●]Industrial and Commercial Bank of China (Asia) Limited ���������������������������������������� [●]Agricultural Bank of China Limited Hong Kong Branch ����������������������������������������� [●]Bank of China Limited ������������������������������������������������������������������������������������������ [●]China Construction Bank (Asia) Corporation Limited ���������������������������������������������� [●]Bank of Communications Co., Ltd. Hong Kong Branch ������������������������������������������� [●]CMB International Capital Limited������������������������������������������������������������������������� [●]China Minsheng Banking Corp., Ltd., Hong Kong Branch ��������������������������������������� [●]ABCI Capital Limited ������������������������������������������������������������������������������������������� [●]Shanghai Pudong Development Bank Co., Ltd., Hong Kong Branch ������������������������� [●]China PA Securities (Hong Kong) Company Limited ����������������������������������������������� [●]The Hongkong and Shanghai Banking Corporation Limited ������������������������������������� [●]Standard Chartered Bank ��������������������������������������������������������������������������������������� [●]Citigroup Global Markets Limited �������������������������������������������������������������������������� [●]Industrial and Commercial Bank of China (Macau) Limited ������������������������������������� [●]Industrial and Commercial Bank of China Limited, Singapore Branch ���������������������� [●]CMBC Securities Company Limited ����������������������������������������������������������������������� [●]Orient Securities (Hong Kong) Limited ������������������������������������������������������������������ [●]CMB Wing Lung Bank Limited������������������������������������������������������������������������������ [●]

Total �������������������������������������������������������������������������������������������������������������������� [●]

The Subscription Agreement provides that the Issuer and the Guarantor will indemnify the Managers and theiraffiliates against certain liabilities in connection with the offer and sale of the Bonds. The SubscriptionAgreement provides that the obligations of the Managers are subject to certain conditions precedent and entitlesthe Managers to terminate it in certain circumstances prior to payment being made to the Issuer.

The Managers and their respective affiliates are full service financial institutions engaged in various activities,which may include securities trading, commercial and investment banking, financial advisory, investmentmanagement, principal investment, hedging, financing and brokerage activities (“Banking Services orTransactions”). The Managers and their respective affiliates may have, from time to time, performed, and mayin the future perform, various Banking Services and/or Transactions with the Issuer and the Guarantor for whichthey have received, or will receive, fees and expenses. In connection with the offering of the Bonds, theManagers and/or their respective affiliates, or affiliates of the Issuer or the Guarantor, may place orders, receiveallocations and purchase Bonds for their own account (without a view to distributing such Bonds) and such order,allocations or purchase may be material. Such entities may hold or sell such Bonds or purchase further Bondsfor their own account in the secondary market or deal in any other securities of the Issuer or the Guarantor, andtherefore, they may offer or sell the Bonds or other securities otherwise than in connection with the offering.Accordingly, references herein to the Bonds being “offered” should be read as including any offering of theBonds to the Managers and/or their respective affiliates, or affiliates of the Issuer or the Guarantor for their ownaccount. Such entities are not expected to disclose such transactions or the extent of any such investment,otherwise than in accordance with any legal or regulatory obligation to do so. Furthermore, it is possible that onlya limited number of investors may subscribe for a significant proportion of the Bonds. If this is the case, liquidityof trading in the Bonds may be constrained (see “Risk Factor – Risks Relating to the Bonds – An active tradingmarket for the Bonds may not develop”). The Issuer, the Guarantor and the Managers are under no obligation todisclose the extent of the distribution of the Bonds amongst individual investors.

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In the ordinary course of their various business activities, the Managers and their respective affiliates make orhold a broad array of investments and actively trade debt and equity securities (or related derivative securities)and financial instruments (including bank loans) for their own account and for the accounts of their customers,and may at any time hold long and short positions in such securities and instruments. Such investment andsecurities activities may involve securities and instruments of the Issuer or the Guarantor, including the Bondsand could adversely affect the trading prices of the Bonds. The Managers and their affiliates may makeinvestment recommendations and/or publish or express independent research views (positive or negative) inrespect of the Bonds or other financial instruments of the Issuer or the Guarantor, and may recommend to theirclients that they acquire long and/or short positions in the Bonds or other financial instruments.

In connection with the issue of the Bonds, the Stabilisation Manager or any person acting on behalf of theStabilisation Manager may, to the extent permitted by applicable laws and directives, over-allot the Bonds oreffect transactions with a view to supporting the price of the Bonds at a level higher than that which mightotherwise prevail, but in so doing, the Stabilisation Manager or any person acting on behalf of the StabilisationManager shall act as principal and not as agent of the Issuer or the Guarantor. However, there is no assurancethat the Stabilisation Manager or any person acting on behalf of the Stabilisation Manager will undertakestabilisation action. Any loss or profit sustained as a consequence of any such overallotment or stabilisation shallbe for the account of the Managers.

GENERAL

The distribution of this Offering Circular or any offering material and the offering, sale or delivery of the Bondsis restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this OfferingCircular or any offering material are advised to consult with their own legal advisers as to what restrictions maybe applicable to them and to observe such restrictions. This Offering Circular may not be used for the purposeof an offer or invitation in any circumstances in which such offer or invitation is not authorised.

No action has been or will be taken in any jurisdiction by the Issuer, the Guarantor or the Managers that wouldpermit a public offering, or any other offering under circumstances not permitted by applicable law, of the Bonds,or possession or distribution of this Offering Circular, any amendment or supplement thereto issued in connectionwith the proposed resale of the Bonds or any other offering or publicity material relating to the Bonds, in anycountry or jurisdiction where action for that purpose is required. Accordingly, the Bonds may not be offered orsold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisementsin connection with the Bonds may be distributed or published, by the Issuer, the Guarantor or the Managers, inor from any country or jurisdiction, except in circumstances which will result in compliance with all applicablerules and regulations of any such country or jurisdiction and will not impose any obligations on the Issuer, theGuarantor or the Managers. If a jurisdiction requires that an offering of Bonds be made by a licensed broker ordealer and any Manager or any affiliate of the Managers is a licensed broker or dealer in that jurisdiction, suchoffering shall be deemed to be made by such Manager or such affiliate on behalf of the Issuer or the Guarantorin such jurisdiction.

UNITED STATES

The Bonds and the Guarantee have not been and will not be registered under the Securities Act and may not beoffered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certaintransactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph havethe meanings given to them by Regulation S.

Each Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer or sell theBonds and the Guarantee (i) as part of their distribution at any time or (ii) otherwise until 40 days after the laterof the commencement of the offering and the Closing Date, within the United States or to, or for the account orbenefit of, U.S. persons, and it will have sent to each dealer to which it sells Bonds and the Guarantee duringthe distribution compliance period a confirmation or other notice setting forth the restrictions on offers and salesof the Bonds and the Guarantee within the United States or to, or for the account or benefit of, U.S. persons.Terms used in this paragraph have the meanings given to them by Regulation S.

The Bonds and the Guarantee are being offered and sold outside of the United States to non-U.S. persons inreliance on Regulation S.

In addition, until 40 days after the commencement of the offering of the Bonds and the Guarantee, an offer orsale of the Bonds or the Guarantee within the United States by a dealer that is not participating in the offeringmay violate the registration requirements of the Securities Act.

118

UNITED KINGDOM

Each of the Managers has represented, warranted and agreed that:

(i) it has only communicated or caused to be communicated, and will only communicate or cause to becommunicated any invitation or inducement to engage in investment activity (within the meaning of Section21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issueor sale of any Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer orthe Guarantor; and

(ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything doneby it in relation to the Bonds in, from or otherwise involving the United Kingdom.

HONG KONG

Each of the Managers has represented, warranted and agreed that:

(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bondsother than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) ofHong Kong (the “SFO”) and any rules made under the SFO; or (b) in other circumstances which do not resultin the document being a “prospectus” as defined in the Companies (Winding Up and MiscellaneousProvisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) or which do not constitute an offer tothe public within the meaning of the C(WUMP)O; and

(ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possessionfor the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or documentrelating to the Bonds, which is directed at, or the contents of which are likely to be accessed or read by, thepublic of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than withrespect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to“professional investors” as defined in the SFO and any rules made under the SFO.

THE PEOPLE’S REPUBLIC OF CHINA

Each of the Managers has represented, warranted and agreed that the Bonds are not being offered or sold and maynot be offered or sold, directly or indirectly, in the PRC (for such purposes, not including the Hong Kong andMacau Special Administrative Regions or Taiwan), except as permitted by the securities laws of the PRC.

SINGAPORE

Each of the Managers has acknowledged that this Offering Circular has not been registered as a prospectus withthe Monetary Authority of Singapore. Accordingly, each of the Managers has represented and agreed that it hasnot offered or sold any Bonds or caused such Bonds to be made the subject of an invitation for subscription orpurchase and will not offer or sell such Bonds or cause the Bonds to be made the subject of an invitation forsubscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this OfferingCircular or any other document or material in connection with the offer or sale, or invitation for subscription orpurchase, of the Bonds, whether directly or indirectly, to persons in Singapore other than (i) to an institutionalinvestor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified oramended from time to time (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as definedin Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A)of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuantto, and in accordance with the conditions of, any other applicable provision of the SFA.

119

Where the Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole businessof which is to hold investments and the entire share capital of which is owned by one or more individuals,each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and eachbeneficiary of the trust is an individual who is an accredited investor,

securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of thatcorporation or the beneficiaries’ rights and interests (howsoever described) in that trust shall not be transferredwithin six months after that corporation or that trust has acquired the Bonds pursuant to an offer made underSection 275 of the SFA except:

(i) to an institutional investor or to a relevant person, or to any person arising from an offer referred to inSection 275(1A) or Section 276(4)(i)(B) of the SFA;

(ii) where no consideration is or will be given for the transfer;

(iii) where the transfer is by operation of law;

(iv) as specified in Section 276(7) of the SFA; or

(v) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities andSecurities-based Derivatives Contracts) Regulations 2018.

Singapore SFA Product Classification: In connection with Section 309B of the SFA and the Securities and theCMP Regulations 2018, the Issuer has determined, and hereby notifies all relevant persons (as defined in Section309A(1) of the SFA), that the Bonds are ‘prescribed capital markets products’ (as defined in the CMP Regulations2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale ofInvestment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

JAPAN

The Bonds have not been and will not be registered under the Financial Instruments and Exchange Act of Japan(Act No. 25 of 1948, as amended) (the “Financial Instruments and Exchange Act”) and, accordingly, each ofthe Managers has represented, warranted and agreed that it has not, directly or indirectly, offered or sold and willnot, directly or indirectly, offer or sell any Bonds in Japan or to, or for the benefit of, any resident of Japan (whichterm as used herein means any person resident in Japan, including any corporation or other entity organised underthe laws of Japan) or to others for re-offering or re-sale, directly or indirectly, in Japan or to, or for the benefitof, any resident of Japan except pursuant to an exemption from the registration requirements of, and otherwisein compliance with the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.

BRITISH VIRGIN ISLANDS

This Offering Circular does not constitute, and will not be, an offering of the Bonds to any person in the BritishVirgin Islands.

Each of the Managers has represented, warranted and agreed that no invitation has been or will be made directlyor indirectly to the public in the British Virgin Islands or any natural person resident or citizen in the BritishVirgin Islands to subscribe for any of the Bonds.

120

PORTUGAL

No offer or sale of Bonds may be made in Portugal except in circumstances that will result in compliance withthe rules concerning marketing of Bonds and the laws of Portugal generally.

The Offering Circular has not been nor will be subject to the approval of the Portuguese Securities MarketCommission (the “Comissão do Mercado de Valores Mobiliários”, “CMVM”). Each Manager has representedand agreed that it has not advertised, offered, distributed, submitted to an investment intentions gatheringprocedure or sold and will not, directly or indirectly, advertise, offer, distribute, submit to an investmentintentions gathering procedure or sell the Bonds in circumstances which could qualify as a public offer ofsecurities pursuant to the Portuguese Securities Code (“Código dos Valores Mobiliários”) or in circumstanceswhich would qualify as public placement of securities in the Portuguese market.

No approval has been or will be requested from the CMVM that would permit a public offering of any of theBonds referred to in this Offering Circular, therefore the same cannot be offered to the public in Portugal.Accordingly, each Manager has represented and agreed that this Offering Circular and the offer of Bonds is onlyintended for professional investors. Professional investors within the meaning of Article 30 of the PortugueseSecurities Code (“Código dos Valores Mobiliários”) includes credit institutions, investment firms, insurancecompanies, collective investment institutions and their respective managing companies, pension funds and theirrespective pension fund-managing companies, other authorised or regulated financial institutions, notablysecuritisation funds and their respective management companies, all other financial companies, securitisationcompanies, venture capital companies, venture capital funds and their respective management companies,financial institutions incorporated in a state that is not a member state of the EU that carry out activities similarto those previously mentioned, entities trading in financial instruments related to commodities and regional andnational governments, central banks and regional and national public bodies that manage debt or funds intendedto finance social security schemes or pensions or employees’ protection schemes, supranational or internationalinstitutions, namely the European Central Bank, the European Investment Bank, the International Monetary Fundand the World Bank, people who provide investment services or carry out investment activities, which consistexclusively in dealing on own account in futures or cash markets, the latter for the sole purpose of hedgingpositions on derivatives markets, or deal or make prices on behalf of other members of said markets and whichare guaranteed by a clearing member of the same markets, where responsibility for ensuring the performance ofcontracts is assumed by one of said members, as well as any legal entity which meets two of the following sizerequirements: (1) equity of EUR 2,000,000.00; (2) total assets of EUR 20,000,000.00; and (3) an annual netturnover of EUR 40,000,000.00 all as shown in its last annual individual accounts, and any person who hasrequested to be classified as such (“Professional Investors”).

Each Manager has represented and agreed that the Bonds may not be and will not be offered to the public inPortugal under circumstances which are deemed to be a public offer under the Portuguese Securities Code, inparticular, but not limited to, the Bonds have not been or may not be offered or sold to 150 or more addressees,per Member State, who are not Professional Investors and no offer has been preceded or followed by promotionor solicitation to unidentified investors, public advertisement or publication of any promotional material, unlessthe requirements and provisions applicable to the public offerings in Portugal are met and registration, filing,approval or recognition procedure with the Portuguese Securities Market Commission (“Comissão do Mercadode Valores Mobiliários”, “CMVM”) is made.

Each Manager has represented and agreed that it has not distributed, offered or sold or caused to be distributed,offered or sold to the public in Portugal or to residents of the Republic of Portugal this Offering Circular or anyother offering material relating to the Bonds, otherwise than in accordance with applicable Portuguese law andthat all applicable provisions of the Portuguese Securities Code and any applicable regulations issued byPortuguese Securities Market Commission (“Comissão do Mercado de Valores Mobiliários”) applicable to theissue of the Bonds have been complied with regarding the Bonds, in any matters involving the Republic ofPortugal.

121

GENERAL INFORMATION

1. Clearing System: The Bonds have been accepted for clearance through Euroclear and Clearstream underCommon Code 212968412 and the ISIN for the Bonds is XS2129684127.

2. Authorisations: The Issuer has obtained all necessary consents, approvals and authorisations in connectionwith the issue, entering into and performance of its obligations under the Bonds, the Trust Deed and theAgency Agreement. The issue of the Bonds was authorised by board resolutions of the Issuer dated 28February 2020. The Guarantor has obtained all necessary consents, approvals and authorisations inconnection with the giving and performance of the Guarantee. The execution of the Trust Deed, the AgencyAgreement and the Deed of Guarantee was authorised by the board resolutions of the Guarantor dated 25April 2019 and by the resolutions of the shareholders of the Guarantor passed on 26 May 2016 and 18 June2019. The Guarantor has registered the issuance of the Bonds with the NDRC and obtained a certificate fromthe NDRC on 30 August 2019 evidencing such registration.

3. No Material and Adverse Change: Save as disclosed in this Offering Circular, there has been no change,or any development or event involving a prospective change, in the financial condition, results of operationsor general affairs of the Issuer, the Guarantor or the Group, which is material and adverse in the context ofthe issue and offering of the Bonds since 30 June 2019.

4. Litigation: None of the Issuer, the Guarantor or any member of the Group is involved in any litigation orarbitration proceedings which could have a material and adverse effect on the financial condition, results ofoperations or general affairs of the Issuer, the Guarantor or the Group nor is the Issuer or the Guarantor awarethat any such proceedings are pending or threatened.

5. Available Documents: So long as any Bond is outstanding, copies of the Guarantor’s Audited ConsolidatedFinancial Statements, the Guarantor’s 2019 Reviewed Consolidated Interim Financial Statements, the Deedof Guarantee, the Trust Deed and the Agency Agreements relating to the Bonds and the Guarantee will beavailable for inspection from the Issue Date following prior written request and proof of holding and identitysatisfactory to the Trustee and subject, in the case of the Guarantor’s Audited Consolidated FinancialStatements and the Guarantor’s 2019 Reviewed Consolidated Interim Financial Statements, to the Trusteehaving first been provided with complete copies of the same by the Guarantor, at the principal place ofbusiness of the Trustee, being at the date of this Offering Circular at 20/F, Citi Tower, One Bay East, 83 HoiBun Road, Kwun Tong, Kowloon, Hong Kong, at all reasonable times during normal business hours (beingbetween 9:00 a.m. and 3:00 p.m. on a business day in Hong Kong).

6. Financial Statements: The Guarantor’s Audited Consolidated Financial Statements, which are includedelsewhere in this Offering Circular, have been audited by Deloitte, as stated in its reports dated 27 March2018 and 27 March 2019, respectively. The Guarantor’s 2019 Reviewed Consolidated Interim FinancialStatements, which are included elsewhere in this Offering Circular, have been reviewed by Deloitte as statedin its report dated 30 August 2019.

7. Listing of Bonds: Application will be made to the Hong Kong Stock Exchange for the listing of, andpermission to deal in, the Bonds by way of debt issues to Professional Investors only and such permissionis expected to become effective on or about [●] 2020.

8. LEI: The Issuer’s LEI code is 549300PDUNVXUNJ7HC63.

122

INDEX TO FINANCIAL STATEMENTS

THE CONSOLIDATED FINANCIAL STATEMENTS OF THE GUARANTOR AS AT ANDFOR THE YEAR ENDED 31 DECEMBER 2017

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Consolidated Statement of Profit or Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Consolidated Statement of Profit or Loss and Other Comprehensive Income . . . . . . . . . . . . . . . . . . . F-10

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11

Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14

Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18

THE CONSOLIDATED FINANCIAL STATEMENTS OF THE GUARANTOR AS AT ANDFOR THE YEAR ENDED 31 DECEMBER 2018

Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-169

Consolidated Statement of Profit or Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-176

Consolidated Statement of Profit or Loss and Other Comprehensive Income . . . . . . . . . . . . . . . . . . . F-177

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-178

Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-182

Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-184

Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-188

THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF THE GUARANTORAS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2019

Report on Review of Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-373

Condensed Consolidated Statement of Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-374

Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income . . . . . . . . . . . F-375

Condensed Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-376

Condensed Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-380

Condensed Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-382

Notes to the Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-386

F-1

F-2

INDEPENDENT AUDITOR’S REPORT

242 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

TO THE SHAREHOLDERS OF

HAITONG SECURITIES CO.,LTD.(incorporated in the People’s Republic of China with limited liability)

Opinion

We have audited the consolidated financial statements of Haitong Securities Co., Ltd. (the “Company”) and

its subsidiaries (collectively referred to as the “Group”) set out on pages 249 to 408, which comprise the

consolidated statement of financial position as at 31 December 2017, and the consolidated statement of

profit or loss and the consolidated statement of profit or loss and other comprehensive income, consolidated

statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes

to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial

position of the Group as at 31 December 2017, and of its consolidated financial performance and its

consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards

(“IFRSs”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong

Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities

under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of the Group in accordance with the

International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the

“Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe

that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

F-3

INDEPENDENT AUDITOR’S REPORT

243HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit

of the consolidated financial statements of the current period. These matters were addressed in the context

of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and

we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Impairment of advances to customers on margin financingWe identified the estimation of impairment of

advances to customers on margin financing, as a key

audit matter due to the significance of advances to

customers and the significant judgement applied by

the management in assessing impairment.

As disclosed in Note 4, the Group assesses whether

there is any observable data indicating that there is

an objective evidence of impairment. Moreover, the

Group also reviews the value of securities collateral

received from the customers in determining the

impairment.

As at 31 December 2017, the Group held advances to

customers on margin financing of RMB61,884 million,

less impairment allowance of RMB323 million as

disclosed in Note 30. RMB131 million of impairment

loss was charged in profit or loss in 2017 as disclosed

in Note 13.

Our procedures in relation to management’s

impairment assessment of advances to customers on

margin financing included:

• Understanding the process and control of

the management over the identification of

impairment indicators and measurement of

impairment allowances;

• Accuracy of the calculation of the shortfall of

advances to customers on margin financing

after deduction of the recoverable amounts of

securities collateral;

• Checking, on a sample basis, the existence of

the securities collateral and their recoverable

amount to supporting documents and quoted

market prices;

• Evaluating the appropriateness and

reasonableness of impairment model

and assumption used by the management

judgement and checking management’s

calculation of the impairment allowance.

F-4

INDEPENDENT AUDITOR’S REPORT

244 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Key audit matter How our audit addressed the key audit matter

Impairment of available-for-sale equity financial assetsWe identified the impairment of available-for-sale

equity instruments, which include equity securities,

funds and others, as a key audit matter as the

Group applied significant judgement in determining

impairment of available-for-sale equity instruments.

For available-for-sale equity instruments measured

at fair value, the Group applied significant

judgement to assess whether there is objective

evidence of impairment. As disclosed in Note 4, for

available-for-sale equity investments measured at fair

value, a significant or prolonged decline in fair value

below cost is considered to be objective evidence of

impairment.

As at 31 December 2017, the impairment allowance

of available-for-sale equity instruments was RMB533

million as disclosed in Note 26.

Our procedures in relation to management’s

impairment assessment of available-for-sale equity

instruments included:

• Understanding the processes and controls in

the identification of available-for-sale equity

instruments with indicators of impairment;

• Assessing the management judgement in

determining whether the available-for-sale

equity instruments are impaired;

• Checking, on a sample basis, the data used by

management, including quoted market prices

and the duration for the continued decline of

the fair value below the cost, against market

data;

• Checking management’s calculations of the

impairment allowance for available-for-sale

equity instruments.

F-5

INDEPENDENT AUDITOR’S REPORT

245HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Key audit matter How our audit addressed the key audit matter

Impairment of goodwillWe identify the impairment of goodwill as a key audit

matter due to the significant judgement applied by

the management in assessing impairment.

As disclosed in Note 4, the Group determining

whether goodwill is impaired requires an estimation

of the value in use of the cash-generating units to

which goodwill has been allocated. The value in use

calculation requires the Group to estimate the future

cash flows expected to arise from the cash-generating

unit and an appropriate discount rate in order to

calculate the present value.

As at 31 December 2017, the Group held goodwill of

RMB3,864 million. Details of goodwill and impairment

testing on goodwill are set out in Note 18 and 20

respectively.

Our audit procedures in relation to management’s

impairment assessment of goodwill included:

• Understanding the process and controls of

management over the impairment assessment

of goodwill;

• Examining the determination of recoverable

amounts which are the value in use of the

cash-generating units to which goodwill

has been allocated and understanding the

financial positions and future prospects of the

cash-generating units;

• Evaluating the reasonableness of key inputs

and assumptions adopted by management

in estimations of value in use of certain

cash-generating units, including projections of

cash flows, discount rate and perpetual growth

rates applied by checking to approved financial

budget of those cash-generating units,

evaluating the reasonableness of these budgets

with reference to the past performance as well

as our knowledge of the business;

• Involving internal valuation experts in reviewing

the appropriateness of the discounted rate

used in the calculation of value in use of

certain cash-generating unit.

F-6

INDEPENDENT AUDITOR’S REPORT

246 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Key audit matter How our audit addressed the key audit matter

Consolidation of structured entitiesWe identified consolidation of structured entities as

a key audit matter as the Group holds a number of

interests in structured entities including collective

asset management schemes and investment

funds where the Group is involved as investment

manager. The Group applied significant judgement

in determining whether the Group should consolidate

these structured entities. The effect of consolidation

or not of these structured entities will have significant

impact on the consolidated financial statements of

the Group.

As disclosed in Note 4, for collective asset

management schemes and investment funds where

the Group involves as manager, the Group assesses

whether the combination of investments it holds

together with its remuneration, credit enhancement

and other interests creates exposure to variability

of returns from the activities of the collective asset

management schemes and investment funds that is of

such significance that it indicates that the Group is a

principal. The collective asset management schemes

and investment funds are consolidated if the Group

acts in the role of principal.

Details of consolidated structured entities and

unconsolidated structured entities are set out in Notes

22 and 25 to the consolidated financial statements

respectively.

Our procedures in relation to consolidation of

structured entities included:

• Understanding the process and controls of

management in assessing consolidation of

structured entities;

• Checking the information used by the

management in accessing the consolidation

criteria of significant structured entities against

the related service agreements and other

agreements of interests in structured entities

newly acquired or with changes in investment

holdings or terms during the year;

• Assessing management judgement in assessing

consolidation for each of the significant

structured entities and the conclusion about

whether or not the consolidation criteria are

met.

F-7

INDEPENDENT AUDITOR’S REPORT

247HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Other Information

The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors of the Company determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the Company are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors of the Company either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

F-8

INDEPENDENT AUDITOR’S REPORT

248 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors of the Company.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in the independent auditor’s report is Man Kai Sze.

Deloitte Touche TohmatsuCertified Public AccountantsHong Kong

27 March 2018

F-9

CONSOLIDATED STATEMENT OF PROFIT OR LOSSFor the year ended 31 December 2017

249HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017 2016

NOTES RMB’000 RMB’000

Revenue Commission and fee income 5 11,225,083 12,711,293

Interest income 6 15,124,317 16,180,548

Net investment gains 7 9,327,622 6,107,923

35,677,022 34,999,764

Other income and gains 8 5,647,480 7,492,492

Total revenue, gains and other income 41,324,502 42,492,256

Depreciation and amortisation 9 (485,337) (379,089)

Staff costs 10 (6,400,066) (6,168,040)

Commission to account executives (688,301) (710,195)

Brokerage transaction fees and other services expenses 11 (980,583) (1,036,089)

Interest expenses 12 (11,458,392) (12,340,937)

Other expenses (9,130,913) (10,896,614)

Total expenses (29,143,592) (31,530,964)

Share of results of associates and joint ventures 708,487 200,435

Profit before income tax 13 12,889,397 11,161,727

Income tax expense 14 (3,013,794) (2,231,209)

Profit for the year 9,875,603 8,930,518

Profit for the year attributable to:

Owners of the Company 8,618,423 8,043,334

Non-controlling interests 1,257,180 887,184

Including: Perpetual notes 44,880 32,295

9,875,603 8,930,518

Earnings per share (Expressed in RMB per share)

– Basic 15 0.75 0.70

– Diluted 15 0.74 0.70

F-10

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2017

250 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017 2016

RMB’000 RMB’000

Profit for the year 9,875,603 8,930,518

Other comprehensive income/(expense):

Items that will not be reclassified subsequently to profit or loss:

Actuarial gains on defined benefit obligations 3,838 –

Subtotal 3,838 –

Items that may be reclassified subsequently to profit or loss:

Available-for-sale investments

Net fair value changes during the year 4,148,546 1,073,293

Reclassification adjustment to profit or loss on disposal (2,524,774) (1,724,041)

Reclassification adjustment to profit or loss upon impairment 247,963 240,546

Income tax relating to components of other comprehensive income (475,647) 123,540

Exchange differences arising on translation of foreign operation (227,373) 493,983

Share of revaluation (loss) gain of associates and joint ventures (23,825) 74,262

Fair value loss on hedges of net investments in foreign operations (354,999) –

Subtotal 789,891 281,583

Other comprehensive income for the year (net of tax) 793,729 281,583

Total comprehensive income for the year 10,669,332 9,212,101

Attributable to:

Owners of the Company 10,136,216 7,648,626

Non-controlling interests 533,116 1,563,475

Including: Perpetual notes 44,880 32,295

10,669,332 9,212,101

F-11

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

251HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017/12/31 2016/12/31NOTES RMB’000 RMB’000

Non-current assets Property and equipment 16 2,862,370 1,615,839 Investment properties 17 16,864 18,059 Goodwill 18 3,863,520 4,118,734 Other intangible assets 19 494,053 467,750 Investments accounted for using equity method 23 10,062,370 8,749,592 Finance lease receivables 24 22,212,628 22,035,884 Available-for-sale investments 26 31,725,358 45,269,933 Loans and advances 41 4,086,897 5,141,634 Held-to-maturity investments 28 – 83,509 Deferred tax assets 54 2,851,450 2,773,812 Other loans and receivables 27 8,098,697 5,684,365 Financial assets held under resale agreements 33 21,204,776 20,922,862 Financial assets at fair value through profit or loss 35 952,338 – Deposits with exchanges 36 1,347,701 1,592,688 Restricted bank deposits 38 675,568 771,029 Other assets 29 1,076,587 319,207

Total non-current assets 111,531,177 119,564,897

Current assets Advances to customers on margin financing 30 61,560,953 63,212,920 Accounts receivable 31 7,442,000 6,929,537 Finance lease receivables 24 21,323,548 14,519,336 Other receivables and prepayments 32 5,544,270 10,228,802 Available-for-sale investments 26 9,503,398 12,758,905 Loans and advances 41 751,375 470,655 Held-to-maturity investments 28 78,718 – Other loans and receivables 27 21,147,878 32,787,054 Financial assets held under resale agreements 33 75,345,093 63,600,363 Placements to banks and other financial institutions 34 679,092 705,848 Financial assets at fair value through profit or loss 35 98,904,357 92,347,494 Derivative financial assets 50 2,610,612 3,935,071 Deposits with exchanges 36 7,180,974 7,359,343 Clearing settlement funds 37 7,982,729 12,191,899 Deposits with central banks 40 3,445,696 274,303 Deposits with other banks 40 316,134 761,628 Bank balances and cash 38 99,358,329 119,217,791

Total current assets 423,175,156 441,300,949

Total assets 534,706,333 560,865,846

F-12

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

252 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017/12/31 2016/12/31NOTES RMB’000 RMB’000

Current liabilities Borrowings 44 45,511,447 46,659,113 Deposits from other banks 42 293,733 14,586 Short-term financing bills payables 45 29,426,762 19,864,117 Placements from banks and other financial institutions 46 5,450,000 3,210,521 Accounts payable to brokerage clients 47 83,774,388 104,059,287 Customer accounts 43 3,750,621 4,757,573 Bonds payable 55 14,739,105 11,103,335 Other payables and accruals 48 17,457,987 19,866,992 Provisions 49 167,343 124,622 Tax liabilities 2,198,613 1,748,846 Financial liabilities at fair value through profit or loss 51 20,031,099 38,063,861 Derivative financial liabilities 50 3,495,454 2,594,009 Financial assets sold under repurchase agreements 52 32,645,727 43,638,525 Deposits from central banks 468,138 –

Total current liabilities 259,410,417 295,705,387

Net current assets 163,764,739 145,595,562

Total assets less current liabilities 275,295,916 265,160,459

Equity Share capital 53 11,501,700 11,501,700 Capital reserve 56,357,980 56,338,470 Investment revaluation reserve 2,071,805 784,435 Translation reserve (445,275) (675,698) General reserves 57 17,971,724 15,849,581 Retained profits 57 30,297,545 26,331,639

Equity attributable to owners of the Company 117,755,479 110,130,127Non-controlling interests 11,938,825 11,828,274 Including: Perpetual notes 1,264,427 1,256,726

Total equity 129,694,304 121,958,401

F-13

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2017

253HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017/12/31 2016/12/31NOTES RMB’000 RMB’000

Non-current liabilities

Deferred tax liabilities 54 867,320 557,472

Bonds payable 55 115,419,164 117,191,857

Long-term borrowings 44 15,810,543 14,489,442

Long-term payables 56 4,813,699 3,539,521

Financial assets sold under repurchase agreements 52 400,000 93,202

Financial liabilities at fair value through profit or loss 51 712,400 575,770

Deposits from central banks – 438,408

Placements from banks and other financial institutions 46 6,361,639 5,598,941

Other payables and accruals 48 1,216,847 717,445

Total non-current liabilities 145,601,612 143,202,058

Total equity and non-current liabilities 275,295,916 265,160,459

The consolidated financial statements on pages 249 to 408 were approved and authorised for issue by the

Board of Directors on 27 March 2018 and signed on behalf by:

周傑 瞿秋平 李礎前

Chairman of Board Executive Director and

General Manager

Chief Financial Officer

F-14

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2017

254 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Attributable to owners of the Company Non-controlling interests

Share capital

Capital reserve

Investment revaluation

reserveTranslation

reserveGeneral reserves

Retained profits Total

Share of net assets of subsidiaries

Share option reserve of

a subsidiaryPerpetual

notes TotalTotal

equityRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Note a) (Note 57) (Note b)

At 1 January 2017 11,501,700 56,338,470 784,435 (675,698) 15,849,581 26,331,639 110,130,127 10,509,748 61,800 1,256,726 11,828,274 121,958,401

Profit for the year – – – – – 8,618,423 8,618,423 1,212,300 – 44,880 1,257,180 9,875,603Other comprehensive income (expense) for the year – – 1,287,370 230,423 – – 1,517,793 (724,064) – – (724,064) 793,729

Total comprehensive income for the year – – 1,287,370 230,423 – 8,618,423 10,136,216 488,236 – 44,880 533,116 10,669,332

Contribution from non-controlling interests – 186 – – – – 186 115,939 – – 115,939 116,125Perpetual notes related expenses – (2,474) – – – – (2,474) (1,848) – 175 (1,673) (4,147)Appropriation to general reserves – – – – 2,122,143 (2,122,143) – – – – – –Cash dividend distribution to non-controlling interests – – – – – – – (470,667) – (37,354) (508,021) (508,021)Share-based payments – 21,798 – – – – 21,798 – (28,810) – (28,810) (7,012)Cash dividends recognised as distribution (Note 61) – – – – – (2,530,374) (2,530,374) – – – – (2,530,374)

At 31 December 2017 11,501,700 56,357,980 2,071,805 (445,275) 17,971,724 30,297,545 117,755,479 10,641,408 32,990 1,264,427 11,938,825 129,694,304

Note a: Capital reserve of the Group represents primarily (i) the share premium arisen from the issuance of the Company’s shares, and (ii) the difference between the considerations paid over the proportionate share of net assets attributable to the acquisition of additional interests in subsidiaries.

F-15

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2017

255HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Attributable to owners of the Company Non-controlling interests

Share capital

Capital reserve

Investment revaluation

reserveTranslation

reserveGeneral reserves

Retained profits Total

Share of net assets of subsidiaries

Share option reserve of

a subsidiary TotalTotal

equityRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Note a) (Note 57) (Note b)

At 1 January 2016 11,501,700 56,375,749 1,054,746 (551,301) 13,993,667 25,319,984 107,694,545 9,208,309 24,817 9,233,126 116,927,671

Profit for the year – – – – – 8,043,334 8,043,334 887,184 – 887,184 8,930,518Other comprehensive income (expense) for the year – – (270,311) (124,397) – – (394,708) 676,291 – 676,291 281,583

Total comprehensive income (expense) for the year – – (270,311) (124,397) – 8,043,334 7,648,626 1,563,475 – 1,563,475 9,212,101

Contribution from non-controlling interests – – – – – – – 123,965 – 123,965 123,965Changes of equity interests in subsidiaries – (37,279) – – – – (37,279) 9,981 – 9,981 (27,298)Perpetual note issued by a subsidiary (Note b) – – – – – – – 1,197,170 – 1,197,170 1,197,170Appropriation to general reserves – – – – 1,855,914 (1,855,914) – – – – –Cash dividend distribution to non-controlling interests – – – – – – – (336,426) – (336,426) (336,426)Share-based payments – – – – – – – – 36,983 36,983 36,983Cash dividend recognised as distribution (Note 61) – – – – – (5,175,765) (5,175,765) – – – (5,175,765)

At 31 December 2016 11,501,700 56,338,470 784,435 (675,698) 15,849,581 26,331,639 110,130,127 11,766,474 61,800 11,828,274 121,958,401

Note b: Shares of net assets of subsidiaries include the perpetual notes issued by the subsidiaries. The total balance of perpetual notes issued by the subsidiaries as at 31 December 2016 amounted to RMB1,257 million, which mainly include 1) the balance of perpetual notes amounted to EUR3.7 million, equivalent to RMB27 million issued by Haitong Bank S.A. and 2) the balance of perpetual notes issued by Haitong Unitrust International Leasing Corporation amounted to RMB1,230 million on 11 March 2016.

F-16

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2017

256 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017 2016RMB’000 RMB’000

OPERATING ACTIVITIESProfit before income tax 12,889,397 11,161,727Adjustments for Interest expenses 11,458,392 12,340,937 Share of results of associates and joint ventures (708,487) (200,435) Depreciation and amortisation 485,337 379,089 Gain on other bond investments and held-to-maturity investments (614,120) (950,026) Losses on disposal of property and equipment and other intangible assets 9,111 1,193 Share-based payment of subsidiaries (7,012) 25,795 Foreign exchange losses/(gains), net 225,472 (10,728) Net gains arising from available-for-sale investments (3,109,382) (2,558,598) Impairment losses/(reversal) in respect of available-for-sale investments 247,963 (240,546) Impairment loss in respect of other assets 1,438,695 1,178,947

Operating cash flows before movements in working capital 22,315,366 21,127,355Decrease/(increase) in deposits and reserve funds and deposits with exchanges 423,356 (1,393,402)Decrease in loans and advances 404,397 1,712,987(Decrease)/increase in customer accounts (1,006,952) 1,938,414Increase in deposit from central banks and other banks 308,877 16,812Decrease in deposit with central banks 244,522 560,582Decrease in advances to customers on margin financing 1,527,042 13,049,204Increase in accounts and other receivables and prepayments (6,160,407) (6,936,400)Increase in finance lease receivables (7,374,095) (9,448,482)Increase in financial assets held under resale agreements (12,190,855) (7,095,274)Decrease/(increase) in placements to banks and other financial institutions 26,756 (521,514)(Increase)/decrease in financial assets at fair value through profit or loss (1,924,656) 15,597,243(Increase)/decrease in restricted bank deposits (317,196) 112,407Decrease in cash held on behalf of clients 19,001,084 29,456,075Decrease in accounts payable to brokerage clients and other payables and accruals (21,006,819) (19,370,717)(Decrease)/increase in financial liabilities at fair value through profit or loss (17,896,132) 3,895,903Decrease in financial assets sold under repurchase agreements (10,686,000) (54,844,809)Increase in placements from other financial institutions 3,002,177 1,549,110Increase in provisions 42,721 64,011

Cash used in operations (31,266,814) (10,530,495)Income taxes paid, net (2,898,507) (4,620,367)Interest paid (3,048,135) (4,117,564)

NET CASH USED IN OPERATING ACTIVITIES (37,213,456) (19,268,426)

F-17

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2017

257HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2017 2016NOTES RMB’000 RMB’000

INVESTING ACTIVITIESDividends received from associates 187,611 271,647Purchases of property and equipment and intangible assets (1,825,444) (452,431)Proceeds on disposal of property and equipment 6,383 31,536Capital injection to associates and joint ventures (2,180,386) (4,267,946)Proceeds on disposal of an associate 1,077,513 618,377Decrease/(increase) in available-for-sale investments 21,627,919 (11,174,808)Acquisition of subsidiaries 71, 72 (746,965) –Losses on disposing interest in subsidiary (1,442) –Decrease/(increase) in other loan and receivables 16,748,763 (16,611,192)Decrease in held-to-maturity investments – 7,019

NET CASH FROM (USED IN) INVESTING ACTIVITIES 34,893,952 (31,577,798)

FINANCING ACTIVITIESDividends paid (2,894,357) (5,456,657)Purchase of additional interests in subsidiaries – (233,431)Proceeds from issuance of subsidiaries’ shares 20,036 1,268,470

Proceeds from borrowings raised 42,535,412 33,801,217

Borrowing interest paid (2,813,172) (2,316,886)Proceeds from issuance of convertible bonds – 3,441,379Convertible bonds issuing cost paid – (4,088)Perpetual notes issuing related cost paid (1,673) –Non-convertible bond and short-term financing bills payables proceeds 102,211,553 100,531,669Non-convertible bonds issuing cost paid (109,090) (80,638)Bond interest paid (5,493,849) (5,813,329)Perpetual notes interest paid (39,828) (32,295)Proceeds from share issued upon exercise of share options 8,275 10,256Repayment of borrowings, short-term bonds, non-convertible bonds and others (129,450,084) (91,760,791)

NET CASH FROM FINANCING ACTIVITIES 3,973,223 33,354,876

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,653,719 (17,491,348)CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 34,330,647 51,744,586Effect of foreign exchange rate changes (4,163,503) 77,409

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 39 31,820,863 34,330,647

Total interest paid (11,394,984) (12,284,162)

F-18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

258 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

1. GENERAL INFORMATION OF THE GROUP

The Company was transformed from Shanghai Haitong Securities Company (上海海通証券公司), which

was established in 1988, to a limited liability company upon the authorisation by the People’s Bank

of China in September 1994 and had changed its name to 海通証券有限公司. In December 2001, the

Company was further transformed to a joint-stock company upon the approval from China Securities

Regulatory Commission (the “CSRC”). In January 2002, the Company changed its name from 海通証券有限公司 to Haitong Securities Co., Ltd. (海通証券股份有限公司). In June 2007, the Company’s merger

with former Shanghai Urban Agro-Business Co., Ltd. (上海市都市農商社股份有限公司) was approved

by the CSRC, and was listed on the Shanghai Stock Exchange in July in the same year, with its name

changed to “Haitong Securities”. On 27 April 2012, the Company issued H shares which are listed

on The Main Board of the Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”).

The address of the Company’s registered office and the principal place of business is Haitong Securities

Building, No. 689 Guangdong Road, Shanghai, the People’s Republic of China (“PRC”).

The Company and its subsidiaries (“The Group”) are principally engaged in securities and futures

contracts dealing and broking, proprietary trading, margin and other financing, underwriting, assets

management, direct equity investments, finance lease business, banking services, corporate finance

business, individual finance business, fund management business and provision of investment advisory

and consultancy services.

The consolidated financial statements are presented in Renminbi (“RMB”), which is also the functional

currency of the Company.

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the consolidated financial statements, the Group has

applied the following amendments to International Financial Reporting Standards (“IFRSs”) which are

relevant to the Group for the first time in the current year:

Amendments to IAS 7 Disclosure Initiative

Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses

Amendments to IFRS 12 As part of the Annual Improvements to

IFRSs 2014-2016 Cycle

F-19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

259HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

The application of the above amendments to IFRSs has had no material impact on the Group’s financial

performance and positions for the current and prior years and/or on the disclosures set out in these

consolidated financial statements except for the following:

Amendments to IAS 7 Disclosure Initiative

The Group has applied these amendments for the first time in the current year. The amendments

require an entity to provide disclosures that enable users of financial statements to evaluate changes in

liabilities arising from financing activities, including both cash and non-cash changes. In addition, the

amendments also require disclosures on changes in financial assets if cash flows from those financial

assets were, or future cash flows will be, included in cash flows from financing activities.

Specifically, the amendments require the following to be disclosed:(i) changes from financing cash

flows;(ii) changes arising from obtaining or losing control of subsidiaries or other businesses;(iii) the

effective of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

A reconciliation between the opening and closing balances of these items is provided in note 70.

Consistent with the transition provisions of the amendments, the Group has not disclosed comparative

information for the prior year. Apart from the additional disclosure in note 70, the application of these

amendments has had no impact on the Group’s consolidated financial statements.

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements)

The Group has not early applied the following new and revised IFRSs that have been issued but are

not yet effective.

IFRS 9 Financial Instruments1

IFRS 15 Revenue from Contracts with Customers and the related

Amendments1

IFRS 16 Leases2

IFRS 17 Insurance Contracts4

IFRIC 22 Foreign Currency Transactions and Advance Consideration1

IFRIC 23 Uncertainty over Income Tax Treatments2

F-20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

260 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

Amendments to IFRS 2 Classification and Measurement of Share-based Payment

Transactions1

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4

Insurance Contracts1

Amendments to IFRS 9 Prepayment Features with Negative Compensation2

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and

its Associate or Joint Venture3

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement2

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures2

Amendments to IAS 28 As part of the Annual Improvements to

IFRS Standards 2014-2016 Cycle1

Amendments to IAS 40 Transfers of Investment Property1

Amendments to IFRSs Annual Improvements to IFRS Standards 2015-2017 Cycle2

1 Effective for annual periods beginning on or after 1 January 20182 Effective for annual periods beginning on or after 1 January 20193 Effective for annual periods beginning on or after a date to be determined4 Effective for annual periods beginning on or after 1 January 2021

Except for the new and amendments to IFRSs and Interpretations mentioned below, the directors of the

Company anticipate that the application of all other new and amendments to IFRSs and Interpretations

will have no material impact on the consolidated financial statements in the foreseeable future:

IFRS 9 Financial instruments

Key requirements of IFRS 9 are described below:

• All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently

measured at amortised cost or fair value. Specifically, debt investments that are held within a

business model whose objective is to collect the contractual cash flows, and that have contractual

cash flows that are solely payments of principal and interest on the principal outstanding are

generally measured at amortised cost at the end of subsequent accounting periods. Debt

instruments that are held within a business model whose objective is achieved both by collecting

contractual cash flows and selling financial assets, and that have contractual terms of the

financial asset give rise on specified dates to cash flows that are solely payments of principal

and interest on the principal amount outstanding, are measured at FVTOCI. All other debt

investments and equity investments are measured at their fair value at the end of subsequent

accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present

subsequent changes in the fair value of an equity investment (that is not held for trading) in

other comprehensive income, with only dividend income generally recognised in profit or loss.

F-21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

261HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

IFRS 9 Financial instruments (continued)

• With regard to the measurement of financial liabilities designated as at fair value through profit

or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that

is attributable to changes in the credit risk of that liability is presented in other comprehensive

income, unless the recognition of the effects of such changes in other comprehensive income

would create or enlarge an accounting mismatch in profit or loss. Changes in fair value

attributable to a financial liability’s credit risk are not subsequently reclassified to profit or

loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability

designated as fair value through profit or loss was presented in profit or loss.

• In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as

opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires

an entity to account for expected credit losses and changes in those expected credit losses at

each reporting date to reflect changes in credit risk since initial recognition. In other words, it

is no longer necessary for a credit event to have occurred before credit losses are recognised.

• The new general hedge accounting requirements retain the three types of hedge accounting

mechanisms currently available in IAS 39. Under IFRS 9, greater flexibility has been introduced

to the types of transactions eligible for hedge accounting, specifically broadening the types

of instruments that qualify for hedging instruments and the types of risk components of

non-financial items that are eligible for hedge accounting. In addition, the retrospective

quantitative effectiveness test has been removed. Enhanced disclosure requirements about an

entity’s risk management activities have also been introduced.

Based on the Group’s financial instruments and risk management policies as at 31 December 2017,

the directors of the Company anticipate the following potential impacts on initial application of IFRS 9:

Classification and measurement:

• Investments classified as loans and receivables carried at amortised costs as disclosed in note

27: Some of these financial assets are held within a business model whose objective is to

collect contractual cash flows that are solely payments of principal and interest on the principal

outstanding (“contractual cash flow characteristics test”). Accordingly, they will continue to be

subsequently measured at amortised costs upon the application of IFRS 9. However, some of

these financial assets fail contractual cash flow characteristic test under IFRS 9 and the Group

will measure these investments at fair value with subsequent fair value gains or losses to be

recognized in profit or loss;

F-22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

262 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

IFRS 9 Financial instruments (continued)

Classification and measurement: (continued)

• Debt instruments classified as available-for-sale financial assets carried at fair value as disclosed

in note 26: Some of these financial assets satisfy the contractual cash flow characteristics tests,

and are held within a business model whose objective is achieved by both collecting contractual

cash flows and selling these debt instruments in the open market. Accordingly, these financial

assets will continue to be subsequently measured at FVTOCI upon the applications of IFRS 9, and

the fair value gains or losses accumulated in the investment revaluation reserve will continue

to be subsequently reclassified to profit or loss when the debt instruments are derecognised.

However, some of these financial assets which satisfy the contractual cash flow characteristics

test, although classified previously as available-for-sale financial assets, are held within a business

model whose object is to collect contractual cash flows. Accordingly, these financial assets

will be subsequently measured at amortised costs upon the application of IFRS 9. In addition,

some of these financial assets fail the contractual cash flow characteristics test and therefore

will be measured subsequently at fair value with fair value gains or losses to be recognised in

profit or loss instead of other comprehensive income under IFRS 9. On initial application of IFRS

9, investment revaluation reserve relating to (i) those financial assets subsequently measured

at amortised costs will be adjusted against the fair value of the financial assets, (ii) and those

financial assets subsequently measured at fair value through profit or loss will be transferred to

retained profits as at 1 January 2018, respectively.

• Equity instruments, funds and other investments classified as available-for-sale financial

assets carried at fair value as disclosed in note 26: Some equity instruments and certain other

investments are qualified for designation as measured at FVTOCI under IFRS 9 and the Group

elects this option. For these financial assets, the fair value gains or losses accumulated in the

investment revaluation reserve will no longer be subsequently reclassified to profit or loss under

IFRS 9, which is different from the current treatment under IAS 39. This will affect amounts

recognised in the Group’s profit or loss and other comprehensive income but will not affect

total comprehensive income. The Group will not elect the option for designation at FVTOCI

for the remaining available-for-sale equity financial assets carried at fair value. Therefore, the

remaining equity financial assets, together with funds and other investments not qualified for

the designation at FVTOCI, will be measured at fair value with subsequent fair value gains or

losses to be recognised in profit or loss. Upon initial application of IFRS 9, investment revaluation

reserve relating to these remaining financial assets will be transferred to retained profits as at 1

January 2018.

F-23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

263HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

IFRS 9 Financial instruments (continued)

Classification and measurement: (continued)

• Debt instruments classified as financial assets at fair value through profit or loss carried at

fair value as disclosed in note 35: Some of these financial assets satisfy the contractual cash

flow characteristics tests, and are held within a business model whose objective is achieved by

both collecting contractual cash flows and selling these debt instruments in the open market.

Accordingly, these financial assets will be subsequently measured at FVTOCI upon the applications

of IFRS 9, and the fair value gains or losses accumulated in the investment revaluation reserve

will continue to be subsequently reclassified to profit or loss when the debt instruments are

derecognised.

• The directors of the Company anticipate that the application of the standard may not have a

material impact on the Group’s other financial assets and liabilities.

Impairment

In general, the directors of the Company anticipate that the application of the expected credit loss

model of IFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to

the Group’s financial assets measured at amortised costs and other items that subject to the impairment

provision upon application of IFRS 9 by the Group.

Based on the assessment by the directors of the Company, the adoption of the new classification and

measurement basis and expected credit loss model mentioned above in respect of financial assets will

slightly decrease the total equity attributable to owners of the Company as at 1 January 2018 by less

than 1% of the amount as at 31 December 2017.

Hedge accounting

An assessment of the Group’s current hedging relationships indicates that they will qualify as continuing

hedging relationships upon application of IFRS 9. The directors of the Company anticipate that the

application of the new hedging requirements may not have a material impact on the Group’s current

hedge designation and hedge accounting.

F-24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

264 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

IFRS 15 Revenue from contracts with customers

IFRS 15 was issued which establishes a single comprehensive model for entities to use in accounting for

revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition

guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations

when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a

5-step approach to revenue recognition:

• Step 1: Identify the contract(s) with a customer

• Step 2: Identify the performance obligations in the contract

• Step 3: Determine the transaction price

• Step 4: Allocate the transaction price to the performance obligations in the contract

• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when

‘control’ of the goods or services underlying the particular performance obligation is transferred to the

customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios.

Furthermore, extensive disclosures are required by IFRS 15.

In 2016, the IASB issued Clarifications to IFRS 15 in relation to the identification of performance

obligations, principal versus agent considerations, as well as licensing application guidance.

The Group has various types of revenue and income as disclosed in note 5, 6 and 8. Interest income,

a significant component of the Group’s revenue, is not under the scope of IFRS 15. The Group has

assessed the impact of IFRS 15 on the remaining revenue and does not expect that the application of

the standard will have a significant impact on recognition or measurement of income from majority of

these services. However, the application of IFRS 15 may result in more disclosures in the consolidated

financial statements.

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of the lease arrangements and

accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related

interpretations when it becomes effective.

F-25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

265HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

(continued)

New or revised standards and interpretations that have been issued but not yet effective (for 2017 Dec financial statements) (continued)

IFRS 16 Leases (continued)

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled

by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting,

and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised

for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain

exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of

the lease liability. The lease liability is initially measured at the present value of the lease payments that

are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments,

as well as the impact of lease modifications, amongst others. For the classification of cash flows, the

Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold

lands for owned use and those classified as investment properties while other operating lease payments

are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease

liability will be allocated into a principal and an interest portion which will be presented as financing

and operating cash flows respectively by the Group.

Under IAS 17, the Group has already recognised an asset and a related finance lease liability for finance

lease arrangement and prepaid lease payments for leasehold lands where the Group is a lessee. The

application of IFRS 16 may result in potential changes in classification of these assets depending on

whether the Group presents right-of-use assets separately or within the same line item at which the

corresponding underlying assets would be presented if they were owned.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements

in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance

lease.

Furthermore, the application of new requirements may result in changes in measurement, presentation

and disclosure as indicated above.

F-26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

266 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”). In

addition, the consolidated financial statements include applicable disclosures required by the Rules

Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”) and

by the Hong Kong Companies Ordinance (“CO”).

The consolidated financial statements have been prepared on the historical cost basis except for financial

instruments that are measured at revalued amounts or fair values at the end of each reporting period,

as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods

and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is

directly observable or estimated using another valuation technique. In estimating the fair value of an

asset or a liability, the Group takes into account the characteristics of the asset or liability if market

participants would take those characteristics into account when pricing the asset or liability at the

measurement date.

Fair value for measurement and/or disclosure purposes in these consolidated financial statements is

determined on such a basis, except for share-based payment transactions that are within the scope

of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and

measurements that have some similarities to fair value but are not fair value, such as net realisable

value in IAS 2 Share-based Payment or value in use in IAS 36 Impairment of Assets.

For financial instruments and investment properties which are transferred at fair value and a valuation

technique that unobservable input is to be used to measure fair value in subsequent periods, the

valuation technique is calibrated so that the results of the valuation technique equals the transaction

price.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2

or 3 based on the degree to which the inputs to the fair value measurements are observable and the

significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable

for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

F-27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

267HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities

(including structured entities) controlled by the Company and its subsidiaries. Control is achieved when

the Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that

there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the

investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities

of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing

whether or not the Group’s voting rights in an investee are sufficient to give it power, including:

• the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of

the other vote holders;

• potential voting rights held by the Group, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Group has, or does not have,

the current ability to direct the relevant activities at the time that decisions need to be made,

including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases

when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary

acquired or disposed of during the year are included in the consolidated statement of profit or loss

and other comprehensive income from the date the Group gains control until the date when the Group

ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company

and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the

owners of the Company and to the non-controlling interests even if this results in the non-controlling

interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Group’s accounting policies.

F-28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

268 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Basis of consolidation (continued)

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions

between members of the Group are eliminated in full on consolidation.

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in existing subsidiaries that do not result in the Group

losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of

the Group’s relevant components of equity and the non-controlling interests are adjusted to reflect

the changes in their relative interests in the subsidiaries, including re-attribution of relevant reserves

between the Group and the non-controlling interests according to the Group’s and the non-controlling

interests ‘ proportionate interest.

Any difference between the amount by which the non-controlling interests are adjusted and the fair

value of the consideration paid or received is recognised directly in equity and attributed to owners of

the Company.

When the Group loses control of a subsidiary, the assets and liabilities of that subsidiary and

non-controlling interests (if any) are derecognised. A gain or loss is recognised in profit or loss and is

calculated as the difference between (i) the aggregate of the fair value of the consideration received

and the fair value of any retained interest and (ii) the carrying amount of the assets (including goodwill),

and liabilities of the subsidiary attributable to owner of the company. All amounts previously recognised

in other comprehensive income in relation to that subsidiary are accounted for as if the Group had

directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or

transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of

any investment retained in the former subsidiary at the date when control is lost is regarded as the

fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on

initial recognition of an investment in an associate or a joint venture.

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration

transferred in a business combination is measured at fair value, which is calculated as the sum of the

acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to

the former owners of the acquiree and the equity interests issued by the Group in exchange for control

of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

F-29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

269HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Business combinations (continued)

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at

their fair value, except that:

• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements

are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee

Benefits respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or

share-based payment arrangements of the Group entered into to replace share-based payment

arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at

the acquisition date (see the accounting policy below); and

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5

Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with

that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any

non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity

interest in the acquiree (if any) over the net amounts of the identifiable assets acquired and the liabilities

assumed as at the acquisition date. If, after re-assessment, the net of the acquisition-date amounts of

the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred,

the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously

held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain

purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate

share of the relevant subsidiary’s net assets in the event of liquidation are initially measured at the

non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable

net assets or at fair value. The choice of measurement basis is made on a transaction-by-transaction

basis. Other types of non-controlling interests are measured at their fair value or, when applicable, on

the basis specified in another IFRS.

When the consideration transferred by the Group in a business combination includes assets or liabilities

resulting from a contingent consideration arrangement, the contingent consideration is measured

at its acquisition-date fair value and included as part of the consideration transferred in a business

combination. Changes in the fair value of the contingent consideration that qualify as measurement

period adjustments are adjusted retrospectively, with the corresponding adjustments made against

goodwill. Measurement period adjustments are adjustments that arise from additional information

obtained during the “measurement period” (which cannot exceed one year from the acquisition date)

about facts and circumstances that existed at the acquisition date.

F-30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

270 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Business combinations (continued)

The subsequent accounting for the contingent consideration that do not qualify as measurement period

adjustments depends on how the contingent consideration is classified. Contingent consideration that

is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement

is accounted for within equity. Contingent consideration that is classified as an asset or a liability is

remeasured at subsequent reporting dates of fair value, with the corresponding gain or loss being

recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the

acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains

control), and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from

interests in the acquiree prior to the acquisition date that have previously been recognised in other

comprehensive income are reclassified to profit or loss where such treatment would be appropriate if

that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period

in which the combination occurs, the Group reports provisional amounts for the items for which the

accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see

above), and additional assets or liabilities are recognised, to reflect new information obtained about

facts and circumstances that existed at the acquisition date that, if known, would have affected the

amounts recognised at that date.

Acquisition of a subsidiary not constituting a business

When the Group acquires a group of assets and liabilities that do not constitute a business, the Group

identifies and recognises the individual identifiable assets acquired and liabilities assumed by allocating

the purchase price first to investment properties which are subsequently measured under fair value

model and financial assets and financial liabilities at the respective fair values, the remaining balance of

the purchase price is then allocated to the other individual identifiable assets and liabilities on the basis

of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill

or bargain purchase gain.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition

of the business less any accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or

groups of cash-generating units) that is expected to benefit from the synergies of the combination,

which represent the lowest level at which the goodwill is monitored for internal management purposes

and not larger than an operating segment.

F-31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

271HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Goodwill (continued)

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is

tested for impairment annually, or more frequently when there is indication that the unit may be

impaired. For goodwill arising from an acquisition in a reporting period, the cash-generating unit(or

group of cash-generating units) to which goodwill has been allocated is tested for impairment before

the end of that reporting period. If the recoverable amount is less than its carrying amount, the

impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other

assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit (or group

of cash-generating units).

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in

the determination of the amount of profit or loss on disposal or any of the cash-generating unit within

group of cash-generating units in which the Group monitors goodwill.

The Group’s policy for goodwill arising on the acquisition of an associate and a joint venture is described

below.

Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the

power to participate in the financial and operating policy decisions of the investee but is not control

or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement

have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing

of control of an arrangement, which exists only when decisions about the relevant activities require

unanimous consent of the parties sharing control.

F-32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

272 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Investments in associates and joint ventures (continued)

The results and assets and liabilities of associates and joint ventures are incorporated in the consolidated

financial statements using the equity method of accounting, except when the investment, or a portion

thereof, is classified as held for sale, in which case it is or the portion so classified is accounted for

in accordance with IFRS 5. Any retained portion of an investment in an associate or a joint venture

that has not been classified as held for sale shall be accounted for using the equity method. The

financial statements of associates and joint ventures used for equity accounting purposes are prepared

using uniform accounting policies as those of the Group for like transactions and events in similar

circumstances. Under the equity method, investments in associates or joint ventures are initially

recognised in the consolidated statement of financial position at cost and adjusted thereafter to

recognise the Group’s share of the profit or loss and other comprehensive income of the associates or

joint ventures. Changes in net assets of the associate/joint venture other than profit or loss and other

comprehensive income are not accounted for unless such changes resulted in changes in ownership

interest held by the Group When the Group’s share of losses of an associate or joint venture exceeds

the Group’s interest in that associate or joint venture (which includes any long-term interests that,

in substance, form part of the Group’s net investment in the associate or join venture), the Group

discontinues recognising its share of further losses. Additional losses are recognised only to the extent

that the Group has incurred legal or constructive obligations or made payments on behalf of that

associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the

date on which the investee becomes an associate or a joint venture. On acquisition of the investment in

an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the

net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which

is included within the carrying amount of the investment. Any excess of the Group’s share of the net

fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is

recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment

loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the

entire carrying amount of the investment (including goodwill) is tested for impairment in accordance

with IAS 36 Impairment of assets as a single asset by comparing its recoverable amount (higher of value

in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised

forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised

in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently

increases.

F-33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

273HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Investments in associates and joint ventures (continued)

When the Group ceases to have significant influence over an associate or joint control over a joint

venture, it is accounted as a disposal of the entire interest in the investee with a resulting gain or loss

being recognised in profit or loss. When the Group retains an interest in the former associate or joint

venture and the retained interest is a financial asset within the scope of IAS 39, the Group measures

the retained interest at that date and the fair value is regarded as its fair value on initial recognition.

The difference between the carrying amount of the associate or joint venture, and the fair value of

any retained interest and any proceeds from disposing the relevant interest in the associate or joint

venture is included in the determination of the gain or loss on disposal of the associate or joint venture.

In addition, the Group accounts for all amounts previously recognised in other comprehensive income

in relation to that associate or joint venture on the same basis as would be required if that associate

or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss

previously recognised in other comprehensive income by that associate or joint venture would be

reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the

gain or loss from equity to profit or loss (as a reclassification adjustment) upon disposal/partial disposal

of the relevant associate or joint venture.

When the Group reduces its ownership interest in an associate or a joint venture but the Group

continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain

or loss that had previously been recognised in other comprehensive income relating to that reduction

in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the

related assets or liabilities.

When a group entity transacts with an associate or a joint venture of the Group, profits and losses

resulting from the transactions with the associate or joint venture are recognised in the Group’s

consolidated financial statements only to the extent of interests in the associate or joint venture that

are not related to the Group.

F-34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

274 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents

amounts receivable for services provided in the normal course of business. Revenue is recognised when

it is probable that the economic benefits will flow to the Group and when revenue can be measured

reliably, on the following basis:

(i) Commission income for broking business is recorded as income on a trade date basis, and

handling fee income arising from broking business is recognised when services are rendered;

(ii) Underwriting and sponsors fees are recognised as income in accordance with the terms of the

underwriting agreement or deal mandate when the relevant significant acts have been completed;

(iii) Interest income from a financial asset is accrued on a time basis using the effective interest

method, by reference to the principal outstanding and at the effective interest rate applicable,

which is the rate that exactly discounts the estimated future cash receipts through the expected

life of the financial asset to that asset’s net carrying amount on initial recognition;

(iv) Financial advisory and consultancy fee income is recognised when the relevant transactions have

been arranged or the relevant services have been rendered; and

(v) Assets management fee income is recognised when management services are provided in

accordance with the management contracts.

(vi) Dividend income from investments is recognized when the shareholder’s right to receive payment

has been established (provided that it is probable that the economic benefits will flow to the

Group and the amount of income can be measured reliably).

(vii) The Group’s accounting policy for recognition of revenue from operating leases is described in

the accounting policy for leasing below.

(viii) Realised gains or losses from available-for-sale investments, financial assets at fair value through

profit or loss, financial assets designated at fair value through profit or loss, financial liabilities at

fair value through profit or loss, financial liabilities designated at fair value through profit or loss,

derivative financial instruments, leveraged foreign exchange transactions and bullion contracts

trading are recognised on the transaction dates when the relevant contract notes are executed

whilst the unrealised profits or losses are recognised from valuation at the end of the reporting

period in accordance with the accounting policies for financial instruments (see the accounting

policies below).

(ix) Revenue arising from bulk commodity trading is recognised when the titles of warehouse receipt

have passed to the customers.

F-35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

275HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks

and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the

Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to

reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the

leases.

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the

term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease

are added to the carrying amount of the leased asset and recognised on a straight-line basis over the

lease term.

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception

of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability

to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as

to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are

recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in

which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see

the accounting policy below). Contingent rentals are recognised as expenses in the periods in which

they are incurred.

Operating lease payments, including the cost of acquiring land held under operating leases, are

recognised as an expense on a straight-line basis over the lease term, except where another systematic

basis is more representative of the time pattern in which economic benefits from the leased asset are

consumed. Contingent rentals arising under operating leases are recognised as an expense in the period

in which they are incurred.

Leasehold land and building

When the Group makes payments for a property interest which includes both leasehold land and

building elements, the Group assesses the classification of each element separately based on the

assessment as to whether substantially all the risks and rewards incidental to ownership of each element

have been transferred to the Group, unless it is clear that both elements are operating leases in which

case the entire property is accounted as an operating lease. Specifically, the entire consideration

(including any lump-sum upfront payments) are allocated between the leasehold land and the building

elements in proportion to the relative fair values of the leasehold interests in the land element and

building element at initial recognition.

F-36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

276 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Leasehold land and building (continued)

To the extent the allocation of the relevant payments can be made reliably, interest in leasehold land

that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated

statement of financial position and is amortised over the lease term on a straight-line basis. When the

lease payments cannot be allocated reliably between the leasehold land and entire building elements,

the entire lease is generally classified as if the leasehold land is under finance lease.

Foreign currencies

In preparing the financial statements of each individual group entities, transactions in currencies other

than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges

prevailing on the dates of the transactions. At the end of the reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing on the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary

items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the

Group’s operations are translated into the presentation currency of the Group using exchange rates

prevailing at the end of each reporting period. Income and expenses items are translated at the average

exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which

case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising,

if any, are recognised in other comprehensive income and accumulated in equity under the heading of

translation reserve (attributed to non-controlling interests as appropriate).

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign

operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of

exchange prevailing at the end of the reporting period. Exchange differences arising are recognised in

other comprehensive income.

F-37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

277HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,

which are assets that necessarily take a substantial period of time to get ready for their intended use

or sale, are added to the cost of those assets until such time as the assets are substantially ready for

their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure

on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply

with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which

the Group recognises as expenses the related costs for which the grants are intended to compensate.

Specifically, government grants whose primary condition is that the Group should purchase, construct

or otherwise acquire non-current assets are recognised as deferred income.

Government grants that are receivable as compensation for expenses or losses already incurred or

for the purpose of giving immediate financial support to the Group with no future related costs are

recognised in profit or loss in the period in which they become receivable.

Employee benefits

Social welfare

Social welfare expenditure refers to payments for employees’ social welfare system established by

the Government of the PRC, including social insurance, housing funds and other social welfare

contributions. The Group contributes on a monthly basis to these funds based on certain percentage

of the salaries of the employees and the contributions are recognised in profit or loss for the period

when employees have rendered service entitling them to the contribution. The Group’s liabilities in

respect of these funds are limited to the contribution payable in the reporting period.

Contributions to pension schemes and annuity plans

Payments to defined contribution retirement benefits plan are charged as expenses when employees

have rendered service entitling them to the contributions.

Short-term and other long-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be

paid as and when employees rendered the services. All short-term employee benefits are recognized as

an expense unless another IFRS requires or permits the inclusion of the benefit in the cost of an asset.

F-38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

278 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Employee benefits (continued)

Short-term and other long-term employee benefits (continued)

A liability is recognized for benefits accruing to employees(such as wages and salaries, annual leave

and sick leave)after deducting any amount already paid.

Liabilities recognized in respect of other long-term employee benefits are measured at the present value

of the estimated future cash outflows expected to be made by the Group in respect of services provided

by employees up to the reporting date. Any changes in the liabilities’ carrying amounts resulting from

service cost, interest and remeasurements are recognised in the profit or loss except to the extent that

another IFRS requires or permits their inclusion in the cost of an asset.

The liability related to the above supplementary benefit obligations existing at the end of each reporting

period, is calculated by independent actuaries using the Projected Unit Credit Method and is recorded

as a liability in the consolidated statement of financial position. The liability is determined through

discounting the amount of future benefits that the employees are entitled for their services in the

current and prior periods. The discount rates are based on the yields of RMB treasury bonds which

have terms to maturity approximating the terms of the related liability. All actuarial gains and losses

are recognized immediately through other comprehensive income in order for the net pension asset or

liability recognized in the consolidated statement of financial position to reflect the full value of the

plan deficit or surplus.

Share-based payment transactions

Share options granted to employees

The Company’s subsidiary Haitong International Securities (“HISGL”) operates a share option scheme

for the purpose of providing incentives and rewards to eligible participants who contribute to the

success of the Group’s operations. Employees (including directors) of the Group receive remuneration

in the form of share-based payment transactions, whereby employees render services as consideration

for equity instruments (“equity settled transactions”).

Equity-settled share-based payments to employees and others providing similar services are measured

at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking

into consideration all non-market vesting conditions is expensed on a straight-line basis over the

vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with a

corresponding increase in equity (share option reserve).At the end of each reporting period, the Group

revises its estimate of the number of equity instruments expected to vest base on assessment of all

relevant non-market vesting conditions. The impact of the revision of the original estimates, if any,

is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a

corresponding adjustment to share options reserve. For share options that vest immediately at the date

of grant, the fair value of the share options granted is expensed immediately to profit or loss.

F-39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

279HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Share-based payment transactions (continued)

Share options granted to employees (continued)

When share options are exercised, the amount previously recognised in share options reserve will

be transferred to share premium. When share options are forfeited after the vesting date or are still

not exercised at the expiry date, the amount previously recognised in share options reserve will be

transferred to share premium.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit

before tax’ as reported in the consolidated statement of profit or loss because of items of income or

expense that are taxable or deductible in other years and items that are never taxable or deductible.

The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively

enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and

liabilities in the consolidated financial statements and the corresponding tax base used in the

computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary

differences. Deferred tax assets are generally recognised for all deductible temporary difference to the

extent that it is probable that taxable profits will be available against which those deductible temporary

differences can be utilised. Such assets and liabilities are not recognised if the temporary difference

arises from the initial recognition (other than in a business combination) of other assets and liabilities in

a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax

liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in

subsidiaries and associates, and interests in joint ventures, except where the Group is able to control

the reversal of the temporary difference and it is probable that the temporary difference will not reverse

in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated

with such investments and interests are only recognised to the extent that it is probable that there will

be sufficient taxable profits against which to utilise the benefits of the temporary differences and they

are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or

part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period

in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been

enacted or substantively enacted by the end of the reporting period.

F-40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

280 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Taxation (continued)

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow

from the manner in which the Group expects, at the end of the reporting period, to recover or settle

the carrying amount of its assets and liabilities.

Current and deferred tax are recognised in profit or loss, except when it relates to items that are

recognised in other comprehensive income or directly in equity, in which case the current and the

deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where

current tax or deferred tax arises from the initial accounting for a business combination, the tax effect

is included in the accounting for the business combination.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current

tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation

authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Property and equipment

Property and equipment including leasehold land (classified as finance lease) and building held for use

in the production or supply of goods or services, or for administrative purpose (other than construction

in progress), are stated in the consolidated statement of financial position at cost less accumulated

depreciation and accumulated impairment losses, if any.

Properties in the course of construction for production, supply or administrative purposes are carried

at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets,

borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are

classified to the appropriate categories of property and equipment when completed and ready for

intended use. Depreciation of these assets, on the same basis as other property assets, commences

when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of items of property and equipment (other than

construction in progress) less their residual values over their estimated useful lives, using straight line

method. The estimated useful lives, residual values and depreciation method are reviewed at the end of

each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognised upon disposal or when no future economic benefits

are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or

retirement of an item of property and equipment is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognised in profit or loss.

F-41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

281HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Property and equipment (continued)

The estimated residual value rates and useful lives of each class of property and equipment are as

follows:

ClassesEstimated residualvalue rates Useful lives

Leasehold land and buildings 3 – 5% Over the shorter of the lease term

and estimated useful life of

buildings of 30 – 40 years

Furniture, fixtures and equipment 3 – 10% 5 – 11 years

Motor vehicles 3 – 10% 5 – 8 years

Electronic equipment 3 – 10% 3 – 5 years

Assets held for operating lease

businesses

15% 22-25 years

Leasehold improvements nil Over the lease term

Buildings under development for future owner-occupied purpose

When buildings are in the course of development for production or administrative purposes, the

amortisation of prepaid lease payment provided during the construction period in included as part of

costs of buildings under construction. Buildings under construction are carried at cost, less any identified

impairment losses. Deprecation of buildings commences when they are available for use (i.e. when

they are in the location and condition necessary for them to be capable of operating in the manner

intended by management.)

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are initially measured at cost, including any directly attributable expenditure.

Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated

depreciation and any accumulated impairment losses.

The above investment properties are depreciated over their estimated useful lives of 30 years and

after taking into account their estimated residual value of 3%-5%, using the straight-line method.

Depreciation is recognised so as to write off the cost of investment properties over their estimated useful

lives and after taking into account of their estimated residual value, using the straight-line method.

An investment property is derecognised upon disposal or when the investment property is permanently

withdrawn from use and no future economic benefits are expected from the disposals. Any gain or

loss arising on derecognition of the property (calculated as the difference between the net disposal

proceeds and the carrying amount of the asset) is included in the profit or loss in the period in which

the item is derecognised.

F-42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

282 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at costs less accumulated

amortisation and any accumulated impairment losses. Amortisation is recognised on a straight-line basis

over their estimated useful lives. The estimated useful life and amortisation method are reviewed at

the end of each reporting period, with the effect of any changes in estimate being accounted for on a

prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried

at cost less any subsequent accumulated impairment losses.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are

initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at

cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible

assets that are acquired separately.

Derecognition of Intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from

use or disposal. Gains or losses arising from derecognition of an intangible asset are measured at the

difference between the net disposal proceeds and the carrying amount of the asset and are recognised

in profit or loss in the period when the asset is derecognised.

Impairment on tangible and intangible assets other than goodwill

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and

intangible assets with finite useful lives to determine whether there is any indication that those assets

have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant

asset is estimated in order to determine the extent of the impairment loss, if any. Intangible assets with

indefinite useful lives and intangible assets not yet available for use are tested for impairment annually,

and whenever there is an indication that they may be impaired.

When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates

the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable

and consistent basis of allocation can be identified, corporate assets are also allocated to individual

cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units

for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value

in use, the estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks specific to the

asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

F-43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

283HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Impairment on tangible and intangible assets other than goodwill (continued)

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable

amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying

amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the

carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the

highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero.

The amount of the impairment loss that would otherwise have been allocated to the asset is allocated

pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss,

unless the relevant asset is carried at a revalued amount under another standard, in which case the

impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment loss

been recognised for the asset (or a cash-generating unit) or in prior years. A reversal of an impairment

loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount

under another standard in which case the impairment loss is treated as a revaluation decrease under

that standard.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of

a past event, it is probable that the Group will be required to settle that obligation, and the amount

of the obligation can be reliably measured.

The amount recognized as provision is the best estimate of the consideration required to settle the

present obligation at the end of each reporting period, taking into account the risks and uncertainties

surrounding the obligation. Where a provision is measured using the cash flows estimated to settle

the present obligation, its carrying amount is the present value of those cash flows (when the effect

of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered

from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will

be received and the amount of the receivable can be measured reliably.

F-44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

284 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the

contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are

directly attributable to the acquisition or issue of financial assets and financial liabilities (other than

financial assets or financial liabilities at fair value through profit or loss) are added to or deducted

from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair

value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets

at fair value through profit or loss (“FVTPL”), loans and receivables, held-to-maturity investments and

available-for-sale investments. The classification depends on the nature and purpose of the financial

assets and is determined at the time of initial recognition. All regular way purchases or sales of financial

assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are

purchases or sales of financial assets that require delivery of assets within the time frame established

by regulation or convention in the marketplace.

Financial assets at fair value through profit or loss

Financial assets are classified as at FVTPL when the financial asset is held for trading or it is designated

as at FVTPL or contingent consideration that may be received by an acquirer as part of a business

combination.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near future; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group

manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

F-45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

285HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Financial assets at fair value through profit or loss (continued)

A financial asset other than a financial asset held for trading (or contingent consideration that may be

received by an acquirer as part of a business combination) may be designated as at FVTPL upon initial

recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency

that would otherwise arise; or

• the financial asset forms part of a group of financial assets or financial liabilities or both, which is

managed and its performance is evaluated on a fair value basis, in accordance with the Group’s

documented risk management or investment strategy, and information about the grouping is

provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits

the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement

recognised in profit or loss. The net gain or loss recognised in profit or loss includes any dividend or

interest earned on the financial assets and is included in the other gains and losses line item. Fair value

is determined in the manner described in note 68.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that

are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including

loans and advances, advances to customers on margin financing, accounts receivable, amount due from

subsidiaries, other loan and receivables, financial assets held under resale agreements, deposits with

exchange, clearing settlement funds, deposits with central banks and other banks and placements to

banks and other financial institutions, bank balances and cash, restricted bank deposits, deposits and

other receivables), are measured at amortised cost using the effective interest method, less any identified

impairment losses (see accounting policy on impairment of financial assets below).

Interest income is recognised by applying the effective interest rate, except for short-term receivables

where the recognition of interest would be immaterial.

F-46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

286 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments

and fixed maturity dates that are quoted in active market and that the Group has the positive intention

and ability to hold to maturity other than:

(a) those that the entity upon initial recognition designates as at fair value through profit or loss;

(b) those that the entity designates as available for sale; and

(c) those that meet the definition of loans and receivables.

Subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the

effective interest method, less any identified impairment losses (see accounting policy on impairment

of financial assets below).

Available-for-sale investments

Available-for-sale investments are non-derivatives that are either designated or as available-for-sale not

classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments.

Equity and debt securities held by the Group that are classified as AFS financial are measured at fair

value at the end of each reporting period except for unquoted equity investments whose fair value

cannot be reliably measured. Changes in the carrying amount of AFS debt instruments relating to

interest income calculated using the effective interest method, and changes in foreign exchange rates, if

applicable are recognised in profit or loss. Dividends on AFS equity instruments are recognised in profit

or loss when the Group’s right to receive the dividends is established. Other changes in the carrying

amount of AFS financial assets are recognised in other comprehensive income and accumulated under

the heading of investments revaluation reserve. When the investment is disposed of or is determined to

be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve

is reclassified to profit or loss (see the accounting policy in respect of impairment loss on financial

assets below).

AFS equity investments that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured are measured at cost less any identified impairment losses at the

end of each reporting period.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of the

reporting period. Financial assets are considered to be impaired where there is objective evidence that,

as a result of one or more events that occurred after the initial recognition of the financial asset, the

estimated future cash flows of the financial assets have been affected.

F-47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

287HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the investment below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as default or delinquency in interest and principal payments; or

• it becoming probable that the borrower will enter bankruptcy or financial re-organization; or

• the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as loans and advances, advances to customers on margin financing, financial assets held under resale agreements and accounts receivable, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset (whether significant or not), it includes the asset in a group of financial assets with similar credit risk characteristics and collectively reassesses them for impairment. Assets for which an impairment loss is individually recognized are not included in a collective assessment of impairment. The group takes into account the amount and nature of the financial assets held by the group in order to determine the individual significant financial assets.

Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments and observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of loans and advances, advances to customers on margin financing, accounts receivable and other receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a loan and advance, an advance to customer on margin financing, an account receivable or a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

F-48

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

288 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

When an available-for-sale investment is considered to be impaired, cumulative gains or losses previously

recognised in other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment

loss decreases and the decrease can be related objectively to an event occurring after the impairment

losses were recognised, the previously recognised impairment loss is reversed through profit or loss to

the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed

what the amortised cost would have been had the impairment not been recognised.

In respect of AFS equity investments, impairment losses previously recognised in profit or loss are not

reversed through profit or loss. Any increase in fair value subsequent to impairment loss is recognised

directly in other comprehensive income and accumulated under the heading of investment revaluation

reserve. For available-for-sale debt investments, impairment losses are subsequently reversed if an

increase in the fair value of the investment can be objectively related to an event occurring after the

recognition of the impairment loss.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as

equity in accordance with the substance of the contractual arrangements and the definitions of a

financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after

deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds

received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and

of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly

discounts estimated future cash payments (including all fees and points paid or received that form an

integral part of the effective interest rate, transaction costs and other premiums or discounts) through

the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying

amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

F-49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

289HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial liabilities and equity instruments (continued)

Financial liabilities at FVTPL

Financial liabilities at FVTPL include financial liabilities held for trading, financial liabilities designated

at FVTPL.

A financial liability is classified as financial liabilities held for trading if:

• it has been acquired principally for the purpose of repurchasing in the near term; or

• on initial recognition it is a part of an identified portfolio of financial instruments that the Group

manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon

initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency

that would otherwise arise, or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which

is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s

documented risk management or investment strategy, and information about the grouping is

provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivative, and IAS 39 permits the

entire combined contract (assets or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on remeasurement

recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in

the line item in profit or loss and excludes any interest paid on the financial liabilities.

Other financial liabilities

Other financial liabilities including deposits from central banks, deposits from other banks, customer

accounts, borrowings, short-term financing bills payables, placements from other financial institutions,

accounts payable to brokerage clients, bond payables, financial assets sold under repurchase

agreements, other payables and amount due to a subsidiary are subsequently measured at amortised

cost, using the effective interest method.

F-50

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

290 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Compound financial instruments

The component parts of the convertible loan notes issued by the Group are classified separately as

financial liabilities and equity in accordance with the substance of the contractual arrangements and

the definitions of a financial liability and an equity instrument. Conversion option that will be settled

by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s

own equity instruments is an equity instrument.

At the date of issue, both the debt component and derivative components are recognised at fair value.

In subsequent periods, the debt component of the convertible loan notes is carried at amortised cost

using the effective interest method. The derivative component is measured at fair value with changes

in fair value recognised in profit or loss.

The conversion option classified as equity is determined by deducting the amount of the liability component

from the fair value of the compound instrument as a whole. This is recognised and included in equity, net of

income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity

will remain in equity until the conversion option is exercised, in which case, the balance recognised in equity

will be transferred to share premium and share capital. Where the conversion option remains unexercised

at the maturity date of the convertible note, the balance recognised in equity will be transferred to retained

profits. No gain or loss is recognised in profit or loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and

equity components in proportion to the allocation of the gross proceeds. Transaction costs relating

to the equity component are charged directly to equity. Transaction costs relating to the liability

component are included in the carrying amount of the liability portion and amortised over the period

of the convertible loan notes using the effective interest method.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date when derivative contracts are entered into and are

subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is

recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument,

in which case the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

All derivatives are recognised as assets when the fair value is positive and as liabilities when the fair

value is negative.

Embedded Derivative

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they

meet the definition of a derivative, their risks and characteristics are not closely related to those of

the host contracts and the host contracts are not measured at FVTPL. Generally, multiple embedded

derivatives in a single instrument are treated as a single compound embedded derivative unless those

derivatives relate to different risk exposures and are readily separable and independent of each other.

F-51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

291HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets sold under repurchase agreements and financial assets held under resale agreements

Financial assets sold under repurchase agreements continue to be recognised, which do not result in

derecognition of the financial assets, and are recorded as “available-for-sale investments” or “financial

assets at FVTPL” as appropriate. The corresponding liability is included in “financial assets sold under

repurchase agreements”. Financial assets held under resale agreements to resell are recorded as

“financial assets held under resale agreements”. Financial assets sold under repurchase agreements and

financial assets held under resale agreements are initially measured at fair value and are subsequently

measured at amortised cost using the effective interest method.

(a) Financial assets held under resale agreements

Financial assets that have been purchased under agreements with a commitment to resell at

a specific future date are not recognised in the statement of financial position. The cost of

purchasing such assets is presented under “financial assets held under resale agreements” in

the statement of financial position.

(b) Financial assets sold under repurchase agreements

Financial assets sold subject to agreements with a commitment to repurchase at a specific future

date are not derecognised in the statement of financial position. The proceeds from selling such

assets are presented under “financial assets sold under repurchase agreements” in the statement

of financial position.

Hedge accounting

The Group designates certain bank loans for hedges of net investments in foreign operations.

At the inception of the hedging relationship the Group documents the relationship between the

hedging instrument and the hedged item, along with its risk management objectives and its strategy for

undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing

basis, the Group documents whether the hedging instrument that is used in a hedging relationship is

highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to

the hedged risk.

Hedges of net investments in foreign operations

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any

gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in

other comprehensive income and accumulated under the heading of translation reserve. The gain or

loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the

‘other gains or losses’ line item.

Gains or losses on the hedging instrument relating to the effective portion of hedge accumulated in

the translation reserve are reclassified to profit or loss on disposal of foreign operation.

F-52

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

292 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Securities lending

The Group lends investment securities to clients and the cash collaterals balance required under the

securities lending agreements and the interest arisen from these are classified as “accounts payable

to brokerage clients”. For those securities held by the Group lent to clients that do not result in the

derecognition of financial assets, they are included in related financial assets.

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from

the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the

risks and rewards of ownership and continues to control the transferred assets, the Group recognises

its retained interest in the asset and an associated liability for amounts it may have to pay. If the

Group retains substantially all the risks and rewards of ownership of transferred financial assets, the

Group continues to recognise the financial asset and also recognises a collateralised borrowing for the

proceeds received.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum

of the consideration received and receivable and the cumulative gain or loss that had been recognised

in other comprehensive income and accumulated in equity is recognised in profit or loss.

On derecognition of a financial asset other than in its entirety, (e.g. when the Group retains an option

to repurchase part of a transferred asset) the Group allocates the previous carrying amount of the

financial asset between the part it continues to recognise under continuing involvement, and the part

it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer.

The difference between the carrying amount allocated to the part that is no longer recognised and

the sum of the consideration received for the part no longer recognised and any cumulative gain or

loss allocated to it that had been recognised in other comprehensive income is recognised in profit or

loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated

between the part that continues to be recognised and the part that is no longer recognised on the

basis of the relative fair values of those parts.

The Group derecognised financial liabilities when, and only when, the Group’s obligations are

discharged, cancelled or expires. The difference between the carrying amount of the financial liability

derecognised and the consideration paid and payable is recognised in profit or loss.

F-53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

293HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial guarantee contracts

Financial guarantee contract is contract that require the issuer to make specified payments to reimburse

the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance

with the terms of a debt instrument, namely the payment of principal and/or interests. Acceptance

includes the honour commitment made by the note sent to customers by the Group. Acceptance is listed

as a financial guarantee and credit commitment transaction and is disclosed as contingent liabilities

and commitments.

The financial guarantee contracts issued by a group entity are initially measured at their fair values and,

if not designed as at FVTPL, are subsequently measured at the higher of:

• According to the amount of contractual obligations according to IAS 37; And

• The amount initially recognised less, when appropriate, cumulative amortisation recognised in

accordance with the revenue recognition policies.

The financial guarantee contracts issued by the Haitong Bank normally have a stated maturity date and a

periodic fee, usually paid in advance on a quarterly basis. This fee varies depending on the counterparty

risk, the amount and the term of the contract. Therefore, the fair value of the financial guarantee

contracts issued by the Haitong Bank, at the inception date, equal the initial fee received, which is

recognised in the income statement over the period to which it relates. The subsequent periodic fees

are recognised in the income statement in period to which they relate.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash

on hand and demand deposits, and short term highly liquid investments that are readily convertible

into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short

maturity of generally within three months when acquired, less bank overdrafts which are repayable on

demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and bank balances comprise

cash on hand and at banks, including term deposits, which are not restricted as to use.

F-54

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

294 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT

In the application of the Group’s accounting policies, which are described in Note 3, the directors of

the Company are required to make judgements estimates and assumptions about the carrying amounts

of assets and liabilities that are not readily apparent from other sources. The estimates and associated

assumptions are based on historical experience and other factors that are considered to be relevant.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that

period, or in the period of the revision and future periods if the revision affects both current and future

periods.

Impairment of loans and advances, advances to customers on margin financing and financial assets held under resale agreements

The Group reviews its loans and advances, advances to customers on margin financing and financial

assets held under resale agreements to assess impairment on a periodic basis. In determining whether

an impairment loss should be recognised in profit or loss, the Group makes judgments as to whether

there is any observable data indicating that there is an objective evidence of impairment that will have a

measurable decrease in the estimated future cash flows from a portfolio of loans and advances, advances

to customers on margin financing and financial assets held under resale agreements. Moreover, the

Group also reviews the value of the securities collateral received from the customers in determining

the impairment. The Group reviewed the methodology and assumptions used for estimating both the

amount and timing of future cash flows regularly to reduce any differences between loss estimates and

actual loss experience. Details of loans and advances, advances to customers on margin financing and

financial assets held under resale agreements are set out in Notes 41, 30 and 33.

Impairment of finance lease receivables

The Group reviews its finance lease receivables to assess impairment on a regular basis. The impairment

loss amount of an individual finance lease receivable is the net decrease in the present value of the

estimated future cash flows and the evidence of impairment may include observable data indicating

that there is a measurable decrease in the estimated future cash flows of the individual finance lease

receivable. The Group periodically reviews its finance lease receivables to assess impairment except that

there are known situation demonstrates impairment losses have occurred during that period. The Group

makes judgments as to whether there is any observable data indicating that there is an impairment loss

should be recorded in the statement of profit or loss from a portfolio of finance lease receivables before

the decrease can be identified with an individual finance lease receivable in that portfolio. This evidence

may include observable data indicating that there has been an adverse change in the payment status of

borrowers in a group (e.g. payment delinquency or default), or national or local economic conditions

that correlate with defaults on assets in the portfolio. Management uses estimates based on historical

loss experience for assets with credit risk characteristics and objective evidence of impairment similar

to those in the portfolio when scheduling its future cash flows. The methodology and assumptions

used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce

any differences between loss estimates and actual loss experience. Details of finance lease receivables

are set out in Note 24.

F-55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

295HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT

(continued)

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the

cash-generating units to which goodwill has been allocated. The value in use calculation requires

the Group to estimate the future cash flows expected to arise from the cash-generating unit and an

appropriate discount rate in order to calculate the present value. Where the actual future cash flows are

less than expected, a material impairment loss may arise. Details of the recoverable amount calculation

are set out in Note 20.

Impairment of available-for-sale investments

The determination of whether an available-for-sale investment is impaired requires significant judgment.

For listed available-for-sale equity investments and other equity related investments measured at fair

value, a significant or prolonged decline in fair value below cost is considered to be objective evidence

of impairment. Judgment is required when determining whether a decline in fair value has been

significant or prolonged. In making this judgment, the Group evaluates the duration and extent to which

the fair value of an investment is less than its cost. In assessing whether it is prolonged, the decline

is evaluated against the period in which the fair value of the asset has been below its original cost at

initial recognition. In assessing whether it is significant, the decline in fair value is evaluated against

the original cost of the asset at initial recognition. The Group also takes into account other factors,

such as the historical data on market volatility and the price of the specific investment, significant

changes in technology, markets, economics or the law, as well as industry and sector performance and

the consolidated financial statements regarding the investee that provides evidence that the cost of

the equity securities may not be recovered. Judgment is also required to determine whether historical

performance remains representative of current and future economic conditions. For available-for-sale

debt instruments, the Group makes the judgments as to whether there is an objective evidence of

impairment which indicates a measurable decrease in the estimated future cash flows of these debt

instruments. This requires a significant level of management judgement which would affect the amount

of impairment losses in profit or loss. Details of the available-for-sale investments are set out in Note 26.

Income taxes

There are certain transactions and activities for which the ultimate tax determination is uncertain during

the ordinary course of business. Where the final tax outcome of these matters is different from the

amounts that were initially estimated, such differences will impact the current income tax and deferred

income tax in the period during which such a determination is made.

F-56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

296 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT

(continued)

Consolidation of structured entities

All facts and circumstances must be taken into consideration in the assessment of whether the Group,

as an investor, controls the investee. The principle of control sets out the following three elements of

control: (a) power over the investee; (b) exposure, or rights, to variable returns from involvement with

the investee; and (c) the ability to use power over the investee to affect the amount of the investor’s

returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate

that there are changes to one or more of the three elements of control listed above.

For collective asset management schemes and investment funds where the Group involves as manager,

the Group considers the scope of its decision-making authority and assesses whether the combination

of investments it holds together with its remuneration, credit enhancements and other interests creates

exposure to variability of returns from the activities of the collective asset management schemes and

investment funds that is of such significance that it indicates that the Group is a principal. The collective

asset management schemes and investment funds are consolidated if the Group acts in the role of

principal. Detail of consolidated structured entities and unconsolidated structured entities are set out

in Note 22 and 25 to the consolidated financial statements respectively.

5. COMMISSION AND FEE INCOME

2017 2016

RMB’000 RMB’000

Commission on securities dealing, broking and

handling fee income 4,958,296 6,406,529

Commission on futures and options contracts dealing and

broking and handling fee income 511,907 551,135

Financial advisory and consultancy fee income 1,140,135 1,460,984

Underwriting and sponsors fees 2,467,057 2,619,300

Asset management fee income (including fund management

income) 2,098,349 1,641,855

Commission on bullion contracts dealing 564 662

Others 48,775 30,828

11,225,083 12,711,293

F-57

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

297HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

6. INTEREST INCOME

2017 2016

RMB’000 RMB’000

Bank interest income 2,897,113 3,164,933

Interest income from advances to customers on margin

financing 4,135,956 5,047,767

Interest income from loans and advances 830,783 694,180

Interest income from financial assets held under resale

agreements (Note) 4,265,941 4,743,989

Interest income from finance leases 2,675,752 2,401,560

Other interest income 318,772 128,119

15,124,317 16,180,548

7. NET INVESTMENT GAINS

2017 2016

RMB’000 RMB’000

Net realised gains arising from available-for-sale investments 3,109,382 2,558,598

Net realised gains arising from financial assets/liabilities

at fair value through profit or loss 6,820,343 2,766,728

Fair value change of financial instruments at fair value

through profit or loss (1,329,411) (231,334)

Net income arising from other loan and receivables 727,308 1,013,931

9,327,622 6,107,923

8. OTHER INCOME AND GAINS

2017 2016

RMB’000 RMB’000

Non-recurring government grants (Note) 648,512 568,029

Rental income 99,389 21,623

Includes: Rental income from investment properties 13,832 14,369

Income from bulk commodity trading and others 4,899,379 6,902,840

5,647,480 7,492,492

Note: The non-recurring government grants were received unconditionally by the Group and its subsidiaries from the local government where they reside. The main purpose is to subsidise the operations of these entities.

F-58

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

298 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

9. DEPRECIATION AND AMORTISATION

2017 2016

RMB’000 RMB’000

Depreciation of property and equipment 339,561 280,748

Depreciation of investment properties 1,195 1,195

Amortisation of other intangible assets 127,158 96,643

Amortisation of prepaid lease payments 17,423 503

485,337 379,089

10. STAFF COSTS

2017 2016

RMB’000 RMB’000

Staff costs (including directors’ remuneration (Note 62)):

Salaries, bonus and allowances 5,266,101 5,124,830

Contributions to annuity plans

and retirement schemes (Note) 833,249 674,426

Other social welfare 300,716 368,784

6,400,066 6,168,040

Note: The domestic employees of the Group in the PRC participate in a state-managed retirement benefit scheme operated by the respective local government in the PRC. Apart from the state-managed retirement benefit scheme, the Group also makes monthly contributions to annuity plans at fixed rates of the employees’ salaries and bonuses for the period. The Group operates a post-retirement scheme for its qualifying employees in Hong Kong under the Mandatory Provident Fund Schemes Ordinance. The Group’s contributions to these post-retirements plans are charged to profit or loss in the period to which they relate.

One of the Group’s subsidiary in Portugal operated a defined benefit scheme. As at 31 December 2017, the present value of defined benefit obligations and fair value of plan assets in respect of this scheme amounted to EUR72,070,000 (31 December 2016: EUR70,735,000) and EUR72,552,000 (31 December 2016: EUR67,349,000), respectively.

Share option award of subsidiaries is disclosed in Note 64.

F-59

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

299HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

11. BROKERAGE TRANSACTION FEES AND OTHER SERVICES EXPENSES

2017 2016

RMB’000 RMB’000

Securities and futures dealing and broking expenses 948,290 988,559

Services expenses for underwriting

and financial advisory, etc. 32,293 47,530

980,583 1,036,089

12. INTEREST EXPENSES

2017 2016

RMB’000 RMB’000

Interest on borrowings wholly repayable within five years:

– bank loans and overdrafts 2,395,041 2,768,182

– deposit taken from banks and other financial institutes 264,058 344,147

– financial assets sold under repurchase agreements (Note) 1,804,899 2,627,625

– accounts payable to brokerage clients 282,433 345,377

– advances from China Securities Finance Corporation Ltd. 91,976 24,382

– bond payables 5,957,070 6,038,402

– others 662,915 192,822

11,458,392 12,340,937

F-60

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

300 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

13. PROFIT BEFORE INCOME TAX

2017 2016

RMB’000 RMB’000

The Group’s profit before income tax is arrived at

after charging (crediting):

Auditors’ remuneration 21,707 24,248

Includes: Annual audit fee for the Company 6,600 7,300

Other subsidiaries’ audit fees 15,107 16,609

Others – 339

Impairment loss in respect of available-for-sale investments

included in other expenses 247,963 240,546

Impairment loss (reversal) in respect of accounts receivable and

other receivables included in other expenses 52,287 (23,044)

Impairment loss in respect of finance lease receivables

included in other expenses 393,139 507,743

Impairment loss in respect of advances to customers on

margin financing included in other expenses 130,876 62,843

Impairment loss in respect of financial assets held under

resale agreements included in other expenses 164,162 57,841

Impairment loss in respect of customer loans and advances 369,620 373,761

Impairment loss in respect of factoring receivables and

entrusted loans 195,587 70,025

Other impairment loss 133,024 129,778

Losses on disposal of property and equipment and

other intangible assets 9,111 1,193

Foreign exchange losses/(gains) 225,472 (10,728)

Business taxes and surcharges 165,973 490,686

Cost of sales of bulk commodity trading 4,210,657 5,863,536

Operating lease rentals in respect of rented premises 473,805 407,758

F-61

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

301HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

14. INCOME TAX EXPENSE

2017 2016

RMB’000 RMB’000

Current tax:

PRC Enterprise Income Tax and other jurisdictions 2,886,612 2,113,828

Hong Kong Profits Tax 480,043 323,379

3,366,655 2,437,207

Adjustments in respect of current income tax in relation to

prior years:

PRC Enterprise Income Tax and other jurisdictions 23,265 (15,495)

Hong Kong Profits Tax (41,646) (30,686)

(18,381) (46,181)

Deferred tax:

Current period (337,546) (159,416)

Previous period 3,066 (401)

3,013,794 2,231,209

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and

Implementation Regulation of the EIT Law, the tax rate is 25% from 1 January 2008.

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit. Taxation arising in

other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

F-62

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

302 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

14. INCOME TAX EXPENSE (continued)

A reconciliation of the tax expense applicable to profit before income tax using the applicable rate to

the tax expense at the effective tax rate is as follows:

2017 2016

RMB’000 RMB’000

Profit before income tax 12,889,397 11,161,727

Tax at the statutory tax rate of 25% 3,222,349 2,790,432

Effect of share of results of associates and joint ventures (160,108) (53,111)

Tax effect of expenses not deductible for tax purpose 764,180 667,132

Tax effect of income not taxable for tax purpose (521,840) (986,765)

Adjustments in respect of income tax in relation

to prior years (15,315) (46,582)

Effect of different tax rates of subsidiaries operating in

other jurisdictions (246,222) (164,853)

Others (29,250) 24,956

Tax charge 3,013,794 2,231,209

F-63

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

303HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

15. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share attributable to owners of the Company is as

follows:

2017 2016

RMB’000 RMB’000

Earnings for the purpose of basic earnings per share:

Profit for the year attributable to owners of the Company 8,618,423 8,043,334

Effect of dilutive potential ordinary shares:

Adjustment to the share of profit of

subsidiaries based on dilution of

their earnings per share (Notes i, ii) (135,636) (22,810)

Earnings for the purpose of diluted earnings per share 8,482,787 8,020,524

Number of shares for basic and diluted earnings per share:

Number of shares in issue (in thousand) 11,501,700 11,501,700

Basic earnings per share 0.75 0.70

Diluted earnings per share 0.74 0.70

Notes:

(i) As disclosed in Note 55, a subsidiary of the Company issued convertible bonds. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of the subsidiary, assuming outstanding convertible bonds were fully converted to ordinary shares of that subsidiary on the first day of the year, or the dates of the issues of these convertible bonds, whichever the later.

(ii) As disclosed in Note 62, subsidiaries of the Company operated various share option or share awards schemes. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of these subsidiaries when additional shares have to be issued to relevant employees.

F-64

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

304 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

16. PROPERTY AND EQUIPMENT

Leaseholdland andbuildings

Leaseholdimprovements

Electronicequipment

Transportationequipment

Furniture,fixtures and

equipmentConstruction

in progress TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2017 1,107,723 837,242 1,053,021 455,378 192,538 32,817 3,678,719Additions during the year 143,394 53,784 174,746 1,166,215 21,588 51,396 1,611,123Disposals during the year (5,125) – (74,928) (16,596) (17,722) (418) (114,789)Transfer during the year 4,898 18,474 17,457 – 668 (41,497) –Exchange difference (4,430) (3,284) (3,953) (1,865) (4,848) (1,786) (20,166)

As at 31 December 2017 1,246,460 906,216 1,166,343 1,603,132 192,224 40,512 5,154,887

ACCUMULATED DEPRECIATION

As at 1 January 2017 392,003 674,977 719,594 121,203 124,721 – 2,032,498Provided for the year 34,182 69,796 173,796 39,192 22,595 – 339,561Eliminated on disposals – – (70,401) (15,381) (14,972) – (100,754)Exchange difference (35) (3,139) (4,102) (266) (1,628) – (9,170)

As at 31 December 2017 426,150 741,634 818,887 144,748 130,716 – 2,262,135

ALLOWANCE FOR IMPAIRMENT LOSSES

As at 1 January 2017 &

31 December 2017 30,382 – – – – – 30,382

CARRYING VALUES

As at 31 December 2017 789,928 164,582 347,456 1,458,384 61,508 40,512 2,862,370

F-65

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

305HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

16. PROPERTY AND EQUIPMENT (continued)

Leasehold

land and

buildings

Leasehold

improvements

Electronic

equipment

Transportation

equipment

Furniture,

fixtures and

equipment

Construction

in progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2016 1,102,905 769,008 944,170 173,747 176,198 25,364 3,191,392

Additions during the year 4,378 45,049 177,033 299,208 26,398 52,923 604,989

Disposals during the year (4,692) (1,250) (91,040) (8,654) (17,626) (4,986) (128,248)

Transfer during the year 466 20,160 15,793 – 903 (37,322) –

Exchange difference 4,666 4,275 7,065 (8,923) 6,665 (3,162) 10,586

As at 31 December 2016 1,107,723 837,242 1,053,021 455,378 192,538 32,817 3,678,719

ACCUMULATED DEPRECIATION

As at 1 January 2016 359,925 610,319 651,948 111,233 110,407 – 1,843,832

Provided for the year 32,050 63,633 146,138 17,389 21,538 – 280,748

Eliminated on disposals (83) (1,096) (84,331) (7,602) (14,085) – (107,197)

Exchange difference 111 2,121 5,839 183 6,861 – 15,115

As at 31 December 2016 392,003 674,977 719,594 121,203 124,721 – 2,032,498

ALLOWANCE FOR IMPAIRMENT LOSSES

As at 1 January 2016 &

31 December 2016 30,382 – – – – – 30,382

CARRYING VALUES

As at 31 December 2016 685,338 162,265 333,427 334,175 67,817 32,817 1,615,839

Transportation equipment of the Group includes aircraft held for operating lease businesses, as of

31 December 2017, the cost of aircraft amounts to RMB1,430,597,000 (2016: RMB278,867,000),

accumulated depreciation amounts to RMB24,089,000 (2016: RMB898,000), and the carrying values

of aircraft amounts to RMB1,406,508,000 (2016: RMB277,969,000).

F-66

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

306 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

16. PROPERTY AND EQUIPMENT (continued)

As the lease payments included in the Group’s leasehold land and buildings cannot be allocated reliably

between the land and buildings, the entire leases are classified as finance leases and accounted for as

property and equipment.

As of 31 December 2017 and 31 December 2016, included in leasehold land and buildings, there are

carrying amounts of RMB34,862,908 and RMB36,264,000, respectively, for which the Group have yet

to obtain the relevant land and building certificates.

17. INVESTMENT PROPERTIES

2017/12/31 2016/12/31

RMB’000 RMB’000

COST

At beginning of the year 37,610 37,610

At end of the year 37,610 37,610

ACCUMULATED DEPRECIATION

At beginning of the year 19,551 18,356

Provided for the year 1,195 1,195

At end of the year 20,746 19,551

CARRYING VALUES

At end of the year 16,864 18,059

The fair values of the Group’s investment properties at 31 December 2017 and 31 December 2016,

were RMB118,162,000 and RMB101,506,000 respectively. The fair values have been determined by

the directors of the Company by reference to recent market prices for similar properties in the same or

similar locations and conditions. Fair values disclosed above are categorized as level 3.

F-67

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

307HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

18. GOODWILL

Cost and carrying values

2017/12/31 2016/12/31

RMB’000 RMB’000

At beginning of the year 4,118,734 3,757,597

Additional amount in respect of business

combination (Note 71) 4,618 95,568

Exchange adjustments (259,832) 265,569

At end of the year 3,863,520 4,118,734

Particulars regarding impairment testing on goodwill are disclosed in Note 20.

19. OTHER INTANGIBLE ASSETS

Tradingrights

Computersoftware Others

Constructionin progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2017 224,131 765,335 98,489 14,744 1,102,699Additions during the year 1,400 139,450 10,714 9,274 160,838Disposals during the year – (29,042) (290) – (29,332)Transfer during the year – 11,825 – (11,825) –Exchange difference (387) 10,926 (2,996) (4,130) 3,413

As at 31 December 2017 225,144 898,494 105,917 8,063 1,237,618

ACCUMULATED AMORTISATION

As at 1 January 2017 118,400 471,543 45,006 – 634,949Provided for the year – 121,243 5,915 – 127,158Eliminated on disposals – (27,665) (208) – (27,873)Exchange difference – 9,760 (429) – 9,331

As at 31 December 2017 118,400 574,881 50,284 – 743,565

CARRYING VALUES

As at 31 December 2017 106,744 323,613 55,633 8,063 494,053

F-68

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

308 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

19. OTHER INTANGIBLE ASSETS (continued)

Trading

rights

Computer

software Others

Construction

in progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2016 223,757 615,924 92,836 45,720 978,237

Additions during the year – 95,925 2,800 14,253 112,978

Disposals during the year – (6,891) (50) (9,452) (16,393)

Transfer during the year – 40,181 – (40,181) –

Exchange difference 374 20,196 2,903 4,404 27,877

As at 31 December 2016 224,131 765,335 98,489 14,744 1,102,699

ACCUMULATED AMORTISATION

As at 1 January 2016 118,400 368,827 41,724 – 528,951

Provided for the year – 93,554 3,089 – 96,643

Eliminated on disposals – (4,665) (50) – (4,715)

Exchange difference – 13,827 243 – 14,070

As at 31 December 2016 118,400 471,543 45,006 – 634,949

CARRYING VALUES

As at 31 December 2016 105,731 293,792 53,483 14,744 467,750

Trading rights mainly comprise the trading rights in the Shanghai Stock Exchange, the Shenzhen Stock

Exchange, the Hong Kong Exchanges and Clearing Limited and the Hong Kong Futures Exchange Limited

which allow the Group to trade securities and futures contracts on or through these exchanges. The

Group treats trading rights as intangible assets with infinite useful lives. Details regarding impairment

testing on trading right are disclosed in Note 20.

F-69

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

309HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

20. IMPAIRMENT TESTING ON GOODWILL AND TRADING RIGHTS WITH INDEFINITE USEFUL

LIVES

Impairment testing on goodwill

For the purpose of impairment testing, goodwill set out in Note 18 has been allocated into five individual

cash generating units (CGUs), including one subsidiary in Shanghai (“Unit A”) and one subsidiary in

Hong Kong (“Unit B”) and one subsidiary its headquarters are in Hong Kong and operates mainly in

Shanghai(“Unit C”) and one subsidiary acquired by the Group last year its headquarters are in Portugal

(“Unit D”) and one subsidiary acquired by the Group last year its headquarters are in Japan (“Unit E”)

and one subsidiary in Singapore (“Unit F”).The carrying amounts of goodwill as at 31 December 2017

and 31 December 2016 allocated to these units are as follows:

2017/12/31 2016/12/31

RMB’000 RMB’000

Unit A – Haitong Futures Co., Ltd. 5,896 5,896

Unit B – Haitong International Securities Group Limited 656,173 702,173

Unit C – Haitong UT Capital Group Co., Ltd. 2,093,268 2,240,013

Unit D – Haitong Bank S.A.

(formerly Banco Espirito Santo de Investimento, S.A.) 979,981 1,038,404

Unit E – Haitong International Holdings (UK) Limited

(formerly “Japaninvest Group plc”) 123,584 132,248

Unit F – G. K. Goh Financial Services (Singapore) Pte. Ltd. 4,618 –

3,863,520 4,118,734

During the year ended 31 December 2017 and 31 December 2016, management of the Group

determined that there are no impairments of any of its CGUs containing goodwill as the recoverable

amounts of Unit A, Unit B, Unit C, Unit D, Unit E and Unit F exceed their respective carrying amounts.

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are

summarised below:

The recoverable amounts of Unit A, Unit B, Unit C, Unit D, Unit E and Unit F have been determined

on the basis of value in use calculation. That calculation uses cash flow projections based on financial

budgets approved by management and at a discount rate of 3.025% to 15.00% for Unit A, Unit B,

Unit C, Unit D, Unit E and Unit F, as at 31 December 2017. (31 December 2016: 3.163% to 15.22%

for Unit A, Unit B, Unit C, Unit D and Unit E). The discount rates used reflect specific risks relating to

the relevant CGUs.

Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows

which include budgeted income, gross margin and perpetual growth rate, such estimation is based on

the units’ past performance and management’s expectations for the market development.

F-70

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

310 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

20. IMPAIRMENT TESTING ON GOODWILL AND TRADING RIGHTS WITH INDEFINITE USEFUL

LIVES (continued)

Impairment testing on goodwill (continued)

Management believes that any reasonably possible change in any of these assumptions would not

cause the aggregate carrying amounts of Unit A, Unit B, Unit C, Unit D, Unit E or Unit F to exceed their

respective aggregate recoverable amounts.

Impairment testing on trading rights with indefinite useful lives

The trading rights held by the Group are considered by the directors of the Company as having indefinite

useful lives because they are expected to contribute net cash inflows indefinitely. The trading rights

will not be amortised until their useful life is determined to be finite. Instead, they will be tested for

impairment annually and whenever there is an indication that they may be impaired. The respective

recoverable amounts of the three cash generating units relating to brokerage business whereby

these trading rights are allocated to, using a value in use calculation, exceed the carrying amounts.

Accordingly, there is no impairment of the trading rights as at 31 December 2017 and 31 December

2016.

21. PRINCIPAL SUBSIDIARIES

Investment in subsidiaries:

2017/12/31 2016/12/31

RMB’000 RMB’000

Unlisted shares, at cost 26,022,222 25,266,156

F-71

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

311HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

21. PRINCIPAL SUBSIDIARIES (continued)

Details of the principal subsidiaries:

Equity interestheld by the Group

Name of subsidiary

Place of incorporation/establishment

As at 31 December

2017

As at 31 December

2016

Share capital/ registered andpaid-up capital Principal activities

海富通基金管理有限公司HFT Investment Management Co., Ltd.*2, 4

PRC 51% 51% RMB300,000,000

Provision of fund trading, distribution and management services

海富產業投資基金管理有限公司 PRC 67% 67% RMB Provision of advisoryHaitong-Fortis Private Equity 100,000,000 services and fund Fund Management Co., Ltd.*2 management services

海通開元投資有限公司 PRC 100% 100% RMB Provision of advisoryHaitong Capital Investment Co. Ltd.*2 10,650,000,000 services and proprietary (“HCICL”) trading

海通國際控股有限公司 Hong Kong 100% 100% HKD Investment holding andHaitong International Holdings Limited*2 8,850,000,000 securities trading

(“HTIH”)

海通期貨有限公司 PRC 66.667% 66.667% RMB Physical commodities andHaitong Futures Co., Ltd.*2 1,300,000,000 futures contracts broking

and dealing

海通國際證券集團有限公司 Bermuda 62.43% 61.78% HKD Security CompanyHaitong International Securities 550,085,879 Group Limited 1 (“HISGL”)

海通創新證券投資有限公司 PRC 100% 100% RMB Financial products investment Haitong Chuangxin Securities 3,500,000,000 investment advisory Investment Company Limited2 and investment management

services

上海海通證券資產管理有限公司 PRC 100% 100% RMB Securities investmentShanghai Haitong Securities 2,200,000,000 management Asset Management Company Limited*2

海通恒信金融集團有限公司 Hong Kong 100% 100% HKD Finance LeasingHaitong UT Capital Group Co., Limited 4,146,162,881

海通銀行 Portugal 100% 100% EUR Banking ServicesHaitong Bank S.A. (“Haitong Bank”)3 844,769,000

上海惟泰置業管理有限公司 PRC 100% N/A RMB Real estate development,Shanghai Weitai Properties 10,000,000 property management Management Co., Ltd.2 and catering management

F-72

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

312 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

21. PRINCIPAL SUBSIDIARIES (continued)

Details of the principal subsidiaries: (continued)

* English translated name is for identification only.

1 In the opinion of directors, further disclosure of information for the indirectly held subsidiaries through HISGL in these financial statements would not add value to the shareholders as the related information is already being included in note the annual report of HISGL for year ended 31 December 2017 currently being available to public.

2 The subsidiary is directly held by the Company.

3 During the year ended 31 December 2017, HTIH raise the capital to Haitong Bank by amount of EUR 0.42 billion. After the capital injection, the share capital of Haitong Bank is EUR0.85 billion.

4 On 27 April 2017, HFT Investment Management Co., Ltd transferred their own general reserves and retained profit by amount of RMB133 million and RMB17 million to share capital, respectively. After the transfer, the share capital of HFT Investment Management Co., Ltd is RMB300 million.

The above table lists the subsidiaries of the Group which, in the opinion of the Directors, principally

affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion

of the directors, result in particulars of excessive length.

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly-owned subsidiaries of the Group that have material

non-controlling interests:

Proportion of ownershipinterests and voting

Name ofsubsidiary

Placement ofincorporation

rights held by noncontrolling interests

Profit allocated to noncontrolling interests

Accumulated noncontrolling interests

31/12/2017 31/12/2016 31/12/2017 31/12/2016 31/12/2017 31/12/2016

RMB’000 RMB’000 RMB’000 RMB’000

HISGL Bermuda 37.57% 38.22% 951,164 574,458 7,966,818 7,675,170

F-73

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

313HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

21. PRINCIPAL SUBSIDIARIES (continued)

Details of non-wholly owned subsidiaries that have material non-controlling interests (continued)

Summarised financial information in respect HISGL is set out below. The summarised financial

information below represents amounts before intragroup eliminations.

2017/12/31 2016/12/31

RMB’000 RMB’000

Current assets 92,922,345 97,083,831

Non-current assets 15,933,063 20,548,928

Current liabilities 74,377,418 84,321,463

Non-current liabilities 13,272,726 13,230,420

Total equity 21,205,264 20,080,876

Non-controlling interests of the subsidiary 7,966,818 7,675,170

2017 2016

RMB’000 RMB’000

Total income 6,014,390 4,786,359

Total expenses (3,482,679)  (3,283,381)

Profit for the year 2,531,711 1,502,978

Other comprehensive income 105,291 104,517

Total comprehensive income for the year 2,637,002 1,607,495

Total comprehensive income attributable to

the non-controlling interests of the subsidiary 990,722 614,406

Dividends paid to non-controlling interests 314,385 282,554

Net cash outflow from operating activities (4,415,869) (2,935,590)

Net cash inflow/(outflow) from investing activities 5,706,545 (11,600,540)

Net cash (outflow)/inflow from financing activities (3,492,758) 15,220,614

Net cash (outflow)/inflow (2,202,082) 684,484

F-74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

314 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

22. INTEREST IN CONSOLIDATED STRUCTURED ENTITIES

The Group had consolidated certain structured entities including asset management products. For

the asset management products where the Group acts as manager, the Group assesses whether the

combination of investments it held, if any, together with its remuneration and other interests creates

exposure to variability of returns from the activities of the asset management products that is of such

significance that it indicates that the Group is a principal.

The financial impact of these asset management products on the Group’s financial position as at 31

December 2017 and 31 December 2016, and the results and cash flows for the years ended 2017 and

2016, though consolidated, are not significant and therefore not disclosed separately.

Interests in all consolidated structured entities directly held by the Group amounted to fair value of

RMB11,917,811,000 and RMB8,272,156,000 at 31 December 2017 and 2016, respectively. It contains

the interests in the subordinated tranche of those structured products held by the Group. The Group

provides credit enhancement to the senior tranche investors by holding such subordinated tranche

interests. As at 31 December 2017 and 2016, the fair value of the Group’s interests in the subordinated

tranche of those structured products is RMB4,090,020,000 and RMB1,000,811,000 respectively.

Interests held by other interest holders are included in financial liabilities at fair value through profit or

loss in the consolidated statement of financial position and the corresponding changes are presented

as change in net investment gains in the consolidated statement of profit or loss.

23. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

2017/12/31 2016/12/31

RMB’000 RMB’000

Associates:

Cost of unlisted investments in associates 4,053,890 4,028,231

Share of post-acquisition profits and other comprehensive

income, net of dividends received 826,779 766,638

Subtotal for associates 4,880,669 4,794,869

Joint ventures:

Cost of unlisted investments in joint ventures 5,210,136 4,132,921

Share of post-acquisition loss and other

comprehensive income, net of dividends received (28,435) (178,198)

Subtotal for joint ventures 5,181,701 3,954,723

Total 10,062,370 8,749,592

F-75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

315HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

23. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

Details of material investments accounted for using equity method:

Equity interestheld by the Group

Name of entityPlace ofestablishment

As at31 December

2017

As at

31 December

2016 Principal activities

Joint venturesHT Freedom Multi-Tranche Bond Fund (Note i) Cayman Islands 38.63% 28.65% Investment holding

貴安恒信融資租賃（上海）有限公司 PRC 40% – Finance Leasing

(Note ii)

Associates富國基金管理有限公司Fullgoal Fund Management Co. Ltd.*

PRC 27.775% 27.775% Provision of fund trading

distribution services

吉林省現代農業和新興產業投資基金有限公司 PRC 35.71% 37.51% Investing in securities

Jilin Modern Agricultural and Emerging Markets

Investment Fund Limited*

西安航天新能源產業基金投資有限公司 PRC 37.06% 37% Investing in securities

Xi’an Aerospace and New Energy Industry Fund*

上海文化產業股權投資基金合伙企業（有限合伙） PRC 42.83% 42.83% Investing in securities

Shanghai Cultural Industries Investment Fund

(Limited Partnership)*

上海併購股權投資基金合伙企業（有限合伙） PRC 33.68% 33.68% Investing in securities

Shanghai Equity Investment Fund Limited Partnership*

海通（吉林）現代服務業創業投資基金合伙企業（有限合伙） PRC 34.71% 34.71% Investing in securities

Haitong (Jilin) Modern Service Industry

Investment Fund Limited Partnership*

F-76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

316 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Equity interestheld by the Group

Name of entityPlace ofestablishment

As at31 December

2017

As at

31 December

2016 Principal activities

Associates (continued)

海通興泰（安徽新興產業 投資基金（有限合伙）Haitong Xingtai (Anhui) Emerging Industry Investment Fund

Limited Partnership*

PRC 28.16% 28.67% Investing in equity;

Investment management

services

海通齊東（威海）股權投資基金合伙企業（有限合伙）Haitong Qidong (Weihai) Equity Investment Fund

Limited Partnership

PRC 33.96% 33.96% Investing in equity,

Investment management

services

廣東南方媒體融合發展投資基金（有限合伙）Guangdong South Media Integration Fund

Limited Partnership

PRC 27.76% 27.76% Investing in equity,

Investment management

services

海通（吉林）股權投資基金合伙企業（有限合伙）Haitong (Jilin) Equity Investment Fund

Limited Partnership

PRC 27.02% 27.02% Private equity funds

investment

上海彤關投資管理合伙企業（有限合伙）Shanghai Tong Guan Investment Management

Limited Partnership

PRC 50.00% 50.00% Investing in equity,

Investment management

services

西安軍融電子衛星基金投資有限公司Xi’an Civil-Military Integration Satellite

Investment Fund Co., Ltd

PRC 35.72% 35.72% Investment management

services

* The English translated name is for identification only.

All of these joint ventures and associates are unlisted entities without quoted market price available.

All of these associates and joint ventures are accounted for using the equity method in these consolidated financial statements.

23. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

F-77

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

317HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

23. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)Note:

(i) As of 31 December 2017, the Group held the interests of non-participating shares of Haitong Freedom Multi-Tranche Bond Fund (referred to the “Fund”) as disclosed above that the non-participating shares provide the Group with the share of returns from the Fund but not any decision-making power nor any voting right in daily operation of the Fund. As of 31 December 2017, the Group held 50% of the management shares in the Fund and the other 50% management shares are held by an independent third party. The management shareholders are empowered to make all the key financing and operating decisions in the Fund and require unanimous consent of the parties sharing control. The arrangement of sharing of control is contractually agreed by both parties. As such, the interests of the Group in the Fund are classified as a joint venture.

There is no unpaid capital commitment to the Fund. The current carrying amount of RMB4,440 million (31 December 2016: RMB3,186 million) for the Fund in the consolidated statement of financial position represents the Group’s maximum exposure over its investment in the Fund.

(ii) The Group’s subsidiaries agreed to establish 貴安恒信融資租賃（上海）有限公司 as a joint venture together with an independent third party. As of 31 December 2017, there is no unpaid capital commitment to the joint venture.

The financial information of Fullgoal Fund Management Co., Ltd which is an individually significant

associate to the Group, is set out below:

Fullgoal Fund Management Co., Ltd

2017/12/31 2016/12/31

RMB’000 RMB’000

Total assets 4,227,516 4,289,660

Total liabilities 1,383,135 1,835,146

Net assets 2,844,381 2,454,514

Total revenue 2,367,618 2,469,505

Net profit 726,063 751,903

Total comprehensive income 719,867 707,923

F-78

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

318 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

23. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

Fullgoal Fund Management Co., Ltd (continued)

Reconciliation of the above financial information to the carrying amount of the interest in above

associate recognised in the financial statements:

2017/12/31 2016/12/31

RMB’000 RMB’000

Equity attributable to equity holders of the associate 2,844,381 2,454,514

Proportion of equity interests held by the Group 27.775% 27.775%

Carrying amount 790,027 681,741

Aggregate information of associates and joint ventures that are not individually material:

2017 2016

RMB’000 RMB’000

The Group’s share of profit/(loss) 506,822 (8,406)

The Group’s share of other comprehensive (expense)/income (22,103) 86,478

The Group’s share of total comprehensive income 484,719 78,072

Aggregate carrying amount of the Group’s

interests in these associates and joint ventures 9,272,343 8,067,851

F-79

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

319HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

24. FINANCE LEASE RECEIVABLES

2017/12/31 2016/12/31

RMB’000 RMB’000

Minimum lease payments to be received 49,240,968 42,203,604

Less: unrealized finance income (4,222,749) (4,336,324)

Balance of finance lease receivables 45,018,219 37,867,280

Less: Allowance for impairment (1,482,043) (1,312,060)

Finance lease receivables, net 43,536,176 36,555,220

Analysis by statement purpose:

Current assets 21,323,548 14,519,336

Non-current assets 22,212,628 22,035,884

43,536,176 36,555,220

Minimum lease payments to be received and the corresponding present value are as follows:

2017/12/31 2016/12/31

RMB’000 RMB’000

Within 1 year 24,140,952 16,758,152

1~5 years 25,036,034 25,433,807

Over 5 years 63,892 11,645

Total 49,240,968 42,203,604

Unrealized finance income (4,222,749) (4,336,324)

Balance of finance lease receivables 45,018,219 37,867,280

Allowance for impairment (1,482,043) (1,312,060)

Finance lease receivables, net 43,536,176 36,555,220

F-80

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

320 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

24. FINANCE LEASE RECEIVABLES (continued)

Allowance for impairment:

2017/12/31 2016/12/31

Individualassessment

Collectiveassessment Total

Individual

assessment

Collective

assessment Total

RMB‘000 RMB‘000 RMB‘000 RMB‘000 RMB‘000 RMB‘000

As at the beginning of the year 338,375 973,685 1,312,060 125,571 682,011 807,582

Addition during the year 225,511 167,628 393,139 224,213 291,674 515,887

Recoveries of amount

written-off in previous years 18,657 – 18,657 – – –

Written off during the year (241,813) – (241,814) (11,409) – (11,409)

As at the end of the year 340,730 1,141,313 1,482,043 338,375 973,685 1,312,060

25. INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES

Structured entities the Group served as the investment manager, therefore has power over them during

the year include private equity funds and asset management products. Except for the structured entities

the Group has consolidated as detailed in Note 22, in the opinion of the directors of the Company, the

variable returns the Group exposed to over the structured entities that the Group acts as manager are

not significant. The Group therefore did not consolidate these structured entities.

The carrying amount of unconsolidated structured entities in which the Group acted as investment

manager and held financial interests and its maximum exposure to loss in relation to those interests

amounted to RMB 9,069,000,000 and RMB 4,797,000,000 as at 31 December 2017 and 31 December

2016, respectively, and related fee income from those structured entities is RMB 1,593,472,000 and

RMB 1,125,000,000 respectively.

In addition to those interests in unconsolidated structured entities managed by the Group as disclosed

above, the Group also has interests in unconsolidated structured entities in which the Group did not

act as investment manager. The total maximum exposure to loss in relation to the Group’s interests in

structured products and trust products approximate to their respective carrying amounts as disclosed

in notes 26 and 35.

F-81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

321HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

26. AVAILABLE-FOR-SALE INVESTMENTS

2017/12/31 2016/12/31

RMB’000 RMB’000

Debt securities 4,959,363 12,563,689

Equity 7,756,085 11,639,952

Funds 5,018,028 7,339,981

Others (Note ii) 23,495,280 26,485,216

41,228,756 58,028,838

Analysed as:

Listed in Hong Kong 56,115 770,025

Listed outside Hong Kong (primarily in Mainland China) 4,661,374 10,831,690

Unlisted 36,511,267 46,427,123

41,228,756 58,028,838

Analysed as:

Listed equity securities (Note i) 2,315,782 5,277,291

Unlisted equity securities 5,440,303 6,362,661

7,756,085 11,639,952

Analysed for reporting purpose as:

Current assets 9,503,398 12,758,905

Non-current assets 31,725,358 45,269,933

41,228,756 58,028,838

F-82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

322 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

26. AVAILABLE-FOR-SALE INVESTMENTS (continued)Notes:

(i) Included in the Group’s listed equity securities are amounts of approximately RMB1,732,080,000 and RMB1,646,561,000 as at 31 December 2017 and 31 December 2016, respectively, which are restricted shares with a legally enforceable restriction on these securities that prevents the Group to dispose of within the specified period. The fair values of these securities have taken into account the relevant features including the restrictions.

(ii) Except for the investment described below, others comprise of structured products and trust products where funds are mainly invested in listed securities or open-ended funds and the Group’s return of investment is tied to the result of such investments.

Others also include the investment into a special account managed by China Securities Finance Corporation Limited (the “CSFCL”). As of 31 December 2017, the cost of the investment was RMB15 billion, and the Company determined the fair value on the basis of the report provided by the CSFCL. CSFCL executes unified operation and investment management, while all the investors including the Company share investment risks as well as potential income in proportion to their contributions.

In the opinion of the directors of the Company, non-current available-for-sale investments are expected

to be realised or restricted for sale over one year from the end of the respective reporting periods.

As of 31 December 2017, the Company has entered into securities lending arrangement with clients

that resulted in the transfer of available-for-sale investments with total fair value of RMB1,517,000

to external clients (31 December 2016: RMB4,165,000 ). Since the arrangement will be settled  by

the securities with the same quantity lent, the economic risks and benefits of those securities are not

transferred and it does not result in derecognition of the financial assets.

RMB5,383,646,000 and RMB6,179,196,000 cash collateral was received from clients for securities

lending arrangement and margin financing activities carried out in the PRC, and reported under accounts

payable to brokerage clients (Note 47).

As of 31 December 2017, the impairment allowance of available-for-sale equity instruments was

RMB533,104,000 (31 December 2016: RMB564,914,000).

F-83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

323HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

27. OTHER LOANS AND RECEIVABLES

2017/12/31 2016/12/31

RMB’000 RMB’000

Trust products 623,000 916,800

Structured products 5,074,361 25,552,523

Debt investments 11,906,618 7,269,300

Factoring receivable 10,776,874 3,954,006

Entrusted loans and other loans 1,207,197 924,677

Less: Allowance for doubtful debts (341,475) (145,887)

29,246,575 38,471,419

Analysed for reporting purpose as:

Current assets 21,147,878 32,787,054)

Non-current assets 8,098,697 5,684,365

29,246,575 38,471,419

28. HELD-TO-MATURITY INVESTMENTS

2017/12/31 2016/12/31

RMB’000 RMB’000

Debt securities listed in Hong Kong 78,718 83,509

Analysed for reporting purpose as:

Current assets 78,718 –

Non-current assets – 83,509

78,718 83,509

As of 31 December 2017, the fair value of the held-to-maturity investments was approximately

RMB78,867,000 (2016: RMB82,697,000). The related interest rates on such bonds for the year ended

31 December 2017 is 4.1% per annum (2016: 4.1% per annum).

F-84

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

324 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

29. OTHER ASSETS

2017/12/31 2016/12/31

RMB’000 RMB’000

Foreclosed assets 29,099 51,993

Prepaid lease payments 829,519 14,501

Others 217,969 252,713

1,076,587 319,207

30. ADVANCES TO CUSTOMERS ON MARGIN FINANCING

2017/12/31 2016/12/31

RMB’000 RMB’000

Loans to margin clients (Note) 61,883,598 63,410,640

Less: Allowance for doubtful debts (Note) (322,645) (197,720)

61,560,953 63,212,920

Analysed for reporting purpose as:

Current 61,560,953 63,212,920

Non-current – –

61,560,953 63,212,920

Movements in the allowance for doubtful debts are as follows:

2017/12/31 2016/12/31

RMB’000 RMB’000

At beginning of the year 197,720 134,482

Provision of impairment allowance, net 130,876 62,843

Exchange adjustments (5,951) 395

At end of the year 322,645 197,720

F-85

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

325HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

30. ADVANCES TO CUSTOMERS ON MARGIN FINANCING (continued)Note: The credit facility limits to margin clients are determined by the discounted market value of the collateral

securities accepted by the Group.

The majority of the loans to margin clients, which are secured by the underlying pledged securities, are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any excess in the lending ratio will trigger a margin call which the customers have to make up the shortfall.

Loans to margin clients as at 31 December 2017 were secured by the customers’ securities to the Group as collateral with undiscounted market value of approximately RMB209,005,831,000 (31 December 2016: RMB222,238,904,000).

As at 31 December 2017, included in the Group’s accounts payable to brokerage clients were approximately RMB5,383,646,000 (31 December 2016: RMB6,179,196,000) cash collateral received from clients for securities lending and margin financing arrangement.

The directors of the Company are of the opinion that the aging analysis does not give additional value in view of the nature of the business. As a result, no ageing analysis is disclosed. The Group determines the allowance for impaired debts based on the evaluation of collectability and management’s judgment including the assessment of change in credit quality, collateral and the past collection history of each client. The concentration of credit risk is limited due to the customer base being large and unrelated.

31. ACCOUNTS RECEIVABLE2017/12/31 2016/12/31

RMB’000 RMB’000

Accounts receivable from: – Cash clients 377,293 324,699 – Brokers, dealers and clearing house 6,021,541 5,512,817 – Advisory and financial planning 22,787 3,375 – Asset and fund management 793,758 621,846 – Others 342,689 541,004

7,558,068 7,003,741

Less: allowance for doubtful debts on accounts receivable (116,068) (74,204)

7,442,000 6,929,537

2017/12/31 2016/12/31RMB’000 RMB’000

At beginning of the year 74,204 65,440Addition/(reversal) during the year 48,317 (1,376)Recoveries of other receivables previously written off – 10,140Amounts written off during the year (6,453) –

At end of the year 116,068 74,204

F-86

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

326 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

31. ACCOUNTS RECEIVABLE (continued)Aging analysis of accounts receivable from the trade date is as follows:

2017/12/31 2016/12/31RMB’000 RMB’000

Between 0 and 3 months 6,746,631 5,776,157Between 4 and 6 months 226,884 51,333Between 7 and 12 months 315,730 670,895Over 1 year 152,755 431,152

7,442,000 6,929,537

32. OTHER RECEIVABLES AND PREPAYMENTS2017/12/31 2016/12/31

RMB’000 RMB’000

Interest receivable 3,703,899 7,422,060Dividend receivable 3,614 21Other receivables and prepayments (Note i) 2,302,664 3,268,530

6,010,177 10,690,611Less: allowance for doubtful debts on other receivables (Note ii) (465,907) (461,809)

5,544,270 10,228,802

Movements in the allowance for doubtful debts are as follows:

2017/12/31 2016/12/31RMB’000 RMB’000

At beginning of the year 461,809 483,187Addition/(reversal) of impairment allowance, net 4,098 (21,668)Recoveries of other receivables previously written off – 300Amounts written off during the year – (10)

At end of the year 465,907 461,809

Notes:

(i) The other receivables and prepayments mainly represent short-term rental deposits placed with landlords under operating leases, other prepaid expenses for daily operation and other receivable and prepayments items such as prepaid taxes.

(ii) Included in the allowance for doubtful debts of the Group mainly represents a gross receivable of RMB440,894,000 from an independent third party. In the opinion of the directors of the Company, the recoverability of the receivable is remote and a full provision was made in prior year. As of 31 December 2017, accumulated amounts of RMB109,106,000 (31 December 2016: RMB109,106,000) of the above receivable has been recovered. In 2017, amounts of RMB nil (31 December 2016: RMB22,018,000) of the above receivable were recovered.

F-87

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

327HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

33. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS

2017/12/31 2016/12/31

RMB’000 RMB’000

Analysed by collateral type:

Stock (Note) 76,442,210 54,215,365

Bonds 20,101,753 13,303,923

Fund 220 580

Structured products 350,000 17,183,460

Less: Allowance for doubtful debts (344,314) (180,103)

96,549,869 84,523,225

Analysed by market:

Stock Exchange 81,599,830 55,630,973

Inter-bank 14,944,353 11,888,895

Over the counter (“OTC”) 350,000 17,183,460

Less: Allowance for doubtful debts (344,314) (180,103)

96,549,869 84,523,225

Analysed for reporting purpose as:

Current 75,345,093 63,600,363

Non-current 21,204,776 20,922,862

96,549,869 84,523,225

Note: The financial assets (pledged by stock) held under resale agreements are those resale agreements which qualified investors entered into with the Group with a commitment to purchasing the specified securities at a future date with an agreed price.

As of 31 December 2017, for the Group, the carrying amount of these agreements within one year was RMB55,170,609,000 (2016: RMB34,201,058,000), the carrying amount of these agreements over one year was RMB21,271,601,000 (2016: RMB20,014,307,000);

As of 31 December 2017, the fair value of the collateral was RMB215,587,946,000 (2016: RMB200,968,044,000).

F-88

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

328 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

34. PLACEMENTS TO BANKS AND OTHER FINANCIAL INSTITUTIONS

2017/12/31 2016/12/31

RMB’000 RMB’000

Overseas bank and other financial institutions 679,092 705,848

35. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2017/12/31 2016/12/31

RMB’000 RMB’000

Held for trading

Debt securities 53,886,954 49,811,132

Equity 12,637,664 13,749,786

Funds 12,589,073 5,478,729

Others 542,949 286,444

79,656,640 69,326,091

Financial assets Designated at fair value through profit or loss

Debt securities 9,279,810 3,521,754

Equity 3,221,188 3,305,157

Funds 1,908,295 9,058,906

Others 5,790,762 7,135,585

20,200,055 23,021,042

Analysed as:

Listed in Hong Kong 10,634,259 5,309,887

Listed outside Hong Kong (primarily in Mainland China) 48,845,711 42,743,537

Unlisted (Notes i, ii) 40,376,725 44,294,070

99,856,695 92,347,494

Analysed for reporting purpose as:

Current assets 98,904,357 92,347,494

Non-current assets (Note ii) 952,338 –

99,856,695 92,347,494

F-89

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

329HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

35. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)Notes:

(i) Unlisted financial assets at fair value through profit or loss of the Group include unlisted bond, funds and structured products. The underlying investments of unlisted funds and structured products mainly consist of publicly traded equities and bonds listed in Hong Kong and in Mainland China.

(ii) Unlisted financial assets at fair value through profit or loss include financial assets acquired by the Group which are driven by the issued structured products and become its underlying investments and hedging items for the risk of economic exposure on these issued structured products as set out in Note 51.

These financial assets are designated at fair value as such instruments, as well as the financial instruments which they are hedging, are risk managed on a fair value basis as part of the Group’s trading portfolio and the risk is reported to key management personnel on this basis.

For these financial assets in connection with structured products with the maturity more than one year, they are classified as non-current assets as they are not expected to be settled within one year.

As at 31 December 2017, the Group has entered into securities lending arrangement with clients that

resulted in the transfer of financial assets at fair value through profit or loss with a total fair value of

RMB12,005,000 (2016:RMB13,939,000) to external clients. Since the arrangement will be settled by

the securities with the same quantity lent, the economic risks and benefits of those securities are not

transferred and it does not result in derecognition of the financial assets.

F-90

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

330 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

36. DEPOSITS WITH EXCHANGES

2017/12/31 2016/12/31RMB’000 RMB’000

Deposits with stock exchanges – Shanghai Stock Exchange 653,424 437,579 – Shenzhen Stock Exchange 76,223 85,285 – National Equities Exchange and Quotations 4,200 2,662 – Stock Exchange of Hong Kong Limited 1,254 1,342

Subtotal 735,101 526,868

Deposits with futures and commodity exchanges – Shanghai Futures Exchange 2,545,406 2,166,039 – Dalian Commodity Exchange 1,681,289 808,344 – Zhengzhou Commodity Exchange 337,627 259,596 – China Financial Futures Exchange 1,552,040 3,340,775 – Shanghai Gold Exchange 31,173 7,665 – HKFE Clearing Corporation Limited 8,754 6,087 – The Chinese Gold & Silver Exchange Society 573 614 – Collateral deposits placed with overseas stock exchange and brokers 1,240,906 1,527,605

Subtotal 7,397,768 8,116,725

Guarantee fund paid to Shanghai Stock Exchange 24,155 23,864Guarantee fund paid to Shenzhen Stock Exchange 22,741 30,528Deposit with China Securities Finance Corporation Ltd. 188,382 121,761Deposit with Shanghai Clearing House – 21,126Guarantee fund paid to the SEHK Options Clearing House Ltd. 15,740 5,914Guarantee fund paid to Hong Kong Securities Clearing Company Ltd. 76,375 49,189Guarantee fund paid to Securities and Futures Commission 293 313Others 68,120 55,743

Subtotal 395,806 308,438

Total 8,528,675 8,952,031

Analysed for reporting purpose as: Current assets 7,180,974 7,359,343 Non-current assets 1,347,701 1,592,688

8,528,675 8,952,031

F-91

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

331HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

37. CLEARING SETTLEMENT FUNDS

2017/12/31 2016/12/31

RMB’000 RMB’000

Clearing settlement funds held with clearing houses for:

House accounts 374,870 2,866,007

Customer 7,607,859 9,325,892

7,982,729 12,191,899

These clearing settlement funds are held by the clearing houses for the Group and can be withdrawn

by the Group at will. These balances carry interest at prevailing market interest rates.

38. BANK BALANCES AND CASH

2017/12/31 2016/12/31

RMB’000 RMB’000

General accounts 29,820,328 32,492,200

Cash held on behalf of clients (Note i) 70,213,569 87,496,620

100,033,897 119,988,820

Less: non-current restricted bank deposits (Note ii) (675,568) (771,029)

99,358,329 119,217,791

Bank balances and cash comprise of cash on hand and demand deposits which bear interest at the

prevailing market rates.

Notes:

(i) The Group received and held money deposited by clients in the course of the conduct of the regulated activities. The Group has recognised the corresponding amount in accounts payable to brokerage clients (Note 47). The Group currently does not have a legally enforceable right to offset these payables with deposit placed.

(ii) The non-current restricted bank deposits are restricted for fund management risk reserve purpose, pledged bank deposit and margin deposits over one year.

F-92

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

332 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

39. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of the following:

2017/12/31 2016/12/31

RMB’000 RMB’000

Bank balances and cash – general account 29,820,328 32,492,200

Less: Restricted bank deposits (Note) (2,106,384) (1,789,188)

Deposits with other banks 316,134 761,628

Deposits with central banks other than legal reserve 3,415,915 –

Clearing settlement funds – House accounts 374,870 2,866,007

31,820,863 34,330,647

Note: The liquidity restrictive deposits are margin deposits of notes receivable, margin deposits of borrowings and other pledge of bank deposits within one year.

40. DEPOSITS WITH CENTRAL BANKS AND OTHER BANKS

2017/12/31 2016/12/31

RMB’000 RMB’000

Deposits with central banks other than legal reserve 3,415,915 260,201

Legal reserve 29,781 14,102

3,445,696 274,303

Deposits with other banks 316,134 761,628

3,761,830 1,035,931

Deposit with central banks other than legal reserve is repayable on demand. Legal reserve deposits are

non-interesting bearing.

F-93

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

333HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

41. LOANS AND ADVANCES

2017/12/31 2016/12/31

RMB’000 RMB’000

Customer loans and advances 5,756,475 7,475,938

Less: Impairment loss allowances calculated on

a collective basis (17,038) (21,194)

Less: Impairment loss allowances calculated on

an individual basis (901,165) (1,842,455)

4,838,272 5,612,289

Analysed for reporting purpose as:

Current assets 751,375 470,655

Non-current assets 4,086,897 5,141,634

4,838,272 5,612,289

42. DEPOSITS FROM OTHER BANKS

2017/12/31 2016/12/31

RMB’000 RMB’000

Deposits from other banks 293,733 14,586

43. CUSTOMER ACCOUNTS

2017/12/31 2016/12/31

RMB’000 RMB’000

Demand deposits – corporate 473,690 134,728

Time deposits – corporate 2,425,291 4,376,874

Demand deposits – individual 1,885 1,896

Time deposits – individual 849,755 244,075

3,750,621 4,757,573

Analysed for reporting purpose as:

Current 3,750,621 4,757,573

Non-current – –

3,750,621 4,757,573

F-94

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

334 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

44. BORROWINGS

2017/12/31 2016/12/31

RMB’000 RMB’000

Secured borrowings:

Short-term borrowings (Note) 4,995,954 9,957,771

Long-term borrowings (Note) 21,657,134 20,650,430

Unsecured borrowings:

Short-term borrowings 25,716,876 28,606,996

Long-term borrowings 8,952,026 1,933,358

61,321,990 61,148,555

Current liabilities:

Short-term borrowings 30,712,830 38,564,767

Long-term borrowings due within one year 14,798,617 8,094,346

45,511,447 46,659,113

Non-current liabilities:

Long-term borrowings 15,810,543 14,489,442

61,321,990 61,148,555

Note: Bank loans of approximately to RMB653 million (31 December 2016: RMB694 million) are secured by bonds with fair value of approximately to RMB781 million (31 December 2016: RMB750 million).

Bank loans of approximately to RMB200.67 million (31 December 2016: RMB200.67 million) are secured by RMB200 million time deposit and margin deposit of RMB20,000.

Bank loans of approximately to RMB484 million (31 December 2016: RMB518 million) are secured by fixed term deposit of RMB550 million.

Bank loans of approximately to RMB515 million (31 December 2016: Nil) are secured by the land of 4/2, No.169, The Bund Street and the 100% shares of the Shanghai Weitai Property Management Co., Ltd. held by the Group.

Bank loans of RMB1,181 million (31 December 2016: RMB4,498 million) are secured by the listed shares (held by the Group as security for advances to customers on margin financing with the customers’ consents) of approximately to RMB10,826 million at fair value (31 December 2016: RMB16,255 million). Bank loans of RMB519 million (31 December 2016: RMB302 million) are secured by the unlisted debt investments and unlisted structured products of RMB1,194 million (31 December 2016: RMB1,718 million) held by the Group and presented in “financial assets designed at fair value through profit or loss” to the consolidated statement of financial position.

Bank loans of RMB2,006 million (31 December 2016: RMB1,610 million) are secured by the investment fund of RMB2,599 million at fair value (31 December 2016: RMB1,964 million) which is the dealing price of that fund derived from the net asset values of that fund with reference to observable quoted price of underlying investment portfolio in active markets.

F-95

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

335HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

44. BORROWINGS (continued)Note: (continued)

Bank loans of current portion approximately to RMB2,967 million (31 December 2016: approximately to RMB2,546 million) and non-current portion approximately to RMB2,070 million (31 December 2016: RMB1,938 million) are secured by the shares of Haitong UT Capital and Haitong Bank respectively.

Non-current portion bank loan of RMB5,981 million (31 December 2016: RMB8,254 million) and current portion bank loan of RMB7,815 million (31 December 2016: RMB8,719 million) are secured by the finance leases receivable of RMB21,589 million (31 December 2016: RMB26,283 million).

Non-current portion bank loan of RMB2,051 million (31 December 2016: RMB1,526 million) is secured by listed debt securities of approximately RMB2,032 million (31 December 2016: RMB1,387 million) at fair value.

45. SHORT-TERM FINANCING BILLS PAYABLES

2017/12/31 2016/12/31

RMB’000 RMB’000

Analysed as:

Inter-bank (Note i) 5,595,758 –

Other (Note ii) 23,831,004 19,864,117

29,426,762 19,864,117

Notes:

(i) On 6 March 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.63% with a maturity period of 1 year.

On 3 August 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.66% with a maturity period of 9 months.

On 16 October 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.88% with a maturity period of 9 months.

On 23 October 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.95% with a maturity period of 9 months.

F-96

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

336 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

45. SHORT-TERM FINANCING BILLS PAYABLES (continued)Notes: (continued)

On 15 November 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 5.25% with a maturity period of 9 months.

On 18 December 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB600 million which carries a fixed annual interest rate of 5.49% with a maturity period of 5 months.

(ii) The short-term income certificates issued by the Company and the subsidiary of the Group with maturities ranged from 7 days to 12 months. The coupon rate of the outstanding products were between 2.90% and 5.80%.

On 2 March 2017, the Group’s subsidiary HISGL issued a medium term note in principal amount of HKD240 million at par which carries a fixed annual interest rate of 5.60% with a maturity period of 1 year. As at 31 December 2017, the outstanding loan balance of the medium term note is HKD240 million (equivalent to RMB201 million).

On 8 December 2017, the Group’s subsidiary HISGL issued a medium term note in principal amount of HKD360 million at par which carries a fixed annual interest rate of 5.36% with a maturity period of 1 year. As at 31 December 2017, the outstanding loan balance of the medium term note is HKD360 million (equivalent to RMB301 million).

On 26 May 2017, the Group’s wholly owned subsidiary Unican Limited issued medium term notes in principal amount of USD100 million (equivalent to RMB650 million) which carries a fixed annual interest of 3.20% with a maturity period of 1 year.

On 1 September 2017, the Group’s wholly owned subsidiary Unican Limited issued medium term notes in principal amount of USD120 million (equivalent to RMB782 million) which carries a fixed annual interest of 3.20% with a maturity period of 1 year.

46. PLACEMENTS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

2017/12/31 2016/12/31

RMB’000 RMB’000

Placements from banks 6,811,639 7,509,462

Placements from China Securities Finance Corporation Ltd. 5,000,000 1,300,000

11,811,639 8,809,462

Analysed for reporting purpose as:

Current liabilities 5,450,000 3,210,521

Non-current liabilities 6,361,639 5,598,941

11,811,639 8,809,462

F-97

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

337HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

47. ACCOUNTS PAYABLE TO BROKERAGE CLIENTS

The majority of the accounts payable balance is repayable on demand except where certain accounts

payable to brokerage clients represent margin deposits received from clients for their trading activities

under normal course of business. Only the excess amounts over the required margin deposits stipulated

are repayable on demand.

No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis

does not give additional value in view of the nature of these businesses.

Accounts payable mainly include money held on behalf of clients at the banks and at the clearing

houses by the Group.

As at 31 December 2017 included in the Group’s accounts payable to brokerage clients were

approximately RMB5,383,646,000 (31 December 2016: RMB6,179,196,000) cash collateral received

from clients for securities lending and margin financing arrangement.

Accounts payable to brokerage clients is interest bearing at the prevailing interest rate.

48. OTHER PAYABLES AND ACCRUALS

2017/12/31 2016/12/31RMB’000 RMB’000

Payable to employees (Note i) 4,890,342 4,722,531Other tax payable 412,433 642,793Dividends payable 19,198 7,536Risk reserve 313,969 294,505Client settlement payables 3,961,916 4,028,155Pending payable to clearing house 746,067 181,450Commission and fee payables 32,111 18,917Finance lease guarantee deposits 1,118,493 534,989Deferred revenue 80,067 50,192Interest payables 3,376,692 3,568,230Amounts due to brokers 496,369 666,737Notes payable 156,223 3,376,787Acting underwriting securities – 1,054,351Others (Note ii) 3,070,954 1,437,264

18,674,834 20,584,437

Analysed for reporting purpose as: Current liabilities 17,457,987 19,866,992 Non-current liabilities (Note i) 1,216,847 717,445

18,674,834 20,584,437

F-98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

338 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

48. OTHER PAYABLES AND ACCRUALS (continued)Notes:

(i) The Group set up a detailed plan for the payment of employees’ bonuses accrued. According to the plan, a balance of RMB508,082,000 is expected to be settled after 31 December 2018 and therefore classified as non-current liabilities.

(ii) Others mainly represent received in advance of the Group which are non-interest bearing and are settled within one year.

49. PROVISIONS

2017/12/31 2016/12/31

RMB’000 RMB’000

At beginning of the year 124,622 60,611

Addition during the year 82,017 124,622

Settled during the year (39,296) (60,611)

Provision 167,343 124,622

These provisions are intended to cover certain contingencies related to the Group’s activities, including

contingencies related to financial guarantees and commitments assumed, ongoing litigation related to

tax processes and legal dispute with staff.

50. DERIVATIVE INSTRUMENTS

2017/12/31 2016/12/31

Assets Liabilities Assets Liabilities

RMB’000 RMB’000 RMB’000 RMB’000

Stock index futures contracts (Notes i) – – – –

Treasury futures contracts (Note ii) – – – –

Commodity futures contracts (Note iii) 68,037 – – –

Interest rate swap contracts (Note iv) 1,532,748 1,602,469 2,717,683 1,827,642

Equity swap (Note v) 63,514 236,272 22,927 227,880

Forward contracts 93,772 119,347 125,627 263,974

Options (Note vi) 532,825 1,528,251 433,534 104,224

Embedded equity instruments – 86 – 73,045

Debts linked note 265,955 – 526,978 –

Foreign exchange swap 18,990 6,597 41,788 52,558

Credit default swap 34,771 2,432 66,534 44,686

Total 2,610,612 3,495,454 3,935,071 2,594,009

F-99

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

339HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

50. DERIVATIVE INSTRUMENTS (continued)

Notes:

(i) Stock index futures

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in stock index futures (“SIF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2017 and 31 December 2016. Accordingly, the net position of the SIF contracts in derivative instruments was nil at the end of reporting period. The contract value of the outstanding stock index futures contracts that the Group held not to hedge the market risk of the securities lent or to be lent to clients is RMB299,927,000 (2016: RMB34,059,000) with fair value gain RMB3,251,000 (2016: fair value loss RMB806,000).

(ii) Treasury futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in treasury futures (“TF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2017 and 31 December 2016. Accordingly, the net position of the TF contracts in derivative instruments was nil at the end of reporting period.

2017/12/31Contract value Fair value

Contract RMB’000 RMB’000

T1803 93,175 (232)T1803 96,902 (97)TF1803 4,315,418 (11,497)

Total 4,505,495 (11,826)

Plus: settlements 11,826

Net position –

2016/12/31Contract value Fair value

Contract RMB’000 RMB’000

TF1703 178,839 215TF1703 1,023,357 16,963TF1706 4,927 (55)

Total 1,207,123 17,123

Plus: settlements (17,123)

Net position –

F-100

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

340 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

50. DERIVATIVE INSTRUMENTS (continued)Notes: (continued)

(iii) Commodity futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in commodity futures were settled daily and the corresponding payments or receipts were included in “clearing settlement funds”. As at 31 December 2016, the net position of the commodity futures contracts under the daily mark-to-market and settlement arrangement was nil at the end of reporting period.

As at 31 December 2017, the fair value gains of commodity future contract that the Group holds not under the daily mark-to-market and settlement arrangement is RMB68,037,000.

2017/12/31Contract value Fair value

Contract RMB’000 RMB’000

Other 828,925 68,037

Total 828,925 68,037

2016/12/31Contract value Fair value

Contract RMB’000 RMB’000

AU1706 162,210 326

Total 162,210 326

Plus: settlements (326)

Net position of commodity futures contracts –

(iv) Interest rate swap contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in interest rate swap (“IRS”) were settled daily in Shanghai Clearing House and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2017. Accordingly, the net position of the IRS contracts in derivative instruments was nil at the end of reporting period. As at 31 December 2017, under the daily mark-to-market and settlement arrangement, the contract values of the Group’s IRS contracts are approximately RMB10,790,000,000 (2016: RMB24,547,000,000).

For IRS contracts in mainland China and Hong Kong market not under the daily mark-to-market and settlement arrangement are presented gross at the end of reporting period.As at 31 December 2017, for IRS contracts not under the daily mark-to-market and settlement arrangement, the contract values of those IRS contracts of the Group are approximately RMB36,634,430,000 (2016: RMB46,210,884,000).

F-101

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

341HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

50. DERIVATIVE INSTRUMENTS (continued)Notes: (continued)

(iv) Interest rate swap contracts (continued)

2017/12/31Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 10,790,000 – (7,433)IRS – non-centralised settlement 36,634,430 1,532,748 (1,602,469)

Total 47,424,430 1,532,748 (1,609,902)

Plus: settlements – 7,433

Net position of IRS contracts 1,532,748 (1,602,469)

2016/12/31Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 24,547,000 – (9,536)IRS – non-centralised settlement 46,210,884 2,717,683 (1,827,642)

Total 70,757,884 2,717,683 (1,837,178)

Plus: settlements – 9,536

Net position of IRS contracts 2,717,683 (1,827,642)

(v) Equity swap

As at 31 December 2017, the notional principal amounts of the Group’s equity swap are approximately in amount of RMB1,038,712,000 (2016: RMB1,137,820,000).

(vi) Options

As at 31 December 2017, the notional principal amounts of the Group’s options in Mainland China are approximately RMB168,659,532,000 with fair value loss of RMB471,132,000 (2016: RMB438,380,766,000 with fair value loss of RMB45,770,000). The notional principal amounts of the Group’s listed options in Hong Kong are approximately RMB10,879,819,000 with fair value gain of RMB455,830,000 (2016: RMB67,846,691,000 with fair value gain of RMB375,105,000).

F-102

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

342 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

51. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS2017/12/31 2016/12/31

RMB’000 RMB’000

Financial liabilities held for trading 7,739,121 8,492,151

Designated as financial liabilities at fair value through

profit or loss (FVTPL)- consolidation of structured entities 1,342,318 12,655,009

Designated as financial liabilities at fair value through

profit or loss (FVTPL)-Structured products (Note i) 10,260,931 13,058,951

Designated as financial liabilities at FVTPL

–Gold lending (Note ii) 327,600 4,433,520

Designated as financial liabilities at FVTPL

–Gold option (Note iii) 1,073,529 –

20,743,499 38,639,631

Analysed for reporting purpose as:

Current 20,031,099 38,063,861

Non-current 712,400 575,770

20,743,499 38,639,631

Notes:

(i) As at 31 December 2017, included in the Group’s financial liabilities designated at fair value through profit or loss are structured notes issued by subsidiaries of the Group which arise from selling structured products generally in the form of notes or certificates with the underlying investments related to listed equity investments in active markets and unlisted equity or partnership investments.

The risk of economic exposure on these structured products is primarily hedged using financial instruments classified as financial assets designated as fair value through profit or loss. These structured products are designated as fair value through profit or loss as the risks to which the Group is a contractual party are managed on a fair value basis as part of the Group’s trading portfolio and the risk is reported to key management personnel on this basis.

(ii) As at 31 December 2017, included in the Group’s financial liabilities designated at fair value through profit or loss are gold lending contracts entered by the Company with counterparties.

The risk of economic exposure on these contracts is primarily hedged using forward contracts.

(iii) The Group entered into a number of option contracts in relation to fair value of gold bullions. These contracts as a combinations intend to enable the Group to receive a relatively fixed income despite the volatilities of fair value of gold bullions. Financial liabilities arising from these contracts were designated at fair value through profit or loss.

F-103

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

343HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

52. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

2017/12/31 2016/12/31

RMB’000 RMB’000

Analysed by collateral type:

Stock 1,504,889 –

Bonds 17,264,988 32,995,727

Loans and advances to customers on margin financing 9,900,000 10,736,000

Gold lending 4,375,850 –

33,045,727 43,731,727

Analysed by market:

Stock exchanges 3,732,338 8,876,743

Inter-bank market 13,532,650 24,118,984

OTC 15,780,739 10,736,000

33,045,727 43,731,727

Analysed for reporting purpose as:

Current 32,645,727 43,638,525

Non-current 400,000 93,202

33,045,727 43,731,727

Sales and repurchase agreements are transactions in which the Group sells a security and simultaneously

agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date. Since

the repurchase prices are fixed, the Group is still exposed to substantially all the credit risks and market

risks and rewards of those securities sold. These securities are not derecognised from the financial

statements but regarded as “collateral” for the liabilities because the Group retains substantially all

the risks and rewards of these securities. In addition, it recognises a financial liability.

F-104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

344 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

52. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS (continued)

The following tables provide a summary of carrying amounts and fair values related to transferred

financial assets of the Group that are not derecognised in their entirety and the associated liabilities:

As at 31 December 2017

Financial assets at

fair value through

profit or loss

Available-for-sale

investments

Advances to customers on margin financing

Financial assets held

under resale agreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 21,981,730 2,446,013 10,414,800 782,529 7,975,151 43,600,223Carrying amount of associated liabilities 14,719,892 1,693,275 9,900,000 760,161 5,972,399 33,045,727

Net position 7,261,838 752,738 514,800 22,368 2,002,752 10,554,496

As at 31 December 2016

Financial

assets at

fair value

through

profit

or loss

Available-

for-sale

investments

Advances to

customers

on margin

financing

Financial

assets held

under resale

agreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 29,246,049 1,427,026 5,609,655 6,366,163 3,999,542 46,648,435

Carrying amount of associated liabilities 28,079,631 1,151,866 5,520,000 5,377,050 3,603,180 43,731,727

Net position 1,166,418 275,160 89,655 989,113 396,362 2,916,708

F-105

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

345HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

53. SHARE CAPITAL

Listed A shares Listed H shares Total

Number of shares Amount

Number of shares Amount

Number of shares Amount

‘000 RMB’000 ‘000 RMB’000 ‘000 RMB’000

Registered, issued and fully paid at

RMB1.0 per share:

At 1 January 2016,

At 31 December 2016, and

At 31 December 2017 8,092,131 8,092,131 3,409,569 3,409,569 11,501,700 11,501,700

54. DEFERRED TAXATION

For the purpose of presentation in the Group’s statements of financial position, certain deferred tax

assets and liabilities have been offset. The following is the analysis of the deferred tax balances for

financial reporting purposes:

2017/12/31 2016/12/31

RMB’000 RMB’000

Deferred tax assets 2,851,450 2,773,812

Deferred tax liabilities (867,320) (557,472)

1,984,130 2,216,340

F-106

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

346 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

54. DEFERRED TAXATION (continued)

The following are the major deferred tax (liabilities) assets recognised and movements thereon:

Financial assets/

liabilities at fair value

through profit or

lossAccelerated

depreciationDerivative

assets

Accrued but not paid

expenses

Available-for-sale

investmentsDerivative

liabilities

Provision of Loans and

receivables Others TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2016 (213,577) (17,233) 67,555 1,016,320 (256,750) 139,860 996,628 117,431 1,850,234Credit (charge) to profit or loss 182,965 1,834 (124,381) (62,431) 3,130 (102,121) 80,507 180,314 159,817Credit to other comprehensive income – – – – 123,540 – – – 123,540Effects of exchange rate 297 (1,161) 4,599 4,434 4,417 – 62,013 8,150 82,749

At 31 December 2016 (30,315) (16,560) (52,227) 958,323 (125,663) 37,739 1,139,148 305,895 2,216,340

(Charge) credit to profit or loss (41,242) (2,630) 49,004 (7,738) 5,547 (4,425) 305,995 29,969 334,480Charge to other comprehensive income – – – – (475,647) – – – (475,647)Effects of exchange rate (72) 1,081 3,043 (4,734) (2,008) – (68,390) (19,963) (91,043)

At 31 December 2017 (71,629) (18,109) (180) 945,851 (597,771) 33,314 1,376,753 315,901 1,984,130

55. BONDS PAYABLE

2017/12/31 2016/12/31

RMB’000 RMB’000

Convertible bonds (Note i) 3,231,864 3,401,402

Non-convertible bonds (Note ii) 73,616,916 69,445,196

Subordinated notes (Note iii) 31,844,619 41,875,847

Asset backed securities (Note iv) 7,470,071 3,008,084

Others (Note v) 13,994,799 10,564,663

130,158,269 128,295,192

Analysed for reporting purpose as:

Current 14,739,105 11,103,335

Non-current 115,419,164 117,191,857

130,158,269 128,295,192

F-107

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

347HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

55. BONDS PAYABLE (continued)Notes:

(i) The Group’s subsidiary HISGL issued convertible bonds in principal amount of HK$1,008 million (equivalent to RMB843 million), HK$1,164 million (equivalent to RMB973 million) and HK$3,880 million (equivalent to RMB3,232 million) in 2013, 2014 and 2016 respectively and these convertible bonds bear interest at a fixed rate with a maturity period of 5 years.

The values of the liability component and the equity conversion component were determined at the issuance of the bonds. Please refer to HISGL’s announcements on 18 July 2013, 10 October 2013, 4 November 2014, 12 October 2016 and 25 October 2016 for details of the bonds.

As at 31 December 2017, the conversion prices of convertible bonds issued by HISGL in 2013, 2014 and 2016 are HK$2.76 equivalent to RMB2.31 per share (31 December 2016: HK$2.87 equivalent to RMB2.40 per share), HK$4.61 equivalent to RMB3.85 per share (31 December 2016: HK$4.80 equivalent to RMB4.01 per share) and HK$6.53 equivalent to RMB5.46 per share (31 December 2016: HK$6.8112 equivalent to RMB5.6936 per share) respectively. The conversion prices of convertible bonds were adjusted during the year ended 31 December 2017 due to the payment of 2016 final dividend and 2017 interim dividend.

During the years ended 31 December 2017 and 2016, no convertible bonds issued by HISGL in 2013, 2014 and 2016 were converted into ordinary shares of HISGL.

As at 31 December 2017, the number of outstanding shares convertible under the convertible bonds issued in 2013, 2014 and 2016 are 724,638 (31 December 2016: 696,864), 29,718,004 (31 December 2016: 28,541,666) and 594,180,704 (31 December 2016: 569,649,988) respectively.

(ii) On 25 November 2013, the Company issued non-convertible bonds in principal amount of RMB12 billion at par. Those bonds carry fixed interest rate with maturity terms of three years, five years and ten years, respectively. The principle amounts are RMB7.26 billion (due for payment), RMB2.35 billion and RMB2.39 billion and bear interest rate at 6.05% per annum, 6.15% per annum and 6.18% per annum, respectively. The bonds with maturity terms of three years have been repaid.

On 14 July 2014, the Company issued non-convertible bonds in principal amount of RMB11 billion at par. Those bonds carry fixed interest rate with maturity terms of three years, five years and ten years, respectively. The principal amounts are RMB5.65 billion, RMB4.55 billion and RMB0.8 billion and bear interest rate at 5.25% per annum, 5.45% per annum and 5.85% per annum, respectively.

On 18 May 2016, the Company issued non-convertible bonds in principal amount of RMB20 billion at par. Those bonds carry fixed interest rate with maturity terms of four years and five years, respectively. The principal amounts are RMB15 billion and RMB5 billion and bear interest rate at 3.6% per annum and 3.8% per annum, respectively. The Company has an option to redeem all or some of the four-year bonds in the end of third year.

From 9 August 2017 to 11 August 2017, the Company issued non-convertible bonds in principal amount of RMB6 billion at par. Those bonds carry fixed interest rate with maturity terms of three years and five years respectively. The principle amounts are RMB5 billion and RMB1 billion and bear interest rate at 4.63% per annum and 4.80% per annum respectively.

From 20 September 2017 to 22 September 2017, the Company issued non-convertible bonds in principal amount of RMB5.5 billion at par which carries a fixed annual interest rate of 4.99% with a maturity period of 10 years.

F-108

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

348 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

55. BONDS PAYABLE (continued)Notes: (continued)

(ii) (continued)

From 23 October 2017 to 25 October 2017, the Company issued non-convertible bonds in principal amount of RMB500 million at par which carries a fixed annual interest rate of 4.77% with a maturity period of 3 years.

On 15 May 2015, the Group’s wholly owned subsidiary Haitong Capital Investment Co., Ltd.(海通開元投資有限公司) issued private placement note in principal amount of RMB200 million at par which carries a fixed annual interest rate of 5.9% with a maturity period of 3 years.

On 3 December 2015, Haitong Capital Investment Co., Ltd issued unguaranteed bonds in principal amount of RMB2,000 million. Among which, notes amounting to RMB1,400 million carries a fixed interest rate of 4.25% per annum with a maturity period of five years and notes amounting to RMB600 million carries a fixed interest rate of 3.9% per annum with a maturity period of three years.

On 11 September 2014, the Group’s wholly owned subsidiary Haitong International Finance 2014 Limited issued listed guaranteed bonds in principal amount of USD600 million (equivalent to RMB3,921 million) which is guaranteed by HISGL. Please refer to the related announcements made by HISGL on 4 and 11 September 2014 as well as its 2014 annual report for details of the bond.

On 29 January 2015, the Group’s wholly owned subsidiary Haitong International Finance 2015 Limited issued guaranteed bonds in principal amount of USD700 million (equivalent to RMB4,574 million) which is guaranteed by HISGL. Please refer to the announcements made by HISGL on 22, 23 and 29 January 2015 for details of the bond.

On 29 October 2013, the Group’s subsidiary Haitong International Finance Holdings Limited issued credit enhanced bonds in principal amount of USD900 million (equivalent to RMB5,881 million),which is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed annual interest rate with a maturity period of 5 years. The par value will be fully redeemed till maturity date. The bond is joint and several guaranteed by the Company and the Company will issue Counter Guarantee to the Bank of China regarding to the Standby Letter of Credit of the overseas bond, at the amount of the principals, interests and other expenses, the guarantee period will end after 6 months since effective of Standby Letter of Credit.

The Company entered into a keepwell deed for the above credit enhanced bonds. Pursuant to the Keepwell Deed, the Company will undertake to cause Haitong International Finance Holdings Limited to remain solvent at all times and to have sufficient liquidity to ensure timely payment by Haitong International Finance Holdings Limited of any amounts payable in respect of the notes in accordance with the terms and conditions of the notes any payments due under the Keepwell Deed.

On 21 April 2015, the Group’s wholly owned subsidiary Haitong International Finance Holdings 2015 Limited issued guaranteed bonds in principal amount of USD670 million (equivalent to RMB4,378 million) which is guaranteed by the Company and the bond is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed annual interest rate with a maturity period of 5 years. The bond carries a fixed annual interest rate with a maturity period of 5 years. The bond is joint and several guaranteed by the Company.

On 18 and 26 May 2016, the Group’s wholly owned subsidiary Haitong International Finance Holdings 2015 Limited issued guaranteed bonds in principal amount of EUR 220 million (equivalent to RMB1,717 million). The bond carries a fixed annual interest rate of 1.6% with a maturity period of 5 years. The bond is guaranteed by the Company.

On 2 July 2015, the Group’s wholly owned subsidiary Unican Limited issued medium term note in principal amount of RMB1 billion which carries a fixed annual interest of 5.15% with a maturity period of 3 years.

F-109

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

349HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

55. BONDS PAYABLE (continued)Notes: (continued)

(ii) (continued)

On 19 January 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note in principal amount of RMB400 million which carries a fixed annual interest rate of 3.6% with a maturity period of 3 years.

On 3 June 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note in principal amount of RMB600 million which carries a fixed annual interest rate of 4.07% with a maturity period of 5 years. The issuer has an option to adjust the interest rate and the investors have an option to sale the notes back to the issuer at the end of the third year.

On 15 July 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note in principal amount of RMB600 million which carries a fixed annual interest rate of 3.7% with a maturity period of 5 years. The issuer has an option to adjust the interest rate and the investors have an option to sale the notes back to the issuer at the end of the third year.

On 28 September 2016, the Group’s wholly owned subsidiary Unican Limited issued medium term note in principal amount of USD64 million (equivalent to RMB418 million)with a maturity period of 29 months. Note in amount of USD24 million (equivalent to RMB156 million) carries a fixed annual interest rate of 2.90%, and note in amount of USD40 million (equivalent to RMB261 million)carries a fixed annual interest rate of 3.00%.

On 21 June 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds in principal amount of RMB1,500 million,which is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed annual interest rate with a maturity period of 3 years. The par value will be fully redeemed till maturity date.

On 21 July 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds in principal amount of RMB1,000 million, which is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed annual interest rate with a maturity period of 3 years. The par value will be fully redeemed till maturity date.

On 9 September 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB800 million at par which carries a fixed annual interest rate of 5.80% with a maturity period of 3 years.

During 2009 to 2017, the Group’s wholly owned subsidiaries Haitong Bank issued a series of debt securities. The balance as at 31 December 2017 was EUR 243 million with maturity up to 2 years (equivalent to RMB1,866 million).

(iii) On 8 April 2015, the Company issued subordinated notes in principal amount of RMB15 billion at par. The note carries a fixed interest rate of 5.5% per annum with a maturity period of 5 years, and the Company has an option to redeem all or some of these notes at the face value on 8 April 2018.

On 12 June 2015, the Company issued two kind of subordinated notes in total principal amount of RMB20 billion at par. Among which, notes amounting to RMB15 billion carries a fixed interest rate of 5.30% per annum with a maturity period of three years and notes amounting to RMB5 billion carries a fixed interest rate of 5.38% per annum with a maturity period of five years. The Company has an option to redeem all or some of notes at the face value on 12 June 2017 and 12 June 2018, respectively. The bonds with maturity terms of three years have been repaid on 12 June 2017 as the Company exercised the option to redeem all of the three-year bonds at the end of second year.

F-110

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

350 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

55. BONDS PAYABLE (continued)Notes: (continued)

(iii) (continued)

On 17 November 2016, the Company issued two series of subordinated notes in total principal amount of RMB6 billion at par. Among which, notes amounting to RMB4 billion carries a fixed interest rate of 3.30% per annum with a maturity period of three years and notes amounting to RMB2 billion carries a fixed interest rate of 3.40% per annum with a maturity period of five years.

On 16 March 2017, the Company issued private placement subordinated note in principal amount of RMB4.5 billion at par which carries a fixed annual interest rate of 4.80% with a maturity period of 3 years.

On 9 November 2015, Shanghai Haitong Securities Asset Management Company Limited, the subsidiary of the Group issued subordinated note in principal amount of RMB1 billion at par which carries a fixed annual interest rate of 4.95% with a maturity period of 5 years.

On 15 December 2015, the Haitong Futures Co., Ltd issued subordinated note in principal amount of RMB500 million at par which carries a fixed annual interest rate of 4.94% with a maturity period of 6 years.

(iv) On 17 November 2017, the Company issued asset-backed security in principal amount of RMB2 billion at par which carries a fixed annual interest rate of 5.20% with a maturity period of 1.5 years. The assets transferred were advances to customers on margin financing. As at 31 December 2017, subordinated asset-backed security of RMB100 million was held by the Company.

On 7 May 2015, Haitong Unitrust Finance & Leasing Corporation issued issued asset-backed securities with two tranches: senior tranche with principle amount of RMB1,348 million, coupon rate of 5.60%-6.55%, and a maturity period of 51 months, and the principle amount is repaid by installment; junior tranche with principle amount of RMB14 million and a maturity period of 51 months. The Company holds all junior tranches asset-backed securities.

On 22 April 2016, Haitong Unitrust Finance & Leasing Corporation issued asset-backed note two tranches: senior tranche with principle amount of RMB1,140 million, coupon rate of 4.50% and a maturity period of 35 months, The Company holds all junior tranches asset-backed securities.

On 15 November 2016, Haitong Unitrust Finance & Leasing Corporation issued asset-backed note two tranches: senior tranche with principle amount of RMB1,425 million, coupon rate of 3.72% and a maturity period of 36 months, The Company holds all junior tranches asset-backed securities.

On 4 August 2017, Haitong Unitrust Finance & Leasing Corporation issued asset-backed note with two tranches: senior tranche with principle amount of RMB1,568 million, coupon rate of 5.40% and a maturity period of 35 months; junior tranche with principle amount of RMB83 million and a maturity period of 35 months, the Company holds all junior tranches asset-backed securities.

On 22 November 2017, Haitong Unitrust Finance & Leasing Corporation issued asset-backed medium- term notes with two tranches: senior tranche with principle amount of RMB1,360 million, coupon rate of 5.80% and a maturity period of 34 months; junior tranche with principle amount of RMB70 million and a maturity period of 37 months, the Company holds all junior tranche asset-backed medium- term notes.

F-111

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

351HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

55. BONDS PAYABLE (continued)Notes: (continued)

(v) According to SAC’s letter on approving the pilot of OTC income certificate business (SAC [2014]285), the Group was authorized to conduct income certificate business. The long-term income certificates issued by the company with maturities ranged from 13 months to 24 months. The coupon rate of the outstanding products were between 3.4% and 5.35%. Those products which will be settled within one year from year end are classified as the current portion of bonds payable.

The long-term income certificates issued by Haitong Innovation Security Investment Co., Ltd (“海通創新證券投資有限公司”), a subsidiary of the Group, with maturities ranged from 13 months to 25 months. The coupon rate of the outstanding products were between 4.2% and 4.5%.

56. LONG-TERM PAYABLES

2017/12/31 2016/12/31

RMB’000 RMB’000

Finance lease guarantee deposit 3,779,786 3,000,514

Deferred revenue 383,359 320,732

Others 650,554 218,275

4,813,699 3,539,521

Long-term payables are mainly due to the guaranteed fund received by the Group through finance

leasing business. All amounts will expire beyond one year upon contract agreement and are classified

as non-current liabilities.

57. RESERVES AND RETAINED PROFITS

The amounts of the Group’s reserves and the movements therein during the year are presented in the

consolidated statement of changes in equity.

(a) Capital reserve

Capital reserve mainly includes share premium arising from the issuance of new shares at prices

in excess of par value.

(b) Investment revaluation reserve

Investment revaluation reserve represents the fair value changes of available-for-sale financial

assets.

(c) General reserves

The general reserves comprise statutory reserve, general risk reserve and transaction risk reserve.

F-112

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

352 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

57. RESERVES AND RETAINED PROFITS (continued)

(c) General reserves (continued)

Pursuant to the Company Law of The PRC, 10% of the net profit of the Company, as determined

under the PRC accounting regulations and before distribution to shareholders, is required to be

transferred to a statutory reserve until such time when this reserve represents 50% of the share

capital of the Company. The reserve appropriated can be used for loss-covering, expansion of

production scale and capitalisation, in accordance with the Company’s articles of association or

approved by the shareholders in a shareholders’ general meeting.

In accordance with the Financial Rules for Financial Enterprises, the Company is required to

appropriate 10% of net profit derived in accordance with the relevant accounting rules in the

PRC before distribution to shareholders as general risk reserve from retained profits.

Pursuant to the Securities Law of The PRC, the Company is required to appropriate 10% of the

net profit derived in accordance with the relevant accounting rules in the PRC before distribution

to shareholders as transaction risk reserve from retained profits  and cannot be distributed or

transferred to share capital.

For each of the years ended 31 December 2017, the Company transferred approximately

RMB1,856,269,000 to the statutory reserve, general risk reserve and transaction risk

reserve pursuant to the above regulatory requirements in the PRC (31 December 2016:

RMB1,717,403,000).

Each of the Company’s statutory reserve, general risk reserve and transaction risk reserve

amounted to approximately RMB5,703,913,000 as at 31 December 2017 (31 December 2016:

RMB5,085,157,000).

The Company’s PRC subsidiaries are also subject to the statutory requirements to appropriate

their earnings to general reserves. The total amount of general reserves appropriated from the

subsidiaries as at 31 December 2017 is RMB859,985,000 (31 December 2016: RMB594,111,000).

(d) Distributable profits

In accordance with the relevant regulations, the distributable profits of the Company is deemed

to be the lower of (i) the retained profits determined in accordance with PRC GAAP and (ii) the

retained profits determined in accordance with IFRSs.

F-113

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

353HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

58. CREDIT COMMITMENT

As at 31 December 2017 and 2016, this balance can be analysed as follows:

2017/12/31 2016/12/31RMB’000 RMB’000

Contingent liabilities Guarantees and standby letters of credit 1,360,846 1,607,648

1,360,846 1,607,648

Commitments Irrevocable credit commitments 108,756 116,032

108,756 116,032

Guarantees and standby letters of credits are banking operations that may imply out-flow by

the Group only at default condition.

Irrevocable commitments represent contractual agreements to extend credit to the Haitong Bank’s

customers (e.g. unused credit lines). These agreements are, generally, contracted for fixed periods of

time or with other expiration requisites, and usually require the payment of a commission. Substantially,

all credit commitments require that clients maintain certain conditions verified at the time when the

credit was granted.

Notwithstanding the particular characteristics of these contingent liabilities and commitments, the

analysis of these operations follows the same basic principles of any other commercial operation,

namely the solvency of the underlying client and business, being that the Haitong Bank requires these

operations to be adequately covered by collaterals when needed.

Once as expected, the majority of these will expire without being used, the referred amounts are not

representative of the future cash-flows needs.

F-114

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

354 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

59. OPERATING LEASE ARRANGEMENTS

The Group as lessee

Leases for the properties are negotiated for an average term of three years and rentals are fixed for

an average term of three years.

At 31 December 2017 and 31 December 2016, the Group had total future minimum lease payments

under non-cancellable operating leases in respect of rented premises falling due as follows:

2017/12/31 2016/12/31

RMB’000 RMB’000

Within one year 341,560 227,851

In the second to fifth year, inclusive 452,982 309,846

Over five years 31,703 20,000

826,245 557,697

The Group as lessor

At the end of the reporting period, the Group had contracted with tenants for the following future

minimum lease payments:

2017/12/31 2016/12/31

RMB’000 RMB’000

Within one year 165,688 12,007

In the second to fifth year, inclusive 592,912 25,009

Over five years 344,599 4,921

1,103,199 41,937

F-115

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

355HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

60. CAPITAL COMMITMENT

2017/12/31 2016/12/31

RMB’000 RMB’000

Capital expenditure in respect of acquisition of

property and equipment:

– Contracted but not provided 90,390 79,173

Investment commitments

– Contracted but not recognised – 600,000

90,390 679,173

61. DIVIDENDS

2017 2016

RMB’000 RMB’000

Dividends recognised as distribution 2,530,374 5,175,765

Pursuant to the resolution of annual general meeting 2017 and 2016, the Company declared 2016

and 2015 final dividend of RMB0.22 and RMB0.45 per share respectively, satisfied by cash. For the

proposed dividend of 2017, please refer to Note 73.

F-116

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

356 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

62. DIRECTORS’, SENIOR MANAGEMENT’S AND SUPERVISORS’ EMOLUMENTS

The emoluments of the Directors, Senior Management and Supervisors of the Company paid/payable

by the Group for the year ended 31 December 2017 and 2016 are set out below:

For the year ended 31 December 2017

NameDirector

feeSalary and

commission Bonuses*

Employer’scontribution

to pension schemesannuity

plans Total^

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors:Zhou Jie1 – 368 345 220 933Qu Qiuping1 – 920 506 220 1,646

Independent Non-executive Directors and Supervisors:Liu Zhimin2 300 – – – 300Xiao Suining2 310 – – – 310Feng Lun2 210 – – – 210Zhang Ming2 280 – – – 280Lin Jiali7 60 – – – 60Wang Hongxiang2 136 – – – 136Li Guangrong2 150 – – – 150Wu Hongwei8 – 55 42 33 130Wang Meijuan6 – 951 1,841 352 3,144Hu Hairong6 – 940 1,841 352 3,133Song Shihao5 – 822 1,249 352 2,423Rui Zhengxian9 – 36 66 29 131Yang Qingzhong4 – 331 704 194 1,229Qiu Xiaping6 – – – – –Yu Liping10 – – – – –Chen Bin11 – – – – –Xu Jianguo12 – – – – –Shen Tiedong10 – – – – –Zhang Xingmei11 – – – – –Shou Weiguang13 – – – – –Li Lin14 – – – – –Zheng Xiaoyun15 – – – – –Cheng Feng16 – – – – –Chen Huifeng16 – – – – –Feng Huang16 – – – – –Song Chunfeng17 – – – – –Wu Yuezhou18 – – – – –

1,446 4,423 6,594 1,752 14,215

F-117

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

357HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

62. DIRECTORS’, SENIOR MANAGEMENT’S AND SUPERVISORS’ EMOLUMENTS (continued)

For the year ended 31 December 2016

NameDirector

fee

Salary and commission,

bonuses*

Employer’s contribution to

pension schemes

annuity plans Total^

RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors:Zhou Jie1 – 161 43 204Wang Kaiguo – 774 157 931Qu Qiuping 1 – 598 171 769

IndependentNon-executive Directors and Supervisors:Liu Zhiming2 210 – – 210Xiao Suining2 210 – – 210Li Guangrong2 190 – – 190Lv Changjiang2 190 – – 190Feng Lun2 160 – – 160Zhang Ming2 17 – – 17Wang Hongxiang3 75 – – 75Xu Chao3 59 – – 59Yang Qingzhong4 – 538 171 709Qiu Xiaping6 – 2,240 150 2,390Wang Meijuan6 – 3,307 257 3,564Hu Hairong6 – 3,297 257 3,554Song Shihao5 – 3,025 257 3,282Yu Liping10 – – – –Chen Bin11 – – – –Xu Jianguo12 – – – –Shen Tiedong10 – – – –Zhang Xingmei11 – – – –Shou Weiguang13 – – – –Li Lin14 – – – –Zheng Xiaoyun15 – – – –Cheng Feng16 – – – –Chen Huifeng16 – – – –Feng Huang16 – – – –Song Chunfeng17 – – – –Hu Jingwu19 – – – –Xu Qi19 – – – –

1,111 13,940 1,463 16,514

F-118

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

358 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

62. DIRECTORS’, SENIOR MANAGEMENT’S AND SUPERVISORS’ EMOLUMENTS (continued)(a) The bonuses are discretionary and are determined by reference to the Group’s and the individuals’

performance.

(b) The Company did not operate any share option scheme during the reporting periods. Details of the subsidiary’s share option scheme are disclosed in note 64.

1 Mr. Wang Kaiguo resigned from the Chairman and Executive Director, Mr. Zhou Jie was appointed as Chairman, and Executive Director in October 2016. Mr. Qu Qiuping was appointed as the General Manager and Executive Director of the Company in June 2014.

Mr. Wang Kaiguo and Mr. Qu Qiuping whose emoluments disclosed above include those for service rendered by them as Chief Executives.

2 Mr. Liu Zhimin was appointed as the Non-executive Director of the Company in November, 2011.,Mr. Xiao Suining was appointed as the Non-executive Director of the Company in May, 2013.,Mr. Li Guangrong, Mr. Lv Changjiang and Mr. Feng Lun were appointed as Independent Non-executive Directors of the Company in December, 2014. Mr. Lv Changjiang resigned from the position of Independent Non-executive Director of the Company in June, 2016. Mr. Zhang Ming was appointed as the Non-executive Director of the Company in June,2016. Mr. Li Guangrong resigned from the position of Independent Non-executive Director of the Company in April, 2017.

3 Mr. Wang Hongxiang, Mr. Xuchao were appointed as Non-executive Directors of the Company in May, 2011. Mr. Xuchao resigned from the position of Non-executive Director of the Company in July,2016. Mr. Wang Hongxiang resigned from the position of Non-executive Director of the Company in May, 2017.

4 Mr. Yang Qingzhong was appointed as Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2014. Mr. Yang Qingzhong resigned from the positions of Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2017.

5 Mr. Song Shihao was appointed as Supervisor of the Company in July, 2015.

6 Mrs. Qiu Xiaping was appointed as Supervisors of the Company in July, 2007. Mrs. Wang Meijuan and Mrs. Hu Hairong were appointed as Supervisors of the Company in December, 2014. Mrs. Qiu Xiaping resigned from the position of Supervisors of the Company in December, 2017.

7 Mr. Lin Jiali was appointed as Non-executive Directors of the Company in April, 2017.

8 Mr. Wu Hongwei was appointed as Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2017.

9 Mr. Rui Zhengxian was appointed as Supervisors of the Company in December, 2017.

10 Mrs. Yu Liping and Mr. Shen Tiedong were appointed as Non-executive Directors of the Company in June, 2015.

11 Mr. Chen Bin and Mrs. Shen Tiedong were appointed as Non-executive Directors of the Company in June, 2015.

F-119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

359HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

62. DIRECTORS’, SENIOR MANAGEMENT’S AND SUPERVISORS’ EMOLUMENTS (continued)12 Mr. Xu Jianguo was appointed as Non-executive Directors of the Company in October, 2016.

13 Mr.Shou Weiguang was appointed as Chairman of the Supervisory Board of the Company in July, 2015. Mr.Shou Weiguang resigned from the position of Chairman of the Supervisory Board and Supervisors of the Company in April, 2017.

14 Mr. Li Lin was appointed as Supervisors of the Company in May, 2013.

15 Mrs. Zheng Xiaoyun was appointed as Supervisors of the Company in September, 2015.

16 Mr. Cheng Feng, Mr. Chen Huifeng and Mr. Feng Huang were appointed as Supervisors of the Company in December, 2014.

17 Mr. Song Chunfeng was appointed as Supervisors of the Company in July, 2016.

18 Mr. Wu Yuezhou was appointed as Non-executive Directors of the Company in August, 2017.

19 Mr. Hu Jingwu was appointed as Supervisors of the Company in October, 2013. Mr. Xu Qi was appointed as Supervisors of the Company in December, 2014. Mr. Hu Jingwu resigned from the position of Supervisors of the Company in March, 2016. Mr. Xu Qi resigned from the position of Supervisors of the Company in December, 2016.

For the year ended 31 December 2017 and 2016, no directors, supervisors or senior management of the Company waived any emoluments and no emoluments were paid by the Company to any of the directors, supervisors or senior management as an inducement to join or upon joining the Group or as compensation for redundancy.

F-120

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

360 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

63. HIGHEST PAID INDIVIDUALS

Of the five individuals with the highest emoluments, none of them are directors, supervisors or senior

management. Details of the remuneration of the five highest paid employees during the year ended

2017 and 2016 are as follows:

2017 2016

RMB’000 RMB’000

Salary and commission 4,522 3,863

Bonuses 61,720 70,462

Employer’s contribution to pension

schemes/annuity plans 1,760 903

68,002 75,228

Bonuses are discretionary and are determined by reference to the Group’s and the individuals’

performance. No emoluments have been paid to or receivable by these individuals as an inducement to

join or upon joining the Group or as compensation for loss of office for the year ended 31 December

2017 and 2016.

The emoluments of the highest-paid individuals of the Group fall within the following bands:

2017 2016Population Population

Emolument bands – HKD11,000,001 to HKD13,000,000 – 3 – HKD13,000,001 to HKD15,000,000 1 – – HKD15,000,001 to HKD17,000,000 2 2 – HKD17,000,001 to HKD19,000,000 1 – – HKD19,000,001 to HKD21,000,000 1 –

5 5

F-121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

361HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES

2002 Share option scheme of HISGL

On 23 August 2002, the shareholders of HISGL approved the adoption of a share option scheme (the

“2002 Share Option Scheme”), which was expired on 22 August 2012. A summary of the principal terms

of the 2002 Share Option Scheme, as disclosed in accordance with the listing rules, is set out as follows:

The 2002 Share Option Scheme was adopted for the purpose of attracting, retaining and motivating

talented employees to strive towards long-term performance targets set by HISGL and its subsidiaries

and at the same time allowing the participants to enjoy the results of HISGL attained through their

effort and contribution. Under the 2002 Share Option Scheme, options may be granted to any full

time employees, executive and non-executive directors of HISGL or any of its subsidiaries or associates.

The maximum number of shares which may be issued upon exercise of all options to be granted under

the 2002 Share Option Scheme and any other share option schemes of HISGL shall not in aggregate

exceed 10% of the total number of shares in issue as at the date of adoption of the 2002 Share Option

Scheme (the “Scheme Mandate Limit”) but HISGL may seek approval of its shareholders at general

meetings to refresh the Scheme Mandate Limit, save that the maximum number of shares in respect

of which options may be granted by directors of HISGL under the 2002 Share Option Scheme and any

other share option schemes of HISGL shall not exceed 10% of the issued share capital of HISGL as at

the date of approval by the shareholders of HISGL at general meetings where such limit is refreshed.

If refreshed, options previously granted under the 2002 Share Option Scheme and any other share

option schemes of HISGL (including those outstanding, cancelled, lapsed or exercised options) will not

be counted for the purpose of calculating such 10% limit.

Notwithstanding the aforesaid in this paragraph, the maximum number of shares which may be issued

upon exercise of all outstanding options granted and yet to be exercised under the 2002 Share Option

Scheme and any other share option schemes of HISGL shall not exceed 30% (or such higher percentage

as may be allowed under the Listing Rules) of the total number of shares in issue from time to time.

The maximum number of shares issued and to be issued upon exercise of the options granted to

each participant under the 2002 Share Option Scheme and any other share option schemes of HISGL

(including both exercised and outstanding options) in any twelve-month period shall not exceed 1%

of the total number of HISGL’s shares in issue. Any further grant of share options in excess of this limit

is subject to approval by the shareholders of HISGL at a general meeting.

Share options granted to a director, chief executive or substantial shareholders of HISGL, or to any

of their associates, are subject to approval in advance by the independent non-executive directors.

In addition, any share options granted to a substantial shareholder or an independent non-executive

director of HISGL, or to any of their associates, in excess of 0.1% of the total number of shares of HISGL

in issue at the date on which such grant is proposed by the directors of HISGL or with an aggregate

value (based on the closing price of HISGL’s shares at the date on which such grant is proposed by

the directors of HISGL) in excess of HKD5 million, within any twelve-month period, are subject to

shareholders’ approval in advance at a general meeting of HISGL.

F-122

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

362 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2002 Share option scheme of HISGL (continued)

The offer of a grant of share options may be accepted within 30 days from the date of the offer upon

payment of a consideration of HKD1 by the grantee. The exercise period of the share options granted

is determinable by the directors of HISGL, and such period shall commence not earlier than six months

from the date of grant of the options and expire not later than ten years after the date of grant of the

options. The vesting period of the share options is from the date of the grant until the commencement

of the exercise period. All share options under the 2002 Share Option Scheme are subject to a six-month

vesting period.

The exercise price of the share options is determinable by the directors of HISGL, and shall be at least

the highest of (i) the closing price of HISGL’s shares as stated in the Hong Kong Stock Exchange’s daily

quotations sheet on the offer date; (ii) the average closing price of HISGL’s shares as stated in the

Hong Kong Stock Exchange’s daily quotations sheets for the five trading days immediately preceding

the offer date; and (iii) the nominal value of HISGL’s shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

The 2002 Share Option Scheme expired on 22 August 2012. However, the share options granted

under the 2002 Share Option Scheme prior to its expiry are still exercisable pursuant to the terms of

this scheme.

The following table discloses movements of share options granted to the directors and employees of

HISGL under HISGL’s 2002 Share Option Scheme during the year:

2017 2016Weighted

average exercise price

Number of

options

Weighted average exercise

price

Number of

optionsHKD

per share ‘000HKD

per share ‘000

At beginning of the year 2.77 9,132 2.91 12,663Adjusted during the year1 2.76 8 2.77 4Exercised during the year 2.77 (3,328) 3.25 (3,524)Forfeited during the year – – 3.36 (11)

At end of the year 2.76 5,812 2.77 9,132

F-123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

363HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2002 Share option scheme of HISGL (continued)

The exercise prices and exercise periods of the share options outstanding as at respective reporting

dates are as follows:

Number of options Exercise price1 Exercise period‘000 HKD per share

31 December 2017

5,812 2.764 3 March 2011 to 2 March 2019

31 December 2016

9,132 2.768 3 March 2011 to 2 March 2019

1 The exercise price of the share option is subject to adjustment in case of rights or bonus issues, scrip dividend, or bonus shares, or other similar changes in HISGL’s share capital.

No new share options were granted for the years ended 31 December 2017 and 31 December 2016.

As at 31 December 2017, HISGL had 5,812,110 (2016: 9,131,657) share options outstanding under

the 2002 Share Option Scheme, which represented approximately 0.11% (2016: 0.17%) of HISGL’

shares in issue as at that date.

2015 Share option scheme of HISGL

The shareholders of HISGL approved the adoption of a new share option scheme (the “2015 Share

Option Scheme”) on 8 June 2015(the “Adoption Date”). The 2015 Share Option Scheme was also

approved by the shareholders of Haitong Securities Co., Ltd., the holding company of HTIH, the

controlling shareholder of HISGL, and Listing Committee of The Stock Exchange of Hong Kong Limited

on 8 June 2015 respectively and 12 June 2015 respectively. A summary of the principal terms of the

2015 Share Option Scheme, as disclosed in accordance with the Listing Rules, is set out as follows:

F-124

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

364 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

The 2015 Share Option Scheme was adopted to attract, retain and motivate talented employees to

strive towards long term performance targets set by HISGL and to provide them with an incentive to

work better for the interest of HISGL after the expiry of its existing 2002 Share Option Scheme on 22

August 2012. Under the 2015 Share Option Scheme, share options could be granted to any full time

or part-times employees, executive and non-executive (whether independent or not) directors of the

HISGL who in the absolute opinion of the Board, have contributed to HISGL.

The maximum number of shares of HISGL (the “Shares”) which may be issued upon exercise of all

options to be granted under the 2015 Share Option Scheme and any other share option schemes shall

not in aggregate exceed 212,924,439 shares, representing approximately 10% of the issued shares of

HISGL as at 30 November 2014, being the date of tentative approval of the 2015 Share Option Scheme

by the management of the HISGL.

In respect of the period of 12 months from the Adoption Date and for each of the subsequent periods

of 12 months from the previous anniversary of the Adoption Date (each of those 12-months periods

is hereinafter referred to as a “Scheme Year”), the total number of shares of HISGL which may be

issued upon exercise of the options granted in each Scheme Year shall not exceed 21,292,444 shares

(the “Annual Limit”). HISGL may from time to time seek approval of its shareholders and the approval

of the shareholders of Haitong Securities Co., Ltd. (“HSCL”) (so long as HISGL is a subsidiary of HSCL

under the Listing Rules) in respective general meetings to renew the Scheme Limit and/or the Annual

Limit such that the total number of shares of HISGL in respect of which options may be granted by

directors of HISGL under the 2015 Share Option Scheme (i) in respect of the Scheme Limit, shall not

exceed 10% of the issued share capital of HISGL as at the date of approval of the refreshment; and (ii)

in respect of the Annual Limit, shall not exceed 1% of the issued share capital of HISGL as at the date

of approval of the refreshment. Options previously granted under the 2015 Share Option Scheme and

any other share option schemes of HISGL (including those outstanding, cancelled, lapsed or exercised

options) will not be counted for the purpose of calculating such limits as refreshed.

Notwithstanding the aforesaid in previous paragraph, the maximum number of shares which may be

issued upon exercise of all outstanding options granted and yet to be exercised under the 2015 Share

Option Scheme and any other share option schemes of HISGL shall not exceed 30% (or such higher

percentage as may be allowed under the Listing Rules) of the total number of shares in issue from

time to time.

The maximum number of shares issued and to be issued upon exercise of the options granted to

each participant under the 2015 Share Option Scheme and any other share option schemes of HISGL

(including both exercised and outstanding options) in any 12-month period shall not exceed 1% of

the total number of HISGL’s shares in issue. Any further grant of share options in excess of this limit

is subject to approval by the shareholders of HISGL at a general meeting.

F-125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

365HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

Share options granted to a director, chief executive or substantial shareholders of HISGL, or to any

of their associates, are subject to approval in advance by the independent non-executive directors.

In addition, any share options granted to a substantial shareholder or an independent non-executive

director of HISGL, or to any of their associates, in excess of 0.1% of the total number of shares of HISGL

in issue at the date on which such grant is proposed by the directors or with an aggregate value (based

on the closing price of HISGL’s shares at the date on which such grant is proposed by the directors)

in excess of HKD5 million, within any twelve-month period, are subject to shareholders’ approval in

advance at a general meeting of HISGL.

The offer of a grant of share options may be accepted within 28 days from the date of the offer upon

payment of a consideration of HKD1 by the grantee. The exercise period of the share options granted

is determinable by the directors of HISGL and notified by the directors HISGL to each participant as

being the period during which an option may be exercised, and in any event such period of time shall

not exceed a period of 5 years commencing on the Offer Date and expire on the last day of such

period. The 2015 Share Option Scheme does not stipulate any performance target which needs to be

achieved by the participant who accepts the offer of share options (the “Grantee”) before the share

options can be exercised. In order to sustain a long-term employment relationship between HISGL and

the grantee(s), grantees must hold their share options for a holding period of not less than 6 months

from the date of acceptance of the offer by the Grantee, before the share options can be exercised.

The exercise price of the share options is determinable by the directors, and shall be at least the highest

of (i) the price equal to 110% of the closing price of HISGL’s shares as stated in the Stock Exchange’s

daily quotations sheet on the offer date; (ii) the average closing price of HISGL’s shares as stated in the

Stock Exchange’s daily quotations sheets for the 5 trading days immediately preceding the offer date;

and (iii) the nominal value of HISGL’s shares.

On 12 May 2016, HISGL granted 18,100,000 share options at the exercise price of HKD4.675 per

share to its directors and employees under the 2015 Share Option Scheme with a total of 18,000,000

share options were accepted. The validity period of the share options is from 12 May 2016 to 11 May

2021. All the share options granted have a vesting period of 6 months from the date of acceptance.

The closing price of HISGL’s shares on the date of grant was HKD4.25 per share. The estimated fair

values of the options granted under 2015 Share Option Scheme on the grant date on 12 May 2016

is approximately HKD23.7 million, which was calculated using the Binomial Option Pricing model with

the key inputs into the model as disclosed below.

F-126

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

366 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

2016

Closing price HKD4.25Initial exercise price HKD4.675Expected volatility 53.32%Expected option life 5 yearsRisk-free rate 0.897%Expected dividend yield 5.176%Early exercise multiples – directors 2.34 – employees 2.07

Expected volatility was determined using the historical volatility of HISGL’s share price over the previous

3.6 years at the grant date.

On 10 November 2017, HISGL granted 13,400,000 share options at the exercise price of HKD5.038 per

share to its directors and employees under the 2015 Share Option Scheme with a total of 13,350,000

share options being accepted. The option period of the share options is from 10 November 2017 to

9 November 2022. All the share options granted have a vesting period of 6 months from the date of

acceptance. The closing price of the HISGL’s shares on the date of grant was HKD4.58 per share. The

estimated fair values of the options granted under 2015 Share Option Scheme on the grant date on

10 November 2017 is approximately HKD17.5 million, which was calculated using the Binomial Option

Pricing model with the key inputs into the model as disclosed below.

2017

Closing price HKD4.58Initial exercise price HKD5.038Expected volatility 49.493%Expected option life 5 yearsRisk-free rate 1.42%Expected dividend yield 3.849%Early exercise multiples – directors 2.34 – employees 2.07

Expected volatility was determined using the historical volatility of the HISGL’s share price over the

previous 3.6 years at the grant date.

For the year ended 31 December 2017, HISGL has recognised an equity-settled share-based payment

of HKD2,910,000 (31 December 2016: HKD23,673,000) for the share options under the 2015 Share

Option Scheme in the consolidated statement of profit or loss. No share options under 2015 share

option scheme has been exercised during the current year end.

F-127

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

367HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

The following table discloses movements of share options granted to the directors and employees of HISGL.

2017 2016Weighted

average exercise price

Number of

options

Weighted average exercise

price

Number of

optionsHK$

per share ‘000HK$

per share ‘000

At beginning of the year 4.674 17,807 – –Granted and accepted during the year 5.038 13,350 4.675 18,000Adjusted during the year (note) 4.668 22 4.674 7Exercised during the year – – – –Forfeited during the year 4.673 (1,951) 4.674 (200)

At end of the year 4.836 29,228 4.674 17,807

The exercise prices and exercise periods of the share options outstanding as at respective reporting dates are as follows:

31 December 2017 Exercise price Exercise periodNumber of options HK$ per share

‘000 (note)

15,878 4.667 8 December 2016 – 11 May 202113,350 5.038 7 June 2018 – 9 November 2022

29,228

31 December 2016 Exercise price Exercise periodNumber of options HK$ per share

‘000 (note)

17,807 4.674 8 December 2016 – 11 May 2021

Note: The exercise price of the share options is subject to adjustment in the case of rights or bonus issues, scrip dividend, or bonus shares, or other similar changes in the Company’s share capital.

As at 31 December 2017, HISGL had 29,228,100 (2016: 17,806,679) share options outstanding under the 2015 Share Option Scheme, which represented approximately 0.53% (2016: 0.33%) of HISGL’s shares in issue as at that date.

F-128

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

368 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL

On 19 December 2014, the Board of directors of HISGL (the “HISGL Board”) adopted a 10-year share

award scheme (the “Scheme”) to incentivise selected employees and directors (“Selected Participants”)

for their contributions to HISGL and to attract suitable personnel for further development of HISGL.

Pursuant to the Scheme, the ordinary shares of HKD0.1 each in the capital of HISGL will be acquired

by the trustee at the cost of HISGL and will be held in trust for the Selected Participants before vesting.

The total number of Shares granted under the Scheme shall be limited to 10% of the total issued share

capital of HISGL as at 19 December 2014 (the “Adoption Date”) or such other percentage as determined

by the HISGL Board from time to time.

No award of the Shares shall be granted to any single Selected Participant which would result in the

maximum number of awarded Shares under the Scheme in the 12-month period up to and including

the date of such grant representing in aggregate over 1% of the issued share capital of HISGL as at

the Adoption Date.

The HISGL Board has delegated the power and authority to the Administration Committee of HISGL

to handle operational matters of the Scheme but all major decisions in relation to the Scheme shall be

made by the HISGL Board unless expressly provided for in the scheme rules pursuant to the Scheme or

the HISGL Board resolves to delegate such power to the Administration Committee.

Pursuant to the scheme rules, HISGL Board may, from time to time, at its absolute discretion and subject

to such terms and conditions as it may think fit (including the basis of eligibility of each Participant

determined by HISGL Board and recommended by the Remuneration Committee from time to time)

select any participant for participation in the Scheme as a Selected Participant and determine the number

of awarded shares, upon the recommendation of the Remuneration Committee.

After the selection of the Selected Participant(s) and the determination of the number of awarded Shares

by HISGL Board, the Administration Committee shall inform the trustee accordingly. The Administration

Committee shall also inform the Selected Participant(s) by award notice. Provided that the respective

Selected Participant(s) has (have) executed the relevant acceptance form(s) and returned the same

together with a counterpart of the award notice(s) to the trustee through HISGL within the period

prescribed in the award notice(s), HISGL shall during the award period pay or cause to be paid to the

trustee for purchasing the awarded Shares (“Reference Amount”).

After receiving the Reference Amount, the Trustee shall apply the same towards the purchase of

awarded Shares in the market through a broker at the prevailing market price on the Stock Exchange

pursuant to the Scheme Rules and HISGL would recognise as treasury shares in the statement of

changes in equity.

F-129

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

369HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL (continued)

The Administration Committee shall conduct a review of the performance conditions (if any) in relation

to each Selected Participant at least once in each financial year during the award period if the award

period is more than 12 months or once only during the award period if the award period is less than

12 months. The awarded Shares will be vested if the Selected Participant is able to meet the relevant

performance conditions during the relevant period, or lapse if the Selected Participant is unable to meet

the relevant performance conditions during the relevant period.

A Selected Participant shall not exercise or direct the trustee to exercise and the trustee shall not exercise

the voting rights in respect of any Awarded Shares held under the trust.

Details of the awarded shares granted and unvested as at 31 December 2017 are set out below.

Date of awarded shares granted

Number of awarded

shares granted

Number of awarded

shares vested

Number of awarded

shares forfeited

Number of awarded

shares unvested

Vesting dates

Fair value as at

grant date(Note (c)) HKD

18 April 2016 7,865,506 2,457,261 842,591 4,565,564 Note (a) 31,383,000

28 April 2017 4,246,234 – 269,921 3,976,313 Note (b) 19,320,000

Notes:

(a) Pursuant to the agreed terms, the vesting date of one-third of the award shares granted on 18 April 2016 is on 15 March 2017 while the vesting date of another one-third of award shares granted on 18 April 2016 would be on 15 March 2018 and the vesting date for the remaining would be on 15 March 2019.

(b) Pursuant to the agreed terms, the vesting date of one-third of the award shares granted on 28 April 2017 is on 19 March 2018 while the vesting date of another one-third of award shares granted on 28 April 2017 would be on 19 March 2019 and the vesting date for the remaining would be on 19 March 2020.

(c) Awarded Shares were lapsed prior to their vesting date as a result of staff separations. Pursuant to the agreement, the lapsed shares would be held by the trustee which is subject to the approval from Administration Committee for re-selection of any Selected Participant. The lapsed Awarded Shares were transferred out from share award reserve to share premium as disclosed in the consolidated statement of change in equity.

F-130

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

370 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

64. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL (continued)

Movements of shares held under the Scheme during the year are as follows:

2017 2016

HKD’000Number of

shares HKD’000Number of

shares

At 1 January 128,020 21,724,000 128,020 21,724,000Vested and transferred out during the year (14,481) (2,457,261) – –

At 31 December 2017 113,539 19,266,739 128,020 21,724,000

Share option scheme of UT Capital

The Group’s wholly owned subsidiary, UT Capital adopted a share option incentive scheme on 27 May

2014, which was valid and effective for a period of five years commencing from the date of adoption.

According to the scheme, the eligible participants include directors, senior management, key operational

managerial personnel and key technical or business personnel of UT Capital, and its subsidiaries as

determined by the board of directors of UT Capital, the total number of which shall not exceed 50. No

more than 97,321,500 share options shall be granted to the participants under the scheme. As at 19

January 2015, the Board of UT Capital approved the share option scheme, under which 85,980,375

share options were granted to the eligible participants and 11,341,125 share options were reserved.

As at 31 December 2017, no share option were exercised under the scheme.

During the year ended 31 December 2017, there is an exit arrangement applied to these stock options

granted but have not been executed yet, in consideration of the needs of the strategic development

and management of UT Capital, as well as the requirements of the existing laws and regulations of

the PRC. In drawing up this arrangement, the relevant provisions of the share option incentive scheme

and the contribution of relevant staffs to UT Capital have been fully considered.

F-131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

371HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

65. RELATED PARTY TRANSACTIONS

In addition to the joints and associates of the group set out in note 23 above, the name and the

relationship of other related parties are set out as below:

Name of the related party Relationship of the related party

BNP Paribas Investment Partners BE Holding SA Holds more than 10% of the shares of the Group’s subsidiaryBNP Paribas (China) Limited Note ABNP Paribas Investment Partners Japan Ltd Note ABNP Paribas Investment Partners Singapore Ltd Note ABNP Paribas Wealth Management Bank Note ABNP Paribas Investment Partners Switzerland Ltd Note ABNP Paribas SA Note ABNP Paribas Investment Partners Hong Kong Ltd Note AShinhan BNP Paribas Asset Management (Hong Kong) Co., Ltd

Note A

BNP Paribas Investment Ltd (Asia) Note AShanghai Shengyuan Real-Estate (Group) Co., Ltd Note AChina-Belgium Direct Equity Investment Fund A fund managed by the subsidiaryHaitong (Jilin) Cultural Industries Investment Fund (Limited Partnership)

An associated entity with the Group’s subsidiary

Xi’an Hai Chuang Zhi Xing Venture Investment Limited Partnership

An associated entity with the Group’s subsidiary

Note A: The subsidiary of the company which holds more than 10% of the shares of the Group’s subsidiary.

Expect for the amount listed in Note 62, the Group’s major transactions with related parties are as

follows.

F-132

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

372 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

65. RELATED PARTY TRANSACTIONS (continued)

2017 2016

RMB’000 RMB’000

Commission and fee income:

– Shanghai Equity Investment Fund Limited Partnership 60,725 60,252

– Xi’an Aerospace and New Energy Industry Fund 18,887 30,095

– Jilin Modern Agricultural and Emerging

Markets Investment Fund Limited 19,878 21,158

– Shanghai Cultural Industries Investment Fund

(Limited Partnership) 31,929 38,122

– Fullgoal Fund Management Co. Ltd. 23,814 53,007

– Haitong (Jilin) Modern Service Industry

Investment Fund (Limited Partnership) 5,550 5,659

– Haitong Xingtai (Anhui) Emerging Industry

Investment Fund (Limited Partnership) 18,890 19,298

– China-Belgium Direct Equity Investment Fund 108,229 172,344

– Shanghai Shengyuan Real-Estate (Group) Co., Ltd – 2

– Haitong (Jilin) Cultural Industries Investment Fund

(Limited Partnership) 2,129 633

– Guang Dong Southern Media Integration Development

Investment Fund (Limited Partnership) 8,306 6,465

– Xi’an Hai Chuang Zhi Xing Venture Investment Limited

Partnership 1,203 1,877

– Haitong Qidong (Weihai) Equity Investment Fund Limited

Partnership 22,230 –

– Entities related to BNP Paribas (Note A) 10,415 15,914

Note A: Entities related to BNP Paribas include BNP Paribas Investment Partners BE Holding SA, BNP Paribas (China) Limited, BNP Paribas Investment Partners Japan Ltd, BNP Paribas Investment Partners Singapore Ltd, BNP Paribas Wealth Management Bank, BNP Paribas Investment Partners Switzerland Ltd, BNP Paribas, BNP Paribas Investment Partners Hong Kong Ltd, Shinhan BNP Paribas Asset Management (Hong Kong) Co., Ltd., BNP Paribas Investment Ltd (Asia) and BNP Paribas Asset Management.

F-133

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

373HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

65. RELATED PARTY TRANSACTIONS (continued)

2017 2016

RMB’000 RMB’000

Bonds transaction:

– BNP Paribas (China) Ltd. 310,000 1,624,486

Interest rate swap:

– BNP Paribas (China) Limited 340,000 660,000

Pledge-style Repo:

– Entities related to BNP Paribas 190,120 –

Investment Gains:

– Shanghai Cultural Industries Investment Fund

(Limited Partnership) 12,187 –

Interest expense:

– Shanghai Equity Investment Fund Limited Partnership – (17,282)

– Others (Note) – (27)

Note: Others include Fullgoal Fund Management Co. Ltd., Xi’an Hai Chuang Zhi Xing Venture Investment Limited Partnership and Xi’an Jun Rong Satellite Fund Investment Limited.

2017 2016

RMB’000 RMB’000

Administration expense:

– Shanghai Shengyuan Real Estate (Group) Co., Ltd. (97) –

– Entities related to BNP Paribas (122) (1,465)

F-134

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

374 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

65. RELATED PARTY TRANSACTIONS (continued)

2017/12/31 2016/12/31RMB’000 RMB’000

Accounts receivable from: – China-Belgium Direct Equity Investment Fund – 112,200 – Entities related to BNP Paribas 2,133 3,734

Accounts payable to: – Entities related to BNP Paribas (10,146) (268)

Accounts payable to brokerage clients: – Fullgoal Fund Management Co. Ltd. (20) (30,868) – Haitong Qidong (Weihai) Equity Investment Fund Limited Partnership (3,579) – – Jilin Modern Agricultural and Emerging Markets Investment Fund Limited (2,015) – – Haitong (Jilin) Cultural Industries Investment Fund Limited Partnership (56) – – Haitong Xingtai (Anhui) Emerging Industry Investment Fund (Limited Partnership) (33) – – Shanghai Equity Investment Fund Limited Partnership (18) – – Shanghai Shengyuan Real-Estate (Group) Co., Ltd (3) – – Shanghai Cultural Industries Investment Fund Limited Partnership (10) –

Short-term financing bills payables: – Shanghai Equity Investment Fund Limited Partnership – (670,000) – Haitong Xingtai (Anhui) Emerging Industry Investment Fund (14,000) (14,000) – Xi’an Hai Chuang Zhi Xing Venture Investment – (15,050) – Xi’an Jun Rong Satellite Fund Investment Limited – (49,000)

The remuneration of the key management personnel of the Group was as follows:

2017 2016

RMB’000 RMB’000

Short-term benefits:

– Fees, salaries, commission and bonuses 79,863 75,999

Post-employment benefits:

– Employer’s contribution to pension schemes/annuity plans 5,025 3,721

Total 84,888 79,720

F-135

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

375HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

66. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY

2017/12/31 2016/12/31Notes RMB’000 RMB’000

Non-current assets

Property and equipment 1,183,209 1,110,031

Investment properties 16,864 18,059

Other intangible assets 227,551 203,036

Investments in subsidiaries 21 26,022,222 25,266,156

Investments accounted for using equity method 790,027 681,741

Available-for-sale investments 17,446,144 19,914,061

Other loans and receivables 200,000 –

Deferred tax assets 1,036,787 1,173,164

Other assets 13,998 41,487

Financial assets held under resale agreements 21,204,776 16,919,234

Total non-current assets 68,141,578 65,326,969

Current assets

Advances to customers on margin financing 47,877,760 44,591,606

Accounts receivable 685,160 169,281

Other receivables and prepayments 1,592,123 1,677,902

Amount due from a subsidiary 1,547,320 1,742,531

Available-for-sale investments 3,290,939 4,686,254

Other loans and receivables 200,000 14,700,000

Financial assets held under resale agreements 67,653,138 49,533,072

Financial assets at fair value through

profit or loss 48,977,872 45,896,579

Deposits with exchanges 963,294 701,485

Clearing settlement funds 8,090,798 12,149,685

Bank balances and cash 59,257,478 76,058,406

Total current assets 240,135,882 251,906,801

Total assets 308,277,460 317,233,770

F-136

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

376 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

66. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY (continued)

2017/12/31 2016/12/31RMB’000 RMB’000

Current liabilities

Borrowings 1,137,412 34,479

Short-term financing bills payables 21,897,221 18,434,617

Placements from other financial institutions 5,450,000 1,900,000

Accounts payable to brokerage clients 51,295,045 65,239,234

Other payables and accruals 6,425,263 7,859,810

Amount due to a subsidiary 30,184 28,792

Tax liabilities 818,917 860,982

Financial liabilities at fair value through profit or loss 2,276,176 4,195,101

Derivative financial liabilities 625,530 225,340

Financial assets sold under repurchase agreements 21,054,364 28,230,549

Bond Payable 6,135,789 5,673,288

Total current liabilities 117,145,901 132,682,192

Net current assets 122,989,981 119,224,609

Total assets less current liabilities 191,131,559 184,551,578

Equity

Share capital 11,501,700 11,501,700

Capital reserve 56,486,199 56,486,199

Investment revaluation reserve 1,296,284 (660,702)

General reserves 17,111,739 15,255,470

Retained profits 20,463,236 18,662,316

Total equity 106,859,158 101,244,983

Non-current liabilities

Deferred tax liabilities 598,833 66,258

Bond payables 82,311,178 81,145,026

Long-term borrowing 514,780 1,211,621

Financial assets sold under repurchase agreements 400,000 –

Financial liabilities at fair value through profit or loss – 527,800

Other payables and accruals 447,610 355,890

Total non-current liabilities 84,272,401 83,306,595

Total equity and non-current liabilities 191,131,559 184,551,578

F-137

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

377HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

66. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY (continued)

FOR THE YEAR ENDED 31 December 2017

Share Capital

Capital Reserve

Investmentrevaluation

reserveGeneral Reserve

Retained Profit Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Note a)

At 1 January 2017 11,501,700 56,486,199 (660,702) 15,255,470 18,662,315 101,244,982

Profit for the year – – – – 6,187,564 6,187,564Other comprehensive income for the year – – 1,956,986 – – 1,956,986

Total comprehensive income for the year – – 1,956,986 – 6,187,564 8,144,550

Appropriation to general reserves – – – 1,856,269 (1,856,269) –Cash dividends recognised as distribution (Note 61) – – – – (2,530,374) (2,530,374)

At 31 December 2017 11,501,700 56,486,199 1,296,284 17,111,739 20,463,236 106,859,158

At 1 January 2016 11,501,700 56,486,199 (237,093) 13,538,067 19,830,808 101,119,681

Profit for the year – – – – 5,724,675 5,724,675

Other comprehensive expense for the year – – (423,609) – – (423,609)

Total comprehensive (expense) income for the year – – (423,609) – 5,724,675 5,301,066

Appropriation to general reserves – – – 1,717,403 (1,717,403) –

Cash dividends recognised as distribution (Note 61) – – – – (5,175,765) (5,175,765)

At 31 December 2016 11,501,700 56,486,199 (660,702) 15,255,470 18,662,315 101,244,982

Note a: Capital reserve of the Company represents primarily the share premium arisen from the issuance of the Company’s shares.

F-138

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

378 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

67. SEGMENT REPORTING

Information reported to the chief operating decision maker (the “CODM”), being the board of directors

of the Company, for the purposes of resource allocation and assessment of segment performance

focuses on the nature of products sold and services provided by the Group, which is also consistent with

the Group’s basis of organization, whereby the businesses are organized and managed separately as

individual strategic business units that offers different products and serves different markets. Segment

information is measured in accordance with the accounting policies and measurement criteria adopted

by each segment when reporting to management, which are consistent with the accounting and

measurement criteria in the preparation of the consolidated financial statements.

Specifically, the Group’s reportable and operating segments are as follows:

(a) the brokerage segment engages in the trading of equities, bonds, funds, and warrants, as well

as futures on behalf of the customers, and also providing margin financing and securities lending

services (the “Securities and futures brokerage” segment);

(b) the assets management segment mainly offers traditional asset management products and

services, private equity asset management business (the “Asset management business” segment)

through the Company and qualified subsidiaries in mainland China;

(c) the proprietary trading segment engages in trading of equities, bonds, funds, derivative and

other financial products (the “Proprietary trading” segment) through the Company and qualified

subsidiaries in mainland China;

(d) the investment banking segment provides corporate finance services, including equity

underwriting, debt underwriting and financial advisory services to institutional clients (the

“Investment banking” segment);

(e) the direct investment segment makes direct equity investments in private companies and earns

capital gains by exiting from these private equity investments through IPOs or share sales, or

receives dividends from these portfolio companies. In addition, the Group invests in private equity

funds (the “Direct investment” segment”);

(f) the headquarters and others segment mainly represents head office operations, investment

holding as well as interest income and interest expense incurred for general working capital

purpose (the “Headquarters and others” segment);

(g) the finance lease segment mainly represents the finance lease operation in mainland China

through Haitong UT Capital, which is a wholly owned subsidiary of the Group (the “Finance

Lease” segment); and

(h) the overseas operations segment mainly represents the business operation of overseas subsidiaries

of the Company, which mainly engage in broking, margin financing, corporate advisory, placing

and underwriting, trading and investment and financial planning and advisory services and

banking services (the “Overseas operations” segment).

F-139

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

379HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

67. SEGMENT REPORTING (continued)

Inter-segment transactions, if any, are conducted with reference to the prices charged to third parties

and there was no change in the basis during the years ended 31 December 2017 and 2016.

Segment profit/loss represents the profit earned by/loss measured by each segment without allocation

of income tax expenses. This is the measure reported to CODM for the purposes of resource allocation

and performance assessment.

Segment assets/liabilities are allocated to each segment, excluding investments in associates and joint

ventures, deferred tax assets/liabilities. Inter-segment balances eliminations mainly include amount due

from/to another segment arising from investing activities’ carried out by a segment for another segment.

Share of result of associates and joint ventures are allocated to segment profit/loss while the

corresponding investments in associates and joint ventures are not allocated to each segment.

F-140

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

380 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

67. SEGMENT REPORTING (continued)

The segment information provided to the CODM for the operating and reportable segments for the

years ended 31 December 2017 and 2016 is as follows:

Operating and Reportable segment

For the year ended 31 December 2017

Securities and futures

brokerageAsset

managementProprietary

tradingInvestment

bankingDirect

investmentHeadquarters

and othersFinance

leaseOverseas

operationsSegment

total EliminationsConsolidated

totalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and resultsRevenue – External 11,881,958 2,350,223 3,298,983 2,215,681 1,898,049 2,734,511 3,203,841 8,093,776 35,677,022 – 35,677,022 – Inter-segment 1,180,504 62 85 9,345 527,348 5,919,424 – 148,938 7,785,706 (7,785,706) –Other income and gains 166,972 55,194 4,257,630 1,593 30,277 497,343 1,069,377 (365,396) 5,712,990 (65,510) 5,647,480

Segment revenue 13,229,434 2,405,479 7,556,698 2,226,619 2,455,674 9,151,278 4,273,218 7,877,318 49,175,718 (7,851,216) 41,324,502Segment expenses 9,438,391 1,024,475 5,571,438 1,062,633 367,611 8,102,312 2,711,021 7,138,042 35,415,923 (6,272,331) 29,143,592

Segment result 3,791,043 1,381,004 1,985,260 1,163,986 2,088,063 1,048,966 1,562,197 739,276 13,759,795 (1,578,885) 12,180,910

Share of results of associates and joint ventures – – – – 89,974 201,665 – 416,848 708,487 – 708,487Profit before income tax 3,791,043 1,381,004 1,985,260 1,163,986 2,178,037 1,250,631 1,562,197 1,156,124 14,468,282 (1,578,885) 12,889,397

Segment assets and liabilitiesSegment assets 147,046,483 9,174,514 49,547,796 795,444 10,814,154 134,803,093 61,543,962 141,991,112 555,716,558 (33,924,045) 521,792,513Investments accounted for using equity method 10,062,370Deferred tax assets 2,851,450

Group’s total assets 534,706,333

Segment liabilities 69,842,332 2,175,331 15,048,385 625,941 2,814,299 133,643,944 50,413,309 136,788,409 411,351,950 (7,207,241) 404,144,709Deferred tax liabilities 867,320

Group’s total liabilities 405,012,029

Other segment information(Amounts included in the measure of segment profit or loss:)Depreciation and amortization 100,098 16,987 5,328 6,665 3,936 195,258 8,608 148,457 485,337 – 485,337Impairment losses of available- for-sale investments – (82,539) 95,351 – 45,332 – – 189,819 247,963 – 247,963Impairment losses of loans & receivables 180,600 34,346 (12,883) 45 – 13,061 589,894 637,478 1,442,541 (3,846) 1,438,695Interest income 7,061,455 119,938 213,506 59 47,739 2,276,121 3,116,890 2,288,609 15,124,317 – 15,124,317Interest expenses 576,165 4,857 922,206 – 99,120 5,283,199 1,585,425 2,987,420 11,458,392 – 11,458,392

F-141

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

381HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

67. SEGMENT REPORTING (continued)

Operating and Reportable segment (continued)

For the year ended 31 December 2016

Securities and futures

brokerageAsset

managementProprietary

tradingInvestment

bankingDirect

investmentHeadquarters

and othersFinance

leaseOverseas

operationsSegment

total EliminationsConsolidated

totalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and results Revenue – External 13,535,152 1,861,378 2,999,613 2,162,600 1,032,355 3,366,837 2,553,733 7,488,096 34,999,764 – 34,999,764 – Inter-segment 1,473,861 (86) 100,852 56,080 43,770 3,002,891 – (26,348) 4,651,020 (4,651,020) –Other income and gains (67,358) 49,610 5,932,946 913 6,000 370,986 778,502 352,016 7,423,615 68,877 7,492,492

Segment revenue 14,941,655 1,910,902 9,033,411 2,219,593 1,082,125 6,740,714 3,332,235 7,813,764 47,074,399 (4,582,143) 42,492,256Segment expenses 9,764,683 987,431 6,878,209 1,012,510 271,560 7,625,486 2,215,050 7,102,068 35,856,997 (4,326,033) 31,530,964

Segment result 5,176,972 923,471 2,155,202 1,207,083 810,565 (884,772) 1,117,185 711,696 11,217,402 (256,110) 10,961,292

Share of results of associates and joint ventures – (52) – – 24,047 208,841 – (32,401) 200,435 – 200,435Profit before income tax 5,176,972 923,419 2,155,202 1,207,083 834,612 (675,931) 1,117,185 679,295 11,417,837 (256,110) 11,161,727

Segment assets and liabilitiesSegment assets 137,762,028 18,415,373 47,389,875 866,787 11,712,997 164,519,754 48,127,299 159,952,141 588,746,254 (39,403,812) 549,342,442Investments accounted for using equity method 8,749,592Deferred tax assets 2,773,812

Group’s total assets 560,865,846

Segment liabilities 111,094,778 10,436,209 21,132,849 1,665,598 2,464,639 109,662,691 37,957,839 153,314,725 447,729,328 (9,379,355) 438,349,973Deferred tax liabilities 557,472

Group’s total liabilities 438,907,445

Other segment information(Amounts included in the measure of segment profit or loss:)Depreciation and amortization 113,537 18,453 5,211 5,288 340 149,058 4,207 82,995 379,089 – 379,089Impairment losses of available- for-sale investments- – – – – 92,775 – – 147,770 240,545 – 240,545Impairment losses of loans & receivables 35,884 311 22,135 558 – (23,513) 563,032 580,540 1,178,947 – 1,178,947Interest income 7,095,941 727,417 304,308 36 16,819 2,831,500 2,451,386 2,753,141 16,180,548 – 16,180,548Interest expenses 2,398,375 27,000 690,134 – 113,247 4,355,088 1,250,864 3,506,229 12,340,937 – 12,340,937

The Group operates mainly in three principal geographical areas, the mainland China, Hong Kong and Europe. Segment revenue and segment assets in respect of overseas operations segment are substantially attributable to Hong Kong and Europe. The remaining segment revenue and segment assets are attributable to the mainland China. No single customers contribute more than 10% of income to the Group’s income for the years ended 31 December 2016 and 2017.

F-142

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

382 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT

The Group’s major financial instruments include equity and debt investments, loans and advances, advances to customers on margin financing, accounts receivable, other loan and receivables, held-to-maturity investments, finance lease receivables, derivatives financial assets, placements to banks and other financial institutions, other receivables and prepayments, financial assets held under resale agreements, deposit with exchanges, clearing settlement funds, bank balances and cash, restricted bank deposits, borrowings, financial assets sold under repurchase agreements, accounts payable to brokerage clients and other payables and accruals. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments include market risk (price risk, currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The tables below show the maximum credit risk exposure of the Group, being the carrying amount of the respective recognised financial assets before the effect of mitigation through the use of collateral.

2017/12/31 2016/12/31RMB’000 RMB’000

Advances to customers on margin financing 61,560,953 63,212,920Accounts receivable 7,442,000 6,929,537Other receivables and prepayments 5,741,974 10,228,802Other loan and receivables 29,246,575 38,471,418Held-to-maturity investments 78,718 83,509Finance lease receivables 43,536,176 36,555,221Available-for-sale debt investments 4,959,363 12,563,689Financial assets held under resale agreements 96,549,869 84,523,225Placements to banks and other financial institutions 679,092 705,848Financial assets at fair value through profit or loss 63,166,764 53,332,885Deposits with exchanges 8,528,675 8,952,031Clearing settlement funds 7,982,729 12,191,899Bank balances and cash 99,358,329 119,217,455Restricted bank deposits 675,568 771,029Deposits with central banks 3,445,696 274,303Deposits with other banks 316,134 761,628Loans and advances 4,838,272 5,612,289Derivative financial assets 2,610,612 3,935,071

Maximum credit exposure 440,717,499 458,322,759

Off balance sheet items credit exposure Guarantee granted 1,360,846 1,716,670 Irrevocable commitments 108,756 123,901

Maximum off balance sheet items credit exposure 1,469,602 1,840,571

F-143

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

383HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Credit exposures arise principally from investments in debt securities, advances to customers on

margin financing, accounts receivable, placements to banks and other financial institutions, finance

lease receivables, clearing settlement funds and bank balances which are included in the Group’s asset

portfolios.

Credit exposure arising from investments in debt securities and fixed-yield trust products include

downgrading of credit rating of the debt securities and/or of its underlying issuers and default of

payments by the issuers. The Group has implemented a policy not to invest in debt securities with ratings

below A-3 (short-term) and BBB (mid and long term). Management also closely monitors the credit

ratings of respective debt securities on a regular basis and the financial soundness of the underlying

issuers.

Credit exposure arising from bank products is considered to be limited as the Group only invest in

low-risk bank products issued by state-owned banks and large commercial banks.

The Group provides clients with margin financing for securities transactions and securities lending to

clients, which are secured by clients’ securities or deposits held as collateral. Management has delegated

a team responsible for determination of credit limits, credit approvals and other monitoring procedures

to ensure that follow-up action is taken to recover overdue debts. Each client has a maximum credit

limit based on the quality of collateral held and the financial background of the client. In addition, the

Group reviews the recoverable amount of each client regularly to ensure that adequate impairment

losses are made for irrecoverable amounts. Margin calls are made when the trades of margin clients

exceed their respective limits. Any such excess is required to be made good within the next trading

day. The Group seeks to maintain strict control over its outstanding receivables.

As at 31 December 2017, advances to customers on margin financing are secured and/or backed by

guarantee. Credit limits are set for borrowers. Apart from collateral monitoring, the Group seeks to

maintain tight control over its loans and advances in order to minimise credit risk by reviewing the

borrowers’ or guarantors’ financial positions.

The Group seeks to maintain tight control over its outstanding accounts receivable in order to minimise

credit risk. Overdue balances are regularly monitored by management. Accounts receivable from cash

clients who are neither past due nor impaired represent unsettled client trades on various securities

exchanges transacted on the last two business days prior to the respective reporting date. Accounts

receivable from cash clients which are past due but not impaired represent client trades on various

securities exchanges which are unsettled beyond the settlement date. When the cash clients failed to

settle on settlement date, the Group has a right to force-sell the collateral underlying the securities

transactions. The outstanding accounts receivable from cash clients as at 31 December 2017 and 2016

are not considered to be impaired after taking into consideration the recoverability from collateral.

Collateral held against such receivables are publicly traded securities.

F-144

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

384 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

The credit risk of the Group regarding finance lease receivables is that lessee fail to fulfil contractual

obligations. The Group established standard policies and operational procedures and controls over

finance lease activities, which include project due diligence and application, project review and

approval, disbursements, post-lending monitoring and management of non-performing finance lease

receivables etc. Through implementation of these standard policies and procedures, effective use of

business information system and continuous optimising the portfolio of finance lease receivables,

the Group is able to identify, monitor and manage its potential credit risk in its portfolio. Changes in

economic environment or a particular industry may result in losses to the Group. The finance lease

business activities are carried out in different regions of Mainland China with their unique economic

characteristics. As a result, the management of Haitong UT Capital, a wholly-owned subsidiary of

the Group, which mainly engages in finance leases business, monitors credit risk closely. Haitong

UT Capital’s business department, credit department, operation department, legal department and

risk management department are responsible for monitoring credit risk and reporting to the Group’s

management periodically. The Group sets credit limit for each borrower and monitors the credit limit

by regular review.

Haitong Bank’s credit risk is based on possible financial losses due to failure by the customer or

counterpart in relation to the obligations established with the Group upon contract within their credit

activity. Credit risk is essentially present in traditional banking products – loans, guarantees and other

contingent liabilities – and in negotiation products – swaps, forwards and options (counterpart risk).

Permanent management of loan portfolio is undertaken, which favours the interaction between several

teams engaged in risk management throughout the continuous stages of the credit process. This

approach is complemented by the implementation of continuous upgrades to the methodologies and

tools of risk evaluation and control.

There are regular follow-ups of the bank’s credit risk profile, namely in what concerns the evaluation

of credit exposures and monitoring of credit losses. Also subject to analysis is the compliance with the

approved credit limits and the correct operation of mechanisms associated with the approval of credit

lines within the business area’s ongoing activity.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings

assigned by international credit-rating agencies.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated

with its financial liabilities. Prudent liquidity risk management includes maintaining sufficient cash,

the availability of funding from the market in the capacity of a financial institution, and the ability to

close out market positions. As part of the measures to safeguard liquidity, the Group has maintained

substantial long-term and other stand-by banking facilities, diversifying the funding sources and spacing

out the maturity dates.

F-145

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

385HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Undiscounted cash flows by contractual maturities

The table below presents the cash flows payable by the Group under financial liabilities held for

managing liquidity risk by remaining contractual maturities at the reporting date. The amounts disclosed

in the table are the contractual undiscounted cash flows. The table includes both interest and principal

cash flows.

As at 31 December 2017

Less than 3 months 1 year 5 yearsOn Demand 3 months to 1 year to 5 years and above Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – 27,348,606 22,388,833 16,482,482 – 66,219,921Deposits from central bank – – 468,138 – – 468,138Deposits from other banks 293,733 – – – – 293,733Customer accounts 475,574 1,149,083 1,670,420 465,339 – 3,760,416Accounts payable to brokerage clients 83,774,388 – – – – 83,774,388Placements from other financial institutions – 2,502,338 3,153,006 6,054,186 763,897 12,473,427Financial assets sold under repurchase

agreements 1,684,639 18,897,528 12,513,919 406,066 – 33,502,152Other payables and accruals 6,863,677 1,070,746 1,674,629 328,101 58,215 9,995,368Short-term financing bills payables – 11,905,428 18,372,241 – – 30,277,669Bonds payable – 1,885,794 18,514,853 111,379,979 10,304,304 142,084,930Financial liabilities at fair value through

profit or loss 17,754,923 1,070,739 1,209,724 712,400 – 20,747,786Derivative financial liabilities 1,149,788 416,542 317,057 561,371 1,050,696 3,495,454Long-term payables – – – 4,748,305 65,394 4,813,699

111,996,722 66,246,804 80,282,820 141,138,229 12,242,506 411,907,081

F-146

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

386 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Undiscounted cash flows by contractual maturities (continued)

As at 31 December 2016

On Demand

Less than

3 months

3 months

to 1 year

1 year

to 5 years

5 years

and above Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – 43,410,730 15,300,746 6,349,088 – 65,060,564

Deposits from central bank – – – 438,408 – 438,408

Deposits from other banks 14,586 – – – – 14,586

Customer accounts 136,625 1,338,708 2,531,139 1,105,366 22,052 5,133,890

Accounts payable to brokerage clients 104,059,287 – – – – 104,059,287

Placements from other financial institutions – 3,412,118 397,638 5,361,952 868,784 10,040,492

Financial assets sold under repurchase

agreements – 35,108,688 8,721,705 93,247 – 43,923,640

Other payables and accruals 6,036,524 1,817,715 3,313,003 415,802 67,838 11,650,882

Short-term financing bills payables – 8,940,379 11,900,779 – – 20,841,158

Bonds payable – 1,093,680 10,771,368 129,603,219 3,633,459 145,101,726

Financial liabilities at fair value through

profit or loss 20,857,779 293,627 17,063,210 601,046 – 38,815,662

Derivative financial liabilities 228,845 127,717 258,267 648,381 1,330,799 2,594,009

Long-term payables – – – 3,521,003 18,518 3,539,521

131,333,646 95,543,362 70,257,855 148,137,512 5,941,450 451,213,825

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in economic environment. Market risk comprises three types of risks: price risk,

currency risk and interest rate risk.

The Group’s exposures to market risk include price risk, interest rate risk and currency risk.

Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a

result of changes in market prices (other than those arising from interest rate risk or foreign exchange

risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting

equity instruments traded in the market.

The Group is exposed to price risk arising from individual equity investment classified as financial assets

held for trading and available-for-sale investments. The directors of the Company manage the exposure

by closely monitoring the portfolio of investments and have started hedging exposure by entering into

derivatives contracts since 2010.

F-147

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

387HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Price risk (continued)

The Group have utilised the effect of stock price variation on net profit or loss and investment

revaluation reserve within the period to manage and analyse the price risk. When reporting internally

to the key management on risk, the management estimates that reasonable possible change in price

is 10%. If the prices of the respective equity instruments had been 10% higher/lower, and held other

variables constant, the impacts to the profit for the year and investment revaluation reserve are as

follows:

2017 2016

RMB’000 RMB’000

Profit for the year

Increase by 10% 1,211,927 933,636

Decrease by 10% (1,211,927) (933,636)

Investment revaluation reserve

Increase by 10% 44,405 268,860

Decrease by 10% (44,405) (268,860)

In the above analysis, management also considers the case of an available-for-sale equity investment that

a reasonably possible downward fall in the equity price would lead the investment to be impaired, the

effect of loss would be shown as affecting profit or loss and the cumulative loss previously recognised

in investment revaluation reserve would be reclassified to profit or loss, but an equivalent upward shift

in the equity price would be shown as affecting investment revaluation reserve.

In the case that an available-for-sale equity investment that has already been impaired, a reasonably

possible downward fall in the equity price may continue to be recognised in profit or loss but an

equivalent upward shift in the equity price would be shown as affecting investment revaluation reserve.

In management’s opinion, the sensitivity analysis is unrepresentative of inherent price risk as the year

end exposure does not reflect the exposure during the year.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market interest rates.

The Group’s exposure to interest rate risk relates primarily to the Group’s bank balances and cash,

advances to customers on margin financing, clearing settlement funds, deposits with exchanges,

debt securities, placements to banks and other financial institutions and finance lease receivables.

Management actively monitors the Group’s net interest rate exposure through setting limits on the level

of mismatch of interest rate repricing and duration gap and aims at maintaining an interest rate spread,

such that the Group is always in a net interest-bearing asset position and derive net interest income.

F-148

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

388 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)Interest rate risk (continued)

Fluctuations of prevailing rate quoted by the People’s Bank of China and Hong Kong Inter-bank Offered Rate are the major sources of the Group’s cash flow interest rate risk.

The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for variable rate financial assets and liabilities. The analysis is prepared by selecting major entities named the Company, and HITH, the director of the Company hold the opinion that this scope has covered the majority interest bearing assets and liabilities of the Group. The Group analyse interest risk by applying different Dollar Value of a one-basis point change (DV01) to respectively companies, and assuming the financial instruments outstanding at the end of the reporting period were outstanding for the whole year. When reporting to the management on the interest rate risk, the Group will adopt a 25 basis points increase or decrease for sensitivity analysis, while considering the reasonably possible change in interest rates.

2017 2016

RMB’000 RMB’000

Profit after income tax for the year

Increase by 25bps (32,239) (40,357)

Decrease by 25bps 32,239 40,357

Other comprehensive income after income tax

Increase by 25bps (33,490) (46,978)

Decrease by 25bps 33,490 46,978

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in foreign exchange rates. With the internationalization of the Group, currency risk exposure gradually increased. In addition to the overseas equity investment, Group’s foreign currency business and foreign currency assets has become increasingly rich. Position of HKD, USD, EUR, and other non RMB asset increased. Some overseas subsidiaries or affiliates also issued Non-RMB bonds, say Euro Bonds, USD Bonds and HKD Bonds. The foreign currency liabilities increased. These changes make the Group facing a currency risk due to the existence of the differences of currency of assets and liabilities. In addition, with the development of the FTA (“Free Trade Area”) business, especially offshore debt and foreign investment gradually increased, also result in an increase of currency risk. During the reporting period, the People’s Bank of China gradually deepen the process of RMB marketization, and the volatility of RMB foreign exchange rate increased, which leading to a more serious currency risk for the Group. In view of the exchange rate market and the development of the Group, the management continues to strengthen in tracking and researching the currency risk, and constantly improve the internal management and system construction. The Group is trying to hedge and release the currency risk by a series of means, so as to support the Group to explore oversea business. As of 31 December 2017, the Group’s currency risk is under management’s control.

F-149

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

389HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Currency risk (continued)

Sensitivity analysis

The Group’s main currency risk exposure comes from its non-functional currency position, the sensitivity

analysis below has been determined based on the exposure to foreign exchange rates for financial

assets and financial liabilities denominated in non-functional currency for the Group. The analysis is

prepared assuming the financial instruments outstanding at 31 December 2017 were outstanding for

the whole year. When reporting to the management on the currency risk, the Group will adopt a 5%

increase or decrease for sensitivity analysis, while considering the reasonably possible change in RMB

non-functional currency.

If RMB strengthened/weakened against non-functional currency by 5% with all other variables held

constant, the Group’s profit for the year ended 31 December 2017 would increase or decrease by

RMB343,109,000 (31 December 2016: RMB381,165,000) respectively.

Fair value of financial assets and liabilities

Some of the Group’s financial assets and liabilities are measured at fair value for financial reporting

purposes. The board of directors of the Group has set up certain process to determine the appropriate

valuation techniques and inputs for fair value measurements. The appropriateness of the process and

the determination of fair value are reviewed by the board of directors periodically.

The fair value of financial assets and financial liabilities are determined as follows:

• The fair value of financial assets with standard terms and conditions and traded in active liquid

markets are determined with reference to quoted market bid prices;

• The fair value of derivative instruments is calculated using quoted prices. Where such prices are

not available, fair value is determined by discounted cash flow analysis using the applicable yield

curve for the duration of the instruments for non-optional derivatives, and option pricing models

for optional derivatives;

• The fair value of other financial assets and financial liabilities (excluding those described above)

is determined in accordance with generally accepted pricing models based on discounted cash

flow analysis.

The Group uses valuation techniques to determine the fair value of financial instruments when it is

unable to obtain the open market quotation in active markets.

The main parameters used in valuation techniques for financial instruments held by the Group include

bond prices, interest rates, foreign exchange rates, equity and stocks prices, volatilities, correlations,

early repayment rates, counterparty credit spreads and others, which are all observable and obtainable

from open market.

F-150

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

390 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Currency risk (continued)

Sensitivity analysis (continued)

Fair value of financial assets and liabilities (continued)

Management determines the fair value of the Group’s level 3 financial instruments using a variety of

techniques, including examining correlations of these fair values with macro-economic factors, engaging

external values, and using valuation models that incorporate unobservable inputs such as loss coverage

ratios. The fair value measurement of these instruments will not change significantly if changing one or

more of the unobservable inputs to reflect reasonably possible alternative assumptions. The Group has

established internal control procedures to control the Group’s exposure to such financial instruments.

Financial instruments not measured at fair value

The table below summarises the carrying amounts and expected fair values with obvious variances of

those financial assets and liabilities not presented on the Group’s consolidated statement of financial

position at their fair values.

As at 31 December 2017 As at 31 December 2016

Carrying amount Fair value

Carrying amount Fair value

RMB’000 RMB’000 RMB’000 RMB’000

Financial assetsHeld-to-maturity financial assets 78,718 78,867 83,509 82,679

Financial liabilitiesNon-convertible bonds payable 125,252,866 120,751,828 122,597,884 124,500,824

Fair value hierarchy of financial instruments not measured at fair value

As at 31 December 2017

Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000

Financial assetsHeld-to-maturity financial assets – 78,867 – 78,867Financial liabilitiesBonds payable – 124,154,079 – 124,154,079

F-151

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

391HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments not measured at fair value (continued)

Fair value hierarchy of financial instruments not measured at fair value (continued)

As at 31 December 2016

Level 1 Level 2 Level 3 TotalRMB’000 RMB’000 RMB’000 RMB’000

Financial assetsHeld-to-maturity financial assets – 82,679 – 82,679Financial liabilitiesBonds payable – 129,261,977 – 129,261,977

The fair values of the financial assets and financial liabilities included in the level 2 categories above

have been determined in accordance with generally accepted pricing models based on a discounted

cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk

of counterparties.

Except for the above, the directors of the Company consider that the carrying amounts of financial

assets and financial liabilities recorded at amortised cost in the Group’s statements of financial position

approximate their fair values.

F-152

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

392 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3.

The main parameters used in valuation techniques for financial instruments held by the Group include bond prices, interest rates, foreign exchange rates, equity and stocks prices, volatilities, correlations, early repayment rates, counterparty credit spreads and others, which are all observable and obtainable from open market.

Instruments which have been valued using unobservable inputs have been classified by the Group as level 3.Management determines the fair value of the Group’s level 3 financial instruments using a variety of techniques, including examining correlations of these fair values with macro-economic factors, engaging external appraisers, and using valuation models that incorporate unobservable inputs such as loss coverage ratios. The fair value measurement of these instruments will not change significantly if changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions. The Group has established internal control procedures to control the Group’s exposure to such financial instruments.

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

1) Listed options Derivative instruments

466,542 (Assets)

1,024,867 (Liabilities)

385,103 (Assets) 47,497

(Liabilities)

Level 1 The fair value of listed option was determined by quoted bid prices in an active market.

N/A N/A

2) Unlisted options Derivative instruments

81,119 (Assets) 503,386

(Liabilities)

48,431 (Assets) 56,727

(Liabilities)

Level 2 Fair value was determined based on option pricing model with market observable inputs, such as quoted market price, dividend yield, observable volatilities, as key parameters.

N/A N/A

3) Debt linked notes Derivative instruments

265,955 (Assets)

526,978 (Assets)

Level 2 The fair value of the debt linked notes were determined with reference to the quoted price of the underlying debt instruments.

N/A N/A

4) Commodity forward contracts

Derivative instruments

1,992 (Assets)

12,729 (Liabilities)

8,809 (Assets) 84,467

(Liabilities)

Level 2 Discounted cash flows. Future cash flows are estimated based on observable commodity forward price and contracted exercise price.

N/A N/A

F-153

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

393HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

5) Foreign exchange Forward contracts

Derivative instruments

91,779 (Assets) 106,618

(Liabilities)

116,818 (Assets)

179,507 (Liabilities)

Level 2 Fair value was determined based on discounted cash flow model applying various market observable financial parameters including interest rates, forward exchange rate.

N/A N/A

6) Interest rate, foreign exchange and credit default swap contracts

Derivative instruments

1,586,509 (Assets)

1,611,497 (Liabilities)

2,826,005 (Assets)

1,924,886 (Liabilities)

Level 2 Fair value was determined based on discounted cash flow model applying various market observable financial parameters including interest rates, forward exchange rate, credit spread, etc.

N/A N/A

7) Embedded equity instruments

Derivative instruments

86 (Liabilities)

73,045 (Liabilities)

Level 2 Fair value was determined based on option pricing model with market observable inputs, such as quoted market price, dividend yield, as key parameters.

N/A N/A

8) Equity swap contracts Derivative instruments

48,678 (Assets) 236,272

(Liabilities)

22,927 (Assets)

227,880 (Liabilities)

Level 2 The fair value of the equity swap contracts were determined with reference to the quoted price of the underlying equity instruments and contacted interest rates.

N/A N/A

9) Commodity forward Derivative instruments

68,037 (Assets)

– Level 2 The fair value of the commodity forward was estimated based on internal model considering observable quoted price of the same underlying commodity and risk-free interest rates curve as key parameter.

N/A N/A

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-154

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

394 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

10) Listed equity investments (non-restricted shares), funds investments and debt investments

Financial assets at fair value through profit or loss

28,267,897 21,657,821 Level 1 Quoted bid prices in an active market. N/A N/A

200,021 21,536,767 Level 2 Equity: the fair value of equity investments

was based on the recent transaction

price of the investments.

27,964,860 3,771,826 Level 2 Debts: the fair values was determined with

reference to the quoted price provided

by brokers/financial institutions.

2,103,830 – Level 2 Debts: fair value was determined based on

discounted cash flow model applying

observable market interest rates.

Financial liabilities

held for trading

1,829,906 323,126 Level 1 Quoted bid prices in an active market.31,318 41,547 Level 2 Equity: the fair values was determined with

reference to the quoted price provided by brokers/financial institutions.

1,997,549 – Level 2 Debts: the fair values was determined with reference to the quoted price provided by brokers/financial institutions.

3,014,969 – Level 2 Debts: fair value was determined based on discounted cash flow model applying observable market interest rates.

Financial liabilities

designated as

FVTPL

77,496 2,147 Level 1 Quoted bid prices in an active market.

Available-for-sale

investments

2,924,764 6,272,789 Quoted bid prices in an active market.461,748 3,682,365 Level 2 The fair value was based on the recent

transaction price of the investments.377,155 – Level 2 The fair values was determined with

reference to the quoted price provided by brokers/financial institutions.

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-155

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

395HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

11) Unlisted equity

investments (non-

restricted shares)

Financial assets at

fair value through

profit or loss

954,426 962,956 Level 2 The fair value was determined with reference to the recent transaction price of the investments.

N/A N/A

344,023 – Level 2 The fair value is determined with reference to the net asset value of unlisted equity/partnership investment mostly determined based on the fair value of the underlying investment portfolio, which is comprised of (i) listed equity investments of which their price are quoted in active market and/or (ii) unlisted debt investment of which the fair value are determined based on quoted price provided by brokers/financial institution and/or (iii) discounted cash flows that the futures cash flows are based on the contractual values as at the maturity date and discounted at a rate determined by observable market yield.

N/A N/A

480,774 269,313 Level 3 The fair value is based on the net asset value of the unlisted equity, with reference to the market value of the comparable listed company as well as the liquidity discount impact.

Market value The higher the market value, the higher the fair value.

– 3,166,124 The fair value is derived from the net asset value of such unlisted direct equity investment that is mostly attributable from its underlying listed equity investment which is a restricted share with its fair value is determined with reference to the quoted market prices of the shares with an adjustment of discount for lack of marketability.

Discount for lack of marketability with reference to the quoted market prices of the shares.

The higher the discount, the lower the fair value.

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-156

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

396 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

Available-for-sale

investments

661,518 1,607,954 Level 2 The fair value was based on the traction value of the products was calculated by observable (quoted) prices of underlying investment portfolio and adjustments of related expenses.

N/A N/A

4,803,297 44,284 Level 3 The fair value is based on the net asset value of the unlisted equity, with reference to the market value of the comparable listed company, as well as the liquidity discount impact.

Market value The higher the market value, the higher the fair value.

Financial liabilities

designated as

FVTPL

– 1,043 Level 2 The fair value was determined with reference to the recent transaction price of the investments.

N/A N/A

12) Unlisted debt

investments

Financial assets at

fair value through

profit or loss

5,226,316 1,013,346 Level 2 The fair value was determined with reference to the recent transaction price of the debt.

N/A N/A

17,236,440 18,662,260 Discounted cash flows. Future cash flows are estimated based on the yield curves of the various bonds.

334,930 198,946 Level 3 The fair value of the investments consist on the use of discount cash flow models but which imply the use non-observable market information.

Financial liabilities

held for trading

865,380 8,127,478 Level 2 The fair values was determined with

reference to the quoted price provided

by brokers/financial institutions.

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-157

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

397HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

Available-for-sale

investments

61,274 958,456 The fair values was determined with

reference to the quoted price provided

by brokers/financial institutions.

1,398,625 4,877,194 Discounted cash flows. Future cash flows

are estimated based on the yield curves

of the various bonds.

557,782 195,462 Level 3 The fair value of the investments consist

on the use of discount cash flow models

but which imply the use non-observable

market information.

– 303,700 Discounted future cash flows based on

expected cash flows discounted at rate

taking into account of the credit risk

of the issuer.

Credit risk spread (loss given default)

The higher the loss given default, the higher the discount and the lower the fair value.

13) Unlisted fund

investments

Financial assets at

fair value through

profit or loss

10,409,472 13,686,104 Level 2 The fair value was based on the net asset

value of the underlying assets. The

net asset values were determined with

reference to observable (quoted) prices

of underlying investment portfolio and

adjustments of related expenses.

N/A N/A

Available-for-sale

investments

4,554,965 7,067,004 The fair value was based on the net asset

value of the underlying assets. The

net asset values were determined with

reference to observable (quoted) prices

of underlying investment portfolio and

adjustments of related expenses.

429,422 177,430 Level 3 The fair value of the investments consist

of quotation a provided by third parties

but which imply the use non-observable

market information.

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-158

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

398 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

14) Investments in structure

products, trust and

other products (investing

in equity or debt other

than unlisted private

equity)

Financial assets at

fair value through

profit or loss

6,333,710 7,422,031 Level 2 The fair values was determined with

reference to the quoted price provided

by brokers/financial institutions

N/A N/A

Available-for-sale

investments

23,045,095 23,835,084 The fair value was determined with

reference to the recent transaction price

of the investments.

450,185 994,601 The fair value is determined with reference

to the matured contract value and

the discount rate was based on the

observable market yield curve.

15) Restricted shares and

funds

Available-for-sale

investments

1,731,046 1,646,561 Level 3 The fair value is determined with reference

to the quoted market prices with an

adjustment of discount for lack of

marketability.

Reference to

the quoted

market prices

of listed

shares with

an adjustment

of discount

for lack of

marketability.

The higher the

discount, the

lower the fair

value.

16) Financial liabilities

arising from

consolidation of

structured entities

Financial liabilities

designated as

FVTPL

1,342,318 12,655,010 Level 2 Based on the net asset values of the

structured entities, determined with

reference to observable (quoted) prices

of underlying investment portfolio and

adjustments of related expenses.

N/A N/A

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-159

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

399HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

17) Structured notes issued Financial liabilities

designated as

FVTPL

9,908,780 11,046,114 Level 2 Included in financial liabilities designated

at fair value through profit or loss

are the structured notes issued with

return linked to equity investments,

debt investments, fund investments,

index of respective stock exchanges,

or partnership investments. The

risk of economic exposure on these

structured products is primarily hedged

using financial instruments classified

as financial assets designated at fair

value through profit or loss. The Group

managed relevant assets and liabilities

on a pair basis and as such relevant

liabilities are valued with directly

reference to its hedging assets.

N/A N/A

274,655 1,909,546 Level 3 The fair value is derived from the net

asset value of such unlisted direct

equity investment that is mostly

attributable from its underlying listed

equity investment which is a restricted

share with its fair value is determined

with reference to the quoted market

prices of the shares with an adjustment

of discount for lack of marketability

under the approach of discounted cash

flow. The directors of the Company

considered that remaining assets or

liabilities in such unlisted direct equity

investment are not significant to the

amount of overall investment and

approximated to its fair value.

Discount rate

for lack of

marketability

with reference

to the prices

of listed

securities.

The higher the

discount, the

lower the fair

value.

F-160

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

400 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

Financial assets/Financial liabilities Classified as

Fair value as at 31 December

2017

Fair value as at 31 December

2016 Fair value hierarchy

Basis of fair value measurement/Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

In RMB ’000 In RMB ’000

18) Gold lending business Financial liabilities

designated as

FVTPL

327,600 4,433,520 Level 2 The fair value was determined with

reference to the fair value of the

underlying gold.

N/A N/A

19) Gold options

arrangement

Financial liabilities

designated as

FVTPL

1,073,529 – Level 2 Discounted cash flow. Future cash flow

represents the difference between

exercise prices of gold option purchased

and sold under the arrangement and

discounted by oversell yield curve.

N/A N/A

20) Investments in structure

products

Available-for-sale

investments

– 1,655,531 Level 3 Discounted future cash flows based on

expected cash flows discounted at rate

taking into account of the credit risk

of the issuer.

Credit risk

spread (loss

given default)

The higher the loss

given default,

the higher the

discount and the

lower the fair

value.

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-161

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

401HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

The following table represents the changes in financial instruments measured at level 3 fair value for the years ended 31 December 2017 and 2016.

Available-for-sale investments

2017 2016RMB’000 RMB’000

As at the beginning of the year 4,022,968 6,264,036Transfer in 4,361,651 –Purchase 779,468 1,183,850Transfer out (1,218,923) (3,022,987)Total losses and gains – other losses and gains (423,617) (401,931)

As at the end of the year 7,521,547 4,022,968

Financial assets at fair value through profit or loss:

2017 2016RMB’000 RMB’000

As at the beginning of the year 3,634,383 4,780,120Transfer in 563,555 492,018Transfer out (3,188,027) –Total losses and gains – other losses and gains (194,207) (1,637,755)

As at the end of the year 815,704 3,634,383

Financial liabilities at fair value through profit or loss:

2017 2016RMB’000 RMB’000

As at the beginning of the year 1,909,546 3,540,206Transfer in 213,220 73,095Transfer out (1,721,563) –Total losses and gains – other losses and gains (126,548) (1,703,755)

As at the end of the year 274,655 1,909,546

F-162

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

402 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

Capital management

The Group’s objectives when managing capital are:

1. To safeguard the Group’s ability to continue as a going concern so that it can continue to provide

returns for shareholders and benefits for other stakeholders;

2. To support the Group’s stability and growth;

3. To maintain a strong capital base to support the development of its business; and

4. To comply with the capital requirements under jurisdiction’s local regulations.

In accordance with (the relevant regulations issued by Shanghai Securities Regulatory Bureau’s 18

March 2014) the Company is required to meet the following standards for risk control indicators on

a continual basis:

1. The ratio between its net capital and the sum of its various risk capital provisions shall be no less

than 100% (“Ratio 1”);

2. The ratio between its net capital and its net assets shall be no less than 20% (“Ratio 2”);

3. The ratio between its net capital and its liabilities shall be no less than 8% (“Ratio 3”);

4. The ratio between its net assets and its liabilities shall be no less than 10% (“Ratio 4”);

5. The ratio between the value of equity securities and equity related derivatives held and its net

capital shall not exceed 100% (“Ratio 5”);

6. The ratio between the value of non-equity securities held, non-equity related derivatives and net

capital shall not exceed 500% (“Ratio 6”);

7. The ratio between its core net capital and total assets of in-balance-sheet and off-balance-sheet

shall be no less than 8% (“Ratio 7”);

F-163

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

403HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

68. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

Capital management (continued)

8. The ratio between its high quality liquid assets and net cash outflow in 30 days shall be no less

than 100% (“Ratio 8”); and

9. The ratio between its available stable funding and stable funding needed shall be no less than

100% (“Ratio 9”).

Net capital refers to net assets minimises risk adjustments on certain types of assets as defined in the

Administrative Measures.

As at 31 December 2017 and 2016, the Company has maintained the above ratios as follows:

2017/12/31 2016/12/31

Net capital (RMB‘000) 75,292,211 78,663,534

Ratio 1 249.31% 258.90%

Ratio 2 70.46% 77.70%

Ratio 3 50.16% 52.56%

Ratio 4 71.20% 67.65%

Ratio 5 30.78% 29.66%

Ratio 6 57.72% 80.98%

Ratio 7 27.06% 27.64%

Ratio 8 188.90% 155.23%

Ratio 9 135.49% 131.65%

The above ratios are calculated based on the underlying financial information prepared in accordance

with the relevant accounting rules and financial regulations applicable to enterprises in the People’s

Republic of China regulated by the China Securities Regulatory Commission.

Certain subsidiaries of the Group are also subject to capital requirements under relevant regulations

in PRC, Hong Kong and other jurisdictions. The capital of the Group mainly comprises its total equity.

F-164

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

404 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

69. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:

As at 31 December 2017 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the statements of financial

position

Net amounts of financial

assets presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral received Net amount

Derivative instruments (note 50) 2,613,863 3,251 2,610,612 – – 2,610,612Accounts receivable from brokers, dealers and clearing house (note 31) 9,792,616 3,771,075 6,021,541 188,358 253,302 5,579,881Advances to customers on margin financing (note 30) 61,560,953 – 61,560,953 56,177,307 5,383,646 –Deposits with exchanges (note 36) 8,528,675 – 8,528,675 76,375 – 8,452,300

As at 31 December 2016 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000Related amounts not set off in the

statement of financial position

Description

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the statements of financial

position

Net amounts of financial

assets presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral received Net amount

Derivative instruments (note 50) 3,952,520 17,449 3,935,071 – – 3,935,071Accounts receivable from brokers, dealers and clearing house (note 31) 7,887,737 2,374,920 5,512,817 8,200 55,426 5,449,191Advances to customers on margin financing (note 30) 63,212,920 – 63,212,920 57,033,724 6,179,196 –Deposits with exchanges (note 36) 8,952,031 – 8,952,031 33,548 – 8,918,483

F-165

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

405HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

69. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar

agreements:

As at 31 December 2017 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial liabilities

Gross amounts of recognised

financial assets set off in the

statements of financial

position

Net amounts of financial

liabilities presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral

pledged Net amount

Derivative instruments (note 50) 3,514,713 19,259 3,495,454 – – 3,495,454Pending payable to clearing house

(note 48) 7,732,991 3,771,075 3,961,916 467,475 – 3,494,441Financial liabilities held for trading

(note 51) 6,864,074 – 6,864,074 – 3,849,105 3,014,969

As at 31 December 2016 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the

statement of financial position

Description

Gross amounts

of recognised

financial

liabilities

Gross amounts

of recognised

financial assets

set off in the

statements

of financial

position

Net amounts

of financial

liabilities

presented in

the statement

of financial

position

(d)(i) Financial

instruments

(d)(ii) Cash

collateral

pledged Net amount

Derivative instruments (note 50) 2,604,351 10,342 2,594,009 – – 2,594,009

Pending payable to clearing house

(note 48) 6,403,075 2,374,920 4,028,155 174,048 – 3,854,107

Financial liabilities held for trading

(note 51) 18,900,050 – 18,900,050 – 2,812,094 16,087,956

The Group has entered into master netting arrangements with counterparties for the derivative

instruments and also with clearing house for un-settled trades.

F-166

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

406 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

69. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

Except for the enforceable master netting arrangements and the offset-right of the financial assets

under the similar agreements disclosed above, the collaterals of which, such as financial assets held

under resale agreement, financial assets sold under repurchase agreement, borrowing with collateral,

advances to customers and etc., are disclosed in the corresponding notes, which are generally not on

the net basis in financial position. However, the risk exposure associated with favorable contracts is

reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the

counterparty are terminated and settled on a net basis. As of 31 December 2017 and 31 December

2016, the fair value of the collaterals related to the above items exceeded the book value of those

financial instruments; net exposure and net amount is insignificant after setting off the collaterals.

70. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group’ liabilities arising from financing activities, including both

cash and non-cash changes. Liabilities arising from financing activities are those for which cash flow

were or future cash flow will be classified in the Group’s consolidated statement of cash flows as cash

flows from financing activities.

Borrowings

Bonds payables

and short-term

financing bills payables

Interest payables

Dividend payables Total

(Note)

As at 1 January 2017 61,148,555 148,159,309 3,434,556 7,536 212,749,956Financing cash flows 2,716,981 12,470,810 (8,307,021) (2,894,357) 3,986,413Non-cash changes: Interest expenses 77,135 217,639 8,057,337 – 8,352,111 Exchange difference (2,620,681) (1,262,727) – – (3,883,408) Dividend distribution – – – 2,913,226 2,913,226Other Changes – – – (7,207) (7,207)

As at 31 December 2017 61,321,990 159,585,031 3,184,872 19,198 224,111,091

Note: Interest payable only includes those arising from borrowings, short-term financing bills payables and bonds payables.

F-167

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

407HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

71. ACQUISITION OF SUBSIDIARIES

On 12 December 2016, the Group entered into a sale and purchase agreement with an independent third party to acquire a 100% equity interest in a financial intermediary, which is engaged in provision of financial services in respect of exchange traded options and futures, over-the-counter leveraged foreign exchange and trading of precious metal and licensed with Monetary Authority of Singapore. This financial intermediary was formerly known as G.K. Goh Financial Services (Singapore) Pte. Ltd. and subsequently renamed as Haitong International Financial Services (Singapore) Pte. Ltd. (“Haitong Financial Services Singapore”). The transaction was completed on 28 February 2017.

Net assets acquired in this combination amounted to RMB55.32 million, among which cash and cash equivalents amounted to RMB169.36 million and accounts payable amounted to RMB261.13 million, being the largest asset item acquired and the largest liability assumed, respectively. Cash consideration of RMB60.21 million was paid for this acquisition and a goodwill of RMB4.62 million (Note 20 Unit F) arose after having taking into account certain fair value adjustments.

The contributions of Haitong Financial Services Singapore to the operating results of the Group were not material from the date of acquisition to 31 December 2017.

72. ACQUISITION OF ASSETS THROUGH ACQUISITION OF SUBSIDIARIES

During the year end 31 December 2017, the Group completed the acquisition of the entire equity interest of Shanghai Weitai Property Management Co., Ltd. for a cash consideration of RMB857,982,000 (the “Weitai Property”). This transaction does not meet the definition of a business combination. The assets acquired and liabilities assumed do not constitute a business. The transaction was accounted for as an acquisition of land use right in the ordinary course of the Group.

The net assets acquired in the Weitai Acquisition are as follow:

RMB’000

Bank balance and cash 1,866

Other assets-prepaid lease payments 832,441

Construction in process 23,675

Shareholder’s loan (101,916)

756,066

Assignment of shareholder’s loan 101,916

Total consideration satisfied by:

Cash paid 857,982

Net cash outflow arising on acquisition:

Cash consideration paid (857,982)

Bank balance and cash 1,866

(856,116)

F-168

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2017

408 HAITONG SECURITIES CO., LTD. Annual Report 2017 (H Share)

73. SUBSEQUENT EVENTS

Profit distribution resolution

On 27 March 2018, the board of directors of the Company proposed a profit distribution resolution,

Cash dividend of RMB2.3 per 10 shares (inclusive of tax) was distributed to all holders of A Shares and

H Shares whose names appear on the register of members of the Company on the record date. The

total cash dividends to be distributed would be RMB2,645,391,000.00 on the basis of a total share

capital of 11,501,700,000 A Shares and H Shares in issue. The retained profits of the Company of

RMB17,817,845,957.76 following the cash dividend distribution will be carried forward to the next year.

The specific overall amount of cash dividends under distribution and the retained profits to be carried

forward to the next year will be calculated according to the actual number of shares of the Company

in issue on the record date for the cash dividend distribution.

The cash dividend will be calculated and declared in RMB, and paid in RMB to A share shareholders

and in HKD equivalent to H share shareholders. The actual HKD amount will be converted from RMB

at the average benchmark exchange rate of the last 5 working days published by the People’s Bank of

China before the 2017 annual general meeting.

After the profit distribution resolution has been approved by the annual general meeting, the cash

dividend will be paid out within two months from the date of approval.

Listing application by a subsidiary

On 27 June 2017, Haitong UniTrust International Leasing Co., Ltd., a wholly-owned subsidiary of the

Company, submitted, through its joint sponsors, a listing application (Form A1) to The Stock Exchange

of Hong Kong Limited to apply for the listing of, and permission to deal in, the H shares of Haitong

UniTrust on the Main Board of the Stock Exchange. The listing application was renewed on 28 February

2018 because of lapse of the six-month period from the date of the Listing Application.

Listing of a subsidiary

On 6 March 2018, Haitong Futures Co. Ltd, a subsidiary of the Company, was listed and exchanged

on the National Equities Exchange and Quotations.

74. COMPARATIVE FIGURES

Certain comparative figures have been restated to conform to the current year’s presentation.

F-169

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 237

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF

HAITONG SECURITIES CO.,LTD.(incorporated in the People’s Republic of China with limited liability)

Opinion

We have audited the consolidated financial statements of Haitong Securities Co., Ltd. (the “Company”) and

its subsidiaries (collectively referred to as the “Group”) set out on pages 244 to 440, which comprise the

consolidated statement of financial position as at 31 December 2018, and the consolidated statement of

profit or loss and the consolidated statement of profit or loss and other comprehensive income, consolidated

statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes

to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial

position of the Group as at 31 December 2018, and of its consolidated financial performance and its

consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards

(“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and have been properly prepared

in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities

under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated

Financial Statements section of our report. We are independent of the Group in accordance with the

International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the

“Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe

that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

F-170

238 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

INDEPENDENT AUDITOR’S REPORT

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit

of the consolidated financial statements of the current period. These matters were addressed in the context

of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and

we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Impairment of advances to customers on margin financing, financial assets held under resale agreements and finance lease receivables We identified the impairment of advances to

customers on margin financing, financial assets held

under resale agreements, debt instruments at fair

value through other comprehensive income and

finance lease receivables, as a key audit matter due

to the aggregate amount of above mentioned assets

is material and it requires the application of judgment

and estimation by the management to determine the

amount of expected credit loss (“ECL”).

The measurement model for ECL involves significant

judgement and estimation, including determination

of whether there is significant increase in credit

risk, the probability of default (PD) and loss given

default (LGD), and incorporation of forward-looking

information.

As disclosed in note 40, 32 and 25, respectively,

as at 31 December 2018, the Group held advances

to customers on margin financing, which primarily

comprise loans to margin clients, of RMB49,656

million, less impairment allowance of RMB795 million;

financial assets held under resale agreements of

RMB83,413 million, with impairment loss of RMB734

million; finance lease receivables of RMB63,358

million, less impairment allowance of RMB1,705

million.

Our procedures in relation to the impairment of

advances to customers on margin financing, financial

assets held under resale agreements, and finance

lease receivables included:

• Understanding of the Group’s credit risk

management and practice in relation to the

adoption of measurement model for ECL under

IFRS 9, including model building and approval,

ongoing model monitoring, validation and

governance;

• Evaluating the appropriateness of the

measurement model for ECL, including the

critical assumptions and parameters used in

the model, the determination of significant

increase in credit risk, and forward-looking

information used in the model; and on a

sample basis testing the key data sources used;

• For credit-impaired assets under Stage 3, on a

sample basis, assessing the reasonableness of

the estimates in the amount and timing future

of cash flows made by the management by

reference to operating performances of the

borrowers and realization of collateral etc.

F-171

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 239

INDEPENDENT AUDITOR’S REPORT

Key audit matter How our audit addressed the key audit matter

Impairment of goodwillWe identify the impairment of goodwill as a key audit

matter due to the significant judgement applied by

the management in assessing impairment.

As disclosed in Note 4, the Group determines

whether goodwill is impaired requires an estimation

of the value in use of the cash-generating units to

which goodwill has been allocated. The value in use

calculation requires the Group to estimate the future

cash flows expected to arise from the cash-generating

unit and an appropriate discount rate in order to

calculate the present value.

As at 31 December 2018, the Group held goodwill of

RMB4,046 million. Details of goodwill and impairment

testing on goodwill are set out in Note 19 and 21

respectively.

Our audit procedures in relation to management’s

impairment assessment of goodwill included:

• Understanding the process and controls of

management over the impairment assessment

of goodwill;

• Examining the estimation of the value in use

of the cash-generating units to which goodwill

has been allocated and understanding the

financial positions and future prospects of the

cash-generating units;

• Evaluating the reasonableness of key inputs

and assumptions adopted by management

in estimations of value in use of the cash-

generating units, including projections of cash

flows, discount rates and growth rates applied

by checking to approved financial budget

of those cash-generating units, evaluating

the reasonableness of these budgets with

reference to the past performance as well as

our knowledge of the business; and

• Involving internal valuation experts in reviewing

the appropriateness of the discounted rates

used in the calculation of value in use of

certain cash-generating units.

F-172

240 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

INDEPENDENT AUDITOR’S REPORT

Key audit matter How our audit addressed the key audit matter

Consolidation of structured entitiesWe identified consolidation of structured entities as

a key audit matter as the Group holds a number of

interests in structured entities including collective

asset management schemes and investment

funds where the Group is involved as investment

manager. The Group applied significant judgement

in determining whether the Group should consolidate

these structured entities. The effect of consolidation

or not of these structured entities will have significant

impact on the consolidated financial statements of

the Group.

As disclosed in Note 4, for collective asset

management schemes and investment funds where

the Group involves as manager, the Group assesses

whether the combination of investments it holds

together with its remuneration, credit enhancement

and other interests creates exposure to variability

of returns from the activities of the collective asset

management schemes and investment funds that is of

such significance that it indicates that the Group is a

principal. The collective asset management schemes

and investment funds are consolidated if the Group

acts in the role of principal.

Details of consolidated structured entities and

unconsolidated structured entities are set out in Notes

23 and 26 to the consolidated financial statements

respectively.

Our procedures in relation to consolidation of

structured entities included:

• Understanding the process and controls of

management in assessing consolidation of

structured entities;

• Checking the information used by the

management in accessing the consolidation

criteria of significant structured entities such

as the related service agreements and other

agreements of interests in structured entities

newly established, invested or with changes

in the proportion of ownership interest or

constructed terms during the year.

• Assessing management judgement in assessing

consolidation for each of the significant

structured entities and the conclusion about

whether or not the consolidation criteria are

met.

F-173

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 241

INDEPENDENT AUDITOR’S REPORT

Other Information

The directors of the Company are responsible for the other information. The other information comprises the

information included in the annual report, but does not include the consolidated financial statements and

our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not

express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the

consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially

misstated. If, based on the work we have performed, we conclude that there is a material misstatement of

this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements

The directors of the Company are responsible for the preparation of the consolidated financial statements

that give a true and fair view in accordance with IFRSs issued by the IASB and the disclosure requirements

of the Hong Kong Companies Ordinance, and for such internal control as the directors of the Company

determine is necessary to enable the preparation of consolidated financial statements that are free from

material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the Company are responsible for assessing

the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern

and using the going concern basis of accounting unless the directors of the Company either intend to liquidate

the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a

whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report

that includes our opinion solely to you, as a body, in accordance with our agreed terms of engagement,

and for no other purpose. We do not assume responsibility towards or accept liability to any other person

for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,

they could reasonably be expected to influence the economic decisions of users taken on the basis of these

consolidated financial statements.

F-174

242 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

INDEPENDENT AUDITOR’S REPORT

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional

skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit

evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting

a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may

involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates

and related disclosures made by the directors of the Company.

• Conclude on the appropriateness of the directors of the Company’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related

to events or conditions that may cast significant doubt on the Group’s ability to continue as a going

concern. If we conclude that a material uncertainty exists, we are required to draw attention in our

auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures

are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to

the date of our auditor’s report. However, future events or conditions may cause the Group to cease

to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the underlying

transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial statements. We

are responsible for the direction, supervision and performance of the group audit. We remain solely

responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope

and timing of the audit and significant audit findings, including any significant deficiencies in internal control

that we identify during our audit.

F-175

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 243

INDEPENDENT AUDITOR’S REPORT

We also provide those charged with governance with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other matters

that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and are

therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation

precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that

a matter should not be communicated in our report because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in the independent auditor’s report is Man Kai Sze.

Deloitte Touche TohmatsuCertified Public Accountants

Hong Kong

27 March 2019

F-176

244 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF PROFIT OR LOSSFor the year ended 31 December 2018

2018 2017

NOTES RMB’000 RMB’000

Commission and fee income 6 9,852,687 11,225,083

Interest income 7 14,248,355 12,448,565

Finance lease income 3,698,412 2,675,752

Investment income and gains (net) 8 3,483,520 9,327,622

31,282,974 35,677,022

Other income and gains 9 7,386,733 5,647,480

Total revenue, gains and other income 38,669,707 41,324,502

Depreciation and amortisation 10 (558,166) (485,337)

Staff costs 11 (5,929,829) (6,400,066)

Commission to account executives (504,297) (688,301)

Brokerage transaction fees and other services expenses 12 (834,025) (980,583)

Interest expenses 13 (13,126,493) (11,458,392)

Impairment losses on assets 14 – (1,686,658)

Expected credit losses 14 (1,622,167) –

Impairment losses on other assets (25,060) –

Other expenses (8,532,013) (7,444,255)

Total expenses (31,132,050) (29,143,592)

Share of results of associates and joint ventures 32,709 708,487

Profit before income tax 7,570,366 12,889,397

Income tax expense 15 (1,799,658) (3,013,794)

Profit for the year 5,770,708 9,875,603

Attributable to:

Owners of the Company 5,211,093 8,618,423

Non-controlling interests 559,615 1,257,180

Including: Perpetual notes 49,897 44,880

5,770,708 9,875,603

Earnings per share (Expressed in RMB per share)

– Basic 16 0.45 0.75

– Diluted 16 0.45 0.74

F-177

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 245

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the year ended 31 December 2018

2018 2017RMB’000 RMB’000

Profit for the year 5,770,708 9,875,603

Other comprehensive (expense)/income:

Items that will not be reclassified subsequently to profit or loss:Actuarial (losses)/gains on defined benefit obligations (20,166) 3,838Fair value loss on equity instruments measured at fair value through other comprehensive income (2,039,573) – Income tax impact 509,893 –

Subtotal (1,549,846) 3,838

Items that may be reclassified subsequently to profit or loss:Exchange differences arising on translation of foreign operation 17,109 (227,373)Fair value gain/(loss) on hedges of net investments in foreign operations 152,998 (354,999)Fair value gain/(loss) on: Available-for-sale investments Net fair value changes during the year – 4,148,546 Reclassification adjustment to profit or loss on disposal – (2,524,774) Reclassification adjustment to profit or loss upon impairment – 247,963 Income tax relating to components of other comprehensive income – (475,647) Debt instruments measured at fair value through other comprehensive income Net fair value changes during the year 60,018 – Reclassification adjustment to profit or loss on disposal (38,370) – Reclassification adjustment to profit or loss for expected credit losses 34,636 – Income tax relating to components of other comprehensive income (31,274) –Share of other comprehensive expenses of associates and joint ventures (231,985) (23,825)

Subtotal (36,868) 789,891

Other comprehensive (expenses)/income for the year (net of tax) (1,586,714) 793,729

Total comprehensive income for the year 4,183,994 10,669,332

Attributable to: Owners of the Company 3,092,588 10,136,216 Non-controlling interests 1,091,406 533,116 Including: Perpetual notes 50,065 44,880

4,183,994 10,669,332

F-178

246 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2018

2018/12/31 2017/12/31

NOTES RMB’000 RMB’000

Non-current assets

Property and equipment 17 6,044,423 2,862,370

Investment properties 18 213,429 16,864

Goodwill 19 4,046,190 3,863,520

Other intangible assets 20 517,795 494,053

Investments accounted for using equity method 24 5,312,881 10,062,370

Finance lease receivables 25 30,824,664 22,212,628

Available-for-sale investments 27 – 31,725,358

Equity instruments at fair value through

other comprehensive income 28 15,228,291 –

Debt instruments at fair value through

other comprehensive income 29 5,768,988 –

Debt instruments measured at amortised cost 30 679,214 –

Financial assets at fair value through profit or loss 31 18,368,406 952,338

Financial assets held under resale agreements 32 11,002,055 21,204,776

Other loans and receivables 33 5,647,819 8,098,697

Loans and advances 34 3,744,563 4,086,897

Deferred tax assets 35 3,241,202 2,851,450

Deposits with exchanges 36 1,381,539 1,347,701

Restricted bank balances and cash 37 739,260 675,568

Other assets 39 1,179,204 1,076,587

Total non-current assets 113,939,923 111,531,177

F-179

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 247

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2018

2018/12/31 2017/12/31

NOTES RMB’000 RMB’000

Current assets

Advances to customers on margin financing 40 48,861,009 61,560,953

Accounts receivable 41 8,257,214 7,442,000

Finance lease receivables 25 30,828,048 21,323,548

Available-for-sale investments 27 – 9,503,398

Debt instruments at fair value through

other comprehensive income 29 9,362,242 –

Debt instruments measured at amortised cost 30 4,082 –

Financial assets at fair value through profit or loss 31 158,837,008 98,904,357

Derivative financial assets 42 1,780,757 2,610,612

Held-to-maturity investments 43 – 78,718

Financial assets held under resale agreements 32 71,676,737 75,345,093

Other loans and receivables 33 14,043,711 21,147,878

Loans and advances 34 618,924 751,375

Other receivables and prepayments 44 3,031,728 5,544,270

Placements to banks and other financial institutions 45 31,144 679,092

Deposits with exchanges 36 5,601,350 7,180,974

Clearing settlement funds 46 7,646,561 7,982,729

Deposits with central banks 47 2,426,236 3,445,696

Deposits with other banks 47 253,908 316,134

Bank balances and cash 37 97,423,052 99,358,329

Total current assets 460,683,711 423,175,156

Total assets 574,623,634 534,706,333

F-180

248 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2018

2018/12/31 2017/12/31

NOTES RMB’000 RMB’000

Current liabilities

Borrowings 48 52,489,162 45,511,447

Short-term financing bills payables 49 26,537,968 29,426,762

Bonds payable 50 41,923,410 14,739,105

Accounts payable to brokerage clients 51 71,893,535 83,774,388

Customer accounts 52 2,160,326 3,750,621

Contract liabilities 53 284,005 –

Other payables and accruals 54 13,455,014 17,457,987

Provisions 55 145,107 167,343

Tax liabilities 1,535,337 2,198,613

Financial liabilities at fair value through profit or loss 56 23,862,827 20,031,099

Derivative financial liabilities 42 2,218,774 3,495,454

Financial assets sold under repurchase agreements 57 56,372,903 32,645,727

Placements from banks and other financial institutions 58 8,482,577 5,450,000

Deposits from central banks 470,838 468,138

Deposits from other banks 59 19,950 293,733

Total current liabilities 301,851,733 259,410,417

Net current assets 158,831,978 163,764,739

Total assets less current liabilities 272,771,901 275,295,916

Equity

Share capital 60 11,501,700 11,501,700

Capital reserve 56,405,921 56,357,980

Investment revaluation reserve 61 – 2,071,805

In vestment revaluation reserve of financial assets measured

at fair value through other comprehensive income

(“FVTOCI reserve”) 61 (400,148) –

Translation reserve (803,870) (445,275)

General reserves 62 19,819,343 17,971,724

Retained profits 62 31,335,629 30,297,545

F-181

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 249

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2018

2018/12/31 2017/12/31

NOTES RMB’000 RMB’000

Equity attributable to owners of the Company 117,858,575 117,755,479

Non-controlling interests 12,327,344 11,938,825

Including: Perpetual notes 1,266,286 1,264,427

Total equity 130,185,919 129,694,304

Non-current liabilities

Long-term payables 63 6,664,935 4,813,699

Deferred tax liabilities 35 206,710 867,320

Long-term borrowings 48 27,714,158 15,810,543

Bonds payable 50 98,223,447 115,419,164

Other payables and accruals 54 1,197,086 1,216,847

Financial liabilities at fair value through profit or loss 56 2,338,127 712,400

Financial assets sold under repurchase agreements 57 – 400,000

Placements from banks and other financial institutions 58 6,241,519 6,361,639

Total non-current liabilities 142,585,982 145,601,612

Total equity and non-current liabilities 272,771,901 275,295,916

The consolidated financial statements on pages 244 to 440 were approved and authorised for issue by the

Board of Directors on 27 March 2019 and signed on behalf by:

Chairman of Board Executive Director and

General Manager

Chief Financial Officer

F-182

250 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2018

Attributable to owners of the Company Non-controlling interests

Sharecapital

Capitalreserve

Investmentrevaluation

reserveFVTOCIreserve

Translationreserve

Generalreserve

Retainedprofits Total

Share ofnet assets ofsubsidiaries

Perpetualnotes Total

Totalequity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Note a) (Note 62) (Note b)

At 31 December 2017 11,501,700 56,357,980 2,071,805 – (445,275) 17,971,724 30,297,545 117,755,479 10,674,398 1,264,427 11,938,825 129,694,304Adjustment (see Note 3) – – (2,071,805) 1,359,762 – 46,329 262,836 (402,878) (26,989) – (26,989) (429,867)

At 1 January 2018 (restated) 11,501,700 56,357,980 – 1,359,762 (445,275) 18,018,053 30,560,381 117,352,601 10,647,409 1,264,427 11,911,836 129,264,437Profit for the year – – – – – – 5,211,093 5,211,093 509,718 49,897 559,615 5,770,708Other comprehensive (expense)/

income for the year – – – (1,759,910) (358,595) – – (2,118,505) 531,623 168 531,791 (1,586,714)

Total comprehensive (expense)/income for the year – – – (1,759,910) (358,595) – 5,211,093 3,092,588 1,041,341 50,065 1,091,406 4,183,994

Changes in non-controlling interests – – – – – – – – (6,256) – (6,256) (6,256)

Shares issued under convertible bond and share option schemes of a subsidiary (Note 70) – 8,273 – – – – – 8,273 3,589 – 3,589 11,862

Appropriation to general reserves – – – – – 1,801,290 (1,801,290) – – – – –

Cash dividends recognised as distribution (Note 67) – – – – – – (2,645,391) (2,645,391) – – – (2,645,391)

Distribution to non-controlling interests and perpetual notes holders – – – – – – 12,456 12,456 (562,168) (49,826) (611,994) (599,538)

Share-based payments of a subsidiary – – – – – – – – 31,515 – 31,515 31,515

Purchase of shares held under the share award scheme of a subsidiary – (34,801) – – – – – (34,801) (19,928) – (19,928) (54,729)

Others – 74,469 – – – – (1,620) 72,844 (74,444) 1,620 (72,824) 25

At 31 December 2018 11,501,700 56,405,921 – (400,148) (803,870) 19,819,343 31,335,629 117,858,575 11,061,058 1,266,286 12,327,344 130,185,919

Note a: Capital reserve of the Group represents primarily (i) the share premium arisen from the issuance of the Company’s shares, and (ii) the difference between the considerations paid over the proportionate share of net assets attributable to the acquisition of additional interests in subsidiaries.

F-183

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 251

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2018

Attributable to owners of the Company Non-controlling interests

Share capital

Capital reserve

Investment revaluation

reserveFVTOCI reserve

Translation reserve

General reserve

Retained profits Total

Share of net

assets of subsidiaries

Perpetual notes Total

Total equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Note a) (Note 62) (Note b)

At 1 January 2017 11,501,700 56,338,470 784,435 – (675,698) 15,849,581 26,331,639 110,130,127 10,571,548 1,256,726 11,828,274 121,958,401

Profit for the year – – – – – – 8,618,423 8,618,423 1,212,300 44,880 1,257,180 9,875,603Other comprehensive income

(expense) for the year – – 1,287,370 – 230,423 – – 1,517,793 (724,064) – (724,064) 793,729

Total comprehensive income for the year – – 1,287,370 – 230,423 – 8,618,423 10,136,216 488,236 44,880 533,116 10,669,332

Contribution from non-controlling interests – 186 – – – – – 186 115,939 – 115,939 116,125

Perpetual notes related expenses – (2,474) – – – – – (2,474) (1,848) 175 (1,673) (4,147)Appropriation to general reserves – – – – – 2,122,143 (2,122,143) – – – – –Cash dividend distribution to non-

controlling interests – – – – – – – – (470,667) (37,354) (508,021) (508,021)Share-based payments – 21,798 – – – – – 21,798 (28,810) – (28,810) (7,012)Cash dividends recognised as

distribution (Note 67) – – – – – – (2,530,374) (2,530,374) – – – (2,530,374)

At 31 December 2017 11,501,700 56,357,980 2,071,805 – (445,275) 17,971,724 30,297,545 117,755,479 10,674,398 1,264,427 11,938,825 129,694,304

Note b: Shares of net assets of subsidiaries include the perpetual notes issued by the subsidiaries. The total balance of perpetual notes issued by the subsidiaries as at 31 December 2016 amounted to RMB1,257 million, which mainly include 1) the balance of perpetual notes amounted to EUR3.7 million, equivalent to RMB27 million issued by Haitong Bank S.A. and 2) the balance of perpetual notes issued by Haitong UniTrust International Leasing Co., Ltd. amounted to RMB1,230 million on 11 March 2016.

F-184

252 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2018

2018 2017

RMB’000 RMB’000

(audited) (audited)

OPERATING ACTIVITIESProfit before income tax 7,570,366 12,889,397

Adjustments for

Interest expenses 10,542,979 11,458,392

Share of results of associates and joint ventures (32,709) (708,487)

Depreciation and amortisation 558,166 485,337

Impairment losses, net of reversal – 1,686,658

Impairment losses of other assets 25,060 –

Expected credit loss 1,622,167 –

Share-based payment of a subsidiary 31,515 (7,012)

Losses on disposal of property and equipment and

other intangible assets 4,378 9,111

Foreign exchange losses, net (219,127) 225,472

Interest income from debt instruments at fair value through

other comprehensive income (504,409) –

Interest income from debt instruments measured at amortised cost (4,176) –

Dividend income from equity instruments at fair value through

other comprehensive income (1,295,120) –

Net gains arising from debt instruments at fair value through

other comprehensive income (38,370) –

Net realised gains and income arising from FVTPL (255,613) –

Net gains arising from available-for-sale investments – (3,109,382)

Gain on other bond investments and held-to-maturity investments – (1,943,531)

Fair value change of financial instruments at fair value through

profit or loss 2,018,938 1,329,411

Others 34,963 –

Operating cash flows before movements in working capital 20,059,008 22,315,366

F-185

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 253

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2018

2018 2017

RMB’000 RMB’000

(audited) (audited)

Increase in finance lease receivables (18,852,762) (7,374,095)

Increase in financial assets at fair value through profit

or loss and derivative financial assets (53,089,941) (1,924,656)

Decrease/(increase) in financial assets held under resale agreements 13,823,235 (12,190,855)

Decrease/(increase) in other loans and receivables 4,218,718 (6,909,800)

Decrease in loans and advances 738,324 404,397

Decrease in advances to customers on margin financing 12,640,598 1,527,042

(Increase)/decrease in accounts receivables and

other receivables and prepayments (1,030,637) 749,393

Decrease in placements to banks and other financial institutions 645,918 26,756

Decrease in deposits with exchanges 1,275,615 423,356

Increase/(decrease) in deposit with central banks (11,894) 244,522

Decrease/(increase) in restricted bank deposits 472,277 (317,196)

Decrease in cash held on behalf of clients 9,387,287 19,001,084

Decrease in accounts payable to brokerage clients and

other payables and accruals (10,089,070) (21,006,819)

Decrease in customer accounts (1,590,295) (1,006,952)

Increase in contract liabilities 284,005 –

(Decrease)/increase in provisions (57,871) 42,721

Increase/(decrease) in financial liabilities at fair value through

profit or loss and derivative financial liabilities 4,177,394 (17,896,132)

Increase/(decrease) in financial assets sold under repurchase agreements 24,757,635 (10,686,000)

Increase in placements from banks and other financial institutions 3,437,117 3,002,177

Increase in deposit from central banks 2,700 29,730

Decrease/(increase) in deposit from other banks (273,783) 279,147

Cash from/(used) in operations 10,923,578 (31,266,814)

Income taxes paid (2,995,607) (2,898,507)

Interest paid (2,730,139) (3,048,135)

NET CASH FROM/(USED IN) OPERATING ACTIVITIES 5,197,832 (37,213,456)

F-186

254 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2018

2018 2017

RMB’000 RMB’000

(audited) (audited)

INVESTING ACTIVITIESDividends received from associates and other investments 141,420 187,611

Dividends received from equity instruments at fair value

through other comprehensive income 1,295,120 –

Interest from from debt instruments at fair value through other

comprehensive income and from debt instrument at amortised cost 491,886 –

Purchases of property and equipment and other intangible assets (3,708,379) (1,825,444)

Purchases of investment property (250,067) –

Proceeds on disposal of property and equipment 11,015 6,383

Purchase of investments accounted for using equity method (212,765) (2,180,386)

Proceeds from partial disposal of an associate and joint venture 71,251 1,077,513

Net increase in available-for-sale investments – 21,627,919

Purchases of

equity instruments at fair value through other comprehensive income (355,965) –

debt instruments at fair value through other comprehensive income (33,534,956) –

debt instruments measured at amortised cost (682,726) –

financial assets at fair value through profit or loss (572,030) –

Proceeds from disposal of

debt instruments at fair value through other comprehensive income 28,866,394 –

financial assets at fair value through profit or loss 1,668,576 –

Net cash flows from acquisition of subsidiaries – (746,965)

Losses on disposing interest in a subsidiary – (1,442)

Proceeds from other loan and receivables and held to maturity – 16,748,763

NET CASH (USED IN)/FROM INVESTING ACTIVITIES (6,771,226) 34,893,952

F-187

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 255

CONSOLIDATED STATEMENT OF CASH FLOWSFor the year ended 31 December 2018

2018 2017

RMB’000 RMB’000

NOTES (audited) (audited)

FINANCING ACTIVITIESDividends paid (3,179,705) (2,894,357)

Capital injection from non-controlling shareholders 6,244 20,036

Payments on capital returned to non-controlling shareholders (9,000) –

Borrowings raised 59,126,986 42,535,412

Proceeds from short term bonds, non-convertible bonds and others 111,865,436 102,211,553

Interest paid for borrowings and bonds (10,632,184) (8,307,021)

Interest paid for perpetual bonds (49,826) (39,828)

Issuance cost paid for short-term bonds, non-convertible

bonds and others (168,596) (109,090)

Other expenses for perpetual bonds – (1,673)

Repayment of borrowings, short-term financing bills payables,

non-convertible bonds and others (149,301,671) (129,450,084)

Proceeds from share issued upon exercise of share options

of a subsidiary 9,899 8,275

Purchase of shares held under the share award scheme of a

subsidiary (54,729) –

NET CASH FROM FINANCING ACTIVITIES 7,612,854 3,973,223

NET INCREASE IN CASH AND CASH EQUIVALENTS 6,039,460 1,653,719

CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 31,820,863 34,330,647

Effect of foreign exchange rate changes 250,359 (4,163,503)

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 38 38,110,682 31,820,863

Total interest paid (13,412,149) (11,394,984)

F-188

256 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

1. GENERAL INFORMATION OF THE GROUP

Haitong Securities Co., Ltd (the “Company”) was transformed from Shanghai Haitong Securities

Company (上海海通証券公司), which was established in 1988, to a limited liability company upon the

authorisation by the People’s Bank of China in September 1994 and had changed its name to 海通証券有限公司. In December 2001, the Company was further transformed to a joint-stock company upon the

approval from China Securities Regulatory Commission (the “CSRC”). In January 2002, the Company

changed its name from 海通証券有限公司 to Haitong Securities Co., Ltd. (海通証券股份有限公司). In

June 2007, the Company’s merger with former Shanghai Urban Agro-Business Co., Ltd. (上海市都市農商社股份有限公司) was approved by the CSRC, and was listed on the Shanghai Stock Exchange in

July in the same year, with its name changed to “Haitong Securities”. On 27 April 2012, the Company

issued H shares which are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the

“Hong Kong Stock Exchange”).

The address of the Company’s registered office and the principal place of business is Haitong Securities

Building, No. 689 Guangdong Road, Shanghai, the People’s Republic of China (the “PRC”).

The Company and its subsidiaries (“The Group”) are principally engaged in securities and futures

contracts dealing and broking, proprietary trading, margin and other financing, underwriting, assets

management, direct equity investments, finance lease business, banking services, corporate finance

business, individual finance business, fund management business and provision of investment advisory

and consultancy services.

The consolidated financial statements are presented in Renminbi (“RMB”), which is also the functional

currency of the Company.

2. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

For the purpose of preparing and presenting the consolidated financial statements, the Group has

applied the following new and amendments to International Financial Reporting Standards (“IFRSs”)

issued by the IASB which are relevant to the Group for the first time in the current year:

IFRS 9 Financial Instruments

IFRS 15 Revenue from Contracts with Customers and the related Amendments

IFRIC 22 Foreign Currency Transactions and Advance Consideration

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

Amendments to IAS 28 As part of the Annual Improvements to IFRS Standards 2014-2016 Cycle

Amendments to IAS 40 Transfers of Investment Property

F-189

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 257

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

In addition, the Group has applied Amendments to IFRS 9 Prepayment Features with Negative

Compensation which will be mandatorily effective for the financial year beginning on 1 January 2019.

The application of the above amendments to IFRSs has had no material impact on the Group’s financial

performance and positions for the current and prior years and/or on the disclosures set out in these

consolidated financial statements except for the following:

2.1 IFRS 15 Revenue from Contracts with Customers

The Group has applied IFRS 15 for the first time in the current year. IFRS 15 superseded IAS 18

Revenue, IAS 11 Construction Contracts and related interpretations.

The Group has applied IFRS 15 retrospectively with the cumulative effect of initial applying this

Standard recognised at the date of initial application, 1 January 2018. Any difference at the

date of initial application is recognised in the opening retained profits (or other component of

equity, as appropriate) and comparative information has not been restated. Furthermore, in

accordance with the transition provisions in IFRS 15, the Group has elected to apply the Standard

retrospectively only to contracts that are not completed at 1 January 2018. Accordingly, certain

comparative information may not be comparable as comparative information was prepared under

IAS 18 Revenue.

2.1.1 Summary of effects arising from initial recognition of IFRS 15

The Group has various types of revenue and income as disclosed in notes 6, 7 and 9.

Interest income, a significant component of the Group’s revenue, is not within the scope

of IFRS 15. The Group has assessed the impact of IFRS 15 on the other revenue and

concluded that there is no significant impact on retained profits or consolidated financial

statements of the Group except that the advances received for bulk trading business

amounting to RMB209,625,000 should be reclassified as contract liabilities on 1 January

2018 from initial application of IFRS 15.

The following table summarise the impacts of applying IFRS 15 on the Group’s consolidated

statement of financial positions as at 31 December 2018 and its consolidated statement

of profit or loss and other comprehensive income for the current year for each of the line

items affected. Line items that were not affected by the changes have not been included.

F-190

258 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)2.1 IFRS 15 Revenue from Contracts with Customers (continued)

2.1.1 Summary of effects arising from initial recognition of IFRS 15 (continued)

Impact on the consolidated statement of financial position

As reported Adjustments

Amounts without

Application of IFRS 15

RMB’000 RMB’000 RMB’000

Current liabilities Other payables and accruals 13,455,014 284,005 13,739,019 Contract liabilities 284,005 (284,005) –

Impact on the consolidated statement of cash flows

As reported Adjustments

Amounts without

Application ofIFRS 15

RMB’000 RMB’000 RMB’000

OPERATING ACTIVITIESIncrease in contract liabilities 284,005 (284,005) –Decrease in accounts payable to brokerage clients and other payables and accruals (10,029,663) 284,005 (9,745,658)

2.2 IFRS 9 Financial Instruments and the related amendments

In the current year, the Group has applied IFRS 9 Financial Instruments and the related consequential amendments to other IFRSs. IFRS 9 introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) expected credit losses (“ECL”) for financial assets and other items (for example, lease receivables, loan commitments and financial guarantee contracts) and 3) general hedge accounting.

The Group has applied IFRS 9 in accordance with the transition provisions set out in IFRS 9. i.e. applied the classification and measurement requirements (including impairment under ECL model) retrospectively to instruments that have not been derecognised as at 1 January 2018 (date of initial application) and has not applied the requirements to instruments that have already been derecognised as at 1 January 2018. The difference between carrying amounts as at 31 December 2017 and the carrying amounts as at 1 January 2018 are recognised in the opening retained profits and other components of equity respectively, without restating comparative information.

Accordingly, certain comparative information may not be comparable as comparative information was prepared under IAS 39 Financial Instruments: Recognition and Measurement.

In addition, the Group applied the hedge accounting prospectively.

Accounting policies resulting from application of IFRS 9 are disclosed in note 3.

F-191

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 259

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

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F-192

260 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

2.2 IFRS 9 Financial Instruments and the related amendments (continued)

2.2.1 Summary of effects arising from initial application of IFRS 9 (continued)

(a) Available-for-sale (“AFS”) investments

From AFS equity investments to fair value through other comprehensive income

(“FVTOCI”)

The Group elected to present in OCI for the fair value changes of some of its

equity investments previously classified as available-for-sale. These investments are

not held for trading and not expected to be sold in the foreseeable future. At the

date of initial application of IFRS 9, RMB16,911,899,000 were reclassified from

available-for-sale investments to equity instruments at FVTOCI. The fair value gains

of RMB1,643,441,000 relating to those investments previously carried at fair value

continued to accumulate in FVTOCI reserve.

From AFS equity and other investments to fair value through profit or loss (“FVTPL”)

At the date of initial application of IFRS 9, the Group’s equity and other investments

of RMB19,357,494,000 were reclassified from available-for-sale investments to

financial assets at FVTPL. The fair value gains of RMB804,930,000 (after tax)

relating to those investments previously carried at fair value were transferred from

investment revaluation reserve to retained profits as at 1 January 2018.

From AFS debt investments to FVTPL

Bond investments with a fair value of RMB162,181,000 were reclassified from

available-for-sale investments to financial assets at FVTPL. This is because even

though the Group’s business model is to hold financial assets in order to collect

contractual cash flows, the cash flows of these investments do not meet the IFRS

9 criteria as solely payments of principal and interest on the principal amount

outstanding. Related fair value losses of RMB5,589,000 (after tax) were transferred

from the AFS reserve to retained profits as at 1 January 2018.

From AFS debt investments to amortised cost

At the date of initial application of IFRS 9, certain investments in bond investments

of RMB1,398,625,000 were reclassified from available-for-sale to amortised cost

since the Group’s business model is to hold these investments for collection of

contractual cash flows, and the cash flows represent solely payments of principal

and interest on the principal amount outstanding (“SPPI”). The directors of the

Company considered that the fair value of these debt investments was approximate

to their amortised cost.

F-193

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 261

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

2.2 IFRS 9 Financial Instruments and the related amendments (continued)

2.2.1 Summary of effects arising from initial application of IFRS 9 (continued)

(a) Available-for-sale (“AFS”) investments (continued)

From AFS debt investments to FVTOCI

Bonds investments with a fair value of RMB3,398,557,000 were reclassified from

available-for-sale investments to debt instruments at FVTOCI, as these investments

are held within a business model whose objective is achieved by both collecting

contractual cash flows and selling of these assets and the contractual cash flows

of these investments are solely payments of principal and interest on the principal

amount outstanding. Related fair value gains of RMB1,351,000 continued to

accumulate in the FVTOCI reserve as at 1 January 2018.

(b) Financial assets at FVTPL and/or designated at FVTPL

At the date of initial application of IFRS 9, the Group’s debt investments of

RMB6,522,942,000 were reclassified from financial assets held for trading to

financial assets at FVTOCI. This is because on the transition date, the management

of the Group made an assessment on the business model of these debt investments,

and concluded that the purpose of these investments is for liquidity management

purpose, and the objective of business model is achieved by both collection

contractual cash flows and selling the financial assets, and the contractual terms of

the financial asset give rise on specified date to cash flows that are solely payments

of principal and interest to the principal amount outstanding. The fair value losses

of RMB6,919,000 (after tax) relating to those debt investments previously carried

at retained profits were adjusted to FVTOCI reserve as at 1 January 2018.

Remaining investments are equity securities held for trading and derivatives which

are required to be classified as FVTPL under IFRS 9. There was no impact on the

amounts recognised in relation to these assets from the application of IFRS 9.

(c) Held-to-maturity investments

At the date of initial application of IFRS 9, unlisted debt securities previously

classified as held-to-maturity investments are reclassified and measured at FVTPL

upon application of IFRS 9. This is because on the transition date, the board of

directors made an assessment on the business model of these debt investments, and

concluded that the Group intended to hold within a business model whose objective

is achieved by selling of these assets. In addition, the board of directors considered

that the fair value of these debt investments is approximate to their carrying value.

F-194

262 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

2.2 IFRS 9 Financial Instruments and the related amendments (continued)

2.2.1 Summary of effects arising from initial application of IFRS 9 (continued)

(d) Loans and receivables

Loans and receivables of RMB7,100,383,000 previously classified as loans and

receivables was reclassified to FVTPL upon the application of IFRS 9 because its cash

flows do not represent solely payments of principal and interest on the principal

amount outstanding. At the date of initial recognition, the Board of Directors

considered that the fair value of these loans and receivables is approximate to their

carrying value.

(e) Impairment under ECL model

The Group applies the IFRS 9 simplified approach to measure ECL which uses a

lifetime ECL for all accounts receivable. To measure the ECL, account receivables

have been grouped based on shared credit risk characteristics and their aging. The

Group collectively used a provision matrix with appropriate aging groupings to

assess the ECL.

Loss allowances for other financial assets at amortised cost mainly comprise of

financial assets held under resale agreements and placements to banks and other

financial institutions are measured on 12m ECL basis and there had been no

significant increase in credit risk since initial recognition, except for advances to

customers on margin financing, finance lease receivables and loans and advances

which are measured on lifetime ECL basis as those credit risk had increased

significantly since initial recognition.

As at 1 January 2018, the additional credit loss allowance of RMB500,484,000

has been recognised against retained profits for the Group. The additional loss

allowance is charged against the respective asset.

All loss allowances for financial assets including loans and advances, finance lease

receivables, other loans and receivables, bank balances and cash, deposits with

other banks, advances to customers on margin financing, financial assets held

under resale agreements, placements to banks and other financial institutions,

other receivables, accounts receivable, loan commitments and financial guarantee

contracts as at 31 December 2017 reconcile to the opening loss allowance as at 1

January 2018 is as follows:

F-195

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 263

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2.

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F-196

264 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

2.2 IFRS 9 Financial Instruments and the related amendments (continued)

2.2.1 Summary of effects arising from initial application of IFRS 9 (continued)

(f) Transfer to general reserve and impact to non-controlling interests

The accumulated impact on the retained profits recognised upon the application

of IFRS 9 should further transfer to the general reserve and the total impact on the

retained profit and FVTOCI should also have impact to the equity attributable to the

Company and Non-controlling interests. RMB51,646,000 was transferred to general

reserve based on main-land company law and RMB22,787,000 was transferred to

non-controlling interests.

(g) Hedge accounting

At the date of the initial application, hedging relationships that qualified for

hedge accounting in accordance with IAS 39 are regarded as continuing hedging

relationship if all qualifying criteria under IFRS 9 are met, after taking into account

any rebalancing of the hedging relationship on transition. Consistent with prior

periods, the Group has continued to designate certain foreign currency bond as the

hedging instrument for net investments in foreign operations. As such, the adoption

of the hedge accounting requirements of IFRS 9 had not resulted in adjustments

for transition.

(h) Interests in joint ventures

The net effects arising from the initial application of IFRS 9 resulted in a decrease in

the carrying amounts of interests in joint ventures of RMB22,000 with corresponding

adjustments to retained profits by RMB22,000.

Except as described above, the application of other amendments to IFRSs in the

current year has had no material effect on the amounts reported and/or discloses

set out in these consolidated financial statements.

F-197

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 265

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

2.2 IFRS 9 Financial Instruments and the related amendments (continued)

2.2.2 Reconciliation of statement of financial position balances from IAS 39 to IFRS 9

The Group performed a detailed analysis of its business models for managing financial

assets and analysis of their cash flow characteristics. The following table reconciles the

carrying amounts of financial assets and financial liabilities upon transition to IFRS 9 on

1 January 2018:

31/12/2017 IFRS 9 1/1/2018RMB’000 RMB’000 RMB’000(audited) (Restated)

Non-current assetsInvestments accounted for using equity method 10,062,370 (22) 10,062,348Finance lease receivables 22,212,628 (7,227) 22,205,401Available-for-sale investments 31,725,358 (31,725,358) –Financial assets at fair value through profit or loss 952,338 14,616,200 15,568,538Equity instruments at FVTOCI – 16,911,899 16,911,899Debt instruments at FVTOCI – 1,586,828 1,586,828Loans and advances 4,086,897 (4,888) 4,082,009Other loans and receivables 8,098,697 93,778 8,192,475Financial assets held under resale agreements 21,204,776 (24,417) 21,180,359

Current assetsAdvances to customers on margin financing 61,560,953 (5,451) 61,555,502Accounts receivable 7,442,000 (4,935) 7,437,065Finance lease receivables 21,323,548 (6,938) 21,316,610Other receivables and prepayments 5,544,270 (350,114) 5,194,156Available-for-sale investments 9,503,398 (9,503,398) –Debt instruments at FVTOCI – 8,332,758 8,332,758Loans and advances 751,375 (46,795) 704,580Held-to-maturity investments 78,718 (78,718) –Other loans and receivables 21,147,878 (5,498,270) 15,649,608Financial assets held under resale agreements 75,345,093 (78,958) 75,266,135Placements to banks and other financial institutions 679,092 (1,311) 677,781Financial assets at fair value through profit or loss 98,904,357 5,559,634 104,463,991Deposits with other banks 316,134 (65) 316,069Bank balances and cash 99,358,329 (325,323) 99,033,006

Current liabilitiesProvisions 167,343 217 167,560

F-198

266 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

New and amendments to IFRSs in issue but not yet effective

The Group has not early applied the following new and amendments to IFRSs that have been issued

but are not yet effective.

IFRS 16 Leases1

IFRS 17 Insurance Contracts3

IFRIC 23 Uncertainty over Income Tax Treatments1

Amendments to IFRS 3 Definition of a Business4

Amendments to IFRS 9 Prepayment Features with Negative Compensation1

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture5

Amendments to IAS 1 and IAS 8 Definition of Material2

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement1

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures1

Amendments to IFRSs Annual Improvements to IFRS Standards 2015-2017 Cycle1

1 Effective for annual periods beginning on or after 1 January 20192 Effective for annual periods beginning on or after 1 January 20203 Effective for annual periods beginning on or after 1 January 20214 Effective for business combinations and asset acquisitions for which the acquisition date is on or after the

beginning of the first annual period beginning on or after 1 January 20205 Effective for annual periods beginning on or after a date to be determined

Except for the new and amendments to IFRSs mentioned below, the directors of the Company anticipate

that the application of all other new and amendments to IFRSs will have no material impact on the

consolidated financial statements in the foreseeable future:

F-199

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 267

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

New and amendments to IFRSs in issue but not yet effective (continued)

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of the lease arrangements and

accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related

interpretations when it becomes effective.

IFRS 16 distinguishes leases and service contracts on the basis of whether an identified asset is controlled

by a customer. In addition, IFRS 16 requires sales and leaseback transactions to be determined based

on the requirements of IFRS 15 as to whether the transfer of the relevant asset should be accounted

as a sale. IFRS 16 also includes requirements relating to subleases and lease modifications.

Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced

by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases

by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain

exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of

the lease liability. The lease liability is initially measured at the present value of the lease payments that

are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments,

as well as the impact of lease modifications, amongst others. For the classification of cash flows, the

Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold

lands for owned use and those classified as investment properties while other operating lease payments

are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease

liability will be allocated into a principal and an interest portion which will be presented as financing

cash flows respectively by the Group, upfront prepaid lease payments will continue to be presented as

investing or operating cash flows in accordance to the nature as appropriate.

Under IAS 17, the Group has already recognised an asset and a related finance lease liability for finance

lease arrangement and prepaid lease payments for leasehold lands where the Group is a lessee. The

application of IFRS 16 may result in potential changes in classification of these assets depending on

whether the Group presents right-of-use assets separately or within the same line item at which the

corresponding underlying assets would be presented if they were owned.

Other than certain requirements which are also applicable to lessor, IFRS 16 substantially carries forward

the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either

as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

As at 31 December 2018, the Group has non-cancellable operating lease commitments of

RMB1,008,160,000 as disclosed in Note 65. A preliminary assessment indicates that these arrangements

will meet the definition of a lease under IFRS 16, and hence the Group will recognise a right-of-use

asset and a corresponding liability in respect of all these leases unless they qualify for low value or

short-term leases.

F-200

268 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

New and amendments to IFRSs in issue but not yet effective (continued)

IFRS 16 Leases (continued)

In addition, the Group currently considers refundable rental deposits paid of RMB34,203,000 as rights

under leases to which IAS 17 applies. Based on the definition of lease payments under IFRS 16, such

deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying

amounts of such deposits may be adjusted to amortized cost and such adjustments are considered as

additional lease payments. Adjustments to refundable rental deposits paid would be included in the

carrying amount of right-of-use assets.

Upon application of IFRS 16, the Group will apply the requirements of IFRS 15 to assess whether sales

and leaseback transaction constitutes a sale. For a transfer that does not satisfy the requirements as

a sale, the Group will account for the transfer proceeds as financial assets within the scope of IFRS 9.

In accordance with the transition provisions of IFRS 16, sale and leaseback transactions entered into

before the date of initial application will not be reassessed but the new requirements may impact the

Group’s future sale and leaseback transactions.

Furthermore, the application of new requirements may result in changes in measurement, presentation

and disclosure as indicated above. The Group intends to elect the practical expedient to apply IFRS 16

to contracts that were previously identified as leases applying IAS 17 and IFRIC. Determining whether

an Arrangement contains a Lease and not apply this standard to contracts that were not previously

identified as containing a lease applying IAS 17 and IFRIC. Therefore, the Group will not reassess

whether the contracts are, or contain a lease which already existed prior to the date of initial application.

Furthermore, the Group intends to elect the modified retrospective approach for the application of

HKFRS 16 as lessee and will recognise the cumulative effect of initial application to opening retained

profits without restating comparative information.

The Group intended to select the modified retrospective approach for the application of IFRS 16 as

lessees and will recognise the cumulative effect of initial application to opening retained earnings

without restating comparative information.Certain practical expedients permitted by this modified

retrospective approach will also be applied on a lease by lease basis.

F-201

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 269

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial

Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”). In

addition, the consolidated financial statements include applicable disclosures required by the Rules

Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (“Listing Rules”) and

by the Hong Kong Companies Ordinance (“CO”).

The consolidated financial statements have been prepared on the historical cost basis except for financial

instruments that are measured at revalued amounts or fair values at the end of each reporting period,

as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods

and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date, regardless of whether that price is

directly observable or estimated using another valuation technique. In estimating the fair value of an

asset or a liability, the Group takes into account the characteristics of the asset or liability if market

participants would take those characteristics into account when pricing the asset or liability at the

measurement date.

Fair value for measurement and/or disclosure purposes in these consolidated financial statements is

determined on such a basis, except for share-based payment transactions that are within the scope

of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IAS 17 Leases, and

measurements that have some similarities to fair value but are not fair value, such as net realisable

value in IAS 2 Share-based Payment or value in use in IAS 36 Impairment of Assets.

For financial instruments, which are transacted at fair value and a valuation technique that unobservable

input is to be used to measure fair value in subsequent periods, the valuation technique is calibrated

so that at initial recognition the results of the valuation technique equals the transaction price.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2

or 3 based on the degree to which the inputs to the fair value measurements are observable and the

significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable

for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

F-202

270 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities

(including structured entities) controlled by the Company and its subsidiaries. Control is achieved when

the Company:

• has power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that

there are changes to one or more of the three elements of control listed above.

When the Group has less than a majority of the voting rights of an investee, it has power over the

investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities

of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing

whether or not the Group’s voting rights in an investee are sufficient to give it power, including:

• the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of

the other vote holders;

• potential voting rights held by the Group, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Group has, or does not have,

the current ability to direct the relevant activities at the time that decisions need to be made,

including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases

when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary

acquired or disposed of during the year are included in the consolidated statement of profit or loss

and other comprehensive income from the date the Group gains control until the date when the Group

ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company

and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the

owners of the Company and to the non-controlling interests even if this results in the non-controlling

interests having a deficit balance.

F-203

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 271

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Basis of consolidation (continued)

When necessary, adjustments are made to the financial statements of subsidiaries to bring their

accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions

between members of the Group are eliminated in full on consolidation.

Non-controlling interests in subsidiaries are presented separately from the Group’s equity therein, which

represent present ownership interests entitling their holders to a proportionate share of net assets of

the relevant subsidiaries upon liquidation.

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s interests in subsidiaries that do not result in the Group losing control over the

subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s relevant

components of equity and the non-controlling interests are adjusted to reflect the changes in their

relative interests in the subsidiaries, including re-attribution of relevant reserves between the Group and

the non-controlling interests according to the Group’s and the non-controlling interests‘ proportionate

interest.

Any difference between the amount by which the non-controlling interests are adjusted and the fair

value of the consideration paid or received is recognised directly in equity and attributed to owners of

the Company.

When the Group loses control of a subsidiary, the assets and liabilities of that subsidiary and

non-controlling interests (if any) are derecognised. A gain or loss is recognised in profit or loss and is

calculated as the difference between (i) the aggregate of the fair value of the consideration received

and the fair value of any retained interest and (ii) the carrying amount of the assets (including goodwill),

and liabilities of the subsidiary attributable to owner of the company. All amounts previously recognised

in other comprehensive income in relation to that subsidiary are accounted for as if the Group had

directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or

transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of

any investment retained in the former subsidiary at the date when control is lost is regarded as the

fair value on initial recognition for subsequent accounting under IFRS 9, when applicable, the cost on

initial recognition of an investment in an associate or a joint venture.

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272 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration

transferred in a business combination is measured at fair value, which is calculated as the sum of the

acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to

the former owners of the acquiree and the equity interests issued by the Group in exchange for control

of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at

their fair value, except that:

• deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements

are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee

Benefits respectively;

• liabilities or equity instruments related to share-based payment arrangements of the acquiree or

share-based payment arrangements of the Group entered into to replace share-based payment

arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at

the acquisition date (see the accounting policy below); and

• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5

Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with

that standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any

non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity

interest in the acquiree (if any) over the net amounts of the identifiable assets acquired and the liabilities

assumed as at the acquisition date. If, after re-assessment, the net of the acquisition-date amounts of

the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred,

the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously

held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain

purchase gain.

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate

share of the relevant subsidiary’s net assets in the event of liquidation are initially measured at the

non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable

net assets or at fair value. The choice of measurement basis is made on a transaction-by-transaction

basis.

F-205

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 273

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Business combinations (continued)

When the consideration transferred by the Group in a business combination includes assets or liabilities

resulting from a contingent consideration arrangement, the contingent consideration is measured

at its acquisition-date fair value and included as part of the consideration transferred in a business

combination. Changes in the fair value of the contingent consideration that qualify as measurement

period adjustments are adjusted retrospectively, with the corresponding adjustments made against

goodwill. Measurement period adjustments are adjustments that arise from additional information

obtained during the “measurement period” (which cannot exceed one year from the acquisition date)

about facts and circumstances that existed at the acquisition date.

The subsequent accounting for the contingent consideration that do not qualify as measurement period

adjustments depends on how the contingent consideration is classified. Contingent consideration that

is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement

is accounted for within equity. Contingent consideration that is classified as an asset or a liability is

remeasured at subsequent reporting dates of fair value, with the corresponding gain or loss being

recognised in profit or loss.

When a business combination is achieved in stages, the Group’s previously held equity interest in the

acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group obtains

control), and the resulting gain or loss, if any, is recognised in profit or loss or other comprehensive

income, as appropriate. Amounts arising from interests in the acquiree prior to the acquisition date

that have previously been recognised in other comprehensive income and measured under IFRS 9 would

be accounted for on the same basis as would be required if the Group had disposed directly of the

previously held equity interest.

If the initial accounting for a business combination is incomplete by the end of the reporting period

in which the combination occurs, the Group reports provisional amounts for the items for which

the accounting is incomplete. Those provisional amounts are adjusted retrospectively during the

measurement period (see above), and additional assets or liabilities are recognised, to reflect new

information obtained about facts and circumstances that existed at the acquisition date that, if known,

would have affected the amounts recognised at that date.

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274 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Acquisition of a subsidiary not constituting a business

When the Group acquires a group of assets and liabilities that do not constitute a business, the Group

identifies and recognises the individual identifiable assets acquired and liabilities assumed by allocating

the purchase price first to investment properties which are subsequently measured under fair value

model and financial assets and financial liabilities at the respective fair values, the remaining balance of

the purchase price is then allocated to the other individual identifiable assets and liabilities on the basis

of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill

or bargain purchase gain.

Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition

of the business less any accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the cash-generating units (or

groups of cash-generating units) that is expected to benefit from the synergies of the combination,

which represent the lowest level at which the goodwill is monitored for internal management purposes

and not larger than an operating segment.

A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is

tested for impairment annually, or more frequently when there is indication that the unit may be

impaired. For goodwill arising from an acquisition in a reporting period, the cash-generating unit(or

group of cash-generating units) to which goodwill has been allocated is tested for impairment before

the end of that reporting period. If the recoverable amount is less than its carrying amount, the

impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other

assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit (or group

of cash-generating units).

On disposal of the relevant cash-generating unit, or any of the cash-generating unit within the group

of cash- generating units, the attributable amount of goodwill is included in the determination

of the amount of profit or loss on disposal. When the Group disposes of an operation within

the cash-generating unit (or a cash-generating unit within a group of cash-generating units), the

amount of goodwill disposed of is measured on the basis of the relative values of the operation (or

the cash-generating unit) disposed of and the portion of the cash-generating unit (or the group of

cash-generating units) retained.

The Group’s policy for goodwill arising on the acquisition of an associate and a joint venture is described

below.

F-207

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 275

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the

power to participate in the financial and operating policy decisions of the investee but is not control

or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement

have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing

of control of an arrangement, which exists only when decisions about the relevant activities require

unanimous consent of the parties sharing control.

The results and assets and liabilities of associates and joint ventures are incorporated in the consolidated

financial statements using the equity method of accounting, except when the investment, or a portion

thereof, is classified as held for sale, in which case it is or the portion so classified is accounted for in

accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Any retained

portion of an investment in an associate or a joint venture that has not been classified as held for

sale shall be accounted for using the equity method. The financial statements of associates and joint

ventures used for equity accounting purposes are prepared using uniform accounting policies as those

of the Group for like transactions and events in similar circumstances. Under the equity method,

investment in an associate or a joint venture is initially recognised in the consolidated statement of

financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and

other comprehensive income of the associate or joint venture. Changes in net assets of the associate/

joint venture other than profit or loss and other comprehensive income are not accounted for unless

such changes resulted in changes in ownership interest held by the Group. When the Group’s share

of losses of an associate or joint venture exceeds the Group’s interest in that associate or joint venture

(which includes any long-term interests that, in substance, form part of the Group’s net investment in

the associate or join venture), the Group discontinues recognising its share of further losses. Additional

losses are recognised only to the extent that the Group has incurred legal or constructive obligations

or made payments on behalf of that associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the

date on which the investee becomes an associate or a joint venture. On acquisition of the investment in

an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the

net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which

is included within the carrying amount of the investment. Any excess of the Group’s share of the net

fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is

recognised immediately in profit or loss in the period in which the investment is acquired.

F-208

276 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Investments in associates and joint ventures (continued)

The Group assesses whether there is an objective evidence that the interest in an associate or a joint

venture may be impaired. When any objective evidence exists, the entire carrying amount of the

investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of assets

as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of

disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount

of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the

extent that the recoverable amount of the investment subsequently increases.

When the Group ceases to have significant influence over an associate or joint control over a joint

venture, it is accounted as a disposal of the entire interest in the investee with a resulting gain or loss

being recognised in profit or loss. When the Group retains an interest in the former associate or joint

venture and the retained interest is a financial asset within the scope of IFRS 9, the Group measures

the retained interest at that date and the fair value is regarded as its fair value on initial recognition.

The difference between the carrying amount of the associate or joint venture, and the fair value of

any retained interest and any proceeds from disposing the relevant interest in the associate or joint

venture is included in the determination of the gain or loss on disposal of the associate or joint venture.

In addition, the Group accounts for all amounts previously recognised in other comprehensive income

in relation to that associate or joint venture on the same basis as would be required if that associate

or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss

previously recognised in other comprehensive income by that associate or joint venture would be

reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the

gain or loss from equity to profit or loss (as a reclassification adjustment) upon disposal/partial disposal

of the relevant associate or joint venture.

When the Group reduces its ownership interest in an associate or a joint venture but the Group

continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain

or loss that had previously been recognised in other comprehensive income relating to that reduction

in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the

related assets or liabilities.

When a group entity transacts with an associate or a joint venture of the Group, profits and losses

resulting from the transactions with the associate or joint venture are recognised in the Group’s

consolidated financial statements only to the extent of interests in the associate or joint venture that

are not related to the Group.

F-209

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 277

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Revenue from contracts with customers

Under IFRS 15, the Group recognises revenue when (or as) a performance obligation is satisfied, i.e.

when “control” of the goods or services underlying the particular performance obligation is transferred

to the customer.

A performance obligation represents a good and service (or a bundle of goods or services) that is distinct

or a series of distinct goods or services that are substantially the same.

Control is transferred over time and revenue is recognised over time by reference to the progress

towards complete satisfaction of the relevant performance obligation if one of the following criteria

is met:

• the customer simultaneously receives and consumes the benefits provided by the Group’s

performance as the Group performs;

• the Group’s performance creates and enhances an asset that the customer controls as the Group

performs; or

• the Group’s performance does not create an asset with an alternative use to the Group and the

Group has an enforceable right to payment for performance completed to date.

Otherwise, revenue is recognised at a point in time when the customer obtains control of the distinct

good or service.

A contract asset represents the Group’s right to consideration in exchange for goods or services that

the Group has transferred to a customer that is not yet unconditional. It is assessed for impairment

in accordance with IFRS 9. In contract, a receivable represents the Group’s unconditional right to

consideration, i.e. only the passage of time is required before payment of that consideration is due.

A contract liability represents the Group’s obligation to transfer goods or services to a customer for

which the Group has received consideration (or an amount of consideration is due) from the customer.

A contract asset and a contract liability relating to a contract are accounted for an presented on a net

basis.

F-210

278 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Revenue from contracts with customers (continued)

Contract with multiple performance obligations (including allocation of transaction pricing)

For contracts that contain more than one performance obligations, the Group allocates the transaction

price to each performance obligation on a relative stand-alone selling price basis, except for the

allocation of discounts and variable consideration.

The stand-alone selling price of the distinct good or service underlying each performance obligation

is determined at contract inception. It represents the price at which the Group would sell a promised

good or service separately to a customer. If a stand-alone selling price is not directly observable, the

Group estimates it using appropriate techniques such that the transaction price ultimately allocated

to any performance obligation reflects the amount of consideration to which the Group expects to be

entitled in exchange for transferring the promised goods or services to the customer.

Over time revenue recognition: measurement of progress towards complete satisfaction of a performance obligation

Output method

The progress towards complete satisfaction of a performance obligation is measured based on output

method, which is to recognise revenue on the basis of direct measurements of the value of the goods

or services transferred to the customer to date relative to the remaining goods or services promised

under the contract, that best depict the Group’s performance in transferring control of goods or services.

Variable consideration

For contracts that contain variable consideration, the Group estimates the amount of consideration

to which it will be entitled using either (a) the expected value method or (b) the most likely amount,

depending on which method better predicts the amount of consideration to which the Group will be

entitled.

The estimated amount of variable consideration is included in the transaction price only to the extent

that it is highly probable that such an inclusion will not result in a significant revenue reversal in the

future when the uncertainty associated with the variable consideration is subsequently resolved.

At the end of each reporting period, the Group updates the estimated transaction price (including

updating its assessment of whether an estimate of variable consideration is constrained) to represent

faithfully the circumstances present at the end of the reporting period and the changes in circumstances

during the reporting period.

F-211

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 279

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Revenue from contracts with customers (continued)

Principal versus agent

When another party is involved in providing goods or services to a customer, the Group determines

whether the nature of its promise is a performance obligation to provide the specified goods or services

itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other

party (i.e. the Group is an agent).

The Group is a principal if it controls the specified good or service before that good or service is

transferred to a customer.

The Group is an agent if its performance obligation is to arrange for the provision of the specified

good or service by another party. In this case, the Group does not control the specified good or service

provided by another party before that good or service is transferred to the customer. When the Group

acts as an agent, it recognizes revenue in the amount of any fee or commission to which it expects to be

entitled in exchange for arranging for the specified goods or services to be provided by the other party.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks

and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the

Group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to

reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the

leases.

Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term

of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are

added to the carrying amount of the leased asset.

F-212

280 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Leases (continued)

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception

of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability

to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as

to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are

recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in

which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see

the accounting policy below). Contingent rentals are recognised as expenses in the periods in which

they are incurred.

Operating lease payments, including the cost of acquiring land held under operating leases, are

recognised as an expense on a straight-line basis over the lease term, except where another systematic

basis is more representative of the time pattern in which economic benefits from the leased asset are

consumed. Contingent rentals arising under operating leases are recognised as an expense in the period

in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are

recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental

expense on a straight-line basis.

Leasehold land and building

When the Group makes payments for a property interest which includes both leasehold land and

building elements, the Group assesses the classification of each element separately based on the

assessment as to whether substantially all the risks and rewards incidental to ownership of each element

have been transferred to the Group, unless it is clear that both elements are operating leases in which

case the entire property is accounted as an operating lease. Specifically, the entire consideration

(including any lump-sum upfront payments) are allocated between the leasehold land and the building

elements in proportion to the relative fair values of the leasehold interests in the land element and

building element at initial recognition.

To the extent the allocation of the relevant payments can be made reliably, interest in leasehold land

that is accounted for as an operating lease is presented as “prepaid lease payments” in the consolidated

statement of financial position and is amortised over the lease term on a straight-line basis. When the

lease payments cannot be allocated reliably between the leasehold land and entire building elements,

the entire lease is generally classified as if the leasehold land is under finance lease.

F-213

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 281

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Foreign currencies

In preparing the financial statements of each individual group entities, transactions in currencies other

than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges

prevailing on the dates of the transactions. At the end of the reporting period, monetary items

denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary

items carried at fair value that are denominated in foreign currencies are retranslated at the rates

prevailing on the date when the fair value was determined. Non-monetary items that are measured in

terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary

items, are recognised in profit or loss in the period in which they arise.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the

Group’s operations are translated into the presentation currency of the Group using exchange rates

prevailing at the end of each reporting period. Income and expenses items are translated at the average

exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which

case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising,

if any, are recognised in other comprehensive income and accumulated in equity under the heading of

translation reserve (attributed to non-controlling interests as appropriate).

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign

operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of

exchange prevailing at the end of the reporting period. Exchange differences arising are recognised in

other comprehensive income.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,

which are assets that necessarily take a substantial period of time to get ready for their intended use

or sale, are added to the cost of those assets until such time as the assets are substantially ready for

their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure

on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

F-214

282 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply

with the conditions attaching to them and that the grants will be received.

Government grants are recognised in profit or loss on a systematic basis over the periods in which

the Group recognises as expenses the related costs for which the grants are intended to compensate.

Specifically, government grants whose primary condition is that the Group should purchase, construct

or otherwise acquire non-current assets are recognised as deferred income.

Government grants that are receivable as compensation for expenses or losses already incurred or

for the purpose of giving immediate financial support to the Group with no future related costs are

recognised in profit or loss in the period in which they become receivable.

Employee benefits

Social welfare

Social welfare expenditure refers to payments for employees’ social welfare system established by

the Government of the PRC, including social insurance, housing funds and other social welfare

contributions. The Group contributes on a monthly basis to these funds based on certain percentage

of the salaries of the employees and the contributions are recognised in profit or loss for the period

when employees have rendered service entitling them to the contribution. The Group’s liabilities in

respect of these funds are limited to the contribution payable in the reporting period.

Contributions to pension schemes and annuity plans

Payments to defined contribution retirement benefits plan are charged as expenses when employees

have rendered service entitling them to the contributions.

Short-term and other long-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be

paid as and when employees rendered the services. All short-term employee benefits are recognized as

an expense unless another IFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognized for benefits accruing to employees (such as wages and salaries, annual leave

and sick leave) after deducting any amount already paid.

Liabilities recognized in respect of other long-term employee benefits are measured at the present value

of the estimated future cash outflows expected to be made by the Group in respect of services provided

by employees up to the reporting date. Any changes in the liabilities’ carrying amounts resulting from

service cost, interest and remeasurements are recognised in the profit or loss except to the extent that

another IFRS requires or permits their inclusion in the cost of an asset.

F-215

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 283

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Employee benefits (continued)

Short-term and other long-term employee benefits (continued)

The liability related to the above supplementary benefit obligations existing at the end of each reporting

period, is calculated by independent actuaries using the Projected Unit Credit Method and is recorded

as a liability in the consolidated statement of financial position. The liability is determined through

discounting the amount of future benefits that the employees are entitled for their services in the

current and prior periods. The discount rates are based on the yields of RMB treasury bonds which

have terms to maturity approximating the terms of the related liability. All actuarial gains and losses

are recognized immediately through other comprehensive income in order for the net pension asset or

liability recognized in the consolidated statement of financial position to reflect the full value of the

plan deficit or surplus.

Share-based payment transactions

Share options granted to employees

The Company’s subsidiary Haitong International Securities (“HISGL”) operates a share option scheme

for the purpose of providing incentives and rewards to eligible participants who contribute to the

success of the Group’s operations. Employees (including directors) of the Group receive remuneration

in the form of share-based payment transactions, whereby employees render services as consideration

for equity instruments (“equity settled transactions”).

Equity-settled share-based payments to employees and others providing similar services are measured

at the fair value of the equity instruments at the grant date.

The fair value of the equity-settled share-based payments determined at the grant date without taking

into consideration all non-market vesting conditions is expensed on a straight-line basis over the

vesting period, based on the Group’s estimate of equity instruments that will eventually vest, with

a corresponding increase in equity (share option reserve). At the end of each reporting period, the

Group revises its estimate of the number of equity instruments expected to vest base on assessment

of all relevant non-market vesting conditions. The impact of the revision of the original estimates, if

any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with

a corresponding adjustment to share options reserve. For share options that vest immediately at the

date of grant, the fair value of the share options granted is expensed immediately to profit or loss.

When share options are exercised, the amount previously recognised in share options reserve will

be transferred to share premium. When share options are forfeited after the vesting date or are still

not exercised at the expiry date, the amount previously recognised in share options reserve will be

transferred to share premium.

F-216

284 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before

tax as reported in the consolidated statement of profit or loss because of items of income or expense

that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s

liability for current tax is calculated using tax rates that have been enacted or substantively enacted by

the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and

liabilities in the consolidated financial statements and the corresponding tax base used in the

computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary

differences. Deferred tax assets are generally recognised for all deductible temporary difference to the

extent that it is probable that taxable profits will be available against which those deductible temporary

differences can be utilised. Such assets and liabilities are not recognised if the temporary difference

arises from the initial recognition (other than in a business combination) of other assets and liabilities in

a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax

liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in

subsidiaries and associates, and interests in joint ventures, except where the Group is able to control

the reversal of the temporary difference and it is probable that the temporary difference will not reverse

in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated

with such investments and interests are only recognised to the extent that it is probable that there will

be sufficient taxable profits against which to utilise the benefits of the temporary differences and they

are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of the reporting period and reduced

to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or

part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period

in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been

enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow

from the manner in which the Group expects, at the end of the reporting period, to recover or settle

the carrying amount of its assets and liabilities.

F-217

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 285

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Taxation (continued)

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current

tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation

authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax are recognised in profit or loss, except when they relate to items that are

recognised in other comprehensive income or directly in equity, in which case the current and the

deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where

current tax or deferred tax arises from the initial accounting for a business combination, the tax effect

is included in the accounting for the business combination.

Property and equipment

Property and equipment including leasehold land (classified as finance lease) and building held for use

in the production or supply of goods or services, or for administrative purpose (other than construction

in progress), are stated in the consolidated statement of financial position at cost less accumulated

depreciation and accumulated impairment losses, if any.

Properties in the course of construction for production, supply or administrative purposes are carried

at cost, less any recognised impairment loss. Costs include professional fees and, for qualifying assets,

borrowing costs capitalised in accordance with the Group’s accounting policy. Such properties are

classified to the appropriate categories of property and equipment when completed and ready for

intended use. Depreciation of these assets, on the same basis as other property assets, commences

when the assets are ready for their intended use.

Depreciation is recognised so as to write off the cost of items of property and equipment (other than

construction in progress) less their residual values over their estimated useful lives, using straight line

method. The estimated useful lives, residual values and depreciation method are reviewed at the end of

each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognised upon disposal or when no future economic benefits

are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or

retirement of an item of property and equipment is determined as the difference between the sales

proceeds and the carrying amount of the asset and is recognised in profit or loss.

F-218

286 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Property and equipment (continued)

The estimated residual value rates and useful lives of each class of property and equipment are as

follows:

Classes

Estimated residual value rates Useful lives

Leasehold land and buildings 3 – 5% Over the shorter of the lease term and

estimated useful life of buildings of

30 – 40 years

Furniture, fixtures and equipment 3 – 10% 5 – 11 years

Motor vehicles 3 – 10% 5 – 8 years

Electronic equipment 3 – 10% 3 – 5 years

Assets held for operating lease businesses 15% 22 – 25 years

Leasehold improvements nil Over the lease term

Buildings under development for future owner-occupied purpose

When buildings are in the course of development for production or administrative purposes, the

amortisation of prepaid lease payment provided during the construction period in included as part of

costs of buildings under construction. Buildings under construction are carried at cost, less any identified

impairment losses. Deprecation of buildings commences when they are available for use (i.e. when

they are in the location and condition necessary for them to be capable of operating in the manner

intended by management.)

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment properties are initially measured at cost, including any directly attributable expenditure.

Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated

depreciation and any accumulated impairment losses.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Investment properties (continued)

The above investment properties are depreciated over their estimated useful lives of 30 years and

after taking into account their estimated residual value of 3% – 5%, using the straight-line method.

Depreciation is recognised so as to write off the cost of investment properties over their estimated useful

lives and after taking into account of their estimated residual value, using the straight-line method.

An investment property is derecognised upon disposal or when the investment property is permanently

withdrawn from use and no future economic benefits are expected from the disposals. Any gain or

loss arising on derecognition of the property (calculated as the difference between the net disposal

proceeds and the carrying amount of the asset) is included in the profit or loss in the period in which

the item is derecognised.

Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at costs less accumulated

amortisation and any accumulated impairment losses. Amortisation for intangible assets with finite lives

is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and

amortisation method are reviewed at the end of each reporting period, with the effect of any changes

in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives

that are acquired separately are carried at cost less any subsequent accumulated impairment losses.

Intangible assets acquired in a business combination

Intangible assets acquired in a business combination are recognised separately from goodwill and are

initially recognised at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination with finite useful

lives are reported at cost less accumulated amortisation and accumulated impairment losses, on the

same basis as intangible assets that are acquired separately.

Derecognition of Intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from

use or disposal. Gains or losses arising from derecognition of an intangible asset are measured at the

difference between the net disposal proceeds and the carrying amount of the asset and are recognised

in profit or loss in the period when the asset is derecognised.

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288 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Impairment on tangible and intangible assets other than goodwill

At the end of the reporting period, the Group reviews the carrying amounts of its tangible and

intangible assets with finite useful lives to determine whether there is any indication that those assets

have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant

asset is estimated in order to determine the extent of the impairment loss, if any. Intangible assets with

indefinite useful lives and intangible assets not yet available for use are tested for impairment annually,

and whenever there is an indication that they may be impaired.

The recoverable amount of tangible and intangible assets are estimated individually, when it is not

possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable

amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis

of allocation can be identified, corporate assets are also allocated to individual cash-generating units,

or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable

and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value

in use, the estimated future cash flows are discounted to their present value using a pre-tax discount

rate that reflects current market assessments of the time value of money and the risks specific to the

asset (or a cash-generating unit) for which the estimates of future cash flows have not been adjusted.

Before the Group recognises an impairment loss for assets capitalised as contract costs under IFRS 15,

the Group assesses and recognises any impairment loss on other assets related to the relevant contracts

in accordance with applicable standards. Then, impairment loss, if any, for assets capitalised as contract

costs is recognised to the extent the carrying amounts exceeds the remaining amount of consideration

that the Group expects to receive in exchange for related goods or services less the costs which relate

directly to providing those goods or services that have not been recognised as expenses. The assets

capitalised as contract costs are then included in the carrying amount of the cash-generating unit to

which they belong for the purpose of evaluating impairment of that cash-generating unit.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying

amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable

amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying

amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the

carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the

highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero.

The amount of the impairment loss that would otherwise have been allocated to the asset is allocated

pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss,

unless the relevant asset is carried at a revalued amount under another standard, in which case the

impairment loss is treated as a revaluation decrease under that standard.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating

unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying

amount does not exceed the carrying amount that would have been determined had no impairment loss

been recognised for the asset (or a cash-generating unit) or in prior years. A reversal of an impairment

loss is recognised immediately in profit or loss.

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HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 289

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of

a past event, it is probable that the Group will be required to settle that obligation, and the amount

of the obligation can be reliably estimated.

The amount recognized as provision is the best estimate of the consideration required to settle the

present obligation at the end of each reporting period, taking into account the risks and uncertainties

surrounding the obligation. Where a provision is measured using the cash flows estimated to settle

the present obligation, its carrying amount is the present value of those cash flows (when the effect

of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered

from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will

be received and the amount of the receivable can be measured reliably.

Financial instruments

Financial assets and financial liabilities are recognised when a group entity becomes a party to the

contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value except for trade receivables

from IFRS 15 since 1 January 2018. Transaction costs that are directly attributable to the acquisition

or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at

fair value through profit or loss) are added to or deducted from the fair value of the financial assets or

financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the

acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised

immediately in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or

financial liability and of allocating interest income and interest expense over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash receipts and payments

(including all fees and points paid or received that form an integral part of the effective interest rate,

transaction costs and other premiums or discounts) through the expected life of the financial asset

or financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial

recognition.

Interest which are derived from the Group’s ordinary course of business are presented as revenue.

F-222

290 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets

Classification and subsequent measurement of financial assets

Financial assets that meet the following conditions are subsequently measured at amortised cost:

• the financial asset is held within a business model whose objective is to collect contractual cash

flows; and

• the contractual terms give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

Financial assets that meet the following conditions are subsequently measured at FVTOCI:

• the financial asset is held within a business model whose objective is achieved by both collecting

contractual cash flows and selling; and

• the contractual terms give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

All other financial assets are subsequently measured at FVTPL, except that at the date of initial

application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent

changes in fair value of an equity investment in OCI if that equity investment is neither held for trading

nor contingent consideration recognised by an acquirer in a business combination to which IFRS 3

Business Combinations applies.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term; or

• on initial recognition it is a part of a portfolio of identified financial instruments that the Group

manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

In addition, the Group may irrevocably designate a financial asset that are required to be measured at

the amortised cost or FVTOCI as measured at FVTPL if doing so eliminates or significantly reduces an

accounting mismatch.

F-223

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Classification and subsequent measurement of financial assets (continued)

(i) Amortised cost and interest income

Interest income is recognised using the effective interest method for financial assets measured

subsequently at amortised cost and debt instruments subsequently measured at FVTOCI.

Interest income is calculated by applying the effective interest rate to the gross carrying amount

of a financial asset, except for financial assets that have subsequently become credit-impaired

(see below). For financial assets that have subsequently become credit-impaired, interest income is

recognised by applying the effective interest rate to the amortised cost of the financial asset from

the next reporting period. If the credit risk on the credit-impaired financial instrument improves

so that the financial asset is no longer credit-impaired, interest income is recognised by applying

the effective interest rate to the gross carrying amount of the financial asset from the beginning

of the reporting period following the determination that the asset is no longer credit impaired.

(ii) Debt instruments classified as at FVTOCI

Subsequent changes in the carrying amounts for debt instruments classified as at FVTOCI as a

result of interest income calculated using the effective interest method, and foreign exchange

gains and losses are recognised in profit or loss. All other changes in the carrying amount of

these debt instruments are recognised in OCI and accumulated under the heading of investment

revaluation reserve of financial assets at fair value through other comprehensive income (“FVTOCI

reserve”). Impairment allowance are recognised in profit or loss with corresponding adjustment

to OCI without reducing the carrying amounts of these debt instruments. The amounts that are

recognised in profit or loss are the same as the amounts that would have been recognised in

profit or loss if these debt instruments had been measured at amortised cost. When these debt

instruments are derecognised, the cumulative gains or losses previously recognised in OCI are

reclassified to profit or loss.

(iii) Equity instruments designated as at FVTOCI

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction

costs. Subsequently, they are measured at fair value with gains and losses arising from changes

in fair value recognised in OCI and accumulated in the FVTOCI reserve; and are not subject to

impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on

disposal of the equity investments, and will be transferred to retained profits.

Dividends on these investments in equity instruments are recognised in profit or loss when

the Group’s right to receive the dividends is established in accordance with IFRS 9, unless the

dividends clearly represent a recovery of part of the cost of the investment. Dividends are included

in the “Investment income and gains (net)” line item in profit or loss.

F-224

292 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Classification and subsequent measurement of financial assets (continued)

(iv) Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI

or designated as FVTOCI are measured at FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with

any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in

profit or loss includes any dividend or interest earned on the financial asset and is included in

the “Investment income and gains (net)” line item.

Impairment of financial assets

The Group recognises a loss allowance for ECL on financial assets which are subject to impairment

under IFRS 9, including loans and advances, other loans and receivables, financial assets held under

resale agreements, advances to customers on margin financing, accounts receivable, placements to

banks and other financial institutions, deposits with other banks, debt instruments measured at FVTOCI,

finance lease receivables, other receivables, loan commitments and financial guarantee contracts. The

amount of ECL is updated at the end of each reporting period to reflect changes in credit risk since

initial recognition.

Lifetime ECL represents the ECL that will result from all possible default events over the expected life

of the relevant instrument. In contrast, 12-month ECL (“12m ECL”) represents the portion of lifetime

ECL that is expected to result from default events that are possible within 12 months after the reporting

date. Assessment are done based on the Group’s historical credit loss experience, adjusted for factors

that are specific to the debtors, general economic conditions and an assessment of both the current

conditions at the reporting date as well as the forecast of future conditions.

The Group always recognises lifetime ECL for accounts receivable. To measure the ECL, account

receivables have been grouped based on shared credit risk characteristics. The Group collectively used

a provision matrix with appropriate aging groupings to assess level of provision rate.

For all other instruments, the Group measures the loss allowance equal to 12m ECL, unless when there

has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECL.

The assessment of whether lifetime ECL should be recognised is based on significant increases in the

likelihood or risk of a default occurring since initial recognition.

F-225

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 293

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(i) Significant increase in credit risk

In assessing whether the credit risk has increased significantly since initial recognition, the Group

compares the risk of a default occurring on the financial instrument as at the reporting date with

the risk of a default occurring on the financial instrument as at the date of initial recognition. In

making this assessment, the Group considers both quantitative and qualitative information that

is reasonable and supportable, including historical experience and forward-looking information

that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk

has increased significantly:

• Significant degradation of the obligor’s actual or expected internal credit risk level or

significant decrease of behaviour scores for assessing credit risks;

• Actual or expected significant changes in external credit rating on the obligor or the debts;

• Significant changes in values of collaterals pledged for the debt, which may reduce

obligor’s economic incentive to make repayments within the term specified in the contract

or affect probability of default incurred; for example, the obligor’s performance guarantee

ability is weakened due to decline in values of pledged securities, the obligor fails to

provide supplement collaterals as specified in the contract within a reasonable time or

the obligor may have stronger incentive to be in arrears with the debt.

• Actual or expected adverse changes in the obligor’s business, financial or economic status,

which may result in significant changes in the obligor’s debt solvency;

• Overdue information of interests or principals;

• Significant changes in external market index for credit risks of specific financial instrument

or alike financial instrument with the same expected life; for example, the obligor’s credit

spread, credit default swap price for the obligor or other market information related to

the obligor;

F-226

294 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(i) Significant increase in credit risk (continued)

• Actual or expected significant changes in quality of credit supports provided by the

guarantor, which may reduce obligor’s economic incentive to make repayments within the

term specified in the contract; for example, if the guarantor will no longer provide financial

support for the obligor, that may result in bankruptcy or receivership of the obligor, or

increase in probability of these liabilities default when the obligor makes limited payment

of operating funds (such as salaries or payments to key suppliers) so as to arrange the

payment obligations of financial liabilities at a lower priority.

• Actual or expected significant changes in quality of credit enhancement or support for

creditor’s rights issued in securitization, which may result in ability decrease of relevant

subordinated interest to absorb expected credit losses.

Irrespective of the outcome of the above assessment, the Group presumes that the credit risk

has increased significantly since initial recognition when contractual payments are more than 30

days past due, unless the Group has reasonable and supportable information that demonstrates

otherwise.

Despite the aforegoing, the Group assumes that the credit risk on a debt instrument has not

increased significantly since initial recognition if the debt instrument is determined to have low

credit risk at the reporting date. A debt instrument is determined to have low credit risk if i)

it has a low risk of default, ii) the borrower has a strong capacity to meet its contractual cash

flow obligations in the near term and iii) adverse changes in economic and business conditions

in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its

contractual cash flow obligations. The Group considers a debt instrument to have low credit risk

when it has an internal or external credit rating of ‘investment grade’ as per globally understood

definitions.

For loan commitments and financial guarantee contracts, the date that the Group becomes a

party to the irrevocable commitment is considered to be the date of initial recognition for the

purposes of assessing the financial instrument for impairment. In assessing whether there has

been a significant increase in the credit risk since initial recognition of a loan commitment,

the Group considers changes in the risk of a default occurring on the loan to which a loan

commitment relates; for loan commitments and financial guarantee contracts, the Group

considers the changes in the risk that the specified debtor will default on the contract.

The Group regularly monitors the effectiveness of the criteria used to identify whether there has

been a significant increase in credit risk and revises them as appropriate to ensure that the criteria

are capable of identifying significant increase in credit risk before the amount becomes past due.

F-227

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 295

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(ii) Definition of default

For internal credit risk management, the Group considers an event of default occurs when

information developed internally or obtained from external sources indicates that the debtor

is unlikely to pay its creditors, including the Group, in full (without taking into account any

collaterals held by the Group).

The Group considers that default has occurred when the instrument is more than 90 days past

due unless the Group has reasonable and supportable information to demonstrate that a more

lagging default criterion is more appropriate.

(iii) Credit-impaired financial assets

A financial asset is credit-impaired when one or more events of default that have a detrimental

impact on the estimated future cash flows of that financial asset have occurred. Evidence that a

financial asset is credit-impaired includes observable data about the following events:

(a) significant financial difficulty of the issuer or the borrower;

(b) a breach of contract, such as a default or past due event;

(c) the lender(s) of the borrower, for economic or contractual reasons relating to the

borrower’s financial difficulty, having granted to the borrower a concession(s) that the

lender(s) would not otherwise consider;

(d) it is becoming probable that the borrower will enter bankruptcy or other financial

reorganisation; or

(e) the disappearance of an active market for that financial asset because of financial

difficulties.

(iv) Write-off policy

The Group writes off a financial asset when there is information indicating that the counterparty

is in severe financial difficulty and there is no realistic prospect of recovery, for example, when

the counterparty has been placed under liquidation or has entered into bankruptcy proceedings.

Financial assets written off may still be subject to enforcement activities under the Group’s

recovery procedures, taking into account legal advice where appropriate. A write-off constitutes

a derecognition event. Any subsequent recoveries are recognised in profit or loss.

F-228

296 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(v) Measurement and recognition of ECL

The measurement of ECL is a function of the probability of default, loss given default (i.e.

the magnitude of the loss if there is a default) and the exposure at default. The assessment

of the probability of default and loss given default is based on historical data adjusted by

forward-looking information. Estimation of ECL reflects an unbiased and probability-weighted

amount that is determined with the respective risks of default occurring as the weights.

Generally, the ECL is estimated as the difference between all contractual cash flows that are

due to the Group in accordance with the contract and all the cash flows that the Group expects

to receive, discounted at the effective interest rate determined at initial recognition. For a lease

receivable, the cash flows used for determining the ECL is consistent with the cash flows used

in measuring the lease receivable in accordance with IAS 17 Leases.

For a financial guarantee contract, the Group is required to make payments only in the event

of a default by the debtor in accordance with the terms of the instrument that is guaranteed.

Accordingly, the expected losses is the present value of the expected payments to reimburse the

holder for a credit loss that it incurs less any amounts that the Group expects to receive from

the holder, the debtor or any other party.

For undrawn loan commitments, the ECL is the present value of the difference between the

contractual cash flows that are due to the Group if the holder of the loan commitments draws

down the loan, and the cash flows that the Group expects to receive if the loan is drawn down.

For ECL on financial guarantee contracts or on loan commitments for which the effective interest

rate cannot be determined, the Group will apply a discount rate that reflects the current market

assessment of the time value of money and the risks that are specific to the cash flows but only

if, and to the extent that, the risks are taken into account by adjusting the discount rate instead

of adjusting the cash shortfalls being discounted.

F-229

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 297

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(v) Measurement and recognition of ECL (continued)

Where ECL is measured on a collective basis or cater for cases where evidence at the individual

instrument level may not yet be available, the financial instruments are grouped on the following

basis:

• Nature of financial instruments;

• Past-due status;

• Nature, size and industry of debtors; and

• External credit ratings where available.

The grouping is regularly reviewed by management to ensure the constituents of each group

continue to share similar credit risk characteristics.

Interest income is calculated based on the gross carrying amount of the financial asset unless the

financial asset is credit impaired, in which case interest income is calculated based on amortised

cost of the financial asset.

For financial guarantee contracts and loan commitments, the loss allowances are recognised at

the higher of the amount of the loss allowance determined in accordance with IFRS 9; and the

amount initially recognised less, where appropriate, cumulative amount of income recognised

over the guarantee period.

For undrawn loan commitments, the loss allowances are the present value of the difference

between:

(a) the contractual cash flows that are due to the Group if the holder of the loan commitment

draws down the loan: and

(b) the cash flows that the Group expects to receive if the loan is drawn down.

F-230

298 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets (continued)

Impairment of financial assets (continued)

(v) Measurement and recognition of ECL (continued)

Except for investments in debt instruments that are measured at FVTOCI, loan commitments and

financial guarantee contracts, the Group recognises an impairment gain or loss in profit or loss

for all financial instruments by adjusting their carrying amount, with the exception of accounts

receivables, finance lease receivables, other receivables and prepayments, loans and advances,

other loans and receivables, financial assets held under resale agreements, advance to customers

on margin financing, placements to banks and other financial institutions and deposits with other

banks, where the corresponding adjustments is recognised through a loss allowance account. For

investments in debt instruments that are measured at FVTOCI, the loss allowance is recognised

in OCI and accumulated in the FVTOCI reserve without reducing the carrying amounts of these

debt instruments.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from

the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the

risks and rewards of ownership and continues to control the transferred asset, the Group recognises

its retained interest in the asset and an associated liability for amounts it may have to pay. If the

Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the

Group continues to recognise the financial asset and also recognises a collateralised borrowing for the

proceeds received.

On derecognition of a financial asset measured at amortised cost, the difference between the asset’s

carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

On derecognition of an investment in a debt instrument classified as at FVTOCI upon application of

IFRS 9, the cumulative gain or loss previously accumulated in the FVTOCI reserve is reclassified to profit

or loss.

On derecognition of an investment in equity instrument which the Group has elected on initial

recognition to measure at FVTOCI upon application of IFRS 9, the cumulative gain or loss previously

accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred

to retained profits.

F-231

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with

the substance of the contractual arrangements and the definitions of a financial liability and an equity

instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the group after

deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds

received, net of direct issue costs.

Financial liabilities

All financial liabilities are subsequently measured at amortised cost using the effective interest method

or at FVTPL.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration

of an acquirer in a business combination to which HKFRS 3 applies, (ii) held for trading or (iii) it is

designated as at FVTPL.

A financial liability is classified as financial liabilities held for trading if:

• it has been acquired principally for the purpose of repurchasing in the near term; or

• on initial recognition it is a part of an identified portfolio of financial instruments that the Group

manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

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300 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial liabilities and equity instruments (continued)

Financial liabilities at FVTPL (continued)

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon

initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency

that would otherwise arise, or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which

is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s

documented risk management or investment strategy, and information about the grouping is

provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivative, and IFRS 9 permits the

entire combined contract (assets or liability) to be designated as at FVTPL.

Upon application of IFRS 9, for financial liabilities that are designated as at FVTPL, the amount of change

in the fair value of the financial liability that is attributable to changes in the credit risk of that liability

is recognised in other comprehensive income, unless the recognition of the effects of changes in the

liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch

in profit or loss. For financial liabilities that contain embedded derivatives, such as convertible loan

notes,the changes in fair value of the embedded derivatives are excluded in determining the amount to

be presented in other comprehensive income. Changes in fair value attributable to a financial liability’s

credit risk that are recognised in other comprehensive income are not subsequently reclassified to profit

or loss; instead, they are transferred to retained profits upon derecognition of the financial liability.

Financial liabilities at amortised cost

Financial liabilities including deposits from central banks, deposits from other banks, customer accounts,

borrowings, short-term financing bills payables, placements from other financial institutions, accounts

payable to brokerage clients, bond payables, financial assets sold under repurchase agreements, other

payables and amount due to a subsidiary are subsequently measured at amortised cost, using the

effective interest method.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Derecognition/non-substantial modification of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are

discharged, cancelled or have expired. The difference between the carrying amount of the financial

liability derecognised and the consideration paid and payable is recognised in profit or loss.

For non-substantial modifications of financial liabilities that do not result in derecognition, the carrying

amount of the relevant financial liabilities will be calculated at the present value of the modified

contractual cash flows discounted at the financial liabilities’ original effective interest rate. Transaction

costs or fees incurred are adjusted to the carrying amount of the modified financial liabilities and are

amortised over the remaining term. Any adjustment to the carrying amount of the financial liability is

recognised in profit or loss at the date of modification.

Compound financial instruments

The component parts of the convertible loan notes issued by the Group are classified separately as

financial liabilities and equity in accordance with the substance of the contractual arrangements and

the definitions of a financial liability and an equity instrument. Conversion option that will be settled

by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Group’s

own equity instruments is an equity instrument.

At the date of issue, both the debt component and derivative components are recognised at fair value.

In subsequent periods, the debt component of the convertible loan notes is carried at amortised cost

using the effective interest method. The derivative component is measured at fair value with changes

in fair value recognised in profit or loss.

The conversion option classified as equity is determined by deducting the amount of the liability

component from the fair value of the compound instrument as a whole. This is recognised and included

in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion

option classified as equity will remain in equity until the conversion option is exercised, in which

case, the balance recognised in equity will be transferred to share premium and share capital. Where

the conversion option remains unexercised at the maturity date of the convertible note, the balance

recognised in equity will be transferred to retained profits. No gain or loss is recognised in profit or

loss upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and

equity components in proportion to the allocation of the gross proceeds. Transaction costs relating

to the equity component are charged directly to equity. Transaction costs relating to the liability

component are included in the carrying amount of the liability portion and amortised over the period

of the convertible loan notes using the effective interest method.

F-234

302 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Derivative financial instruments

Derivatives are initially recognised at fair value at the date when derivative contracts are entered into

and are subsequently remeasured to their fair value at the end of the reporting period. The resulting

gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective

as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the

nature of the hedge relationship.

All derivatives are recognised as assets when the fair value is positive and as liabilities when the fair

value is negative.

Embedded Derivative

Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9

are not separated. The entire hybrid contract is classified and subsequently measured in its entirety as

either amortised cost or fair value as appropriate.

Derivatives embedded in non-derivative host contracts that are not financial assets within the scope

of IFRS 9 are treated as separate derivatives when they meet the definition of a derivative, their risks

and characteristics are not closely related to those of the host contracts and the host contracts are not

measured at FVTPL.

Financial assets sold under repurchase agreements and financial assets held under resale agreements

Financial assets sold under repurchase agreements continue to be recognised, which do not result in

derecognition of the financial assets, and are recorded as “FVTOCI” or “FVTPL” as appropriate. The

corresponding liability is included in “financial assets sold under repurchase agreements”. Financial

assets held under resale agreements to resell are recorded as “financial assets held under resale

agreements”. Financial assets sold under repurchase agreements and financial assets held under resale

agreements are initially measured at fair value and are subsequently measured at amortised cost using

the effective interest method.

(a) Financial assets held under resale agreements

Financial assets that have been purchased under agreements with a commitment to resell at

a specific future date are not recognised in the statement of financial position. The cost of

purchasing such assets is presented under “financial assets held under resale agreements” in

the consolidated statement of financial position.

F-235

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Financial assets sold under repurchase agreements and financial assets held under resale agreements (continued)

(b) Financial assets sold under repurchase agreements

Financial assets sold subject to agreements with a commitment to repurchase at a specific future

date are not derecognised in the consolidated statement of financial position. The proceeds from

selling such assets are presented under “financial assets sold under repurchase agreements” in

the statement of financial position.

Hedge accounting

The Group designates certain bank loans for hedges of net investments in foreign operations.

At the inception of the hedging relationship the Group documents the relationship between the

hedging instrument and the hedged item, along with its risk management objectives and its strategy for

undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing

basis, the Group documents whether the hedging instrument that is used in a hedging relationship is

highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to

the hedged risk.

Assessment of hedging relationship and effectiveness

For hedge effectiveness assessment, the Group considers whether the hedging instrument is effective

in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk,

which is when the hedging relationships meet all of the following hedge effectiveness requirements:

• there is an economic relationship between the hedged item and the hedging instrument;

• the effect of credit risk does not dominate the value changes that result from that economic

relationship; and

• the hedge ratio of the hedging relationship is the same as that resulting from the quantity of

the hedged item that the Group actually hedges and the quantity of the hedging instrument

that the entity actually uses to hedge that quantity of hedged item.

If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge

ratio but the risk management objective for that designated hedging relationship remains the same,

the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it

meets the qualifying criteria again.

F-236

304 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial instruments (continued)

Hedge accounting (continued)

Hedges of net investments in foreign operations

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any

gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in

other comprehensive income and accumulated under the heading of translation reserve. The gain or

loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the

“other gains or losses” line item.

Gains or losses on the hedging instrument relating to the effective portion of hedge accumulated in

the translation reserve are reclassified to profit or loss on disposal of foreign operation.

Discontinuation of hedge accounting

The Group discontinues hedge accounting prospectively only when the hedging relationship (or a

part thereof) ceases to meet the qualifying criteria (after rebalancing, if applicable). This includes

instances when the hedging instrument expires or is sold, terminated or exercised. Discontinuing hedge

accounting can either affect a hedging relationship in its entirety or only a part of it (in which case

hedge accounting continues for the remainder of the hedging relationship).

Securities lending

The Group lends investment securities to clients and the cash collaterals balance required under the

securities lending agreements and the interest arisen from these are classified as “accounts payable

to brokerage clients”. For those securities held by the Group lent to clients that do not result in the

derecognition of financial assets, they are included in related financial assets.

F-237

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

3. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)

Financial guarantee contracts

Financial guarantee contract is contract that require the issuer to make specified payments to reimburse

the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance

with the terms of a debt instrument, namely the payment of principal and/or interests. Acceptance

includes the honour commitment made by the note sent to customers by the Group. Acceptance is listed

as a financial guarantee and credit commitment transaction and is disclosed as contingent liabilities

and commitments

The financial guarantee contracts issued by a group entity are initially measured at their fair values and,

if not designed as at FVTPL, are subsequently measured at the higher of:

• According to the amount of contractual obligations according to IAS 37; and

• The amount initially recognised less, when appropriate, cumulative amortisation recognised in

accordance with the revenue recognition policies.

The financial guarantee contracts issued by the Haitong Bank normally have a stated maturity date and a

periodic fee, usually paid in advance on a quarterly basis. This fee varies depending on the counterparty

risk, the amount and the term of the contract. Therefore, the fair value of the financial guarantee

contracts issued by the Haitong Bank, at the inception date, equal the initial fee received, which is

recognised in the income statement over the period to which it relates. The subsequent periodic fees

are recognised in the income statement in period to which they relate.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash

on hand and demand deposits, and short term highly liquid investments that are readily convertible

into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short

maturity of generally within three months when acquired, less bank overdrafts which are repayable on

demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and bank balances comprise

cash on hand and at banks, including term deposits, which are not restricted as to use.

F-238

306 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT

In the application of the Group’s accounting policies, which are described in Note 3, the directors of

the Company are required to make judgements estimates and assumptions about the carrying amounts

of assets and liabilities that are not readily apparent from other sources. The estimates and associated

assumptions are based on historical experience and other factors that are considered to be relevant.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that

period, or in the period of the revision and future periods if the revision affects both current and future

periods.

Impairment of loans and advances, advances to customers on margin financing, financial assets held under resale agreements and finance lease receivables

The Group reviews its loans and advances, advances to customers on margin financing, financial assets

held under resale agreements and finance lease receivables to assess ECL on a periodic basis.

The Group estimates the amount of loss allowance for ECL on the above mentioned financial assets and

finance lease receivables, measuring as the asset’s carrying amount and the present value of estimated

future cash flows with the consideration of expected future credit loss of these financial assets and

finance lease receivables. The assessment of the credit risk involves high degree of estimation and

uncertainty. When the actual future cash flows are less than expected or more than expected, a material

impairment loss or a material reversal of impairment loss may arise, accordingly.

The following significant judgements are required in applying the accounting requirements for

measuring the ECL:

Significant increase of credit risk

As explained in note 3, ECL are measured as an allowance equal to 12-month ECL for stage 1 assets,

or lifetime ECL assets for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk

has increased significantly since initial recognition. In assessing whether the credit risk of an asset

has significantly increased, the Group takes into account qualitative and quantitative reasonable and

supportable forward looking information, which are detailed in note 73.

F-239

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT (continued)

Impairment of loans and advances, advances to customers on margin financing, financial assets held under resale agreements and finance lease receivables (continued)

Establishing groups of assets with similar credit risk characteristics

When ECLs are measured on a collective basis, the finance lease receivable and financial assets

subject to impairment are grouped on the basis of shared risk characteristics. The Group monitors the

appropriateness of the credit risk characteristics on an ongoing basis to assess whether they continue

to be similar. This is required in order to ensure that should credit risk characteristics change there is

appropriate re-segmentation of the assets. This may result in new portfolios being created or assets

moving to an existing portfolio that better reflects the similar credit risk characteristics of that group of

assets. Assets move from 12-month to lifetime ECLs when there is a significant increase in credit risk,

but it can also occur within portfolios that continue to be measured on the same basis of 12-month or

lifetime ECLs but the amount of ECL changes because the credit risk of the portfolios differ.

Models and assumptions used

The Group uses various models and assumptions in estimating ECL. Judgement is applied in identifying

the most appropriate model for each type of asset, as well as for determining the assumptions used

in these models, including assumptions that relate to key drivers of credit risk. Details are set out in

note 73.

Forward-looking information

When measuring ECL the Group uses reasonable and supportable forward looking information, which

is based on assumptions for the future movement of different economic drivers and how these drivers

will affect each other. Details are set out in note 73.

Probability of default (PD)

PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood of default over a given

time horizon, the calculation of which includes historical data, assumptions and expectations of future

conditions. Details are set out in note 73.

Loss given default (LGD)

LGD is an estimate of the loss arising on default. It is based on the difference between the contractual

cash flows due and those that the lender would expect to receive, taking into account cash flows from

collateral and integral credit enhancements. Details are set out in note 73.

F-240

308 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT (continued)

Fair value measurement of financial instruments

Certain of the Group’s financial assets are measured at fair values with fair values being determined

based on unobserved inputs using valuation techniques. Judgement and estimation are required in

establishing the relevant valuation techniques and the relevant inputs thereof. Changes in assumptions

relating to these factors could affect the reported fair values of these instruments. Details are set out

in note 73.

Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the

cash-generating units to which goodwill has been allocated. The value in use calculation requires

the Group to estimate the future cash flows expected to arise from the cash-generating unit and an

appropriate discount rate in order to calculate the present value. Where the actual future cash flows are

less than expected, a material impairment loss may arise. Details of the recoverable amount calculation

are set out in Note 21.

Income taxes

There are certain transactions and activities for which the ultimate tax determination is uncertain during

the ordinary course of business. Where the final tax outcome of these matters is different from the

amounts that were initially estimated, such differences will impact the current income tax and deferred

income tax in the period during which such a determination is made.

Principal versus agent consideration (principal)

The Group engages in commodity trading. Upon application of IFRS 15, the Group reassessed whether

the Group should continue to recognise revenue on gross basis based on the requirements in IFRS

15. The Group concluded that the Group acts as the principal for such transactions as it controls the

specified good before it is transferred to the customer after taking into consideration indicators such

as the Group is primarily responsible for fulfilling the promise to provide the goods and the Group has

inventory risk.

F-241

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

4. KEY SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING JUDGMENT (continued)

Determination on classification of financial assets

Classification and measurement of financial assets depends on the result of whether the contractual

terms of the financial asset give rise on specific dates to cash flows that are solely payments of principal

and interest on the principal amount outstanding and the business model test. The Group determines

the business model at a level that reflects how groups of financial assets are managed together to

achieve a particular business objective. This assessment includes judgement reflecting all relevant

evidence including how the performance of assets is evaluated and their performance measured, the

risks that affect the performance of assets and how these are managed and how the managers of the

assets are compensated. The Group monitors financial assets measured at amortized cost or FVTOCI

that are derecognized prior to their maturity to understand the reason for their disposal and whether

the reasons are consistent with the objective of the business for which the assets was held. Monitoring

is part of the Group’s continuous assessment of whether the business model for which the remaining

financial assets are held continues to be appropriate and if it is not appropriate whether there has been

a change in business model and so a prospective change to the classification of those assets.

Consolidation of structured entities

All facts and circumstances must be taken into consideration in the assessment of whether the Group,

as an investor, controls the investee. The principle of control sets out the following three elements of

control: (a) power over the investee; (b) exposure, or rights, to variable returns from involvement with

the investee; and (c) the ability to use power over the investee to affect the amount of the investor’s

returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate

that there are changes to one or more of the three elements of control listed above.

For collective asset management schemes and investment funds where the Group involves as manager,

the Group considers the scope of its decision-making authority and assesses whether the combination

of investments it holds together with its remuneration, credit enhancements and other interests creates

exposure to variability of returns from the activities of the collective asset management schemes and

investment funds that is of such significance that it indicates that the Group is a principal. The collective

asset management schemes and investment funds are consolidated if the Group acts in the role of

principal. Details of consolidated structured entities and unconsolidated structured entities are set out

in Notes 23 and 26 to the consolidated financial statements respectively.

F-242

310 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

5. SEGMENT REPORTING

Information reported to the chief operating decision maker (the “CODM”), being the board of directors

of the Company, for the purposes of resource allocation and assessment of segment performance

focuses on the nature of products sold and services provided by the Group, which is also consistent

with the Group’s basis of organization, whereby the businesses are organized and managed separately

as individual strategic business units that offers different products and serves different markets. With

changes in environment of security market and constant development of various business activities, the

Group will make adjustments to business segments in order to facilitate implementation of the Group’s

strategic planning and satisfy internal management in the meantime. The Group’s business segments

are classified in accordance with the requirements of International Financial Reporting Standards, and

are based on the internal organization structure, management requirements and internal reporting

system. The reporting segments are determined based on business segments. A business segment is

a component of the Group with all the following conditions satisfied: (1) such component is able to

generate revenue and expenses in the ordinary course of the Group, (2) management of the Group

periodically evaluates the operating results of these reporting segments to make decisions about

resources to be allocated to the segments and assess their performance; (3) the Group has access to

such component’s accounting information including financial position, operating results and cash flows.

If two or more business segments have similar economic characteristics or a similar business model, they

may be combined as one business segment. Based on its strategic planning and internal management

requirements, the Group determines six business segments: wealth management, investment banking,

assets management, transaction and institution, finance lease and others. Classification of reporting

segments is consistent with that of business segments.

Segment information is measured in accordance with the accounting policies and measurement criteria

adopted by each segment when reporting to management, which are consistent with the accounting

and measurement criteria in the preparation of the condensed consolidated financial statements.

Specifically, the Group’s operating segments are as follows:

(1) Wealth Management Segment engages in provision of a full range of financial services and

investment solutions to retail and high net-worth clients. Services provided include brokering and

dealing in securities and futures, investment consulting, wealth management as well as financial

services such as margin financing, security lending, stock pledge, etc.;

(2) Investment Banking Segment engages in provision of sponsoring and underwriting services to

enterprises and government clients for their fund raising activities in equity and debt capital

markets, and also engages in provision financial consulting services for enterprises for their

corporate actions such as merger and assets restructuring services as well as provision of services

related to the National Equities Exchange and Quotations;

F-243

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 311

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

5. SEGMENT REPORTING (continued)

(3) Asset Management Segment engages in provision of investment management services on

diversified and comprehensive investment products including asset management, fund

management, and private equity management to individual, corporate and institutional clients;

(4) Trading and Institution Segment engages in provision of stock sales and trading, prime brokerage,

stock lending, and stock research in financial markets across the world to global institutional

clients, and also engages in provision of market- making services for fixed income, currency

and commodity products, futures and options, and derivatives on major exchanges around the

world. At the same time, through investment funds and private equity projects, we enhance the

synergistic advantages of all business divisions of the group, and focus on exploring investment

opportunities with reasonable capital returns, so as to expand customer relations and promote

the overall growth of the group’s business;

(5) Finance Lease Segment engages in provision of innovative financial solutions, including finance

lease, operating lease, factoring, entrustment loans and relevant consulting to individuals,

enterprises and government clients;

(6) Others Segment engages in provision of other comprehensive financial and information services

to institutions clients, including warehouse receipts pledge service, pricing service, market-making

service and services related to risk management.

Segment profit/loss represents the profit earned by/loss measured by each segment without

allocation of income tax expenses. This is the measure reported to CODM for the purposes of

resource allocation and performance assessment.

Share of results of associates and joint ventures are allocated to segment profit/loss while the

corresponding investments in associates and joint ventures are not allocated to each segment.

F-244

312 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

5. SEGMENT REPORTING (continued)

The segment information provided to the CODM for the operating and reportable segments for the

years ended 31 December 2018 and 2017 is as follows:

Operating and Reportable segment

For the year ended 31 December 2018

Wealth Investment Asset Trading and Finance Consolidatedmanagement banking management institution lease Others total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and results

Revenue and net investment gain 13,845,632 3,586,547 2,256,576 7,038,032 4,453,584 102,603 31,282,974Other income and gains 185,100 232,863 61,248 318,314 1,234,431 5,354,777 7,386,733

Segment revenue 14,030,732 3,819,410 2,317,824 7,356,346 5,688,015 5,457,380 38,669,707Segment expenses 9,099,135 2,522,163 1,241,308 8,481,433 4,371,748 5,416,263 31,132,050

Segment results 4,931,597 1,297,247 1,076,516 (1,125,087) 1,316,267 41,117 7,537,657

Share of results of associates and joint ventures – – 195,625 (198,618) 35,702 – 32,709

Profit before income tax 4,931,597 1,297,247 1,272,141 (1,323,705) 1,351,969 41,117 7,570,366

Segment assets and liabilitiesSegment assets 171,334,595 13,041,818 13,063,298 285,159,759 81,444,488 2,025,593 566,069,551

Investments accounted for using equity method 5,312,881

Deferred tax assets 3,241,202

Group’s total assets 574,623,634

Segment liabilities 124,288,794 13,113,398 8,988,473 217,066,090 79,231,875 1,542,375 444,231,005Deferred tax liabilities 206,710

Group’s total liabilities 444,437,715

Other segment information (Amounts included in the measure of segment profit or loss:)Depreciation and amortization 197,324 132,367 31,278 99,515 97,390 292 558,166Capital expenditure 648,063 204,913 51,374 380,569 2,673,527 – 3,958,446Credit impairment losses 717,623 115,155 (12,055) 10,454 794,673 21,377 1,647,227

F-245

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 313

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

5. SEGMENT REPORTING (continued)

Operating and Reportable segment (continued)

For the year ended 31 December 2017

Wealth Investment Asset Trading and Finance Consolidatedmanagement banking management institution lease Others total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and results

Revenue and net investment gain 14,308,867 4,216,067 2,212,416 11,831,311 2,999,199 109,162 35,677,022Other income and gains 254,218 22,479 52,107 70,637 1,002,710 4,245,329 5,647,480

Segment revenue 14,563,085 4,238,546 2,264,523 11,901,948 4,001,909 4,354,491 41,324,502Segment expenses 10,123,439 3,183,508 1,332,238 7,243,169 2,935,304 4,325,934 29,143,592

Segment results 4,439,646 1,055,038 932,285 4,658,779 1,066,605 28,557 12,180,910

Share of results of associates and joint ventures – – 204,057 483,460 20,970 – 708,487

Profit before income tax 4,439,646 1,055,038 1,136,342 5,142,239 1,087,575 28,557 12,889,397

Segment assets and liabilitiesSegment assets 229,484,023 16,740,758 9,372,801 204,389,378 60,234,557 1,570,996 521,792,513

Investments accounted for using equity method 10,062,370

Deferred tax assets 2,851,450

Group’s total assets 534,706,333

Segment liabilities 185,464,158 17,027,773 7,434,920 134,536,987 58,363,973 1,316,898 404,144,709Deferred tax liabilities 867,320

Group’s total liabilities 405,012,029

Other segment information (Amounts included in the measure of segment profit or loss:)Depreciation and amortization 180,667 98,166 23,407 135,572 47,277 248 485,337Capital expenditure 211,319 168,776 26,397 171,736 1,247,216 – 1,825,444Credit impairment losses 302,640 673,450 (33,165) 167,003 573,563 3,167 1,686,658

The Group operates mainly in three principal geographical areas, the mainland China (representing the

location of majority of the income from external customers and non-current assets of the Group), Hong

Kong and Europe (the operation area of Group’s subsidiary). No single customers contribute more than

10% of income to the Group’s income for the years ended 31 December 2018 and 2017.

F-246

314 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

6. COMMISSION AND FEE INCOME2018 2017

RMB’000 RMB’000

Commission on securities dealing, broking and handling fee income 3,840,583 4,958,296Commission on futures and options contracts dealing and broking and handling fee income 426,214 511,907Financial advisory and consultancy fee income 1,154,101 1,140,135Underwriting and sponsors fees 2,390,967 2,467,057Asset management fee income (including fund management income) 1,925,194 2,098,349Others 115,628 49,339

9,852,687 11,225,083

The major business types of commission and fee income from customers are as follows:

(1) Brokerage

The Group provides broking, dealing and handling services for securities, futures and options contracts. Commission income is recognized at a point in time on the execution date of the trades at a certain percentage of the transaction value of the trades executed.

(2) Investment Banking

The Group provides placing, underwriting or sub-underwriting services to customers for their fund raising activities in equity and debt capital markets, and also structured products arrangement services. Revenue is recognized at a point in time when the relevant placing, underwriting, sub-underwriting or structured products arrangement activities are completed. The Group also provides sponsoring services to clients for their fund raising activities and corporate advisory services to corporate clients for their corporate actions. The Group considers that all the services promised in a particular contract of being a sponsor or corporate advisor are interdependent and interrelated and should therefore be accounted for as a single performance obligation.

(3) Asset management

The Group provides asset management and investment advisory services on diversified and comprehensive investment products to customers. The customers simultaneously receives and consumes the benefit provided by the Group, hence the revenue is recognized as a performance obligation satisfied over time. Asset management fee income is charged at a fixed percentage per month of the net asset value of the managed accounts under management of the Group. The Group is also entitled to a performance fee when there is a positive performance for the relevant performance period and it is recognized at the end of the relevant performance period, when it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

As at 31 December 2018, the Group’s most contracts with customers have original expected duration of less than one year.

F-247

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 315

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

7. INTEREST INCOME

2018 2017RMB’000 RMB’000

Bank interest income 3,095,155 2,897,113Interest income from advances to customers on margin financing 3,885,678 4,135,956Interest income from loans and advances 1,203,367 830,783Interest income from financial assets held under resale agreements 5,097,024 4,265,941Interest income from debt instruments at fair value through other comprehensive income 504,409 –Interest income from debt instrument at amortised cost 4,176 –Other interest income 458,546 318,772

14,248,355 12,448,565

8. NET INVESTMENT GAINS

2018 2017RMB’000 RMB’000

Net realised gains arising from available-for-sale investments – 3,109,382Net realised gains arising from financial assets/liabilities at fair value through profit or loss 4,168,968 6,820,343Fair value change of financial instruments at fair value through profit or loss (2,018,938) (1,329,411)Net income arising from other loan and receivables – 727,308Dividend income from equity instruments at fair value through other comprehensive income 1,295,120 –Net gains arising from debt instruments at fair value through other comprehensive income 38,370 –

3,483,520 9,327,622

F-248

316 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

9. OTHER INCOME AND GAINS

2018 2017RMB’000 RMB’000

Non-recurring government grants (Note) 432,706 648,512Rental income from investment properties 15,443 13,832Rental income from operating lease 174,339 85,757Foreign exchange gains/(losses) 219,127 (225,472)Income arising from commodity trading and others 6,545,118 5,124,851

7,386,733 5,647,480

Note: The non-recurring government grants were received unconditionally by the Group and its subsidiaries from the local government where they reside. The main purpose is to subsidise the operations of these entities.

10. DEPRECIATION AND AMORTISATION

2018 2017RMB’000 RMB’000

Depreciation of property and equipment 358,570 339,561Depreciation of investment properties 7,103 1,195Amortisation of other intangible assets 171,687 127,158Amortisation of prepaid lease payments 20,806 17,423

558,166 485,337

F-249

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 317

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

11. STAFF COSTS

2018 2017RMB’000 RMB’000

Staff costs (including directors’ remuneration (Note 68):Salaries, bonus and allowances 4,829,742 5,266,101Contributions to annuity plans and retirement schemes (Note) 782,758 833,249Other social welfare 317,329 300,716

5,929,829 6,400,066

Note: The domestic employees of the Group in the PRC participate in a state-managed retirement benefit scheme operated by the respective local government in the PRC. Apart from the state-managed retirement benefit scheme, the Group also makes monthly contributions to annuity plans at fixed rates of the employees’ salaries and bonuses for the period. The Group operates a post-retirement scheme for its qualifying employees in Hong Kong under the Mandatory Provident Fund Schemes Ordinance. The Group’s contributions to these post-retirements plans are charged to profit or loss in the period to which they relate.

One of the Group’s subsidiary in Portugal operated a defined benefit scheme. As at 31 December 2018, the present value of defined benefit obligations and fair value of plan assets in respect of this scheme amounted to EUR72,659,000, equivalent to RMB570,117,000 (31 December 2017: EUR72,070,000, equivalent to RMB562,312,000) and EUR69,641,000, equivalent to RMB546,494,000 (31 December 2017: EUR72,552,000,equivalent to RMB566,072,000), respectively.

Share option award of subsidiaries is disclosed in Note 70.

12. BROKERAGE TRANSACTION FEES AND OTHER SERVICES EXPENSES

2018 2017RMB’000 RMB’000

Securities and futures dealing and broking expenses 813,845 948,290Services expenses for underwriting and financial advisory, etc. 20,180 32,293

834,025 980,583

F-250

318 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

13. INTEREST EXPENSES

2018 2017RMB’000 RMB’000

Interest on borrowings wholly repayable within five years: – bank loans and overdrafts 2,992,938 2,395,041 – deposit taken from banks and other financial institutes 170,074 264,058 – financial assets sold under repurchase agreements 1,543,592 1,804,899 – accounts payable to brokerage clients 419,152 282,433 – advances from China Securities Finance Corporation Ltd. 359,126 91,976 – bond payables 7,550,041 5,957,070 – others 91,570 662,915

13,126,493 11,458,392

14. EXPECTED CREDIT LOSSES/IMPAIRMENT LOSSES ON ASSETS

2018RMB’000

Expected credit losses in respect of debt instruments at amortized cost 3,511Expected credit losses in respect of loans and advances 181,479Expected credit losses in respect of finance lease receivables 722,061Expected credit losses in respect of advances to customers on margin financing 456,508Expected credit losses in respect of financial assets held under resale agreements included 255,804Expected credit (reversal)/losses in respect of other loans and receivables (68,165)Expected credit losses in respect of other financial assets and other items 70,969

1,622,167

2017RMB’000

Bad debt loss in respect of accounts receivable 52,287Impairment loss in respect of available-for-sale investments 247,963Impairment loss in respect of loans and advances 369,620Impairment loss in respect of finance lease receivables 393,139Impairment loss in respect of advances to customers on margin financing 130,876Impairment loss in respect of financial assets held under resale agreements included 164,162Impairment loss in respect of other loans and receivables 195,587Impairment loss in respect of other assets 133,024

1,686,658

F-251

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 319

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

15. INCOME TAX EXPENSE

2018 2017RMB’000 RMB’000

Current tax: PRC Enterprise Income Tax and other jurisdictions 2,210,622 2,886,612 Hong Kong Profits Tax 288,369 480,043

2,498,991 3,366,655

Adjustments in respect of current income tax in relation to prior years: PRC Enterprise Income Tax and other jurisdictions 16,327 23,265 Hong Kong Profits Tax (182,987) (41,646)

(166,660) (18,381)

Deferred tax: Current period (530,753) (337,546) Previous period (1,920) 3,066

1,799,658 3,013,794

Under the Law of the People’s Republic of China on Enterprise Income Tax (the “EIT Law”) and

Implementation Regulation of the EIT Law, the tax rate is 25% from 1 January 2008.

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No.7)

Bill2017, which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28

March 2018 and was gazetted on the following day. Under the two-tiered profits tax rates regime, the

first HK$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above

HK$2 million will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered

profits tax rates regime will continue to be taxed at a flat rate of 16.5%.

F-252

320 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

15. INCOME TAX EXPENSE (continued)

A reconciliation of the tax expense applicable to profit before income tax using the applicable rate to

the tax expense at the effective tax rate is as follows:

2018 2017RMB’000 RMB’000

Profit before income tax 7,570,366 12,889,397

Tax at the statutory tax rate of 25% 1,892,592 3,222,349Effect of share of results of associates and joint ventures (15,815) (160,108)Tax effect of expenses not deductible for tax purpose 876,174 764,180Tax effect of income not taxable for tax purpose (693,480) (521,840)Adjustments in respect of income tax in relation to prior years (168,580) (15,315)Effect of different tax rates of subsidiaries operating in other jurisdictions (146,819) (246,222)Others 55,586 (29,250)

Tax charge 1,799,658 3,013,794

F-253

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 321

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

16. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share attributable to owners of the Company is as

follows:

2018 2017RMB’000 RMB’000

Earnings for the purpose of basic earnings per share: Profit for the year attributable to owners of the Company 5,211,093 8,618,423Effect of dilutive potential ordinary shares: Ad justment to the share of profit of subsidiaries based on

dilution of their earnings per share (Notes i, ii) (30,458) (135,636)

Earnings for the purpose of diluted earnings per share 5,180,635 8,482,787

Number of shares for basic and diluted earnings per share:Number of shares in issue (in thousand) 11,501,700 11,501,700

Basic earnings per share (Expressed in RMB per share) 0.45 0.75 Diluted earnings per share (Expressed in RMB per share) 0.45 0.74

Notes:

(i) As disclosed in Note 50, a subsidiary of the Company issued convertible bonds. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of the subsidiary, assuming outstanding convertible bonds were fully converted to ordinary shares of that subsidiary on the first day of the year.

(ii) Subsidiaries of the Company operated various share option or share awards schemes. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of these subsidiaries when additional shares have to be issued to relevant employees.

F-254

322 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

17. PROPERTY AND EQUIPMENT

Leasehold land andbuildings

Leaseholdimprovements

Electronicequipment

Transportationequipment

Furniture, fixtures and

equipmentConstruction

in progress

TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST As at 1 January 2018 1,246,460 906,216 1,166,343 1,603,132 192,224 40,512 5,154,887Additions during the year 591,273 30,765 153,259 2,623,343 38,333 21,470 3,458,443Disposals during the year – – (129,297) (7,361) (37,420) (331) (174,409)Transfer in from investment property 47,192 – – – – – 47,192Transfer during the year – 23,660 332 – 738 (24,730) –Exchange difference 106 5,862 6,474 68,425 2,147 601 83,615

As at 31 December 2018 1,885,031 966,503 1,197,111 4,287,539 196,022 37,522 8,569,728

ACCUMULATED DEPRECIATION

As at 1 January 2018 426,150 741,634 818,887 144,748 130,716 – 2,262,135Provided for the year 45,212 65,113 154,465 71,161 22,619 – 358,570Eliminated on disposals – – (114,159) (6,939) (17,030) – (138,128)Transfer in from investment property 793 – – – – – 793Exchange difference 8 4,488 4,801 475 1,781 – 11,553

As at 31 December 2018 472,163 811,235 863,994 209,445 138,086 – 2,494,923

ALLOWANCE FOR IMPAIRMENT LOSSES

As at 1 January 2018 and

31 December 2018 30,382 – – – – – 30,382

CARRYING VALUES

As at 31 December 2018 1,382,486 155,268 333,117 4,078,094 57,936 37,522 6,044,423

F-255

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 323

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

17. PROPERTY AND EQUIPMENT (continued)

Leasehold

land and

buildings

Leasehold

improvements

Electronic

equipment

Transportation

equipment

Furniture,

fixtures and

equipment

Construction

in progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2017 1,107,723 837,242 1,053,021 455,378 192,538 32,817 3,678,719

Additions during the year 143,394 53,784 174,746 1,166,215 21,588 51,396 1,611,123

Disposals during the year (5,125) – (74,928) (16,596) (17,722) (418) (114,789)

Transfer during the year 4,898 18,474 17,457 – 668 (41,497) –

Exchange difference (4,430) (3,284) (3,953) (1,865) (4,848) (1,786) (20,166)

As at 31 December 2017 1,246,460 906,216 1,166,343 1,603,132 192,224 40,512 5,154,887

ACCUMULATED DEPRECIATION

As at 1 January 2017 392,003 674,977 719,594 121,203 124,721 – 2,032,498

Provided for the year 34,182 69,796 173,796 39,192 22,595 – 339,561

Eliminated on disposals – – (70,401) (15,381) (14,972) – (100,754)

Exchange difference (35) (3,139) (4,102) (266) (1,628) – (9,170)

As at 31 December 2017 426,150 741,634 818,887 144,748 130,716 – 2,262,135

ALLOWANCE FOR IMPAIRMENT LOSSES

As at 1 January 2017 and

31 December 2017 30,382 – – – – – 30,382

CARRYING VALUES

As at 31 December 2017 789,928 164,582 347,456 1,458,384 61,508 40,512 2,862,370

Transportation equipment of the Group includes aircraft held for operating lease businesses, as of

31 December 2018, the cost of aircraft amounts to RMB4,115,892,000 (2017: RMB1,430,597,000),

accumulated depreciation amounts to RMB81,162,000 (2017: RMB24,089,000), and the carrying values

of aircraft amounts to RMB4,034,730,000 (2017: RMB1,406,508,000).

F-256

324 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

17. PROPERTY AND EQUIPMENT (continued)

As the lease payments included in the Group’s leasehold land and buildings cannot be allocated reliably

between the land and buildings, the entire leases are classified as finance leases and accounted for as

property and equipment.

As of 31 December 2018 and 31 December 2017, included in leasehold land and buildings, there are

carrying amounts of RMB33,462,000 and RMB34,863,000, respectively, for which the Group have yet

to obtain the relevant land and building certificates.

18. INVESTMENT PROPERTIES

2018/12/31 2017/12/31RMB’000 RMB’000

COSTAt beginning of the year 37,610 37,610Addition during the year 250,067 –Transfer to Property and equipment (47,192) –

At end of the year 240,485 37,610

ACCUMULATED DEPRECIATIONAt beginning of the year 20,746 19,551Provided for the year 7,103 1,195Transfer to Property and equipment (793) –

At end of the year 27,056 20,746

CARRYING VALUESAt end of the year 213,429 16,864

The fair values of the Group’s investment properties at 31 December 2018 and 31 December 2017,

were RMB340,743,000 and RMB118,162,000 respectively. The fair values have been determined by

the directors of the Company by reference to recent market prices for similar properties in the same or

similar locations and conditions. Fair values disclosed above are categorized as Level 3.

F-257

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 325

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

19. GOODWILL

Cost and carrying values

2018/12/31 2017/12/31RMB’000 RMB’000

At beginning of the year 3,863,520 4,118,734Additional amount in respect of business combination – 4,618Exchange adjustments 182,670 (259,832)

At end of the year 4,046,190 3,863,520

Particulars regarding impairment testing on goodwill are disclosed in Note 21.

20. OTHER INTANGIBLE ASSETS

Trading Computer Construction rights software Others in progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2018 225,144 898,494 105,917 8,063 1,237,618Additions during the year – 192,955 – 4,246 197,201Disposals during the year – (50,301) (137) – (50,438)Transfer during the year – 2,169 – (2,169) –Exchange difference 266 35,511 2,062 8 37,847

As at 31 December 2018 225,410 1,078,828 107,842 10,148 1,422,228

ACCUMULATED AMORTISATION

As at 1 January 2018 118,400 574,881 50,284 – 743,565Provided for the year – 165,280 6,407 – 171,687Eliminated on disposals – (45,634) (137) – (45,771)Exchange difference – 34,425 527 – 34,952

As at 31 December 2018 118,400 728,952 57,081 – 904,433

CARRYING VALUES

As at 31 December 2018 107,010 349,876 50,761 10,148 517,795

F-258

326 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

20. OTHER INTANGIBLE ASSETS (continued)

Trading Computer Construction

rights software Others in progress Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COST

As at 1 January 2017 224,131 765,335 98,489 14,744 1,102,699

Additions during the year 1,400 139,450 10,714 9,274 160,838

Disposals during the year – (29,042) (290) – (29,332)

Transfer during the year – 11,825 – (11,825) –

Exchange difference (387) 10,926 (2,996) (4,130) 3,413

As at 31 December 2017 225,144 898,494 105,917 8,063 1,237,618

ACCUMULATED AMORTISATION

As at 1 January 2017 118,400 471,543 45,006 – 634,949

Provided for the year – 121,243 5,915 – 127,158

Eliminated on disposals – (27,665) (208) – (27,873)

Exchange difference – 9,760 (429) – 9,331

As at 31 December 2017 118,400 574,881 50,284 – 743,565

CARRYING VALUES

As at 31 December 2017 106,744 323,613 55,633 8,063 494,053

Trading rights mainly comprise the trading rights in the Shanghai Stock Exchange, the Shenzhen Stock

Exchange, the Hong Kong Exchanges and Clearing Limited and the Hong Kong Futures Exchange Limited

which allow the Group to trade securities and futures contracts on or through these exchanges. The

Group treats trading rights as intangible assets with infinite useful lives. Details regarding impairment

testing on trading right are disclosed in Note 21.

F-259

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 327

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

21. IMPAIRMENT TESTING ON GOODWILL AND TRADING RIGHTS WITH INDEFINITE USEFUL LIVES

Impairment testing on goodwill

For the purpose of impairment testing, goodwill set out in Note 19 has been allocated into six individual

cash generating units (CGUs), including one subsidiary in Shanghai (“Unit A”) and one subsidiary in

Hong Kong (“Unit B”) and one subsidiary its headquarters are in Hong Kong and operates mainly in

Shanghai (“Unit C”) and one subsidiary acquired by the Group last year its headquarters are in Portugal

(“Unit D”) and one subsidiary acquired by the Group last year its headquarters are in Japan (“Unit E”)

and one subsidiary in Singapore (“Unit F”). The carrying amounts of goodwill as at 31 December 2018

and 31 December 2017 allocated to these units are as follows:

2018/12/31 2017/12/31RMB’000 RMB’000

Unit A – Haitong Futures Co., Ltd. 5,896 5,896Unit B – Haitong International Securities Group Limited 687,800 656,173Unit C – Haitong UT Capital Group Co., Ltd. 2,194,161 2,093,268Unit D – Haitong Bank S.A. 1,023,952 979,981Unit E – Haitong International Holdings (UK) Limited (formerly “Japaninvest Group plc”) 129,541 123,584Unit F – G. K. Goh Financial Services (Singapore) Pte. Ltd. 4,840 4,618

4,046,190 3,863,520

During the year ended 31 December 2018 and 2017, management of the Group determined that there

are no impairments of any of its CGUs containing goodwill as the recoverable amounts of Unit A, Unit

B, Unit C, Unit D, Unit E and Unit F exceed their respective carrying amounts.

The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are

summarised below:

The recoverable amounts of Unit A, Unit B, Unit C, Unit D, Unit E and Unit F have been determined

on the basis of value in use calculation. That calculation uses cash flow projections based on financial

budgets approved by management and at a discount rate of 4.56% to 15.00% for Unit A, Unit B, Unit

C, Unit D, Unit E and Unit F, as at 31 December 2018. (31 December 2017: 3.025% to 15.00% for

Unit A, Unit B, Unit C, Unit D, Unit E and Unit F). The discount rates used reflect specific risks relating

to the relevant CGUs.

F-260

328 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

21. IMPAIRMENT TESTING ON GOODWILL AND TRADING RIGHTS WITH INDEFINITE USEFUL LIVES (continued)

Impairment testing on goodwill (continued)

Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows

which include budgeted income, gross margin and perpetual growth rate, such estimation is based on

the units’ past performance and management’s expectations for the market development.

Management of the Group believes that any reasonably possible change in any of these assumptions

would not cause the aggregate carrying amounts of Unit A, Unit B, Unit C, Unit D, Unit E or Unit F to

exceed their respective aggregate recoverable amounts.

Impairment testing on trading rights with indefinite useful lives

The trading rights held by the Group are considered by the directors of the Company as having indefinite

useful lives because they are expected to contribute net cash inflows indefinitely. The trading rights

will not be amortised until their useful lives are determined to be finite. Instead, they will be tested for

impairment annually and whenever there is an indication that they may be impaired. The respective

recoverable amounts of the three cash generating units relating to brokerage business whereby

these trading rights are allocated to, using a value in use calculation, exceed the carrying amounts.

Accordingly, there is no impairment of the trading rights as at 31 December 2018 and 2017.

22. PRINCIPAL SUBSIDIARIES

Investment in subsidiaries:

2018/12/31 2017/12/31RMB’000 RMB’000

Unlisted shares, at cost 26,622,222 26,022,222

F-261

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 329

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

22. PRINCIPAL SUBSIDIARIES (continued)

Details of the principal subsidiaries:

Equity interestheld by the Group

Name of subsidiary

Place of incorporation/establishment

As at 31 December

2018

As at 31 December

2017

Share capital/registered andpaid-up capital Principal activities

海富通基金管理有限公司HFT Investment Management Co., Ltd.*2

PRC 51% 51% RMB300,000,000

Provision of fund trading, distribution and management services

海富產業投資基金管理有限公司Haitong-Fortis Private Equity Fund Management Co., Ltd.*2

PRC 67% 67% RMB100,000,000

Provision of advisory services and fund management services

海通開元投資有限公司Haitong Capital Investment

Co. Ltd.*2 (“HCICL”)

PRC 100% 100% RMB10,650,000,000

Provision of advisory services and proprietary trading

海通國際控股有限公司 Haitong International Holdings Limited2 (“HTIH”)

Hong Kong 100% 100% HKD 8,850,000,000

Investment holding and securities trading

海通期貨股份有限公司 Haitong Futures Co., Ltd.2

PRC 66.667% 66.667% RMB1,300,000,000

Physical commodities and futures contracts broking and dealing

海通國際證券集團有限公司 Haitong International Securities Group Limited1 (“HISGL”)

Bermuda 63.59% 62.43% HKD578,974,638

Security Company

海通創新證券投資有限公司Haitong Chuangxin Securities Investment Company Limited2 3

PRC 100% 100% RMB 4,100,000,000

Financial products investment investment advisory and investment management services

上海海通證券資產管理有限公司 Shanghai Haitong Securities Asset Management Company Limited*2

PRC 100% 100% RMB 2,200,000,000

Securities investment management

海通恒信金融集團有限公司 Haitong UT Capital Group Co., Limited

Hong Kong 100% 100% HKD4,146,162,881

Finance Lease

海通銀行Haitong Bank S.A. (“Haitong Bank”)

Portugal 100% 100% EUR844,769,000 Banking Services

上海惟泰置業管理有限公司 Shanghai Weitai Properties Management Co., Ltd.2

PRC 100% 100% RMB10,000,000 Real estate development, property management and catering management

F-262

330 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

22. PRINCIPAL SUBSIDIARIES (continued)

Details of the principal subsidiaries: (continued)

* English translated name is for identification only.

1 In the opinion of directors, further disclosure of information for the indirectly held subsidiaries through HISGL in these financial statements would not add value to the shareholders as the related information is already being included in note the annual report of HISGL for year ended 31 December 2018 currently being available to public.

2 The subsidiary is directly held by the Company.

3 On 13 December 2018, the Company raise the capital to Haitong Chuangxin Securities by amount of RMB600 million. After the capital injection, the share capital of Haitong Chuangxin Securities is RMB4,100 million.

The above table lists the subsidiaries of the Group which, in the opinion of the Directors, principally

affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion

of the directors, result in particulars of excessive length.

Details of non-wholly owned subsidiaries that have material non-controlling interests

The table below shows details of non-wholly-owned subsidiaries of the Group that have material

non-controlling interests:

Proportion of ownershipinterests and voting

Name ofsubsidiary

Placement ofincorporation

rights held by noncontrolling interests

Profit allocated to noncontrolling interests

Accumulated noncontrolling interests

31/12/2018 31/12/2017 31/12/2018 31/12/2017 31/12/2018 31/12/2017

RMB’000 RMB’000 RMB’000 RMB’000

HISGL Bermuda 36.41 % 37.57% 334,033 951,164 8,295,298 7,966,818

F-263

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 331

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

22. PRINCIPAL SUBSIDIARIES (continued)

Details of non-wholly owned subsidiaries that have material non-controlling interests (continued)

Summarised financial information in respect HISGL is set out below. The summarised financial

information below represents amounts before intragroup eliminations.

2018/12/31 2017/12/31RMB’000 RMB’000

Current assets 114,187,043 92,922,345Non-current assets 18,277,824 15,933,063

Current liabilities 100,653,384 74,377,418Non-current liabilities 9,196,466 13,272,726

Total equity 22,615,017 21,205,264Non-controlling interests of the subsidiary 8,295,298 7,966,818

2018 2017RMB’000 RMB’000

Total income 5,545,279 6,014,390Total expenses (4,649,068) (3,482,679)Profit for the year 896,211 2,531,711Other comprehensive income (101,121) 105,291Total comprehensive income for the year 795,090 2,637,002Total comprehensive income attributable to the non-controlling interests of the subsidiary 296,388 990,722

Dividends paid to non-controlling interests 465,665 314,385Net cash outflow from operating activities (12,129,801) (4,415,869)Net cash inflow from investing activities 4,160,048 5,706,545Net cash inflow/(outflow) from financing activities 10,205,827 (3,492,758)Net cash inflow/(outflow) 2,236,074 (2,202,082)

F-264

332 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

23. INTEREST IN CONSOLIDATED STRUCTURED ENTITIES

The Group had consolidated certain structured entities including asset management products. For

the asset management products where the Group acts as manager, the Group assesses whether the

combination of investments it held, if any, together with its remuneration and other interests creates

exposure to variability of returns from the activities of the asset management products that is of such

significance that it indicates that the Group is a principal.

The financial impact of these asset management products on the Group’s financial position as at 31

December 2018 and 31 December 2017, and the results and cash flows for the years ended 2018 and

2017, though consolidated, are not individually significant to the Group.

Interests in all consolidated structured entities directly held by the Group amounted to fair value of

RMB20,791,513,000 and RMB11,917,811,000 at 31 December 2018 and 2017, respectively. It contains

the interests in the subordinated tranche of those structured products held by the Group. The Group

provides credit enhancement to the senior tranche investors by holding such subordinated tranche

interests. As at 31 December 2018 and 2017, the fair value of the Group’s interests in the subordinated

tranche of those structured products is RMB4,387,208,000 and RMB4,090,020,000 respectively.

Interests held by other interest holders are included in financial liabilities at fair value through profit or

loss in the consolidated statement of financial position and the corresponding changes are presented

as changes in net investment gains in the consolidated statement of profit or loss.

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

2018/12/31 2017/12/31RMB’000 RMB’000

Associates:Cost of unlisted investments in associates 3,775,155 4,053,890Share of post-acquisition profits and other comprehensive income, net of dividends received 682,602 826,779

Subtotal for associates 4,457,757 4,880,669

Joint ventures:Cost of unlisted investments in joint ventures 835,985 5,210,136Share of post-acquisition loss and other comprehensive income, net of dividends received 19,139 (28,435)

Subtotal for joint ventures 855,124 5,181,701

Total 5,312,881 10,062,370

F-265

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 333

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

Details of material investments accounted for using equity method:

Equity interestheld by the Group

Name of entityPlace of establishment

As at 31 December

2018

As at

31 December

2017 Principal activities

Joint ventures

HT Freedom Multi-Tranche Bond Fund (Note i) Cayman Islands N/A 38.63% Investment holding

貴安恒信融資租賃（上海）有限公司 PRC 40% 40% Finance Leasing

上海彤關投資管理合夥企業（有限合夥)

Shanghai Tong Guan Investment

Management Limited Partnership

PRC 50.00% 50.00% Investing in equity;

Investment management

services

Associates

富國基金管理有限公司Fullgoal Fund Management Co. Ltd.*

PRC 27.775% 27.775% Provision of fund trading

distribution services

吉林省現代農業和新興產業投資基金有限公司Jilin Modern Agricultural and Emerging

Markets Investment Fund Limited*

PRC 35.71% 35.71% Investing in securities

西安航天新能源產業基金投資有限公司 PRC 37.06% 37.06% Investing in securities

Xi’an Aerospace and New Energy Industry Fund*

上海文化產業股權投資基金合夥企業（有限合夥)

Shanghai Cultural Industries Investment Fund

(Limited Partnership)*

PRC 42.83% 42.83% Investing in securities

上海併購股權投資基金合夥企業（有限合夥)

Shanghai Equity Investment Fund

Limited Partnership*

PRC 33.68% 33.68% Investing in securities

海通（吉林）現代服務業創業投資基金合夥企業（有限合夥)

Haitong (Jilin) Modern Service Industry

Investment Fund Limited Partnership*

PRC 34.71% 34.71% Investing in securities

F-266

334 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

Equity interestheld by the Group

Name of entityPlace of establishment

As at 31 December

2018

As at

31 December

2017 Principal activities

Associates (continued)

海通興泰（安徽）新興產業投資基金（有限合夥)

Haitong Xingtai (Anhui) Emerging Industry

Investment Fund Limited Partnership*

PRC 27.58% 28.16% Investing in equity;

Investment management

services

海通齊東（威海）股權投資基金合夥企業（有限合夥)

Haitong Qidong (Weihai) Equity

Investment Fund Limited Partnership

PRC 34.38% 33.96% Investing in equity,

Investment management

services

廣東南方媒體融合發展投資基金（有限合夥)

Guangdong South Media Integration Fund

Limited Partnership

PRC 27.76% 27.76% Investing in equity,

Investment management

services

海通（吉林）股權投資基金合夥企業（有限合夥)

Haitong (Jilin) Equity Investment Fund

Limited Partnership

PRC 27.02% 27.02% Private equity funds

investment

西安軍融電子衛星基金投資有限公司Xi’an Civil-Military Integration Satellite

Investment Fund Co., Ltd

PRC 35.71% 35.72% Investment management

services

嘉興海通旭初股權投資基金合夥企業Jiaxing Haitong Xuchu Equity Investment

Fund Limited Partnership

PRC 19.39% N/A Investing in equity,

Investment management

services

上海併購股權投資基金二期合夥企業（有限合夥)

Shanghai Equity Investment Fund II

Limited Partnership

PRC 19.67% N/A Investing in securities

* The English translated name is for identification only.

All of these joint ventures and associates are unlisted entities without quoted market price available.

All of these associates and joint ventures are accounted for using the equity method in these

consolidated financial statements.

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

F-267

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 335

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)Note:

(i) As at 31 December 2018 and 2017, the Group held the interests of participating shares of Haitong Freedom Multi-Tranche Bond Fund (referred as the “Fund” for the purpose of this paragraph) as disclosed above that the participating shares provide the Group with the share of returns from the Fund but not any decision-making power nor any voting right in daily operation of the Fund.

As at 31 December 2017, the Group held 50% of the management shares in the Fund and the other 50% management shares were held by another corporation. The management shareholders were empowered to make all the key financing and operating decisions in the Fund and require unanimous consent of the parties sharing control. The arrangement of sharing of control was contractually agreed by both parties. As such, the interests of the Group in the Fund were classified as a joint venture for the prior year.

On 30 September 2018, the Group entered into an agreement with the independent third-party to end the agreement of joint control contractually agreed with the independent third party. During the current year, the Group had partly redeemed the interests from this fund with the reduction of the variable returns. Accordingly, in the opinion of the directors of the Company, the variable returns that the Group is exposed to with respect to the Fund is not significant and the Group is primarily acting as an agent. Therefore, the Group accounted for the interest in the Fund as financial assets at FVTPL in “Funds” in accordance with IFRS 9. The carrying amount of the interest in the Fund approximated the fair value on that date. The results of the Fund were recognised as “share of results of investments accounted for using the equity method” up to date of cessation of such joint control mentioned above.

The current carrying amount of the interest held by the group amounted to RMB4,440 million as

at 31 December 2017 represents the Group’s maximum exposure over its investment in the Fund.

F-268

336 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (CONTINUED)

The financial information of Fullgoal Fund Management Co., Ltd which is an individually significant

associate to the Group, is set out below:

Fullgoal Fund Management Co., Ltd

2018/12/31 2017/12/31RMB’000 RMB’000

Total assets 4,701,753 4,227,516Total liabilities 1,308,774 1,383,135

Net assets 3,392,979 2,844,381

Total revenue 2,381,397 2,367,618Net profit 703,983 726,063Total comprehensive income 698,598 719,867

F-269

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 337

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

24. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

Fullgoal Fund Management Co., Ltd (continued)

Reconciliation of the above financial information to the carrying amount of the interest in above

associate recognised in the financial statements:

2018/12/31 2017/12/31RMB’000 RMB’000

Equity attributable to equity holders of the associate 3,392,979 2,844,381Proportion of equity interests held by the Group 27.775% 27.775%

Carrying amount 942,400 790,027

Aggregate information of associates and joint ventures that are not individually material:

2018 2017RMB’000 RMB’000

The Group’s share of (loss)/profit (162,822) 506,822The Group’s share of other comprehensive expense (230,489) (22,103)The Group’s share of total comprehensive (expense)/income (393,311) 484,719

Aggregate carrying amount of the Group’s interests in these associates and joint ventures 4,370,481 9,272,343

F-270

338 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

25. FINANCE LEASE RECEIVABLES

2018/12/31 2017/12/31RMB’000 RMB’000

Minimum finance lease receivables– Not later than one year 34,796,245 24,140,952– Later than one year and not later than five years 34,344,977 25,036,034– Later than five years 284,646 63,982

Gross amount of finance lease receivables 69,425,868 49,240,968Less: unrealized finance income (6,068,188) (4,222,749)

Present value of minimum finance lease receivables 63,357,680 45,018,219Less: Allowance for impairment losses (1,704,968) (1,482,043)

Carrying amount of finance lease receivables 61,652,712 43,536,176

Present value of minimum finance lease receivables– Not later than one year 31,754,869 22,070,701– Later than one year and not later than five years 31,343,044 22,889,023– Later than five years 259,767 58,495

Total 63,357,680 45,018,219

Analyzed as: Current assets 30,828,048 21,323,548 Non-current assets 30,824,664 22,212,628

61,652,712 43,536,176

F-271

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 339

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

25. FINANCE LEASE RECEIVABLES (continued)

The following table shows reconciliation of loss allowances that has been recognised for finance lease

receivables.

12m ECL

Lifetime ECL(not credit-

impaired)

Lifetime ECL(credit-

impaired) TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 779,240 404,336 312,632 1,496,208

Impairment losses recognised/(reversed) 216,168 (38,984) 544,877 722,061

Re coveries of amount written-off in

previous years – – 20,261 20,261

Written-off – – (533,562) (533,562)

As at 31 December 2018 995,408 365,352 344,208 1,704,968

As at 31 December 2018, a substantial portion of finance lease receivables is at stage 1, of which the

loss allowance is measured at 12 month ECL.

F-272

340 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

26. INTERESTS IN UNCONSOLIDATED STRUCTURED ENTITIES

Structured entities the Group served as the investment manager, therefore has power over them during

the year include private equity funds and asset management products. Except for the structured entities

the Group has consolidated as detailed in Note 22, in the opinion of the directors of the Company, the

variable returns the Group exposed to over the structured entities that the Group acts as manager in

are not significant. The Group therefore did not consolidate these structured entities.

The carrying amount of unconsolidated structured entities in which the Group acted as investment

manager and held financial interests and its maximum exposure to loss in relation to those interests

amounted to RMB7,050,866,000 and RMB9,069,000,000 as at 31 December 2018 and 31 December

2017, respectively. Total fee income from all structured entities in which the Group acted as investment

manager is RMB1,548,484,000 and RMB1,593,472,000 respectively.

In addition to those interests in unconsolidated structured entities managed by the Group as disclosed

above, the Group also has interests in unconsolidated structured entities in which the Group did not

act as investment manager. The total maximum exposure to loss in relation to the Group’s interests in

structured products and trust products approximate to their respective carrying amounts as disclosed

in Note 27 and Note 31.

F-273

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 341

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

27. AVAILABLE-FOR-SALE INVESTMENTS

2017/12/31RMB’000

Debt securities 4,959,363Equity 7,756,085Funds 5,018,028Others (Note ii) 23,495,280

41,228,756

Analysed as: Listed in Hong Kong 56,115 Listed outside Hong Kong (primarily in Mainland China) 4,661,374 Unlisted 36,511,267

41,228,756

Analysed as: Listed equity securities (Note i) 2,315,782 Unlisted equity securities 5,440,303

7,756,085

Analysed for reporting purpose as: Current assets 9,503,398 Non-current assets 31,725,358

41,228,756

F-274

342 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

27. AVAILABLE-FOR-SALE INVESTMENTS (continued)Notes:

(i) Included in the Group’s listed equity securities are amounts of approximately RMB1,732,080,000 as at 31 December 2017, which are restricted shares with a legally enforceable restriction on these securities that prevents the Group to dispose of within the specified period. The fair values of these securities have taken into account the relevant features including the restrictions.

(ii) Except for the investment described below, others comprise of structured products and trust products where funds are mainly invested in listed securities or open-ended funds and the Group’s return of investment is tied to the result of such investments.

Others also include the investment into a special account managed by China Securities Finance Corporation Limited (the “CSFCL”). As of 31 December 2017, the cost of the investment was RMB15 billion, and the Company determined the fair value on the basis of the report provided by the CSFCL. CSFCL executes unified operation and investment management, while all the investors including the Company share investment risks as well as potential income in proportion to their contributions.

In the opinion of the directors of the Company, non-current available-for-sale investments are expected

to be realised or restricted for sale over one year from the end of the respective reporting periods.

As of 31 December 2017, the Company has entered into securities lending arrangement with clients

that resulted in the transfer of available-for-sale investments with total fair value of RMB1,517,000

to external. Since the arrangement will be settled by the securities with the same quantity lent, the

economic risks and benefits of those securities are not transferred and it does not result in derecognition

of the financial assets.

RMB5,383,646,000 (Note 51) cash collateral was received from clients for securities lending arrangement

and margin financing activities carried out in the PRC, and reported under accounts payable to

brokerage clients.

As of 31 December 2017, the impairment allowance of available-for-sale equity instruments was

RMB533,104,000.

F-275

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 343

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

28. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

2018/12/31RMB’000

China Securities Finance Corporation Limited (“CSFCL”) (Note i) 14,651,458Other equity investments 576,833

15,228,291

Analysed as: – Listed 366,853 – Unlisted 14,861,438

15,228,291

Note:

As the above equity instruments are not held for trading purpose, the Group has designated these investments as equity instruments at fair value through other comprehensive income at the date of initial application of IFRS 9.

(i) This is the investment into a fund managed by China Securities Finance Corporation Limited (the “CSFCL”). As of 31 December 2018, the cost of the investment was RMB15 billion, and the company determined the fair value on the basis of the report provided by the CSFCL. CSFCL executes unified operation and investment management, while all the investors including the Company share investment risks as well as potential income in proportion to their contributions.

F-276

344 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

29. DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

2018/12/31RMB’000

Unlisted bond investment 10,650,869Listed bond investment 4,480,361

15,131,230

Analysed for reporting purpose as: Current assets 9,362,242 Non-current assets 5,768,988

15,131,230

Loss allowance 20,379

The Group hold the debt instrument for the purpose of collecting the interests of the bonds and sell

the bonds under the favourable market environment.

As at 31 December 2018, a substantial proportion of debt instruments at fair value through other

comprehensive income is stage 1 of which the loss allowance is measured at 12 month ECL.

F-277

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 345

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

30. DEBT INSTRUMENTS MEASURED AT AMORTISED COST

2018/12/31RMB’000

Analysed by type: Debt securities 682,726Interest receivable 4,082Less: impairment allowance (3,512)

683,296

Analysed for reporting purpose as: Current assets 4,082 Non-current assets 679,214

683,296

As of 31 December 2018, a substantial proportion of debt instruments measured at amortised cost is

at stage 1 of which the loss allowance is measured at 12 month ECL.

F-278

346 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

31. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2018/12/31 2017/12/31RMB’000 RMB’000

Debt securities 103,204,443 63,166,764Equity securities (Note i, iii) 17,652,596 15,858,852Funds (Note i, ii) 28,143,504 14,497,368Others 28,204,871 6,333,711

177,205,414 99,856,695

Analysed for reporting purpose as: Current assets 158,837,008 98,904,357 Non-current assets (Note ii) 18,368,406 952,338

177,205,414 99,856,695

Notes:

(i) As at 31 December 2018, the Group has entered into securities and funds lending arrangement with clients that resulted in the transfer of financial assets at fair value through profit or loss with a total fair value of RMB1,832,000 (31 December 2017: RMB12,005,000) to external clients. Since the arrangement will be settled by the securities with the same quantity lent, the economic risks and benefits of those securities are not transferred and it does not result in derecognition of the financial assets.

(ii) For financial assets in connection with structured products with the maturity more than one year, they are classified as non-current assets as they are not expected to be settled within one year.

(iii) Included in the Group’s equity securities are amounts of approximately RMB3,282,000 as at 31 December 2018 (31 December 2017:RMB1,732,080,000), which are restricted shares with a legally enforceable restriction on these securities that prevents the Group to dispose of within the specified period. The fair values of these securities have taken into account the relevant features including the restrictions.

F-279

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 347

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

32. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS

2018/12/31 2017/12/31RMB’000 RMB’000

Analysed by collateral type: Stock (Note) 56,086,767 76,442,210 Bonds 25,606,604 20,101,753 Fund – 220 Structured products 350,000 350,000 Finance lease receivables 987,000 – Interest receivable 382,173 –Less: Allowance for credit losses (734,352) (344,314)

82,678,792 96,549,869

Analysed by market: Stock Exchange 67,615,018 81,599,830 Inter-bank 8,435,611 14,944,353 Over the counter (“OTC”) 6,980,342 350,000Interest receivable 382,173 –Less: Allowance for credit losses (734,352) (344,314)

82,678,792 96,549,869

Analysed for reporting purpose as: Current assets 71,676,737 75,345,093 Non-current assets 11,002,055 21,204,776

82,678,792 96,549,869

F-280

348 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

32. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS (continued)

The following table shows reconciliation of loss allowances that has been recognised for financial assets

held under resale agreements.

12m ECL

Lifetime ECL (not credit-

impaired

Lifetime ECL (credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 76,329 77,632 293,728 447,689

Transfer in 1,274 165 29,331 30,770

Impairment losses recognised/(reversed) (31,162) 31,105 255,861 255,804

Exchange difference and others 89 – – 89

As at 31 December 2018 46,530 108,902 578,920 734,352

The table below details the credit risk exposures of the Group’s financial assets held under resale

agreements, which are subject to ECL assessment:

12 months ECL

Lifetime ECL not credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

Gross carrying amount 63,293,833 16,627,530 3,491,781 83,413,144

Note: The financial assets (pledged by stock) held under resale agreements are those resale agreements which qualified investors entered into with the Group with a commitment to purchasing the specified securities at a future date with an agreed price.

As of 31 December 2018, for the Group, the carrying amount of these agreements within one year was RMB45,011,899,000 (31 December 2017: RMB55,170,609,000), the carrying amount of these agreements over one year was RMB11,074,868,000 (31 December 2017: RMB21,271,601,000).

As of 31 December 2018, the fair value of the collateral was RMB142,590,350,000 (31 December 2017: RMB215,587,946,000).

F-281

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 349

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

33. OTHER LOANS AND RECEIVABLES

2018/12/31 2017/12/31RMB’000 RMB’000

Trust products – 623,000Structured products – 5,251,181Debt investments 12,925,769 11,906,618Factoring receivable 6,346,945 10,776,874Entrusted loans and other loans 1,073,970 1,207,197

Less: Allowance for credit losses (655,154) (518,295)

19,691,530 29,246,575

Analysed for reporting purpose as: Current assets 14,043,711 21,147,878 Non-current assets 5,647,819 8,098,697

19,691,530 29,246,575

The following table shows reconciliation of loss allowances that has been recognised for other loans

and receivables.

12m ECL

Lifetime ECL(not credit-

impaired)

Lifetime ECL (credit-

impaired) TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 322,187 213,191 245,653 781,031

Impairment losses recognised/(reversed) (95,960) 121,332 (93,537) (68,165)

Written-off – – (68,033) (68,033)

Exchange difference and others 1,798 – 8,523 10,321

As at 31 December 2018 228,025 334,523 92,606 655,154

F-282

350 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

33. OTHER LOANS AND RECEIVABLES (CONTINUED)

The table below details the credit risk exposures of the Group’s other loans and receivables, which are

subject to ECL assessment:

As at 31 December, 2018

12months ECL

Lifetime ECLnot credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

Gross carrying amount 19,062,149 1,163,059 121,476 20,346,684

34. LOANS AND ADVANCES

2018/12/31 2017/12/31RMB’000 RMB’000

Customer loans and advances 4,828,217 5,756,475Interest receivable 144,038 –Less: Impairment loss allowances (608,768) (918,203)

4,363,487 4,838,272

Analysed for reporting purpose as: Current assets 618,924 751,375 Non-current assets 3,744,563 4,086,897

4,363,487 4,838,272

F-283

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 351

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

34. LOANS AND ADVANCES (continued)

The following table shows reconciliation of loss allowances that has been recognised for loans and

advances.

12m ECL

Lifetime ECL(not credit-

impaired)

Lifetime ECL (credit-

impaired) TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 14,968 15,378 888,516 918,862

Transfer in 749 163 19,635 20,547

– Impairment losses recognised 6,495 19,180 155,804 181,479

– Written-off – – (519,785) (519,785)

Exchange difference and others (289) (314) 8,268 7,665

As at 31 December 2018 21,923 34,407 552,438 608,768

The table below details the credit risk exposures of the Group’s loans and advances, which are subject

to ECL assessment:

As at 31 December, 2018

12 months ECL

Lifetime ECL not credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

Gross carrying amount 2,704,049 1,060,766 1,207,440 4,972,255

35. DEFERRED TAXATION

For the purpose of presentation in the Group’s statements of financial position, certain deferred tax

assets and liabilities have been offset. The following is the analysis of the deferred tax balances for

financial reporting purposes:

2018/12/31 2017/12/31RMB’000 RMB’000

Deferred tax assets 3,241,202 2,851,450Deferred tax liabilities (206,710) (867,320)

3,034,492 1,984,130

F-284

352 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

35.

DEF

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F-285

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 353

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

36. DEPOSITS WITH EXCHANGES

2018/12/31 2017/12/31RMB’000 RMB’000

Deposits with stock exchanges – Shanghai Stock Exchange 394,362 653,424 – Shenzhen Stock Exchange 83,606 76,223 – National Equities Exchange and Quotations 1,089 4,200 – Stock Exchange of Hong Kong Limited 1,314 1,254 – Others 372 –

Subtotal 480,743 735,101

Deposits with futures and commodity exchanges – Shanghai Futures Exchange 1,928,026 2,545,406 – Dalian Commodity Exchange 612,824 1,681,289 – Zhengzhou Commodity Exchange 517,536 337,627 – China Financial Futures Exchange 1,670,105 1,552,040 – Shanghai Gold Exchange 1,874 31,173 – HKFE Clearing Corporation Limited 4,200 8,754 – The Chinese Gold & Silver Exchange Society 601 573 – Collateral deposits placed with overseas stock exchange and brokers 1,478,443 1,240,906

Subtotal 6,213,609 7,397,768

Guarantee fund paid to Shanghai Stock Exchange 19,227 24,155Guarantee fund paid to Shenzhen Stock Exchange 19,461 22,741Deposit with China Securities Finance Corporation Ltd. 74,742 188,382Deposit with Shanghai Clearing House 48,589 –Guarantee fund paid to the SEHK Options Clearing House Ltd. 6,555 15,740Guarantee fund paid to Hong Kong Securities Clearing Company Ltd. 49,043 76,375Guarantee fund paid to Securities and Futures Commission 307 293Others 70,613 68,120

Subtotal 288,537 395,806

Total 6,982,889 8,528,675

Analysed for reporting purpose as: Current assets 5,601,350 7,180,974 Non-current assets 1,381,539 1,347,701

6,982,889 8,528,675

F-286

354 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

37. BANK BALANCES AND CASH

2018/12/31 2017/12/31RMB’000 RMB’000

General accounts 35,574,425 29,820,328Cash held on behalf of clients (Note i) 62,319,468 70,213,569Interest receivables 270,171 –Less: allowance for impairment losses (1,752) –

98,162,312 100,033,897Less: non-current restricted bank deposits (Note ii) (739,260) (675,568)

97,423,052 99,358,329

Bank balances and cash comprise of cash on hand and demand deposits which bear interest at the

prevailing market rates.

Notes:

(i) The Group received and held money deposited by clients in the course of the conduct of the regulated activities. The Group has recognised the corresponding amount in accounts payable to brokerage clients (Note 51). The Group currently does not have a legally enforceable right to offset these payables with deposit placed.

(ii) The non-current restricted bank deposits are restricted for fund management risk reserve purpose, pledged bank deposit and margin deposits over one year.

38. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of the following:

2018/12/31 2017/12/31RMB’000 RMB’000

Bank balances and cash – general account 35,574,425 29,820,328Less: Restricted bank deposits (Note) (1,634,107) (2,106,384)Deposits with other banks 253,915 316,134Deposits with central banks other than legal reserve 2,384,561 3,415,915Clearing settlement funds – House accounts 1,531,888 374,870

38,110,682 31,820,863

Note:

The current restrictive deposits are margin deposits of notes receivable, margin deposits of borrowings and other pledge of bank deposits within one year.

F-287

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 355

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

39. OTHER ASSETS

2018/12/31 2017/12/31RMB’000 RMB’000

Foreclosed assets 148,584 29,099Prepaid lease payments 808,713 829,519Others 221,907 217,969

1,179,204 1,076,587

40. ADVANCES TO CUSTOMERS ON MARGIN FINANCING

2018/12/31 2017/12/31RMB’000 RMB’000

Loans to margin clients (Note) 49,212,794 61,889,429Interest receivable 443,455 –Less: Allowance for credit losses (Note) (795,240) (328,476)

48,861,009 61,560,953

Analysed for reporting purpose as: Current 48,861,009 61,560,953

48,861,009 61,560,953

The following table shows reconciliation of loss allowances that has been recognised for advances to

customers on margin financing.

12m ECL

Lifetime ECL(not credit-

impaired)

Lifetime ECL (credit-

impaired) TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 60,946 32,757 240,224 333,927

Transfer in 443 13 1 457

– Impairment losses recognised/(reversed) (41,959) 16,192 482,175 456,508

– Written-off – – (6,492) (6,492)

Exchange difference and others 10,840 – – 10,840

As at 31 December 2018 30,270 48,962 716,008 795,240

F-288

356 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

40. ADVANCES TO CUSTOMERS ON MARGIN FINANCING (continued)

The table below details the credit risk exposures of the Group’s advances to customers on margin

financing, which are subject to ECL assessment:

As at 31 December, 2018

12 months ECL

Lifetime ECL not credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

Gross carrying amount 42,384,302 5,724,598 1,547,349 49,656,249

Note:

The credit facility limits to margin clients are determined by the discounted market value of the collateral securities accepted by the Group.

The majority of the loans to margin clients, which are secured by the underlying pledged securities, are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any excess in the lending ratio will trigger a margin call which the customers have to make up the shortfall.

Loans to margin clients as at 31 December 2018 were secured by the customers’ securities to the Group as collateral with undiscounted market value of approximately RMB155,961,015,000 (31 December 2017: RMB209,005,831,000).

As at 31 December 2018, included in the Group’s accounts payable to brokerage clients were approximately RMB3,934,801,000 (31 December 2017: RMB5,383,646,000) cash collateral received from clients for securities lending and margin financing arrangement.

The directors of the Company are of the opinion that the aging analysis does not give additional value in view of the nature of the business. As a result, no aging analysis is disclosed. The Group determines the allowance for impaired debts based on the evaluation of collectability and management’s judgment including the assessment of change in credit quality, collateral and the past collection history of each client. The concentration of credit risk is limited due to the customer base being large and unrelated.

F-289

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 357

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

41. ACCOUNTS RECEIVABLE

2018/12/31 2017/12/31RMB’000 RMB’000

Accounts receivable from: – Cash clients 1,074,065 377,293 – Brokers, dealers and clearing house 6,434,981 6,021,541 – Advisory and financial planning 19,558 22,787 – Asset and fund management 589,570 793,758 – Others 262,246 342,689

8,380,420 7,558,068Less: allowance for credit losses on accounts receivable (123,206) (116,068)

8,257,214 7,442,000

Aging analysis of accounts receivable from the trade date is as follows:

2018/12/31 2017/12/31RMB’000 RMB’000

Between 0 and 3 months 7,563,111 6,746,631Between 4 and 6 months 32,677 226,884Between 7 and 12 months 490,998 315,730Over 1 year 170,428 152,755

8,257,214 7,442,000

F-290

358 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

42. DERIVATIVE INSTRUMENTS

2018/12/31 2017/12/31

Assets Liabilities Assets Liabilities

RMB’000 RMB’000 RMB’000 RMB’000

Stock index futures contracts (Notes i) – – – –Treasury futuresContracts (Note ii) – – – –Commodity futuresContracts (Note iii) 5,956 – 68,037 –Interest rate swap Contracts (Note iv) 1,165,165 1,350,329 1,532,748 1,602,469Equity swap (Note v) 153,309 176,291 63,514 236,272Forward contracts 56,126 118,753 93,772 119,347Options (Note vi) 386,392 507,744 532,825 1,528,251Embedded equity instruments 421 29,543 – 86Debts linked note – – 265,955 –Foreign exchange swap 2,671 24,943 18,990 6,597Credit default swap 10,717 11,171 34,771 2,432

Total 1,780,757 2,218,774 2,610,612 3,495,454

Notes:

(i) Stock index futures

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in stock index futures (“SIF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2018 and 31 December 2017. Accordingly, the net position of the SIF contracts in derivative instruments was nil at the end of reporting period. The contract value of the outstanding stock index futures contracts that the Group held not to hedge the market risk of the securities lent or to be lent to clients is RMB2,230,590,000 (31 December 2017: RMB299,927,000) with fair value gain RMB46,050,000 (2017: fair value gain RMB3,251,000).

F-291

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 359

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

42. DERIVATIVE INSTRUMENTS (continued)Notes: (continued)

(ii) Treasury futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in treasury futures (“TF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2018 and 31 December 2017. Accordingly, the net position of the TF contracts in derivative instruments was nil at the end of reporting period.

2018/12/31Contract Contract value Fair value

RMB’000 RMB’000

T1903 3,908,400 (56,747)T1903 1,954,200 10,967TF1903 1,590,080 (5,191)

Total 7,452,680 (50,971)

Plus: settlements 50,971

Net position –

2017/12/31Contract Contract value Fair value

RMB’000 RMB’000

T1803 93,175 (232)T1803 96,902 (97)TF1803 4,315,418 (11,497)

Total 4,505,495 (11,826)

Plus: settlements 11,826

Net position –

F-292

360 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

42. DERIVATIVE INSTRUMENTS (continued)Notes: (continued)

(iii) Commodity futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in commodity futures were settled daily and the corresponding payments or receipts were included in “clearing settlement funds”. As at 31 December 2018, the net position of the commodity futures contracts under the daily mark- to-market and settlement arrangement was nil.

As at 31 December 2018, the fair value gains of commodity future contract that the Group holds not under the daily mark-to-market and settlement arrangement is RMB5,956,000.

2018/12/31

Contract Contract value Fair value

RMB’000 RMB’000

Commodity 283,351 5,956

Total 283,351 5,956

2017/12/31

Contract Contract value Fair value

RMB’000 RMB’000

Commodity 828,925 68,037

Total 828,925 68,037

(iv) Interest rate swap contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in interest rate swap (“IRS”) were settled daily in Shanghai Clearing House and the corresponding payments or receipts were included in “clearing settlement funds” as at 31 December 2018. Accordingly, the net position of the IRS contracts in derivative instruments was nil at the end of reporting period. As at 31 December 2018, under the daily mark-to-market and settlement arrangement, the contract values of the Group’s IRS contracts are approximately RMB16,280,000,000 (31 December 2017: RMB10,790,000,000).

For IRS contracts in mainland China and Hong Kong market not under the daily mark-to-market and settlement arrangement are presented gross at the end of reporting period. As at 31 December 2018, for IRS contracts not under the daily mark-to-market and settlement arrangement, the contract values of those IRS contracts of the Group are approximately RMB34,208,897,000 (31 December 2017: RMB36,634,430,000).

F-293

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 361

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

42. DERIVATIVE INSTRUMENTS (continued)Notes: (continued)

(iv) Interest rate swap contracts (continued)

2018/12/31

Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 16,280,000 20,566 –IRS – non-centralised settlement 34,208,897 1,165,165 (1,350,329)

Total 50,488,897 1,185,731 (1,350,329)

Plus: settlements (20,566) –

Net position of IRS contracts 1,165,165 (1,350,329)

2017/12/31

Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 10,790,000 – (7,433)IRS – non-centralised settlement 36,634,430 1,532,748 (1,602,469)

Total 47,424,430 1,532,748 (1,609,902)

Plus: settlements – 7,433

Net position of IRS contracts 1,532,748 (1,602,469)

(v) Equity swap

As at 31 December 2018, the notional principal amounts of the equity swap held by the Group was approximately RMB1,248,278,000 (31 December 2017: RMB1,038,712,000).

(vi) Options

As at 31 December 2018, the notional principal amounts of the Group’s options purchased or written in Mainland China were approximately RMB16,866,539,000 with a net fair value loss of RMB200,766,000 (31 December 2017: RMB168,659,532,000 with a net fair value loss of RMB471,132,000). The notional principal amounts of the Group’s listed options purchased or written outside Mainland China were approximately RMB20,949,114,000 with a net fair value gain of RMB79,414,000 (31 December 2017: RMB10,879,819,000 with a net fair value gain of RMB455,830,000).

F-294

362 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

43. HELD-TO-MATURITY INVESTMENTS

2017/12/31RMB’000

Debt securities listed in Hong Kong 78,718

Analysed for reporting purpose as: Current assets 78,718 Non-current assets –

78,718

As of 31 December 2017, the fair value of the held-to-maturity investments was approximately

RMB78,867,000. The related interest rates on such bonds for the year ended 31 December 2017 is

4.1% per annum.

44. OTHER RECEIVABLES AND PREPAYMENTS

2018/12/31 2017/12/31RMB’000 RMB’000

Interest receivable (Note i) – 3,703,899Dividend receivable 387 3,614Other receivables and prepayments (Note ii) 3,500,444 2,302,664

3,500,831 6,010,177Less: allowance for credit losses on other receivables (469,103) (465,907)

3,031,728 5,544,270

F-295

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 363

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

44. OTHER RECEIVABLES AND PREPAYMENTS (continued)Notes:

(i) As at 31 December 2018, the interests accrued on financial assets of the Group are included in the carrying amounts of the corresponding financial assets.

(ii) The other receivables and prepayments mainly represent short-term rental deposits placed with landlords under operating leases, other prepaid expenses for daily operation and other receivable and prepayments items such as prepaid taxes.

(iii) Included in the allowance for credit losses of the Group mainly represents a gross receivable of RMB440,894,000 from an independent third party. In the opinion of the directors of the Company, the recoverability of the receivable is remote and a full provision was made in prior year. As of 31 December 2016, accumulated amounts of RMB109,106,000 of the above receivable has been recovered. In 2017 and 2018, amounts of the above receivable were not recovered.

45. PLACEMENTS TO BANKS AND OTHER FINANCIAL INSTITUTIONS

2018/12/31 2017/12/31RMB’000 RMB’000

Overseas bank and other financial institutions 30,949 679,092Interest receivable 195 –

31,144 679,092

F-296

364 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

46. CLEARING SETTLEMENT FUNDS

2018/12/31 2017/12/31RMB’000 RMB’000

Clearing settlement funds held with clearing houses for: House accounts 1,531,888 374,870 Customer 6,114,673 7,607,859

7,646,561 7,982,729

These clearing settlement funds are held by the clearing houses for the Group and can be withdrawn

by the Group at will. These balances carry interest at prevailing market interest rates.

47. DEPOSITS WITH CENTRAL BANKS AND OTHER BANKS

2018/12/31 2017/12/31RMB’000 RMB’000

Deposits with central banks other than legal reserve 2,384,561 3,415,915Legal reserve 41,675 29,781

Total 2,426,236 3,445,696

Deposits with other banks 253,915 316,134Less: Allowance for impairment losses (7) –

Total 253,908 316,134

2,680,144 3,761,830

Deposits with central banks other than legal reserve is repayable on demand. Legal reserve deposits

are non-interesting bearing.

F-297

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 365

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

48. BORROWINGS

2018/12/31 2017/12/31RMB’000 RMB’000

Short-term borrowings: Secured borrowings (Note) 2,512,767 4,995,954 Unsecured borrowings 34,329,905 25,716,876 Interest payable 73,966 –

36,916,638 30,712,830

Long-term borrowing: Secured borrowings (Note) 23,593,384 21,657,134 Unsecured borrowings 19,565,827 8,952,026 Interest payable 127,471 –

43,286,682 30,609,160

Total 80,203,320 61,321,990

Current liabilities:

Short-term borrowings 36,842,672 30,712,830

Long-term borrowings due within one year 15,445,053 14,798,617

Interest payable 201,437 –

52,489,162 45,511,447

Non-current liabilities:

Long-term borrowings 27,714,158 15,810,543

80,203,320 61,321,990

F-298

366 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

48. BORROWINGS (continued)

2018/12/31 2017/12/31RMB’000 RMB’000

Analysis by maturity: Less than 1 year 52,489,162 45,511,447 1-2 year 13,489,297 11,021,793 2-5 year 12,692,442 4,788,750 Over 5 years 1,532,419 –

80,203,320 61,321,990

Note:

Borrowings of approximately to RMB57 million (31 December 2017: Nil) are secured by the 33th floor of No. 689 Guangdong Road, the Haitong Securities Tower.

Borrowings of approximately to RMB489 million (31 December 2017: RMB515 million) are secured by the land of 4/2, No.169, The Bund Street and the 100% shares of the Shanghai Weitai Property Management Co., Ltd. held by the Group.

Borrowings of RMB313 million (31 December 2017: RMB1,181 million) are secured by the listed shares (held by the Group as security for advances to customers in margin financing with the customers’ consent) of RMB3,528 million (31 December 2017: RMB10,826 million) at fair value and the borrowings of RMB116 million (31 December 2017: RMB519 million) are secured by debt investments of RMB297 million (31 December 2017: RMB1,194 million) held by the Group and presented in financial assets held for trading and market making activities to the consolidated statement of financial position.

Bank borrowings of RMB2,629 million (31 December 2017: RMB2,006 million) are secured by the investment fund of RMB3,430 million at fair value (31 December 2017: RMB2,599 million) which is the dealing price of that fund derived from the net asset values of that fund with reference to observable quoted price of underlying investment portfolio in active markets.

Non-current portion borrowing of RMB2,155 million (31 December 2017: RMB2,051 million) is secured by listed debt securities of approximately RMB2,102 million (31 December 2017: RMB2,032 million) at fair value.

Non-current portion of RMB5,857 million (31 December 2017: RMB2,070 million) are secured by the shares of UT Capital and Haitong Bank respectively.

Non-current portion borrowings of RMB12,932 million (31 December 2017: RMB5,981 million), current portion borrowing of RMB1,558 million (31 December 2017: RMB7,815 million) are secured by the finance leases receivable of RMB21,192 million (31 December 2017: RMB21,589 million).

F-299

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 367

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

49. SHORT-TERM FINANCING BILLS PAYABLES

2018/12/31 2017/12/31RMB’000 RMB’000

Analysed as: Inter-bank (Note i) 5,358,876 5,595,758 Other (Note ii) 21,179,092 23,831,004

26,537,968 29,426,762

Notes:

(i) On 27 March 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,250 million which carries a fixed annual interest rate of 5.00% with a maturity period of 1 year.

On 30 May 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued ultra-short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 5.32% with a maturity period of 9 months.

On 31 October 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued super short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.30% with a maturity period of 1 year.

On 22 November 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued ultra-short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 3.94% with a maturity period of 9 months.

On 18 December 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued ultra-short-term commercial paper in principal amount of RMB1,000 million which carries a fixed annual interest rate of 4.00% with a maturity period of 9 months.

(ii) Other short-term financing bills payables mainly represent the short-term income certificates issued by the Company and the subsidiary of the Group with maturities ranged from 6 days to 12 months. The coupon rate of the outstanding products were between 2.90% and 6.10% per annum.

In addition, as at 31 December 2018, the outstanding medium term notes issued by the Group’s subsidiaries are as follows:

On 17 January 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD780 million (equivalent to RMB683 million) which carries a coupon rate of Hibor +1.25% with a maturity period of 1 year.

F-300

368 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

49. SHORT-TERM FINANCING BILLS PAYABLES (continued)

Notes: (continued)

(ii) (continued)

On 6 February 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD541 million (equivalent to RMB474 million) which carries coupon rate of 2.80% with a maturity period of 1 year.

On 12 February 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD200 million (equivalent to RMB175 million) which carries a coupon rate of 2.65% with a maturity period of 1 year.

On 13 February 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD275 million (equivalent to RMB241 million) which carries a coupon rate of Hibor +1.20% with a maturity period of 1 year.

On 13 February 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD593 million (equivalent to RMB520 million) which carries a coupon rate of 5.20% with a maturity period of 1 year.

On 13 March 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD178 million (equivalent to RMB156 million) which carries a coupon rate of 5.30% with a maturity period of 1 year.

On 10 April 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD373 million (equivalent to RMB327 million) which carries a coupon rate of 5.20% with a maturity period of 1 year.

On 10 April 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD450 million (equivalent to RMB394 million) which carries a coupon rate of 2.70% with a maturity period of 1 year.

On 10 April 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD354 million (equivalent to RMB310 million) which carries a coupon rate of 2.00% with a maturity period of 1 year.

On 11 April 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of USD30 million (equivalent to RMB206 million) which carries a coupon rate of 3.50% with a maturity period of 1 year.

On 2 May 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD335 million (equivalent to RMB294 million) which carries a coupon rate of 2.10% with a maturity period of 1 year.

F-301

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 369

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

49. SHORT-TERM FINANCING BILLS PAYABLES (continued)

Notes: (continued)

(ii) (continued)

On 23 May 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD1,293 million (equivalent to RMB1,132 million) which carries coupon rate of 5.20% with a maturity period of 1 year.

On 23 May 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD1,500 million (equivalent to RMB1,314 million) which carries a coupon rate of 0% with a maturity period of 1 year.

On 10 July 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD230 million (equivalent to RMB202 million) which carries a coupon rate of Hibor +1.35% with a maturity period of 1 year.

On 19 July 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD391 million (equivalent to RMB343 million) which carries a coupon rate of 3.5% with a maturity period of 9 months.

On 27 July 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD205 million (equivalent to RMB180 million) which carries a coupon rate of Hibor +1.32% with a maturity period of 1 year.

On 2 August 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD782 million (equivalent to RMB685 million) which carries a coupon rate of 3.5% with a maturity period of 9 months.

On 10 August 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD797 million (equivalent to RMB698 million) which carries a coupon rate of 3.0% with a maturity period of 1 year.

On 14 August 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD199 million (equivalent to RMB174 million) which carries a coupon rate of 3.0% with a maturity period of 1 year.

On 20 August 2018, the Group’s subsidiary HISGL issued medium term notes in principal amount of HKD939 million (equivalent to RMB823 million) which carries a coupon rate of 3.5% with a maturity period of 9 months.

On 13 August 2018, the Group’s wholly owned subsidiary Unican Limited issued medium term notes in principal amount of USD60 million (equivalent to RMB412 million) which carries a fixed annual interest of 4.30% with a maturity period of 1 year.

F-302

370 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE

2018/12/31 2017/12/31RMB’000 RMB’000

Convertible bonds (Note i) 3,451,821 3,231,864Non-convertible bonds (Note ii) 90,403,444 73,616,916Subordinated notes (Note iii) 13,451,167 31,844,619Asset backed securities (Note iv) 21,712,467 7,470,071Others (Note v) 11,127,958 13,994,799

140,146,857 130,158,269

Analysed for reporting purpose as: Current liabilities 41,923,410 14,739,105 Non-current liabilities 98,223,447 115,419,164

140,146,857 130,158,269

Notes:

(i) The Group’s subsidiary HISGL has issued convertible bonds in principal amount of HKD1,008 million (equivalent to RMB883 million), HKD1,164 million (equivalent to RMB1,020 million) and HKD3,880 million (equivalent to RMB3,400 million) in 2013, 2014 and 2016 respectively and these convertible bonds bear interest at a fixed rate with a maturity period of 5 years.

The values of the liability component and the equity conversion component were determined at the issuance of the bonds. Please refer to HISGL announcements on 18 July 2013, 10 October 2013, 4 November 2014, 12 October 2016 and 25 October 2016 for details of the bonds.

As at 31 December 2018, the conversion prices of convertible bonds issued by HISGL in 2014 and 2016 are HKD4.32 equivalent to RMB3.79 per share (31 December 2017: HKD4.61 equivalent to RMB3.85 per share) and HKD6.09 equivalent to RMB5.34 per share (31 December 2017: HKD6.53 equivalent to RMB3.79 per share) respectively. As at 31 December 2017, the conversion prices of convertible bond issued by the Company in 2013 was HKD2.76 equivalent to RMB2.42 per share.

During the current year, convertible bonds issued by HISGL in 2013 with the principal amount of HKD2 million (equivalent to RMB1.75 million) were converted into ordinary shares of the Company and accordingly all convertible bonds issued in 2013 were converted as at 31 December 2018. The bond has then been cancelled and there are no longer any outstanding units. No convertible bonds issued by the Company in 2014 and 2016 were converted during the current year and the prior year.

During the prior year, no convertible bonds issued by the Company in 2013, 2014 and 2016 were converted into ordinary shares of the Company.

As at 31 December 2018, the number of outstanding shares convertible under the convertible bonds issued in 2014 and 2016 are 31,712,962 (31 December 2017: 29,718,004) and 637,110,016 (31 December 2017: 594,180,704) respectively. As at 31 December 2017, the number of outstanding shares convertible under the convertible bond issued in 2013 were 724,638.

F-303

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 371

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(ii) On 25 November 2013, the Company issued non-convertible bonds with a principal amount of RMB12,000 million at par. Those bonds carry fixed interest rate with maturity terms of three years, five years and ten years, respectively. The principle amounts are RMB7,260 million (due for payment), RMB2,350 million and RMB2,390 million and bear interest rate at 6.05%, 6.15% and 6.18% per annum, respectively. The bonds with maturity terms of three years and five years have been repaid.

On 14 July 2014, the Company issued non-convertible bonds with a principal amount of RMB11,000 million at par. Those bonds carry fixed interest rate with maturity terms of three years, five years and ten years, respectively. The principal amounts are RMB5,650 million, RMB4,550 million and RMB800 million and bear interest rate at 5.25% per annum, 5.45% per annum and 5.85% per annum, respectively. The bonds with maturity terms of three years have been repaid.

On 18 May 2016, the Company issued non-convertible bonds with a principal amount of RMB20,000 million at par. Those bonds carry fixed interest rate with maturity terms of four years and five years, respectively. The principal amounts are RMB15,000 million and RMB5,000 million and bear interest rate at 3.6% and 3.8% per annum, respectively. The Company has an option to redeem all or some of the four-year bonds in the end of the third year.

On 11 August 2017, the Company issued non-convertible bonds with a principal amount of RMB6,000 million at par. Those bonds carry fixed interest rate with maturity terms of three years and five years respectively. The principle amounts are RMB5,000 million and RMB1,000 million and bear interest rate at 4.63% and 4.80% per annum respectively.

On 22 September 2017, the Company issued non-convertible bonds with a principal amount of RMB5,500 million at par which carries a fixed annual interest rate of 4.99% with a maturity period of 10 years.

On 25 October 2017, the Company issued non-convertible bonds with a principal amount of RMB500 million at par which carries a fixed annual interest rate of 4.77% with a maturity period of 3 years.

On 8 March 2018, the Company issued non-convertible bonds with a principal amount of RMB3,000 million at par. Those bonds carry fixed interest rate at 5.15% per annum with maturity terms of three years.

On 22 March 2018, the Company issued non-convertible bonds with a principal amount of RMB3,000 million at par. Those bonds carry fixed interest rate at 5.14% per annum with maturity terms of three years.

On 10 May 2018, the Company issued non-convertible bonds with a principal amount of RMB3,000 million at par. Those bonds carry fixed interest rate at 4.7% per annum with maturity terms of three years.

On 6 August 2018, the Company issued non-convertible bonds with a principal amount of RMB3,000 million at par. Those bonds carry fixed interest rate at 3.98% per annum with maturity terms of three years.

On 22 November 2018, the Company issued non-convertible bonds with a principal amount of RMB3,000 million at par. Those bonds carry fixed interest rate at 3.88% per annum with maturity terms of three years.

F-304

372 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(ii) (continued)

On 13 December 2018, the Company issued non-convertible bonds with a principal amount of USD300 million (equivalent to RMB2,059 million) at par. Those bonds carry fixed interest rate at 4.5% per annum with maturity terms of 5 years.

On 13 December 2018, the Company issued non-convertible bonds with a principal amount of EUR230 million (equivalent to RMB1,805 million) at par. Those bonds carry floating interest rate with maturity terms of 5 years.

On 3 December 2015, Haitong Capital Investment Co., Ltd. (海通開元投資有限公司, a subsidiary of the Company) issued unguaranteed bonds with a principal amount of RMB2,000 million. Among which, notes amounting to RMB1,400 million carries a fixed interest rate of 4.25% per annum with a maturity period of five years and notes amounting to RMB600 million carries a fixed interest rate of 3.9% per annum with a maturity period of three years.

On 11 September 2014, the Group’s wholly owned subsidiary Haitong International Finance 2014 Limited issued listed guaranteed bonds in principal amount of USD600 million (equivalent to RMB4,118 million) which is guaranteed by HISGL.

On 29 January 2015, the Group’s wholly owned subsidiary Haitong International Finance 2015 Limited issued guaranteed bonds with a principal amount of USD700 million (equivalent to RMB4,804 million) which is guaranteed by HISGL.

On 21 April 2015, the Group’s wholly owned subsidiary Haitong International Finance Holdings 2015 Limited issued guaranteed bonds with a principal amount of USD670 million (equivalent to RMB4,598 million) which is guaranteed by the Company and the bond is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed interest rate of 3.5% per annum with a maturity period of 5 years. The bond is jointly and severally guaranteed by the Company.

On 18 and 26 May 2016, the Group’s wholly owned subsidiary Haitong International Finance Holdings 2015 Limited issued guaranteed bonds in principal amount of EUR220 million (equivalent to RMB1,726 million). The bond carries a fixed annual interest rate of 1.6% with a maturity period of 5 years. The bond is guaranteed by the Company.

On 19 January 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note with a principal amount of RMB400 million which carries a fixed annual interest rate of 3.6% per annum with a maturity period of 3 years.

On 3 June 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note with a principal amount of RMB600 million which carries a fixed annual interest rate of 4.07% per annum with a maturity period of 5 years. The issuer has an option to adjust the interest rate and the investors have an option to sale the notes back to the issuer at the end of the third year.

F-305

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 373

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(ii) (continued)

On 15 July 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note with a principal amount of RMB600 million which carries a fixed annual interest rate of 3.7% per annum with a maturity period of 5 years. The issuer has an option to adjust the interest rate and the investors have an option to sale the notes back to the issuer at the end of the third year.

On 20 March 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note with a principal amount of RMB1,000 million which carries a fixed annual interest rate of 5.77% per annum with a maturity period of 3 years.

On 27 April 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued medium term note with a principal amount of RMB800 million which carries a fixed annual interest rate of 5.23% per annum with a maturity period of 3 years.

On 21 September 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds at par with principal amount of RMB800 million, coupon rate of 5.05% and a maturity period of 3 years.

On 26 October 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds at par with principal amount of RMB400 million, coupon rate of 4.85% and a maturity period of 3 years.

On 28 September 2016, the Group’s wholly owned subsidiary Unican Limited issued medium term note in principal amount of USD64 million (equivalent to RMB439 million)and a maturity period of 29 months. Note amounting to USD24 million (equivalent to RMB165 million) carries a fixed annual interest rate of 2.90%, and note amounting to USD40 million (equivalent to RMB275 million) carries a fixed interest rate of 3.00% per annum.

On 21 June 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds with a principal amount of RMB1,500 million, which is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed interest rate of 4.95% per annum with a maturity period of 3 years. The par value will be fully redeemed till maturity date.

On 21 July 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued corporate bonds with a principal amount of RMB1,000 million, which is listed on the Hong Kong Exchanges and Clearing Limited. The bond carries a fixed interest rate of 4.7% per annum with a maturity period of 3 years. The par value will be fully redeemed till maturity date.

On 9 November 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB800 million at par which carries a fixed annual interest rate of 5.80% with a maturity period of 3 years.

On 7 February 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB600 million at par which carries a fixed annual interest rate of 6.35% with a maturity period of 3 years.

F-306

374 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(ii) (continued)

On 13 June 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB500 million at par which carries a fixed annual interest rate of 6.50% with a maturity period of 3 years.

On 30 November 2018, t the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB800 million at par which carries a fixed annual interest rate of 5.20% with a maturity period of 3 years.

On 12 December 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued private placement note in principal amount of RMB600 million at par which carries a fixed annual interest rate of 5.13% with a maturity period of 2 years.

On 16 May 2016, the Group’s subsidiary HISGL issued a medium term note with a principal amount of RMB194 million at par which carries a coupon rate of 5.28% per annum with a maturity period of 3 years. As at 31 December 2018, the outstanding loan balance of the medium term note is RMB193 million.

On 13 June 2016, the Group’s subsidiary HISGL issued a medium term note with a principal amount of RMB200 million at par which carries a coupon rate of 5.00% with a maturity period of 3 years. As at 31 December 2018, the outstanding loan balance of the medium term note is RMB199 million.

During 2009 to 2018, the Group’s wholly owned subsidiaries Haitong Bank issued a series of debt securities. The balance as at 31 December 2018 was EUR267 million (equivalent to RMB2,095 million) with maturity up to 2 years.

(iii) On 17 November 2016, the Company issued two series of subordinated notes with a total principal amount of RMB6,000 million at par. Among which, notes amounting to RMB4,000 million carries a fixed interest rate of 3.30% per annum with a maturity period of three years and notes amounting to RMB2,000 million carries a fixed interest rate of 3.40% per annum with a maturity period of five years.

On 16 March 2017, the Company issued private placement subordinated note with a principal amount of RMB4,500 million at par which carries a fixed interest rate of 4.80% per annum with a maturity period of 3 years.

On 9 November 2015, Shanghai Haitong Securities Asset Management Company Limited, the subsidiary of the Group issued subordinated note in principal amount of RMB1,000 million at par which carries a fixed annual interest rate of 5.50% with a maturity period of 5 years.

On 4 April 2018, Shanghai Haitong Securities Asset Management Company Limited, the subsidiary of the Group issued subordinated note with a principal amount of RMB1,000 million at par which carries a fixed interest rate of 6.05% per annum with a maturity period of 5 years.

On 31 October 2018, Shanghai Haitong Securities Asset Management Company Limited, the subsidiary of the Group issued subordinated note with a principal amount of RMB1,000 million at par which carries a fixed interest rate of 5.34% per annum with a maturity period of 5 years.

F-307

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 375

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(iv) On 17 November 2017, the Company issued asset-backed security with a principal amount of RMB2,000 million at par which carries a fixed interest rate of 5.20% per annum with a maturity period of 1.5 years. The assets transferred were advances to customers on margin financing. As at 31 December 2018, subordinated asset-backed security of RMB100 million were held by the Company.

On 16 January 2018, the Company issued asset-backed security with a principal amount of RMB5,000 million at par which carries a fixed interest rate of 5.65% per annum with a maturity period of 1.5 years. The assets transferred were advances to customers on margin financing. As at 31 December 2018, subordinated asset-backed security of RMB250 million were held by the Company.

On 19 January 2018, the Company issued asset-backed securities with a principal amount of RMB3,000 million at par which carries a fixed interest rate of 5.60% per annum with a maturity period of 1.5 years. The assets transferred were advances to customers on margin financing. As at 31 December 2018, subordinated asset-backed security of RMB150 million were held by the Company.

On 11 September 2018, the Company issued asset-backed securities with a principal amount of RMB500 million at par which carries a fixed interest rate of 4.55% per annum with a maturity period of 2 years. The assets transferred were advances to customers on margin financing. As at 31 December 2018, subordinated asset-backed security of RMB25 million were held by the Company

On 7 May 2015, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,362 million, coupon rate of 5.60%-6.55% and a maturity period of 51 months, and the principal amount is repaid by installment; junior tranche with principal amount of RMB14 million and a maturity period of 51 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 22 April 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,140 million, coupon rate of 4.50% and a maturity period of 35 months; junior tranche with principal amount of RMB60 million and a maturity period of 35 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 15 November 2016, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,425 million, coupon rate of 3.72% and a maturity period of 36 months; junior tranche with principal amount of RMB75 million and a maturity period of 36 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

F-308

376 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(iv) (continued)

On 4 August 2017, Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,568 million, coupon rate of 5.40% and a maturity period of 35 months; junior tranche with principal amount of RMB83 million and a maturity period of 35 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 22 November 2017, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed notes with two tranches: senior tranche with principal amount of RMB1,360 million; junior tranche with principal amount of RMB70 million. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 17 January 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,070 million, coupon rate of 5.90%, 6.09% and 6.20%; and a maturity period of 32 months; junior tranche with principal amount of RMB45 million and a maturity period of 50 months. Haitong Unitrust Finance & Leasing Corporation holds senior tranche asset-backed securities with amount of RMB270 million and all junior tranche asset-backed securities.

On 27 April 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB960 million, coupon rate of 5.10%, 5.40% and 6.10%; and a maturity period of 33 months; junior tranche with principal amount of RMB44 million and a maturity period of 33 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 15 June 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,425 million, coupon rate of 5.49%, 4.70% and 5.84%, and a maturity period of 32 months; junior tranche with principal amount of RMB75 million and a maturity period of 32 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 31 July 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed notes with two tranches: senior tranche with principal amount of RMB950 million; junior tranche with principal amount of RMB50 million. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

F-309

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 377

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

50. BONDS PAYABLE (continued)Notes: (continued)

(iv) (continued)

On 21 August 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB980 million, coupon rate of 4.50%, 4.85% and 5.83%, and a maturity period of 30 months; junior tranche with principal amount of RMB70 million and a maturity period of 33 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 20 September 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB950 million, coupon rate of 5.00%, and a maturity period of 14 months; junior tranche with principal amount of RMB50 million and a maturity period of 23 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 23 November 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB1,370 million, coupon rate of 4.66%, 4.73% and 5.80%, and a maturity period of 31 months; junior tranche with principal amount of RMB75 million and a maturity period of 37 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 26 December 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed notes with two tranches: senior tranche with principal amount of RMB950 million; junior tranche with principal amount of RMB50 million. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

On 27 December 2018, the Group’s wholly owned subsidiary Haitong Unitrust Finance & Leasing Corporation issued asset-backed securities with two tranches: senior tranche with principal amount of RMB950 million, coupon rate of 5.00%, and 5.50%, and a maturity period of 17 months; junior tranche with principal amount of RMB50 million and a maturity period of 36 months. Haitong Unitrust Finance & Leasing Corporation holds all junior tranche asset-backed securities.

(v) According to SAC’s letter on approving the pilot of OTC income certificate business (SAC [2014]285), the Group was authorized to conduct income certificate business. The long-term income certificates issued by the company with maturities ranging from 13 months to 24 months. The coupon rate of the outstanding products were between 2.90% and 6.00% per annum. Those products which will be settled within one year from period end are classified as the current portion of bonds payable.

F-310

378 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

51. ACCOUNTS PAYABLE TO BROKERAGE CLIENTS

2018/12/31 2017/12/31RMB’000 RMB’000

Accounts payable to brokerage clients 71,888,833 83,774,388 Interest payable 4,702 –

71,893,535 83,774,388

The majority of the accounts payable balance is repayable on demand except where certain accounts

payable to brokerage clients represent margin deposits received from clients for their trading activities

under normal course of business. Only the excess amounts over the required margin deposits stipulated

are repayable on demand.

No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis

does not give additional value in view of the nature of these businesses.

Accounts payable mainly include money held on behalf of clients at the banks and at the clearing

houses by the Group.

As at 31 December 2018, included in the Group’s accounts payable to brokerage clients were

approximately RMB3,934,801,000 (31 December 2017: RMB5,383,646,000) cash collateral received

from clients for securities lending and margin financing arrangement.

Accounts payable to brokerage clients is interest bearing at the prevailing interest rate.

F-311

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 379

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

52. CUSTOMER ACCOUNTS

2018/12/31 2017/12/31RMB’000 RMB’000

Demand deposits – corporate 87,619 473,690Time deposits – corporate 1,244,835 2,425,291Demand deposits – individual 1,502 1,885Time deposits – individual 776,283 849,755Interest payable 50,087 –

2,160,326 3,750,621

Analysed for reporting purpose as: Current liabilities 2,160,326 3,750,621

2,160,326 3,750,621

53. CONTRACT LIABILITY

2018/12/31RMB’000

Asset and fund management services 3,770Sales of bulk commodity 280,235

284,005

According to Note 2.1.1, the advances received amount ot RMB209,625,000 should be reclassified as

contract liabilities on 1 January 2018, which is fully realized during the year.

F-312

380 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

54. OTHER PAYABLES AND ACCRUALS

2018/12/31 2017/12/31RMB’000 RMB’000

Payable to employees (Note i) 4,588,200 4,890,342Other tax payable 537,677 412,433Dividends payable 47,052 19,198Risk reserve 390,878 313,969Client settlement payables 2,247,856 3,961,916Pending payable to clearing house 326,484 746,067Commission and fee payables 32,832 32,111Finance lease guarantee deposits 2,043,319 1,118,493Deferred revenue – 80,067Interest payables (Note ii) – 3,376,692Amounts due to brokers 1,010,567 496,369Notes payable 755,726 156,223Others (Note iii) 2,671,509 3,070,954

14,652,100 18,674,834

Analysed for reporting purpose as: Current liabilities 13,455,014 17,457,987 Non-current liabilities (Note i) 1,197,086 1,216,847

14,652,100 18,674,834

Notes:

(i) The Group set up a detailed plan for the payment of employees’ bonuses accrued. According to the plan, a balance of RMB320,319,000 is expected to be settled after 31 December 2018 and therefore classified as non-current liabilities.

(ii) As at 31 December 2018, the interests accrued on financial liabilities of the Group are included in the carry amounts of the corresponding financial liabilities.

(iii) Others mainly represent received in advance of the Group which are non-interest bearing and are settled within one year.

F-313

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 381

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

55. PROVISIONS

2018/12/31 2017/12/31RMB’000 RMB’000

Contingencies (Note i) 130,763 167,343ECL impairment for loan commitments 14,344 –

145,107 167,343

Note:

(i) These provisions are intended to cover certain contingencies related to the Group’s activities, including contingencies related to ongoing tax processes, ongoing litigation related to legal dispute with staff.

56. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

2018/12/31 2017/12/31RMB’000 RMB’000

Financial liabilities held for trading 4,804,747 7,739,121Liabilities arising from consolidation of structured entities 3,585,089 1,342,318

Designated as financial liabilities at fair value through

profit or loss (FVTPL) – Structured products (Note i) 12,350,482 10,260,931 – Gold lending (Note ii) – 327,600 – Gold option (Note iii) 5,460,636 1,073,529

26,200,954 20,743,499

Analysed for reporting purpose as: Current liabilities 23,862,827 20,031,099 Non-current liabilities 2,338,127 712,400

26,200,954 20,743,499

Notes:

(i) As at 31 December 2018 and 31 December 2017, included in the Group’s financial liabilities designated at fair value through profit or loss are structured notes issued by subsidiaries of the Group which arise from selling structured products generally in the form of notes or certificates with the underlying investments related to listed equity investments in active markets, unlisted debt instruments, unlisted investment, fund and unlisted equity or partnership investments.

The risk of economic exposure on these structured products is primarily hedged using financial assets as fair value through profit or loss as detailed in Note 31(ii). These structured products are designated as fair value through profit or loss as the risks to which the Group is a contractual party are managed on a fair value basis as part of the Group’s trading portfolio and the risk is reported to key management personnel on this basis.

F-314

382 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

56. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)Notes: (continued)

(ii) As at 31 December 2018, included in the Group’s financial liabilities designated at fair value through profit or loss are gold lending contracts with counterparties.

The risk of economic exposure on these contracts is primarily hedged using forward contracts.

(iii) The Group entered into a number of option contracts in relation to fair value of gold bullions. These contracts as a combinations intend to enable the Group to pay a fixed flow despite the volatilities of fair value of gold bullions. These contracts were designated at fair value through profit or loss.

57. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

2018/12/31 2017/12/31RMB’000 RMB’000

Analysed by collateral type: Stock 1,866,306 1,504,889 Bonds 51,973,509 17,264,988 Loans and advances to customers on margin financing 500,000 9,900,000 Other 1,920,355 4,375,850 Interest payable 112,733 –

56,372,903 33,045,727

Analysed by market: Stock exchanges 7,288,481 3,732,338 Inter-bank market 44,685,028 13,532,650 OTC 4,286,661 15,780,739 Interest payable 112,733 –

56,372,903 33,045,727

Analysed for reporting purpose as: Current liabilities 56,372,903 32,645,727 Non-current liabilities – 400,000

56,372,903 33,045,727

F-315

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 383

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

57. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS (continued)

Sales and repurchase agreements are transactions in which the Group sells a security and simultaneously

agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date. Since

the repurchase prices are fixed, the Group is still exposed to substantially all the credit risks and market

risks and rewards of those securities sold. These securities are not derecognised from the financial

statements but regarded as “collateral” for the liabilities because the Group retains substantially all

the risks and rewards of these securities. In addition, it recognises a financial liability.

The following tables provide a summary of carrying amounts and fair values related to transferred

financial assets of the Group that are not derecognised in their entirety and the associated liabilities:

As at 31 December 2018

Financial assets at fair

value through profit or loss

Debt instruments at fair value

through other comprehensive

income

Advances tocustomerson marginfinancing

Financial assets held

under resaleagreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 49,794,272 2,837,179 536,109 768,726 10,792,131 64,728,417Carrying amount of associated liabilities 42,647,263 2,717,641 500,636 669,589 9,837,774 56,372,903

Net position 7,147,009 119,538 35,473 99,137 954,357 8,355,514

As at 31 December 2017

Financial

assets at fair

value through

profit or loss

Available-

for-sale

investments

Advances to

customers

on margin

financing

Financial

assets held

under resale

agreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 21,981,730 2,446,013 10,414,800 782,529 7,975,151 43,600,223

Carrying amount of associated liabilities 14,719,892 1,693,275 9,900,000 760,161 5,972,399 33,045,727

Net position 7,261,838 752,738 514,800 22,368 2,002,752 10,554,496

F-316

384 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

58. PLACEMENTS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

2018/12/31 2017/12/31RMB’000 RMB’000

Placements from banks 13,721,519 6,811,639Placements from China Securities Finance Corporation Ltd. 1,000,000 5,000,000

Interest Payable 2,577 –

14,724,096 11,811,639

Analysed for reporting purpose as: Current liabilities 8,482,577 5,450,000 Non-current liabilities 6,241,519 6,361,639

14,724,096 11,811,639

59. DEPOSITS FROM OTHER BANKS

2018/12/31 2017/12/31RMB’000 RMB’000

Deposits from other banks 19,950 293,733

60. SHARE CAPITAL

Listed A shares Listed H shares Total

Number of shares Amount

Number of shares Amount

Number of shares Amount

’000 RMB’000 ’000 RMB’000 ’000 RMB’000

Registered, issued and fully paid at

RMB1.0 per share:

At 31 December 2017,

At 1 January 2018, and

At 31 December 2018 8,092,131 8,092,131 3,409,569 3,409,569 11,501,700 11,501,700

F-317

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 385

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

61. FVTOCI RESERVE

2018/12/31RMB’000

As at 31 December 2017 2,071,805Effect arising from adoption of IFRS 9 (712,043)

As at 1 January 2018. 1,359,762Debt instrument measured at fair value through other comprehensive income 21,921Equity instrument measured at fair value through other comprehensive income Net fair value changes during the period (2,039,573) Income tax impact 509,893Share of revaluation loss of associates and joint ventures (231,985)Actuarial gains on defined benefit obligations (20,166)

As at 31 December 2018 (400,148)

62. RESERVES AND RETAINED PROFITS

The amounts of the Group’s reserves and the movements therein during the year are presented in the

consolidated statement of changes in equity.

(a) Capital reserve

Capital reserve mainly includes share premium arising from the issuance of new shares at prices

in excess of par value.

(b) FVTOCI reserve

FVTOCI reserve represents the debt instruments measured at fair value through other

comprehensive income and equity instruments measured at fair value through other

comprehensive income.

F-318

386 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

62. RESERVES AND RETAINED PROFITS (continued)

(c) General reserves

The general reserves comprise statutory reserve, general risk reserve and transaction risk reserve.

Pursuant to the Company Law of The PRC, 10% of the net profit of the Company, as determined

under the PRC accounting regulations and before distribution to shareholders, is required to be

transferred to a statutory reserve until such time when this reserve represents 50% of the share

capital of the Company. The reserve appropriated can be used for loss-covering, expansion of

production scale and capitalisation, in accordance with the Company’s articles of association or

approved by the shareholders in a shareholders’ general meeting.

In accordance with the Financial Rules for Financial Enterprises, the Company is required to

appropriate 10% of net profit derived in accordance with the relevant accounting rules in the

PRC before distribution to shareholders as general risk reserve from retained profits.

Pursuant to the Securities Law of The PRC, the Company is required to appropriate 10% of the

net profit derived in accordance with the relevant accounting rules in the PRC before distribution

to shareholders as transaction risk reserve from retained profits and cannot be distributed or

transferred to share capital.

For the years ended 31 December 2018, the Company transferred approximately RMB1,670,379,000

to the statutory reserve, general risk reserve and transaction risk reserve pursuant to the above

regulatory requirements in the PRC (31 December 2017: RMB1,856,269,000).

Each of the Company’s statutory reserve, general risk reserve and transaction risk reserve

amounted to approximately RMB6,261,218,000 as at 31 December 2018 (31 December 2017:

RMB5,703,913,000).

The Company’s PRC subsidiaries are also subject to the statutory requirements to appropriate

their earnings to general reserves. The total amount of general reserves appropriated from the

subsidiaries as at 31 December 2018 is RMB1,035,689,000 (31 December 2017: RMB859,985,000).

(d) Distributable profits

In accordance with the relevant regulations, the distributable profits of the Company is deemed

to be the lower of (i) the retained profits determined in accordance with PRC GAAP and (ii) the

retained profits determined in accordance with IFRSs.

F-319

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 387

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

63. LONG-TERM PAYABLES

2018/12/31 2017/12/31RMB’000 RMB’000

Finance lease guarantee deposits 5,667,627 3,779,786Deferred revenue 497,799 383,359Others 499,509 650,554

6,664,935 4,813,699

Long-term payables are mainly due to the guaranteed fund received by the Group through finance

lease business. All amounts will expire beyond one year upon contract agreement and are classified as

non-current liabilities.

64. CREDIT COMMITMENT

As at 31 December 2018 and 2017, this balance can be analysed as follows:

2018/12/31 2017/12/31RMB’000 RMB’000

Contingent liabilities Guarantees and standby letters of credit 1,172,904 1,360,846

1,172,904 1,360,846

Commitments Irrevocable credit commitments 129,183 108,756

129,183 108,756

Guarantees and standby letters of credits are banking operations that may imply out-flow by the Group

only at default condition.

F-320

388 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

64. CREDIT COMMITMENT (continued)

Irrevocable commitments represent contractual agreements to extend credit to the Haitong Bank’s

customers (e.g. unused credit lines). These agreements are, generally, contracted for fixed periods of

time or with other expiration requisites, and usually require the payment of a commission. Substantially,

all credit commitments require that clients maintain certain conditions verified at the time when the

credit was granted.

Notwithstanding the particular characteristics of these guarantees and commitments, the analysis of

these operations follows the same basic principles of any other commercial operation, namely the

solvency of the underlying client and business, being that the Haitong Bank requires these operations

to be adequately covered by collaterals when needed.

Once as expected, the majority of these will expire without being used, the referred amounts are not

representative of the future cash-flows needs.

65. OPERATING LEASE ARRANGEMENTS

The Group as lessee

Leases for the properties are negotiated for an average term of three years and rentals are fixed for

an average term of three years.

At 31 December 2018 and 31 December 2017, the Group had total future minimum lease payments

under non-cancellable operating leases in respect of rented premises falling due as follows:

2018/12/31 2017/12/31RMB’000 RMB’000

Within one year 454,084 341,560In the second to fifth year, inclusive 519,321 452,982Over five years 34,755 31,703

1,008,160 826,245

F-321

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 389

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

65. OPERATING LEASE ARRANGEMENTS (continued)

The Group as lessor

At the end of the reporting period, the Group had contracted with tenants for the following future

minimum lease payments:

2018/12/31 2017/12/31RMB’000 RMB’000

Within one year 430,199 165,688In the second to fifth year, inclusive 1,626,758 592,912Over five years 1,073,703 344,599

3,130,660 1,103,199

66. CAPITAL COMMITMENT

2018/12/31 2017/12/31RMB’000 RMB’000

Capital expenditure in respect of acquisition of property and equipment: – Contracted but not provided 2,045,388 90,390

2,045,388 90,390

67. DIVIDENDS

2018 2017RMB’000 RMB’000

Dividends recognised as distribution 2,645,391 2,530,374

Pursuant to the resolution of annual general meeting 2018 and 2017, the Company declared 2017 and

2016 final dividend of RMB0.23 (taxes inclusive) and RMB0.22 (taxes inclusive) per share respectively,

satisfied by cash. The proposed dividend of 2018, is detailed in Note 77.

F-322

390 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

68. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS

The emoluments of the Directors, Senior Management and Supervisors of the Company paid/payable

by the Group for the year ended 31 December 2018 and 2017 are set out below:

For the year ended 31 December 2018

NameDirector

feeSalary and

commission Bonuses(a)

Employer’s contribution

to pension schemes annuity

plans Total(b)

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors:Zhou Jie1 – 456 825 – 1,281Qu Qiuping2 – 920 791 – 1,711

Independent Non-executive Directors and Supervisors:Liu Zhimin3 300 – – – 300Xiao Suining4 310 – – – 310Feng Lun5 200 – – – 200Zhang Ming6 300 – – – 300Lin Jiali10 220 – – – 220Wu Hongwei11 – 411 374 – 785Wang Meijuan8 – 986 1,656 – 2,642Hu Hairong9 – 973 1,656 – 2,629Song Shihao7 – 861 1,205 – 2,066Rui Zhengxian12 – 576 1,104 – 1,680Yu Liping13 – – – – –Chen Bin15 – – – – –Xu Jianguo17 – – – – –Shen Tiedong14 – – – – –Zhang Xinmei16 – – – – –Li Lin18 – – – – –Zheng Xiaoyun19 – – – – –Cheng Feng20 – – – – –Chen Huifeng21 – – – – –Feng Huang22 – – – – –Song Chunfeng23 – – – – –Wu Yuezhou24 – – – – –

1,330 5,183 7,611 – 14,124

F-323

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 391

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

68. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (continued)

For the year ended 31 December 2017

Name Director feeSalary and

commission Bonuses*

Employer’s contribution

to pension schemes annuity

plans Total^

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive Directors:Zhou Jie1 – 368 345 220 933Qu Qiuping2 – 920 506 220 1,646

Independent Non-executive Directors and Supervisors:Liu Zhimin3 300 – – – 300Xiao Suining4 310 – – – 310Feng Lun5 210 – – – 210Zhang Ming6 280 – – – 280Lin Jiali10 60 – – – 60Wang Hongxiang25 136 – – – 136Li Guangrong26 150 – – – 150Wu Hongwei11 – 55 42 33 130Wang Meijuan8 – 951 1,841 352 3,144Hu Hairong9 – 940 1,841 352 3,133Song Shihao7 – 822 1,249 352 2,423Rui Zhengxian12 – 36 66 29 131Yang Qingzhong27 – 331 704 194 1,229Qiu Xiaping28 – – – – –Yu Liping13 – – – – –Chen Bin15 – – – – –Xu Jianguo17 – – – – –Shen Tiedong14 – – – – –Zhang Xinmei16 – – – – –Shou Weiguang29 – – – – –Li Lin18 – – – – –Zheng Xiaoyun19 – – – – –Cheng Feng20 – – – – –Chen Huifeng21 – – – – –Feng Huang22 – – – – –Song Chunfeng23 – – – – –Wu Yuezhou24 – – – – –

1,446 4,423 6,594 1,752 14,215

F-324

392 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

68. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (continued)(a) The bonuses are discretionary and are determined by reference to the Group’s and the individuals’

performance.

(b) The Company did not operate any share option scheme during the reporting periods. Details of the subsidiary’s share option scheme are disclosed in note 70.

1 Mr. Zhou Jie was appointed as Chairman, and Executive Director in October 2016.

2 Mr. Qu Qiuping was appointed as the General Manager and Executive Director of the Company in June 2014. Mr. Qu Qiuping whose emoluments disclosed above include those for service rendered by them as the Executive Officer.

3 Mr. Liu Zhimin was appointed as the Independent Non-executive Director of the Company in November, 2011.,

4 Mr. Xiao Suining was appointed as the Independent Non-executive Director of the Company in May, 2013.

5 Mr. Feng Lun was appointed as the Independent Non-executive Director of the Company in December, 2014.

6 Mr. Zhang Ming was appointed as the Independent Non-executive Director of the Company in June,2016.

7 Mr. Song Shihao was appointed as the Supervisor of the Company in July, 2015.

8 Mrs. Wang Meijuan was appointed as the Supervisor of the Company in December, 2014.

9 Mrs. Hu hairong was appointed as the Supervisor of the Company in December, 2014.

10 Mr. Lin Jiali was appointed as the Independent Director of the Company in April, 2017.

11 Mr. Wu Hongwei was appointed as the Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2017.

12 Mr. Rui Zhengxian was appointed as the Supervisor of the Company in December, 2017.

13 Mrs. Yu Liping was appointed as the Non-executive Director of the Company in June, 2015.

14 Mr. Shen Tiedong was appointed as the Non-executive Director of the Company in June, 2015.

15 Mr. Chen Bin was appointed as the Non-executive Director of the Company in June, 2015.

16 Mrs. Zhang Xinmei was appointed as the Non-executive Director of the Company in June, 2015.

17 Mr. Xu Jianguo was appointed as the Non-executive Director of the Company in October, 2016.

18 Mr. Li Lin was appointed as the Supervisor of the Company in May, 2013.

19 Mrs. Zheng Xiaoyun was appointed as the Supervisor of the Company in September, 2015.

20 Mr. Cheng Feng was appointed as the Supervisor of the Company in December, 2014.

F-325

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 393

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

68. DIRECTORS’ AND SUPERVISORS’ EMOLUMENTS (continued)21 Mr. Chen Huifeng was appointed as the Supervisor of the Company in December, 2014.

22 Mr. Feng Huang was appointed as the Supervisor of the Company in December, 2014.

23 Mr. Song Chunfeng was appointed as the Supervisor of the Company in July, 2016.

24 Mr. Wu Yuezhou was appointed as the Non-executive Director of the Company in August, 2017.

25 Mr. Wang Hongxiang was appointed as the Non-executive Director of the Company in May, 2011, Mr. Wang Hongxiang resigned from the position of Non-executive Director of the Company in May, 2017.

26 Mr. Li Guangrong was appointed as the Independent Non-executive Director of the Company in December, 2014,. Mr. Li Guangrong resigned from the position of Independent Non-executive Director of the Company in April, 2017.

27 Mr. Yang Qingzhong was appointed as the Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2014. Mr. Yang Qingzhong resigned from the position of Vice Chairman of the Supervisory Board, Secretary of the Commission for Inspecting Discipline and Deputy Party Secretary of the Company in December, 2017.

28 Mrs. Qiu Xiaping was appointed as the Supervisor of the Company in July, 2007, Mrs. Qiu Xiaping resigned from the position of Supervisor of the Company in December, 2017.

29 Mr.Shou Weiguang was appointed as Chairman of the Supervisory Board of the Company in July, 2015. Mr.Shou Weiguang resigned from the position of Chairman of the Supervisory Board and Supervisor of the Company in April, 2017.

The executive directors’ emoluments shown above were for their services in connection with the

management of the affairs of the Company and the Group.

The independent non-executive directors’ emoluments shown above were for their services as directors

of the Company.

The supervisors’ emoluments shown above were for their services as supervisors of the Company.

For the year ended 31 December 2018 and 2017, no directors, supervisors or senior management of

the Company waived any emoluments and no emoluments were paid by the Company to any of the

directors, supervisors or senior management as an inducement to join or upon joining the Group or as

compensation for redundancy.

F-326

394 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

69. HIGHEST PAID INDIVIDUALS

Of the five individuals with the highest emoluments, none of them are directors, supervisors or senior

management. Details of the remuneration of the five highest paid employees during the year ended

2018 and 2017 are as follows:

2018 2017RMB’000 RMB’000

Salary and commission 12,999 4,522Bonuses 55,147 61,720Employer’s contribution to pension schemes/annuity plans 456 1,760

68,602 68,002

Bonuses are discretionary and are determined by reference to the Group’s and the individuals’

performance. No emoluments have been paid to or receivable by these individuals as an inducement to

join or upon joining the Group or as compensation for loss of office for the year ended 31 December

2018 and 2017.

The emoluments of the highest-paid individuals of the Group fall within the following bands:

2018 2017Population Population

Emolument bands – RMB11,000,001 to RMB13,000,000 2 1 – RMB13,000,001 to RMB15,000,000 1 2 – RMB15,000,001 to RMB17,000,000 2 1 – RMB17,000,001 to RMB19,000,000 – 1

5 5

F-327

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 395

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES

2002 Share option scheme of HISGL

On 23 August 2002, the shareholders of HISGL approved the adoption of a share option scheme (the

“2002 Share Option Scheme”), which was expired on 22 August 2012. A summary of the principal terms

of the 2002 Share Option Scheme, as disclosed in accordance with the listing rules, is set out as follows:

The 2002 Share Option Scheme was adopted for the purpose of attracting, retaining and motivating

talented employees to strive towards long-term performance targets set by HISGL and its subsidiaries

and at the same time allowing the participants to enjoy the results of HISGL attained through their

effort and contribution. Under the 2002 Share Option Scheme, options may be granted to any full

time employees, executive and non-executive directors of HISGL or any of its subsidiaries or associates.

The maximum number of shares which may be issued upon exercise of all options to be granted under

the 2002 Share Option Scheme and any other share option schemes of HISGL shall not in aggregate

exceed 10% of the total number of shares in issue as at the date of adoption of the 2002 Share Option

Scheme (the “Scheme Mandate Limit”) but HISGL may seek approval of its shareholders at general

meetings to refresh the Scheme Mandate Limit, save that the maximum number of shares in respect

of which options may be granted by directors of HISGL under the 2002 Share Option Scheme and any

other share option schemes of HISGL shall not exceed 10% of the issued share capital of HISGL as at

the date of approval by the shareholders of HISGL at general meetings where such limit is refreshed.

If refreshed, options previously granted under the 2002 Share Option Scheme and any other share

option schemes of HISGL (including those outstanding, cancelled, lapsed or exercised options) will not

be counted for the purpose of calculating such 10% limit.

Notwithstanding the aforesaid in this paragraph, the maximum number of shares which may be issued

upon exercise of all outstanding options granted and yet to be exercised under the 2002 Share Option

Scheme and any other share option schemes of HISGL shall not exceed 30% (or such higher percentage

as may be allowed under the Listing Rules) of the total number of shares in issue from time to time.

The maximum number of shares issued and to be issued upon exercise of the options granted to

each participant under the 2002 Share Option Scheme and any other share option schemes of HISGL

(including both exercised and outstanding options) in any twelve-month period shall not exceed 1%

of the total number of HISGL’s shares in issue. Any further grant of share options in excess of this limit

is subject to approval by the shareholders of HISGL at a general meeting.

Share options granted to a director, chief executive or substantial shareholders of HISGL, or to any

of their associates, are subject to approval in advance by the independent non-executive directors.

In addition, any share options granted to a substantial shareholder or an independent non-executive

director of HISGL, or to any of their associates, in excess of 0.1% of the total number of shares of HISGL

in issue at the date on which such grant is proposed by the directors of HISGL or with an aggregate

value (based on the closing price of HISGL’s shares at the date on which such grant is proposed by

the directors of HISGL) in excess of HKD5 million, within any twelve-month period, are subject to

shareholders’ approval in advance at a general meeting of HISGL.

F-328

396 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2002 Share option scheme of HISGL (continued)

The offer of a grant of share options may be accepted within 30 days from the date of the offer upon

payment of a consideration of HKD1 by the grantee. The exercise period of the share options granted

is determinable by the directors of HISGL, and such period shall commence not earlier than six months

from the date of grant of the options and expire not later than ten years after the date of grant of

the options. All share options under the 2002 Share Option Scheme are subject to a six-month vesting

period.

The exercise price of the share options is determinable by the directors of HISGL, and shall be at least

the highest of (i) the closing price of HISGL’s shares as stated in the Hong Kong Stock Exchange’s daily

quotations sheet on the offer date; (ii) the average closing price of HISGL’s shares as stated in the

Hong Kong Stock Exchange’s daily quotations sheets for the five trading days immediately preceding

the offer date; and (iii) the nominal value of HISGL’s shares.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

The 2002 Share Option Scheme expired on 22 August 2012. However, the share options granted

under the 2002 Share Option Scheme prior to its expiry are still exercisable pursuant to the terms of

this scheme.

The following table discloses movements of share options granted to the directors and employees of

HISGL under HISGL’s 2002 Share Option Scheme during the year:

2018 2017Weighted

averageexercise price

Number ofoptions

Weighted average

exercise priceNumber of

optionsHKD per share ’000 HKD per share ’000

At beginning of the year 2.76 5,812 2.77 9,132Adjusted during the year1 2.76 17 2.76 8Exercised during the year 2.76 (3,246) 2.77 (3,328)

At end of the year 2.76 2,583 2.76 5,812

F-329

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 397

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2002 Share option scheme of HISGL (continued)

The exercise prices and exercise periods of the share options outstanding as at respective reporting

dates are as follows:

Number of options Exercise price1 Exercise period’000 HKD per share

31 December 2018

2,583 2.751 3 March 2011 to 2 March 2019

31 December 2017

5,812 2.764 3 March 2011 to 2 March 2019

1 The exercise price of the share option is subject to adjustment in case of rights or bonus issues, scrip dividend, or bonus shares, or other similar changes in HISGL’s share capital.

No new share options were granted for the years ended 31 December 2018 and 31 December 2017.

As at 31 December 2018, HISGL had 2,582,759 (2017: 5,812,110) share options outstanding under

the 2002 Share Option Scheme, which represented approximately 0.04% (2017: 0.11%) of HISGL’

shares in issue as at that date.

F-330

398 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL

The shareholders of HISGL approved the adoption of a new share option scheme (the “2015 Share

Option Scheme”) on 8 June 2015 (the “Adoption Date”). The 2015 Share Option Scheme was also

approved by the shareholders of Haitong Securities Co., Ltd., the holding company of HTIH, the

controlling shareholder of HISGL, and Listing Committee of The Stock Exchange of Hong Kong Limited

on 8 June 2015 respectively and 12 June 2015 respectively. A summary of the principal terms of the

2015 Share Option Scheme, as disclosed in accordance with the Listing Rules, is set out as follows:

The 2015 Share Option Scheme was adopted to attract, retain and motivate talented employees to

strive towards long term performance targets set by HISGL and to provide them with an incentive to

work better for the interest of HISGL after the expiry of its existing 2002 Share Option Scheme on 22

August 2012. Under the 2015 Share Option Scheme, share options could be granted to any full time

or part-times employees, executive and non-executive (whether independent or not) directors of the

HISGL who in the absolute opinion of the Board, have contributed to HISGL.

The maximum number of shares of HISGL (the “Shares”) which may be issued upon exercise of all

options to be granted under the 2015 Share Option Scheme and any other share option schemes shall

not in aggregate exceed 212,924,439 shares, representing approximately 10% of the issued shares of

HISGL as at 30 November 2014, being the date of tentative approval of the 2015 Share Option Scheme

by the management of the HISGL.

In respect of the period of 12 months from the Adoption Date and for each of the subsequent periods

of 12 months from the previous anniversary of the Adoption Date (each of those 12-months periods is

hereinafter referred to as a “Scheme Year”), the total number of shares of HISGL which may be issued

upon exercise of the options granted in each Scheme Year shall not exceed 21,292,444 shares (the

“Annual Limit”). HISGL may from time to time seek approval of its shareholders and the approval of

the shareholders of Haitong Securities Co., Ltd. (“HSCL”) (so long as the HISGL is a subsidiary of HSCL

under the Listing Rules) in respective general meetings to renew the Scheme Limit and/or the Annual

Limit such that the total number of shares of HISGL in respect of which options may be granted by

directors of HISGL under the 2015 Share Option Scheme (i) in respect of the Scheme Limit, shall not

exceed 10% of the issued share capital of HISGL as at the date of approval of the refreshment; and

(ii) in respect of the Annual Limit, shall not exceed 1% of the issued share capital of the HISGL as at

the date of approval of the refreshment. Options previously granted under the 2015 Share Option

Scheme and any other share option schemes of HISGL (including those outstanding, cancelled, lapsed

or exercised options) will not be counted for the purpose of calculating such limits as refreshed.

Notwithstanding the aforesaid in previous paragraph, the maximum number of shares which may be

issued upon exercise of all outstanding options granted and yet to be exercised under the 2015 Share

Option Scheme and any other share option schemes of HISGL shall not exceed 30% (or such higher

percentage as may be allowed under the Listing Rules) of the total number of shares in issue from

time to time.

F-331

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 399

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

The maximum number of shares issued and to be issued upon exercise of the options granted to

each participant under the 2015 Share Option Scheme and any other share option schemes of HISGL

(including both exercised and outstanding options) in any 12-month period shall not exceed 1% of

the total number of HISGL’s shares in issue. Any further grant of share options in excess of this limit

is subject to approval by the shareholders of HISGL at a general meeting.

Share options granted to a director, chief executive or substantial shareholders of HISGL, or to any

of their associates, are subject to approval in advance by the independent non-executive directors.

In addition, any share options granted to a substantial shareholder or an independent non-executive

director of HISGL, or to any of their associates, in excess of 0.1% of the total number of shares of HISGL

in issue at the date on which such grant is proposed by the directors or with an aggregate value (based

on the closing price of HISGL’s shares at the date on which such grant is proposed by the directors)

in excess of HKD5 million, within any twelve-month period, are subject to shareholders’ approval in

advance at a general meeting of HISGL.

The offer of a grant of share options may be accepted within 28 days from the date of the offer upon

payment of a consideration of HKD1 by the grantee. The exercise period of the share options granted

is determinable by the directors of HISGL and notified by the directors HISGL to each participant as

being the period during which an option may be exercised, and in any event such period of time shall

not exceed a period of 5 years commencing on the Offer Date and expire on the last day of such

period. The 2015 Share Option Scheme does not stipulate any performance target which needs to be

achieved by the participant who accepts the offer of share options (the “Grantee”) before the share

options can be exercised. In order to sustain a long-term employment relationship between HISGL and

the grantee(s), grantees must hold their share options for a holding period of not less than 6 months

from the date of acceptance of the offer by the Grantee, before the share options can be exercised.

The exercise price of the share options is determinable by the directors, and shall be at least the highest

of (i) the price equal to 110% of the closing price of HISGL’s shares as stated in the Stock Exchange’s

daily quotations sheet on the offer date; (ii) the average closing price of HISGL’s shares as stated in the

Stock Exchange’s daily quotations sheets for the 5 trading days immediately preceding the offer date;

and (iii) the nominal value of HISGL’s shares.

On 10 November 2017, HISGL granted 13,400,000 share options at the exercise price of HKD5.038 per

share to its directors and employees under the 2015 Share Option Scheme with a total of 13,350,000

share options being accepted. The option period of the share options is from 10 November 2017 to

9 November 2022. All the share options granted have a vesting period of 6 months from the date of

acceptance. The closing price of the HISGL’s shares on the date of grant was HKD4.58 per share. The

estimated fair values of the options granted under 2015 Share Option Scheme on the grant date on

10 November 2017 is approximately HKD17.5 million, which was calculated using the Binomial Option

Pricing model with the key inputs into the model as disclosed below.

F-332

400 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

2017

Closing price HKD4.58Initial exercise price HKD5.038Expected volatility 49.493%Expected option life 5 yearsRisk-free rate 1.42%Expected dividend yield 3.849%Early exercise multiples – directors of HISGL 2.34

– employees 2.07

Expected volatility was determined using the historical volatility of the HISGL’s share price over the

previous 5 years at the grant date.

On 1 November 2018, HISGL granted 19,160,000 share options at the exercise price of HKD2.904 per

share to its directors and employees under the 2015 Share Option Scheme with a total of 19,160,000

share options being accepted. The option period of the share options is from 1 November 2018 to

31 October 2023. All the share options granted have a vesting period of 6 months from the date of

acceptance. The closing price of the Company’s shares on the date of grant was HKD2.64 per share.

The estimated fair values of the options granted under 2015 Share Option Scheme on the grant date

on 1 November 2018 is approximately HKD11.7 million, which was calculated using the Binomial Option

Pricing model with the key inputs into the model as disclosed below.

2018

Weighted average share price at the date of grant HKD2.64Initial exercise price HKD2.904Expected volatility 48.504%Expected option life 5 yearsRisk-free rate 2.304%Expected dividend yield 7.63%Early exercise multiples – directors of HISGL 1.74

– employees 1.98

F-333

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 401

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

Expected volatility was determined using the historical volatility of the Company’s share price over the

previous 5 years at the grant date.

For the year ended 31 December 2018, HISGL has recognised an equity-settled share-based payment

of HKD16,492,000 (31 December 2017: HKD2,910,000) for the share options under the 2015 Share

Option Scheme in the consolidated statement of profit or loss. No share options under 2015 share

option scheme has been exercised during the current year end.

The following table discloses movements of 2015 share options granted to the directors and employees

of HISGL.

2018 2017Weighted

averageexercise

priceNumber

of options

Weightedaverageexercise

priceNumber

of optionsHKD per share ’000 HKD per share ’000

At beginning of the year 4.674 29,228 4.674 17,807Granted and accepted during the year 2.904 19,160 5.038 13,350Adjusted during the year (note) 4.82 133 4.668 22Exercised during the year 4.667 (501) – –Forfeited during the year 4.861 (1,303) 4.673 (1,951)

At end of the year 4.031 46,717 4.836 29,228

F-334

402 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

2015 Share option scheme of HISGL (continued)

The exercise prices and exercise periods of the share options outstanding as at respective reporting

dates are as follows:

31 December 2018Number of options

Exercise priceHKD per share Exercise period

’000 (note)

14,847 4.645 8 December 2016 – 11 May 202112,710 5.014 7 June 2018 – 9 November 202219,160 2.904 28 May 2019 – 31 October 2023

46,717

31 December 2017Number of options

Exercise priceHKD per share Exercise period

’000 (note)

15,878 4.667 8 December 2016 – 11 May 202113,350 5.038 7 June 2018 – 9 November 2022

29,228

Note: The exercise price of the share options are subject to adjustment in the case of rights or bonus issues, scrip dividend, or bonus shares, or other similar changes in the Company’s share capital.

As at 31 December 2018, HISGL had 46,717,444 (2017: 29,228,100) share options outstanding under

the 2015 Share Option Scheme, which represented approximately 0.81% (2017: 0.53%) of the HISGL’s

shares in issue as at that date.

F-335

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 403

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL

On 19 December 2014, the Board of directors of HISGL (the “HISGL Board”) adopted a 10-year share

award scheme (the “Scheme”) to incentivise selected employees and directors (“Selected Participants”)

for their contributions to HISGL and to attract suitable personnel for further development of HISGL.

Pursuant to the Scheme, the ordinary shares of HKD0.1 each in the capital of HISGL will be acquired

by the trustee at the cost of HISGL and will be held in trust for the Selected Participants before vesting.

The total number of Shares granted under the Scheme shall be limited to 10% of the total issued share

capital of HISGL as at 19 December 2014 (the “Adoption Date”) or such other percentage as determined

by the HISGL Board from time to time.

No award of the Shares shall be granted to any single Selected Participant which would result in the

maximum number of awarded Shares under the Scheme in the 12-month period up to and including

the date of such grant representing in aggregate over 1% of the issued share capital of HISGL as at

the Adoption Date.

The HISGL Board has delegated the power and authority to the Administration Committee of HISGL

to handle operational matters of the Scheme but all major decisions in relation to the Scheme shall be

made by the HISGL Board unless expressly provided for in the scheme rules pursuant to the Scheme or

the HISGL Board resolves to delegate such power to the Administration Committee.

Pursuant to the scheme rules, HISGL Board may, from time to time, at its absolute discretion and subject

to such terms and conditions as it may think fit (including the basis of eligibility of each Participant

determined by HISGL Board and recommended by the Remuneration Committee from time to time)

select any participant for participation in the Scheme as a Selected Participant and determine the number

of awarded shares, upon the recommendation of the Remuneration Committee.

After the selection of the Selected Participant(s) and the determination of the number of awarded Shares

by HISGL Board, the Administration Committee shall inform the trustee accordingly. The Administration

Committee shall also inform the Selected Participant(s) by award notice. Provided that the respective

Selected Participant(s) has (have) executed the relevant acceptance form(s) and returned the same

together with a counterpart of the award notice(s) to the trustee through HISGL within the period

prescribed in the award notice(s), HISGL shall during the award period pay or cause to be paid to the

trustee for purchasing the awarded Shares (“Reference Amount”).

After receiving the Reference Amount, the Trustee shall apply the same towards the purchase of

awarded Shares in the market through a broker at the prevailing market price on the Stock Exchange

pursuant to the Scheme Rules and HISGL would recognise as treasury shares in the statement of

changes in equity.

F-336

404 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL (continued)

The Administration Committee shall conduct a review of the performance conditions (if any) in relation

to each Selected Participant at least once in each financial year during the award period if the award

period is more than 12 months or once only during the award period if the award period is less than

12 months. The awarded Shares will be vested if the Selected Participant is able to meet the relevant

performance conditions during the relevant period, or lapse if the Selected Participant is unable to meet

the relevant performance conditions during the relevant period.

A Selected Participant shall not exercise or direct the trustee to exercise and the trustee shall not exercise

the voting rights in respect of any Awarded Shares held under the trust.

Details of the awarded shares granted and unvested as at 31 December 2018 are set out below.

Date ofawardedshares granted

Numberof awarded

shares granted

Numberof awarded

shares vested

Numberof awarded

shares forfeited

Numberof awarded

shares unvested Vesting dates

Fair valueas at

grant date(Note (d)) HKD

18 April 2016 7,865,506 4,709,854 992,489 2,163,163 Note (a) 31,383,000

28 April 2017 4,246,234 1,318,237 378,532 2,549,465 Note (b) 19,320,000

11 May 2018 7,010,493 – 171,613 6,838,880 Note (c) 32,108,000

For the shares granted, the fair value of the shares were measured at the market price of the Company’s

shares. For the year ended 31 December 2018, the Group has recognised an equity-settled share-based

payment of HK$20,049,000 (31 December 2017: HK$18,395,000) for the Scheme in consolidated

statement of profit or loss.

Notes:

(a) Pursuant to the agreed terms, the vesting date of one-third of the award shares granted on 18 April 2016 is on 15 March 2017 while the vesting date of another one-third of award shares granted on 18 April 2016 would be on 15 March 2018 and the vesting date for the remaining would be on 15 March 2019.

(b) Pursuant to the agreed terms, the vesting date of one-third of the award shares granted on 28 April 2017 is on 19 March 2018 while the vesting date of another one-third of award shares granted on 28 April 2017 would be on 19 March 2019 and the vesting date for the remaining would be on 19 March 2020.

(c) Pursuant to the agreed terms, the vesting date of one-third of the awarded shares granted on 11 May 2018 would be on 13 May 2019 while the vesting date of another one-third of awarded shares granted on 11 May 2018 would be on 13 May 2020 and the vesting date for the remaining would be on 13 May 2021.

(d) Awarded shares were lapsed prior to their vesting dates as a result of staff separations. Pursuant to the agreement, the lapsed shares would be held by the trustee which is subject to the approval from Administration Committee for re-selection of any Selected Participant. The lapsed Awarded Shares were transferred out from share award reserve to share premium as disclosed in the consolidated statement of change in equity.

F-337

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 405

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

70. SHARE OPTION/AWARD OF SUBSIDIARIES (continued)

Share award scheme of HISGL (continued)

Movements of shares held under the Scheme during the year are as follows:

2018 2017

HKD’000Number of

shares HKD’000

Number of

shares

At 1 January 113,539 19,266,739 128,020 21,724,000

Purchased during the year 62,462 17,675,000 – –

Vested and transferred out

during the year (20,629) (3,570,830) (14,481) (2,457,261)

At 31 December 155,372 33,370,909 113,539 19,266,739

71. RELATED PARTY TRANSACTIONS

In addition to the joints and associates of the Group set out in note 24 above, the name and the

relationship of other related parties are set out as below:

Name of the related party Relationship of the related party

BNP Paribas Investment Partners BE Holding SA Note A

BNP Paribas (China) Limited Note B

BNP Paribas Investment Partners Japan Ltd Note B

BNP Paribas Investment Partners Singapore Ltd Note B

BNP Paribas Wealth Management Bank Note B

BNP Paribas Investment Partners Switzerland Ltd Note B

BNP Paribas SA Note B

BNP Paribas Investment Partners Hong Kong Ltd Note B

Shinhan BNP ParibasAsset Management

(Hong Kong) Co., Ltd Note B

BNP Paribas Investment Ltd (Asia) Note B

Shanghai Shengyuan Real-Estate (Group) Co., Ltd Note B

China-Belgium Direct Equity Investment Fund A fund managed by the subsidiary

Note A: The company holds more than 10% of the shares of the Group’s subsidiaries-HFT Investment Management Co., Ltd.T and Haitong-Fortis Private Equity Fund Management Co., Ltd.

Note B: The subsidiary of the company which holds more than 10% of the shares of the Group’s subsidiary.

F-338

406 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

71. RELATED PARTY TRANSACTIONS (continued)

2018 2017

RMB’000 RMB’000

Commission and fee income:

– Shanghai Equity Investment Fund Limited Partnership 65,301 60,725

– Xi’an Aerospace and New Energy Industry Fund 18,910 18,887

– Jilin Modern Agricultural and Emerging Markets

Investment Fund Limited 19,919 19,878

– Shanghai Cultural Industries Investment Fund

(Limited Partnership) 19,987 31,929

– Fullgoal Fund Management Co. Ltd. 33,890 23,814

– Haitong (Jilin) Modern Service Industry Investment Fund

(Limited Partnership) 5,354 5,550

– Haitong Xingtai (Anhui) Emerging Industry Investment

Fund (Limited Partnership) 18,876 18,890

– China-Belgium Direct Equity Investment Fund 52,995 108,229

– Haitong (Jilin) Cultural Industries Investment Fund

(Limited Partnership) 2,264 2,129

– Guang Dong Southern Media Integration Development

Investment Fund (Limited Partnership) 24,993 8,306

– Haitong Qidong (Weihai) Equity Investment Fund

Limited Partnership 12,733 22,230

– Xi’an Civil-military integration

Electronic satellite Limited 4,028 –

– Entities related to BNP Paribas (Note A) 3,559 10,415

Note A: Entities related to BNP Paribas include BNP Paribas Investment Partners BE Holding SA, BNP Paribas (China) Limited, BNP Paribas Investment Partners Japan Ltd, BNP Paribas Investment Partners Singapore Ltd, BNP Paribas Wealth Management Bank, BNP Paribas Investment Partners Switzerland Ltd, BNP Paribas SA, BNP Paribas Investment Partners Hong Kong Ltd, Shinhan BNP Paribas Asset Management (Hong Kong) Co., Ltd. and BNP Paribas Investment Ltd (Asia).

F-339

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 407

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

71. RELATED PARTY TRANSACTIONS (continued)

2018 2017

RMB’000 RMB’000

Administration expense:

– Shanghai Shengyuan Real Estate (Group) Co., Ltd. (88) (97)

– Entities related to BNP Paribas (203) (122)

Interest Expense

– Entities related to BNP Paribas (620) –

Investment Gain

– Shanghai Cultural Industries Investment Fund

(Limited Partnership) – 12,186

Interest Income

– Gui’an UniTrust Finance Leasing Co., Ltd 28,863 –

– Others (Note B) 685 –

Bonds transaction:

– BNP Paribas (China) Ltd. 200,000 310,000

Interest rate swap:

– BNP Paribas (China) Limited 520,000 340,000

Financial instruments held under resale aggrement

– BNP Paribas (China) Ltd. 300,000 190,120

Note B Including the related transactions with Shanghai Shengyuan Real Estate (Group) Co., Ltd, Shanghai Cultural Industries Investment Fund (Limited Partnership), Shanghai Equity Investment Fund Limited Partncership, Jilin Modern Agricultural and Emerging Markets Investment Fund Limited, Haitong Qidong (Weihai) Equity Investment Fund Limited Partnership, Liaoning energy investment(Group) Co. Ltd, China-Belgium Direct Equity Investment Fund, Jilin Modern Agricultural and Emerging Markets Investment Fund Limited, Fullgoal Fund Management Co. Ltd., Xi’an Civil-Military Integration Satellite management services Investment Fund Co., Ltd, Haitong Xingtai (Anhui) emerging industry investment fund Co., Ltd, Guang Dong Southern Media Integration Development Investment Fund (Limited Partnership), Shanghai Tongguan investment management Co., Ltd and Xi’an Aerospace and New Energy Industry Fund.

F-340

408 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

71. RELATED PARTY TRANSACTIONS (continued)

2018/12/31 2017/12/31

RMB’000 RMB’000

Accounts receivable from:

– Gui’an UniTrust Finance Leasing Co., Ltd 3,487 –

Other receivable to:

– Fullgoal Fund Management Co. Ltd. 5 –

– Entities related to BNP Paribas 529 2,133

Other payable to:

– Entities related to BNP Paribas (32) (10,146)

Dividends Payable

– Entities related to BNP Paribas (39,276) –

Accounts payable to brokerage clients:

– Shanghai Equity Investment Fund Limited Partnership (38,244) –

– Fullgoal Fund Management Co. Ltd. – (20)

– Haitong Qidong (Weihai) Equity Investment Fund Limited

Partnership (489) (3,579)

– Jilin Modern Agricultural and Emerging Markets

Investment Fund Limited (20) (2,015)

– Haitong (Jilin) Cultural Industries Investment Fund Limited

Partnership (123) (56)

– Haitong Xingtai (Anhui) Emerging Industry Investment

Fund (Limited Partnership) (10,000) (33)

– Shanghai Equity Investment Fund Limited Partnership – (18)

– Shanghai Shengyuan Real-Estate (Group) Co., Ltd (61) (3)

– Liaoning energy investment(Group) Co. Ltd (4,971) –

– Shanghai Tongguan Investment Management

(Limited Partnership) (1,447) –

– Shanghai Cultural Industries Investment Fund

(Limited Partnership) (10) (10)

– Other (Note C) (6) –

Note C Including the related transactions with Guang Dong Southern Media Integration Development Investment Fund (Limited Partnership) and Xi’an Aerospace and New Energy Industry Fund.

F-341

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 409

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

2018/12/31 2017/12/31

RMB’000 RMB’000

Short-term financing bills payables:

– Haitong Xingtai (Anhui) Emerging Industry Investment

Fund (Limited Partnership) – (14,000)

Long-term Borrowings and interests

– Entities related to BNP Paribas (443,958) –

Bank balance and cash

– Entities related to BNP Paribas 133,819 –

Financial instrument held under resale agreement

– Gui’an UniTrust Finance Leasing Co., Ltd. 980,836 –

Except for the emoluments of directors and supervisors disclosed in Note 68, the remuneration of other

key management personnel of the Group was as follows:

2018 2017

RMB’000 RMB’000

Short-term benefits:

– Fees, salaries, commission and bonuses 81,075 79,863

Post-employment benefits:

– Employer’s contribution to pension schemes/annuity plans 1,106 5,025

Total 82,181 84,888

71. RELATED PARTY TRANSACTIONS (continued)

F-342

410 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

72. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY

2018/12/31 2017/12/31Notes RMB’000 RMB’000

Non-current assetsProperty and equipment 1,518,147 1,183,209Investment properties 15,669 16,864Other intangible assets 229,666 227,551Investments in subsidiaries 22 26,622,222 26,022,222Investments accounted for using equity method 942,400 790,027Available-for-sale investments – 17,446,144Equity instruments at fair value through other comprehensive income 15,213,291 –Debt instruments at fair value through other comprehensive income 5,768,988 –Debt instruments measured at amortised cost 150,961 –Financial assets at fair value through profit or loss 5,007,590 –Other loans and receivables – 200,000Deferred tax assets 1,132,292 1,036,787Other assets 13,495 13,998Financial assets held under resale agreements 10,783,555 21,204,776

Total non-current assets 67,398,276 68,141,578

Current assetsAdvances to customers on margin financing 34,754,975 47,877,760Accounts receivable 664,308 685,160Other receivables and prepayments 834,145 1,592,123Amount due from subsidiaries 2,385,576 1,547,320Available-for-sale investments – 3,290,939Debt instruments at fair value through other comprehensive income 5,429,379 –Other loans and receivables – 200,000Financial assets held under resale agreements 56,395,724 67,653,138Financial assets at fair value through profit or loss 71,215,253 48,977,872Deposits with exchanges 520,447 963,294Clearing settlement funds 7,349,729 8,204,447Bank balances and cash 59,162,103 59,143,829

Total current assets 238,711,639 240,135,882

Total assets 306,109,915 308,277,460

F-343

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 411

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

72. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY (continued)

2018/12/31 2017/12/31RMB’000 RMB’000

Current liabilitiesBorrowings 292 1,137,412Short-term financing bills payables 11,587,336 21,897,221Bonds Payable 28,635,483 6,135,789Accounts payable to brokerage clients 42,917,483 51,295,045Other payables and accruals 3,965,403 6,424,386Amount due to subsidiaries 74,495 30,184Tax liabilities 619,294 819,794Financial liabilities at fair value through profit or loss 5,464,016 2,276,176Derivative financial liabilities 210,263 625,530Financial assets sold under repurchase agreements 32,089,239 21,054,364Placements from other financial institutions 8,486,044 5,450,000

Total current liabilities 134,049,348 117,145,901

Net current assets 104,662,291 122,989,981

Total assets less current liabilities 172,060,567 191,131,559

EquityShare capital 11,501,700 11,501,700Capital reserve 56,486,199 56,486,199Investment revaluation reserve – 1,296,284FVTOCI reserve (295,705) –General reserves 18,783,654 17,111,739Retained profits 21,718,982 20,463,236

Total equity 108,194,830 106,859,158

Non-current liabilitiesDeferred tax liabilities 40,262 598,833Long-term borrowings 546,231 514,780Bonds payables 62,958,925 82,311,178Other payables and accruals 320,319 447,610Financial assets sold under repurchase agreements – 400,000

Total non-current liabilities 63,865,737 84,272,401

Total equity and non-current liabilities 172,060,567 191,131,559

F-344

412 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

72. STATEMENT OF FINANCIAL POSITION AND RESERVE OF THE COMPANY (continued)

FOR THE YEAR ENDED 31 DECEMBER 2018

Share Capital

Capital Reserve

Investment revaluation

reserveFVTOCI reserve

General Reserve

Retained Profit Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000(Note a)

At 31 December 2017 11,501,700 56,486,199 1,296,284 – 17,111,739 20,463,236 106,859,158Adjustment – – (1,296,284) 1,208,931 1,536 3,586 (82,231)

At 1 January 2018 11,501,700 56,486,199 – 1,208,931 17,113,275 20,466,822 106,776,927

Profit for the year – – – – – 5,567,930 5,567,930Other comprehensive income for the year – – – (1,504,636) – – (1,504,636)

Total comprehensive income for the year – – – (1,504,636) – 5,567,930 4,063,294

Appropriation to general reserves – – – – 1,670,379 (1,670,379) –Cash dividends recognised as

distribution (Note 67) – – – – – (2,645,391) (2,645,391)

At 31 December 2018 11,501,700 56,486,199 – (295,705) 18,783,654 21,718,982 108,194,830

At 1 January 2017 11,501,700 56,486,199 (660,702) – 15,255,470 18,662,315 101,244,982

Profit for the year – – – – – 6,187,564 6,187,564

Other comprehensive income for the year – – 1,956,986 – – – 1,956,986

Total comprehensive income for the year – – 1,956,986 – – 6,187,564 8,144,550

Appropriation to general reserves – – – – 1,856,269 (1,856,269) –

Cash dividends recognised

as distribution (Note 67) – – – – – (2,530,374) (2,530,374)

At 31 December 2017 11,501,700 56,486,199 1,296,284 – 17,111,739 20,463,236 106,859,158

Note a: Capital reserve of the Company represents primarily the share premium arisen from the issuance of the Company’s shares.

F-345

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 413

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENTThe Group’s major financial instruments include equity and debt investments, loans and advances,

advances to customers on margin financing, accounts receivable, other loan and receivables, debt

securities measured at FVTOCI, finance lease receivables, derivatives financial assets, placements to

banks and other financial institutions, other receivables and prepayments, financial assets held under

resale agreements, deposit with exchanges, clearing settlement funds, bank balances and cash, restricted

bank deposits, borrowings, financial assets sold under repurchase agreements, accounts payable to

brokerage clients and other payables and accruals. Details of the financial instruments are disclosed in

respective notes. The risks associated with these financial instruments include market risk (price risk,

currency risk and interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these

risks are set out below. The management manages and monitors these exposures to ensure appropriate

measures are implemented on a timely and effective manner.

During the current year, except for the following changes on credit risk management policies, there

has been no changes in the other risk management policies.

Credit risk

Credit risk is the risk that a customer or counterparty will default on its contractual obligations resulting

in financial loss to the Group. The Group’s financial assets exposed to credit risk mainly include

loans and advances, advance to customers on margin financing, accounts receivable, other loans and

receivables, finance lease receivables, other receivables, deposit with other banks, debt securities

measured at FVTOCI, financial assets held under resale agreements, loan commitments and financial

guarantee, placements to banks and other financial institutions debt securities at amortised cost and

bank balances.

Credit risk management

The Company has established policies and procedures on calculating and making impairment provision,

which is aligned with the objective of credit risk management of financial instrument. The Company

established coordination mechanism among business departments, risk management department and

financial department and clarified responsibilities of each department, so as to make sure that the

assessment on the credit risk of financial instruments is reasonable, and the measurement on the

expected credit losses of financial instruments is accurate.

F-346

414 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Credit risk management (continued)

Below are the duties of the management of the Company regrading to the credit risk management,

• Establish an organizational structure with clear responsibilities and procedures, and formulate

policies, regulations and systems for the credit risk management of financial instruments based

on business strategies and risk appetite, and adjust them in a timely manner;

• Organize and implement an evaluation of the impairment of financial instruments on the

reporting date, and ensure the effectiveness of implementation of verifying, developing and

maintaining the impairment calculation model;

• Assess the status and financial impact of the impairment of financial instruments of the Company

and report to the board of directors;

• Review and confirm the decision regarding to the major impairment events of the Company;

• Establish a performance assessment system covering the effectiveness of the credit management

of financial instruments;

• Establish comprehensive information technology system and data quality control mechanism in

respect of calculation of impairment of financial instrument; and

• Other responsibilities granted by the board of directors regarding to credit risk management.

Significant increase in credit risk

As explained in note 3, the Company monitors all financial assets, except for accounts receivable, that

are subject to impairment allowances to assess whether there has been a significant increase in credit

risk since initial recognition. If there has been a significant increase in credit risk, the Group will measure

the loss allowance based on lifetime rather than 12-month ECL.

At the end of each reporting period, the Company should evaluate if there is a significant increase

in credit risk on all financial assets, except for accounts receivable since the initial recognition. A

comprehensive assessment will be performed with several aspects will be taken into consideration

based on the nature of the instrument and risk factor of the debtor. When performing evaluation

on the significant increase in credit risk, the Company should take below factors into consideration,

including but not limited to:

F-347

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 415

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Significant increase in credit risk (continued)

• Significant degradation of the obligor’s actual or expected internal credit risk level or significant

decrease of behaviour scores for assessing credit risks;

• Actual or expected significant changes in external credit rating on the obligor or the debts;

• Significant changes in values of collaterals pledged for the debt, which may reduce obligor’s

economic incentive to make repayments within the term specified in the contract or affect

probability of default incurred; for example, the obligor’s performance guarantee ability is

weakened due to decline in values of pledged securities, the obligor fails to provide supplement

collaterals as specified in the contract within a reasonable time or the obligor may have stronger

incentive to be in arrears with the debt;

• Actual or expected adverse changes in the obligor’s business, financial or economic status, which

may result in significant changes in the obligor’s debt solvency;

• Overdue information of interests or principals;

• Significant changes in external market index for credit risks of specific financial instrument or

alike financial instrument with the same expected life; for example, the obligor’s credit spread,

credit default swap price for the obligor or other market information related to the obligor;

• Actual or expected significant changes in quality of credit supports provided by the guarantor,

which may reduce obligor’s economic incentive to make repayments within the term specified

in the contract; for example, if the guarantor will no longer provide financial support for the

obligor, that may result in bankruptcy or receivership of the obligor, or increase in probability

of these liabilities default when the obligor makes limited payment of operating funds (such

as salaries or payments to key suppliers) so as to arrange the payment obligations of financial

liabilities at a lower priority;

• Actual or expected significant changes in quality of credit enhancement or support for creditor’s

rights issued in securitization, which may result in the decrease of the subordinated interests

ability to absorb expected credit losses.

F-348

416 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Incorporation of forward – looking information

The Company uses forward-looking information that is available without undue cost or effort in its

assessment of significant increase of credit risk as well as in its measurement of ECL. The Company

considers the opinions of experts who use external and internal information to generate an expectation

of future forecast of relevant economic variables along with a representative range of other possible

forecast scenarios. The external information used includes but not limited to macro-economic factors

(i.e. growth rate of GDP, growth rate of generalized money injection, growth rate of stock index, change

of foreign currency exchange rate and etc.), industry policies and industry environment and etc. The

Company may use the forward-looking information to adjust the parameters of possibility of default,

loss given default and exposure at default.

Measurement of ECL

The key inputs used for measuring ECL are:

• probability of default (PD);

• loss given default (LGD); and

• exposure at default (EAD).

As explained above these figures are generally derived from internally developed statistical models and

other historical data and they are adjusted to reflect probability-weighted forward-looking information.

PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point

in time. The calculation is based on multiple risk categorization methods such as, credit rating models

and five-category asset classification model, and assessed using tools tailored to the various categories

of counterparties and exposures. These models are based on market data (where available), as well

as internal data comprising both quantitative and qualitative factors. PDs are estimated considering

the contractual maturities of exposures and estimated prepayment rates. The estimation is based on

current conditions, adjusted to take into account estimates of future conditions that will impact PD.

F-349

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 417

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Measurement of ECL (continued)

LGD is an estimate of the loss arising on default. It is based on the difference between the contractual

cash flows due and those that the lender would expect to receive, taking into account cash flows from

any collateral. The LGD models for secured assets consider forecasts of future collateral valuation taking

into account factors which could affect the realisation of collateral (i.e., concentration, market liquidity

and trading restrictions), sale discounts, cross-collateralisation and seniority of claim, cost of realisation

of collateral and cure rates (i.e. exit from non-performing status). LGD models for unsecured assets

consider time of recovery, recovery rates and seniority of claims. The calculation is on a discounted cash

flow basis, where the cash flows are discounted by the original EIR of the respective assets.

EAD is an estimate of the exposure at a future default date, taking into account expected changes in

the exposure after the reporting date, including repayments of principal and interest, and expected

drawdowns on committed facilities. The Group’s modelling approach for EAD reflects expected changes

in the balance outstanding over the lifetime of the credit exposure that are permitted by the current

contractual terms, such as amortization profiles, early repayment or overpayment, changes in utilization

of undrawn commitments and credit mitigation actions taken before default. The Group uses EAD

models that reflect the risk characteristics of the portfolios.

In addition to these risk factors mentioned above, the subsidiaries are facing the same credit risk in

the course of financing, investing, leasing, OTC (over-the-counter) derivatives, etc. Measures for Credit

Risk Management of Haitong Securities Co., Ltd was formulated and implemented by the Company,

the organizational structure of the Group credit risk management was specified, and established the

management mechanism of credit risk identification, assessment, monitoring and reporting within

the Group. Under the unified risk preference of parent company, the relevant subsidiaries set up a

corresponding control system of credit risk, measures and procedures according to its characteristics,

and the risk limit has been drawn up in view of the credit risk exposure and executed after approval

by parent company. The Company has followed the overall plan of the Group’s comprehensive risk

management, strengthens and perfects the credit risk management at the Group level from the aspect

of system construction, quota system, monitoring mechanism, information system, risk report, etc.

F-350

418 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Credit risk (continued)

Measurement of ECL (continued)

The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay

amounts in full when due. The tables below show the maximum credit risk exposure of the Group,

being the carrying amount of the respective recognised financial assets before the effect of mitigation

through the use of collateral.

2018/12/31 2017/12/31RMB’000 RMB’000

Advances to customers on margin financing 48,861,009 61,560,953Accounts receivable 8,257,214 7,442,000Other receivables and prepayments 3,031,728 5,741,974Other loan and receivables 19,691,530 29,246,575Held-to-maturity investments – 78,718Debt instruments measured at amortised cost 683,296 –Finance lease receivables 61,652,712 43,536,176Available-for-sale debt investments – 4,959,363Debt instruments at fair value through other comprehensive income 15,131,230 –Financial assets held under resale agreements 82,678,792 96,549,869Placements to banks and other financial institutions 31,144 679,092Financial assets at fair value through profit or loss 103,204,443 63,166,764Deposits with exchanges 6,982,889 8,528,675Clearing settlement funds 7,646,561 7,982,729Bank balances and cash 97,423,052 99,358,329Restricted bank deposits 739,260 675,568Deposits with central banks 2,426,236 3,445,696Deposits with other banks 253,908 316,134Loans and advances 4,363,487 4,838,272Derivative financial assets 1,780,757 2,610,612

Maximum credit exposure 464,839,248 440,717,499

Off balance sheet items credit exposureGuarantee granted 1,172,904 1,360,846Irrevocable commitments 129,183 108,756

Maximum off balance sheet items credit exposure 1,302,087 1,469,602

F-351

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 419

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Liquidity risk

Undiscounted cash flows by contractual maturities

The table below presents the cash flows payable by the Group under financial liabilities held for

managing liquidity risk by remaining contractual maturities at the reporting date. The amounts disclosed

in the table are the contractual undiscounted cash flows. The table includes both interest and principal

cash flows.

As at 31 December 2018

On Demand

Less than

3 months

3 months

to 1 year

1 year

to 5 years

5 years

and above Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – 12,897,229 44,710,443 29,391,971 1,541,690 88,541,333

Deposits from central bank – – – 470,838 – 470,388

Deposits from other banks 19,950 – – – – 19,950

Customer accounts 89,121 950,686 956,318 164,201 – 2,160,326

Accounts payable to brokerage clients 71,893,535 – – – – 71,893,535

Placements from other financial institutions – 7,487,110 1,092,484 6,011,686 397,158 14,925,448

Financial assets sold under repurchase

agreements 1,778,686 50,682,341 3,982,063 – – 56,443,090

Other payables and accruals 5,371,076 1,020,381 2,803,964 228,442 74,748 9,498,611

Short-term financing bills payables – 11,638,742 15,370,681 – – 27,009,423

Bonds payable – 4,840,126 38,546,116 97,265,469 7,445,352 148,097,063

Financial liabilities at fair value through

profit or loss 18,402,191 1,754,351 3,706,285 2,338,127 – 26,200,954

Derivative financial liabilities 457,922 229,382 217,502 495,561 818,407 2,218,774

Long-term payables – – – 6,477,570 187,365 6,664,935

98,012,481 91,500,348 111,322,866 142,843,865 10,464,720 454,144,280

F-352

420 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Liquidity risk (continued)

Undiscounted cash flows by contractual maturities (continued)

As at 31 December 2017

On Demand

Less than

3 months

3 months

to 1 year

1 year

to 5 years

5 years

and above Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Borrowings – 27,348,606 22,388,833 16,482,482 – 66,219,921

Deposits from central bank – – 468,138 – – 468,138

Deposits from other banks 293,733 – – – – 293,733

Customer accounts 475,574 1,149,083 1,670,420 465,339 – 3,760,416

Accounts payable to brokerage clients 83,774,388 – – – – 83,774,388

Placements from other financial institutions – 2,502,338 3,153,006 6,054,186 763,897 12,473,427

Financial assets sold under repurchase

agreements 1,684,639 18,897,528 12,513,919 406,066 – 33,502,152

Other payables and accruals 6,863,677 1,070,746 1,674,629 328,101 58,215 9,995,368

Short-term financing bills payables – 11,905,428 18,372,241 – – 30,277,669

Bonds payable – 1,885,794 18,514,853 111,379,979 10,304,304 142,084,930

Financial liabilities at fair value

through profit or loss 17,754,923 1,070,739 1,209,724 712,400 – 20,747,786

Derivative financial liabilities 1,149,788 416,542 317,057 561,371 1,050,696 3,495,454

Long-term payables – – – 4,748,305 65,394 4,813,699

111,996,722 66,246,804 80,282,820 141,138,229 12,242,506 411,907,081

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in economic environment. Market risk comprises three types of risks: price risk,

currency risk and interest rate risk.

The Group’s exposures to market risk include price risk, interest rate risk and currency risk.

F-353

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 421

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a

result of changes in market prices (other than those arising from interest rate risk or foreign exchange

risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting

equity instruments traded in the market.

The Group is exposed to price risk arising from individual equity investment classified as financial assets

held for trading and available-for-sale investments. The directors of the Company manage the exposure

by closely monitoring the portfolio of investments and have started hedging exposure by entering into

derivatives contracts since 2010.

The Group have utilised the effect of stock price variation on net profit or loss and investment

revaluation reserve within the period to manage and analyse the price risk. When reporting internally

to the key management on risk, the management estimates that reasonable possible change in price

is 10%. If the prices of the respective equity instruments had been 10% higher/lower, and held other

variables constant, the impacts to the profit for the year and investment revaluation reserve are as

follows:

2018 2017RMB’000 RMB’000

Profit for the yearIncrease by 10% 867,555 1,211,927Decrease by 10% (867,555) (1,211,927)

Investment revaluation reserveIncrease by 10% 23,270 44,405Decrease by 10% (23,270) (44,405)

In the above analysis, management also considers the case of equity instruments at fair value through

other comprehensive income that a reasonably possible downward fall in the equity price would lead

the investment to be impaired, the effect of loss would be shown as affecting profit or loss and the

cumulative loss previously recognised in investment revaluation reserve would be reclassified to profit

or loss, but an equivalent upward shift in the equity price would be shown as affecting investment

revaluation reserve.

F-354

422 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Price risk (continued)

In the case that an available-for-sale equity investment that has already been impaired, a reasonably

possible downward fall in the equity price may continue to be recognised in profit or loss but an

equivalent upward shift in the equity price would be shown as affecting investment revaluation reserve.

In management’s opinion, the sensitivity analysis is unrepresentative of inherent price risk as the year

end exposure does not reflect the exposure during the year.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market interest rates.

The Group’s exposure to interest rate risk relates primarily to the Group’s bank balances and cash,

advances to customers on margin financing, clearing settlement funds, deposits with exchanges,

debt securities, placements to banks and other financial institutions and finance lease receivables.

Management actively monitors the Group’s net interest rate exposure through setting limits on the level

of mismatch of interest rate repricing and duration gap and aims at maintaining an interest rate spread,

such that the Group is always in a net interest-bearing asset position and derive net interest income.

Fluctuations of prevailing rate quoted by the People’s Bank of China and Hong Kong Inter-bank Offered

Rate are the major sources of the Group’s cash flow interest rate risk.

The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk

management section of this note.

Sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for variable

rate financial assets and liabilities. The analysis is prepared by selecting major entities named the

Company, and HITH, the director of the Company hold the opinion that this scope has covered the

majority interest bearing assets and liabilities of the Group. When reporting to the management on the

interest rate risk, the Group will adopt a 25 basis points increase or decrease for sensitivity analysis,

while considering the reasonably possible change in interest rates.

F-355

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 423

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Interest rate risk (continued)

Sensitivity analysis (continued)

2018 2017RMB’000 RMB’000

Profit after income tax for the yearIncrease by 25bps (87,210) (32,239)Decrease by 25bps 92,575 32,239

Other comprehensive income after income taxIncrease by 25bps (37,037) (33,490)Decrease by 25bps 37,418 33,490

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as

a result of changes in foreign exchange rates. With the internationalization of the Group, currency risk

exposure gradually increased. In addition to the overseas equity investment, Group’s foreign currency

business and foreign currency assets has become increasingly rich. Position of HKD, USD, EUR, and

other non RMB asset increased. Some overseas subsidiaries or affiliates also issued Non-RMB bonds,

say Euro Bonds, USD Bonds and HKD Bonds. The foreign currency liabilities increased. These changes

make the Group facing a currency risk due to the existence of the differences of currency of assets and

liabilities. In addition, with the development of the FTA (Free Trade Area) business, especially offshore

debt and foreign investment gradually increased, also result in an increase of currency risk. During the

reporting period, the People’s Bank of China gradually deepen the process of RMB marketization, and

the volatility of RMB foreign exchange rate increased, which leading to a more serious currency risk for

the Group. In view of the exchange rate market and the development of the Group, the management

continues to strengthen in tracking and researching the currency risk, and constantly improve the

internal management and system construction. The Group is trying to hedge and release the currency

risk by a series of means, so as to support the Group to explore oversea business. As of 31 December

2018, the Group’s currency risk is under management’s control.

F-356

424 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Currency risk (continued)

Sensitivity analysis

The Group’s main currency risk exposure comes from its non-functional currency position, the sensitivity

analysis below has been determined based on the exposure to foreign exchange rates for financial

assets and financial liabilities denominated in non-functional currency for the Group. The analysis is

prepared assuming the financial instruments outstanding at 31 December 2017 were outstanding for

the whole year. When reporting to the management on the currency risk, the Group will adopt a 5%

increase or decrease for sensitivity analysis, while considering the reasonably possible change in RMB

non-functional currency.

If RMB strengthened/weakened against non-functional currency by 5% with all other variables held

constant, the Group’s profit for the year ended 31 December 2018 would increase or decrease by

RMB494,425,000 (31 December 2017: RMB343,109,000) respectively.

Fair value of financial assets and liabilities

Some of the Group’s financial assets and liabilities are measured at fair value for financial reporting

purposes. The board of directors of the Group has set up certain process to determine the appropriate

valuation techniques and inputs for fair value measurements. The appropriateness of the process and

the determination of fair value are reviewed by the board of directors periodically.

The fair value of financial assets and financial liabilities are determined as follows:

• The fair value of financial assets with standard terms and conditions and traded in active liquid

markets are determined with reference to quoted market bid prices;

• The fair value of derivative instruments is calculated using quoted prices. Where such prices are

not available, fair value is determined by discounted cash flow analysis using the applicable yield

curve for the duration of the instruments for non-optional derivatives, and option pricing models

for optional derivatives;

• The fair value of other financial assets and financial liabilities (excluding those described above)

is determined in accordance with generally accepted pricing models based on discounted cash

flow analysis, market comparison approach, etc.

F-357

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 425

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Fair value of financial assets and liabilities (continued)

The Group uses valuation techniques to determine the fair value of financial instruments when it is

unable to obtain the open market quotation in active markets.

The main parameters used in valuation techniques for financial instruments held by the Group include

bond prices, interest rates, foreign exchange rates, equity and stocks prices, volatilities, correlations,

early repayment rates, counterparty credit spreads and others, which are all observable and obtainable

from open market.

Management determines the fair value of the Group’s level 3 financial instruments using a variety of

techniques, including examining correlations of these fair values with macro-economic factors, engaging

external values, and using valuation models that incorporate unobservable inputs such as loss coverage

ratios. The fair value measurement of these instruments will not change significantly if changing one or

more of the unobservable inputs to reflect reasonably possible alternative assumptions. The Group has

established internal control procedures to control the Group’s exposure to such financial instruments.

F-358

426 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments not measured at fair value

The table below summarises the carrying amounts and expected fair values with obvious variances of

those financial assets and liabilities not presented on the Group’s consolidated statement of financial

position at their fair values.

As at 31 December 2018 As at 31 December 2017

Carrying

amount Fair value

Carrying

amount Fair value

RMB’000 RMB’000 RMB’000 RMB’000

Financial assets

Debt instruments at amortised cost 683,296 682,726 – –

Held-to-maturity financial assets – – 78,718 78,867

Financial liabilities

Non-convertible bonds payable 134,024,662 137,495,291 125,252,866 120,751,828

Fair value hierarchy of financial instruments not measured at fair value

As at 31 December 2018

Level 1 Level 2 Level 3 Total

RMB’000 RMB’000 RMB’000 RMB’000

Financial assets

Debt instruments at amortised cost – 682,726 – 682,726

Financial liabilities

Bonds payable – 141,820,062 – 141,820,062

F-359

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 427

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments not measured at fair value (continued)

Fair value hierarchy of financial instruments not measured at fair value (continued)

As at 31 December 2017

Level 1 Level 2 Level 3 Total

RMB’000 RMB’000 RMB’000 RMB’000

Financial assets

Held-to-maturity financial assets – 78,867 – 78,867

Financial liabilities

Bonds payable – 124,154,079 – 124,154,079

The fair values of the financial assets and financial liabilities included in the level 2 categories above

have been determined in accordance with generally accepted pricing models based on a discounted

cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk

of counterparties.

Except for the above, the directors of the Company consider that the carrying amounts of financial

assets and financial liabilities recorded at amortised cost in the Group’s statements of financial position

approximate their fair values.

F-360

428 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis

The following table provides an analysis of financial instruments that are measured subsequent to initial

recognition at fair value, grouped into Levels 1 to 3.

The main parameters used in valuation techniques for financial instruments held by the Group include

bond prices, interest rates, foreign exchange rates, equity and stocks prices, volatilities, correlations,

early repayment rates, counterparty credit spreads and others, which are all observable and obtainable

from open market.

Instruments which have been valued using unobservable inputs have been classified by the Group as

level 3. Management determines the fair value of the Group’s level 3 financial instruments using a

variety of techniques, including examining correlations of these fair values with macro-economic factors,

engaging external appraisers, and using valuation models that incorporate unobservable inputs such as

loss coverage ratios. The fair value measurement of these instruments will not change significantly if

changing one or more of the unobservable inputs to reflect reasonably possible alternative assumptions.

The Group has established internal control procedures to control the Group’s exposure to such financial

instruments.

Classified asFinancial assets/Financial liabilities

Fair value as at31 Dec 2018

Fair value as at31 December 2017

Fair value hierarchy

Derivative instruments Listed options 13,606(Assets)

466,542

(Assets)

Level 1

52,994(Liabilities)

1,024,867

(Liabilities)

148,522(Assets)

– Level 2

182,389(Liabilities)

–

Derivative instruments Unlisted options 206,960(Assets)

81,119

(Assets)

Level 2

256,652(Liabilities)

503,386

(Liabilities)

17,304(Assets)

– Level 3

15,709(Liabilities)

–

Derivative instruments Equity linked notes and Debt

linked notes

– 265,955

(Assets)

Level 2

– –

F-361

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 429

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

Classified asFinancial assets/Financial liabilities

Fair value as at31 Dec 2018

Fair value as at31 December 2017

Fair value hierarchy

Derivative instruments Commodity forward contracts – 1,992

(Assets)

Level 2

– 12,729

(Liabilities)

Derivative instruments Foreign exchange Forward

contracts

55,757(Assets)

91,779

(Assets)

Level 2

118,393 (Liabilities)

106,618

(Liabilities)

369(Assets)

– Level 3

360(Liabilities)

–

Derivative instruments Interest rate, foreign exchange

and credit default swap

contracts

1,092,435(Assets)

1,586,509

(Assets)

Level 2

1,280,185(Liabilities)

1,611,497

(Liabilities)

86,118(Assets)

– Level 3

106,258(Liabilities)

–

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-362

430 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

Classified asFinancial assets/Financial liabilities

Fair value as at 31 Dec 2018

Fair value as at

31 December 2017

Fair value hierarchy

Derivative instruments Embedded equity instruments 421(Assets)

– Level 2

29,543(Liabilities)

86

(Liabilities)

Derivative instruments Equity swap contracts – 48,678

(Assets)

Level 2

877(Liabilities)

236,272

(Liabilities)

153,309(Assets)

– Level 3

175,414(Liabilities)

–

Derivative instruments Commodity future 5,956(Assets)

68,037

(Assets)

Level 2

Available-for-sale

investments

Listed equity investments

(non-restricted shares),

funds investments and debt

investments

– 2,924,764 Level 1

– 838,903 Level 2

Unlisted debt investments – 2,121,417 Level 2

– 5,361,078 Level 3

Unlisted fund investments – 4,554,965 Level 2

– 429,422 Level 3

Investments in wealth

investment products, trust

and other products (investing

in equity or debt other than

unlisted private equity)

– 23,495,280 Level 2

Restricted shares and funds – 1,731,046 Level 3

F-363

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 431

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

Classified asFinancial assets/Financial liabilities

Fair value as at 31 Dec 2018

Fair value as at

31 December 2017

Fair value hierarchy

Financial assets at fair

value through profit

or loss

Listed equity investments

(non-restricted shares),

funds investments and debt

investments

24,089,383 28,267,897 Level 1

51,465,472 30,268,711 Level 2

228,120 – Level 3

Unlisted equity investments

(non-restricted shares)

2,491,334 1,298,449 Level 2

6,109,148 480,774 Level 3

Unlisted debt investments 39,277,054 22,462,756 Level 2

474,192 334,930 Level 3

Unlisted fund investments 24,565,065 10,409,472 Level 2

83,670 – Level 3

Investments in wealth

investment products, trust

and other products (investing

in equity or debt other than

unlisted private equity)

19,402,155 6,333,710 Level 2

241,110 – Level 3

Restricted shares and funds 213,823 – Level 2

3,282 – Level 3

Investments in structure

products

8,516,228 – Level 2

45,378 – Level 3

Financial liabilities at

FVTPL

Listed equity investments

(non-restricted shares),

and debt investments

757,0613,239,462

1,907,402

5,043,836

Level 1

Level 2

Unlisted debt investments 1,044,240 865,380 Level 2

1,499 – Level 3

Financial liabilities arising from

consolidation of structured

entities

3,585,088 1,342,318 Level 2

Structured notes issued 11,813,581 10,183,435 Level 2

299,387 – Level 3

Gold lending business 5,460,636 327,600 Level 2

Gold options – 1,073,529 Level 2

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-364

432 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

Classified asFinancial assets/Financial liabilities

Fair value as at 31 Dec 2018

Fair value as at

31 December 2017

Fair value hierarchy

FVTOCI Listed equity investments

(non-restricted shares),

funds investments and debt

investments

7,221,765 – Level 1

Unlisted equity investments

(non-restricted shares)

14,651,459 – Level 2

266,571 – Level 3

Unlisted debt investments 7,439,937 – Level 2

779,789 – Level 3

Valuation methods for financial instruments

For Level 1 financial instruments, fair values are unadjusted quotes in active markets for identical assets.

For Level 2 financial instruments, valuations are generally calculated based on the fair value of the

underlying investments which are debt securities or publicly traded equity instruments in each portfolio

or obtained from third party pricing services agent such as China Central Depository & Clearing Co.,

Ltd. which are based on the discounted cash flow model. All significant inputs are observable, directly

or indirectly from the market.

For Level 3 financial instruments, the management obtains valuation quotations from counterparties

or uses valuation techniques to determine the fair value, including discounted cash flow analysis, net

asset value, market comparison approach and option pricing model, etc. The fair value of these financial

instruments may be based on unobservable inputs which may have significant impact on the valuation

of these financial instruments, and therefore, these assets and liabilities have been classified by the

Group as level 3. The unobservable inputs which may have impact on the valuation include weighted

average cost of capital, liquidity discount, price to book ratio, etc.

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-365

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 433

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Financial instruments measured at fair value on a recurring basis (continued)

Reconciliation of Level 3 fair value measurements of financial assets and financial liabilities

31 December 2018

Available-

for-sale

investments

Financial

assets at

fair value

through

profit or loss

Equity

instruments

at FVTOCI

Debt

instruments

at FVTOCI

Financial

liabilities at

fair value

through

profit or loss

Derivative

assets

Derivative

liabilities

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 31 December 2017 7,521,547 815,704 – – 274,655 – –

Effect of adoption of IFRS 9 (7,521,547) 6,694,885 268,457 558,205 – – –

As at 1 January 2018 – 7,510,589 268,457 558,205 274,655 – –

Transfer in – 793,733 – – 75,482 257,100 297,741

Purchase/(disposal) – 513,324 – 198,182 (58,647) – –

Transfer out – (1,949,253) – – (42,518) – –

Total losses and gains

– other losses and gains – 316,507 (1,886) 23,402 51,914 – –

As at 31 Dec 2018 – 7,184,900 266,571 779,789 300,886 257,100 297,741

31 December 2017

As at 1 January 2017 4,022,968 3,634,383 – – 1,909,546 – –

Transfer in 4,361,651 563,555 – – 213,220 – –

Purchase/(disposal) 779,468 – – – – – –

Transfer out (1,218,923) (3,188,027) – – (1,721,563) – –

Total losses and gains

– other losses and gains (423,617) (194,207) – – (126,548) – –

As at 31 December 2017 7,521,547 815,704 – – 274,655 – –

F-366

434 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Capital management

The Group’s objectives when managing capital are:

1. To safeguard the Group’s ability to continue as a going concern so that it can continue to provide

returns for shareholders and benefits for other stakeholders;

2. To support the Group’s stability and growth;

3. To maintain a strong capital base to support the development of its business; and

4. To comply with the capital requirements under jurisdiction’s local regulations.

In accordance with (the relevant regulations issued by Shanghai Securities Regulatory Bureau’s 18

March 2014), the Company is required to meet the following standards for risk control indicators on

a continual basis:

1. The ratio between its net capital and the sum of its various risk capital provisions shall be no less

than 100% (“Ratio 1”);

2. The ratio between its net capital and its net assets shall be no less than 20% (“Ratio 2”);

3. The ratio between its net capital and its liabilities shall be no less than 8% (“Ratio 3”);

4. The ratio between its net assets and its liabilities shall be no less than 10% (“Ratio 4”);

5. The ratio between the value of equity securities and equity related derivatives held and its net

capital shall not exceed 100% (“Ratio 5”);

6. The ratio between the value of non-equity securities held, non-equity related derivatives and net

capital shall not exceed 500% (“Ratio 6”);

7. The ratio between its core net capital and total assets of in-balance-sheet and off-balance-sheet

shall be no less than 8% (“Ratio 7”);

F-367

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 435

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

73. FINANCIAL RISK MANAGEMENT (continued)

Capital management (continued)

8. The ratio between its high quality liquid assets and net cash outflow in 30 days shall be no less

than 100% (“Ratio 8”); and

9. The ratio between its available stable funding and stable funding needed shall be no less than

100% (“Ratio 9”).

Net capital refers to net assets minimises risk adjustments on certain types of assets as defined in the

Administrative Measures.

As at 31 December 2018 and 2017, the Company has maintained the above ratios as follows:

2018/12/31 2017/12/31

Net capital (RMB’000) 71,377,007 75,292,211Ratio 1 253.27% 249.31%Ratio 2 65.97% 70.46%Ratio 3 46.07% 50.16%Ratio 4 69.84% 71.20%Ratio 5 28.94% 30.78%Ratio 6 117.20% 57.72%Ratio 7 26.03% 27.06%Ratio 8 477.91% 188.90%Ratio 9 137.11% 135.49%

The above ratios are calculated based on the underlying financial information prepared in accordance

with the relevant accounting rules and financial regulations applicable to enterprises in the People’s

Republic of China regulated by the China Securities Regulatory Commission.

Certain subsidiaries of the Group are also subject to capital requirements under relevant regulations

in PRC, Hong Kong and other jurisdictions. The capital of the Group mainly comprises its total equity.

F-368

436 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

74. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:

As at 31 December 2018 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the statements of financial

position

Net amounts of financial

assets presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral received Net amount

Derivative instruments (note 42) 1,847,340 66,583 1,780,757 – – 1,780,757Accounts receivable from brokers,

dealers and clearing house (note 41) 10,355,525 3,920,544 6,434,981 1,000,259 129,112 5,305,610

Advances to customers on margin financing (note 34) 48,861,009 – 48,861,009 44,926,208 3,934,801 –

As at 31 December 2017 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial assets

Gross amounts of recognised

financial liabilities set

off in the statements of financial

position

Net amounts of financial assets

presented in the statement

of financial position

(d)(i) Financial instruments

(d)(ii) Cash collateral received Net amount

Derivative instruments (note 42) 2,613,863 3,251 2,610,612 – – 2,610,612Accounts receivable from brokers,

dealers and clearing house (note 41) 9,792,616 3,771,075 6,021,541 188,358 253,302 5,579,881

Advances to customers on margin

financing (note 34) 61,560,953 – 61,560,953 56,177,307 5,383,646 –

Deposits with exchanges (note 36) 8,528,675 – 8,528,675 76,375 – 8,452,300

F-369

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 437

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

74. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar

agreements:

As at 31 December 2018 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial liabilities

Gross amounts of recognised

financial assets set off in the

statements of financial

position

Net amounts of financial

liabilities presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral

pledged Net amount

Derivative instruments (note 42) 2,269,745 50,971 2,218,774 – – 2,218,774Pending payable to clearing

house (note 54) 6,168,400 3,920,544 2,247,856 1,358,081 – 889,775Financial liabilities held for

trading (note 56) 4,787,319 – 4,787,319 – 3,860,420 926,899

As at 31 December 2017 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d)

in RMB’000

Related amounts not set off in the statement of

financial position

Description

Gross amounts of recognised

financial liabilities

Gross amounts of recognised

financial assets set off in the

statements of financial

position

Net amounts of financial

liabilities presented in

the statement of financial

position(d)(i) Financial

instruments

(d)(ii) Cash collateral pledged Net amount

Derivative instruments (note 42) 3,514,713 19,259 3,495,454 – – 3,495,454Pending payable to clearing house

(note 54) 7,732,991 3,771,075 3,961,916 467,475 – 3,494,441

Financial liabilities held for trading

(note 56) 6,864,074 – 6,864,074 – 3,849,105 3,014,969

The Group has entered into master netting arrangements with counterparties for the derivative

instruments and also with clearing house for un-settled trades.

F-370

438 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

74. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued)

Except for the enforceable master netting arrangements and the offset-right of the financial assets

under the similar agreements disclosed above, the collaterals of which, such as financial assets held

under resale agreement, financial assets sold under repurchase agreement, borrowing with collateral,

advances to customers and etc., are disclosed in the corresponding notes, which are generally not on

the net basis in financial position. However, the risk exposure associated with favorable contracts is

reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the

counterparty are terminated and settled on a net basis. As of 31 December 2018 and 31 December

2017, the fair value of the collaterals related to the above items exceeded the book value of those

financial instruments; net exposure and net amount is insignificant after setting off the collaterals.

75. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group’ liabilities arising from financing activities, including both

cash and non-cash changes. Liabilities arising from financing activities are those for which cash flow

were or future cash flow will be classified in the Group’s consolidated statement of cash flows as cash

flows from financing activities.

Borrowings

Bonds

payables and

short-term

financing

payables

Interest

payables

Dividend

payables Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2018 61,321,990 159,585,031 3,184,872 19,198 224,111,091

Transfers 380,122 2,804,750 (3,184,872) – –

Financing cash flows 15,099,353 (4,209,382) – (3,179,705) 7,710,266

Non-cash changes:

– Interest expenses 2,992,938 7,550,041 – – 10,542,979

– Exchange difference 408,917 956,347 – – 1,365,264

– Dividend distribution – – – 3,207,559 3,207,559

Conversion into ordinary shares

of a subsidiary – (1,962) – – (1,962)

As at 31 December 2018 80,203,320 166,684,825 – 47,052 246,935,197

F-371

HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share) | 439

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

75. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES (continued)

Borrowings

Bonds

payables and

short-term

financing

payables

Interest

payables

(Note)

Dividend

payables Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 1 January 2017 61,148,555 148,159,309 3,434,556 7,536 212,749,956

Financing cash flows 2,716,981 12,470,810 (8,307,021) (2,894,357) 3,986,413

Non-cash changes:

– Interest expenses 77,135 217,639 8,057,337 – 8,352,111

– Exchange difference (2,620,681) (1,262,727) – – (3,883,408)

– Dividend distribution – – – 2,913,226 2,913,226

Other Changes – – – (7,207) (7,207)

As at 31 December 2017 61,321,990 159,585,031 3,184,872 19,198 224,111,091

Note: Interest payable only includes those arising from borrowings, short-term financing payables and bonds payables.

76. AUDITORS REMUNERATION

2018/12/31 2017/12/31RMB’000 RMB’000

Annual audit fee for the Company 7,140 6,600Other subsidiaries’ audit fees 19,126 15,107

26,266 21,707

F-372

440 | HAITONG SECURITIES CO., LTD. | Annual Report 2018 (H Share)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the year ended 31 December 2018

77. SUBSEQUENT EVENTS

Profit distribution resolution

On 27 March 2019, the board of directors of the Company proposed a profit distribution resolution,

Cash dividend of RMB1.5 per 10 shares (inclusive of tax) was distributed to all holders of A Shares

and H Shares whose names appear on the register of members of the Company on the record date.

The total cash dividends to be distributed would be RMB1,725,255,000 on the basis of a total share

capital of 11,501,700,000 A Shares and H Shares in issue. The retained profits of the Company of

RMB19,993,726,924.22 following the cash dividend distribution will be carried forward to the next year.

The specific overall amount of cash dividends under distribution and the retained profits to be carried

forward to the next year will be calculated according to the actual number of shares of the Company

in issue on the record date for the cash dividend distribution.

The cash dividend will be calculated and declared in RMB, and paid in RMB to A share shareholders

and in HKD equivalent to H share shareholders. The actual HKD amount will be converted from RMB

at the average benchmark exchange rate of the last 5 working days published by the People’s Bank of

China before the 2018 annual general meeting.

After the profit distribution resolution has been approved by the annual general meeting, the cash

dividend will be paid out within two months from the date of approval.

Listing application by a subsidiary

On 25 March 2019, Haitong Uni Trust International Leasing Co., Ltd, a wholly-owned subsidiary of the

Group, resubmitted a listing application (Form A1) to the Hong Kong Stock Exchange Limited.

78. COMPARATIVE FIGURES

Certain comparative figures have been restated to conform with the current year’s presentation.

F-373

126 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

REPORT ON REVIEW OF CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

TO THE BOARD OF DIRECTORS OF HAITONG SECURITIES CO., LTD.(Incorporated in the People’s Republic of China with limited liability)

Introduction

We have reviewed the condensed consolidated financial statements of Haitong Securities Co., Ltd. (the

“Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 127 to 208,

which comprise the condensed consolidated statement of financial position as of 30 June 2019 and

the related condensed consolidated statement of profit or loss, statement of profit or loss and other

comprehensive income, statement of changes in equity and statement of cash flows for the six-months

period then ended, and certain explanatory notes. The Rules Governing the Listing of Securities on The

Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information

to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim

Financial Reporting” (“IAS 34”) issued by the International Accounting Standards Board. The directors

of the Company are responsible for the preparation and presentation of these condensed consolidated

financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these

condensed consolidated financial statements based on our review, and to report our conclusion solely to

you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not

assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 “Review

of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the

International Auditing and Assurance Standards Board. A review of these condensed consolidated financial

statements consists of making inquiries, primarily of persons responsible for financial and accounting

matters, and applying analytical and other review procedures. A review is substantially less in scope than an

audit conducted in accordance with International Standards on Auditing and consequently does not enable

us to obtain assurance that we would become aware of all significant matters that might be identified in

an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed

consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Deloitte Touche TohmatsuCertified Public Accountants

Hong Kong

30 August 2019

F-374

127HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSSFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018RMB’000 RMB’000

NOTES (unaudited) (unaudited)

Commission and fee income 6 6,209,922 5,347,240Interest income 7 6,654,733 7,405,059Finance lease income 2,359,689 1,689,926Investment income and gains (net) 8 5,846,516 1,636,571

21,070,860 16,078,796Other income and gains 9 5,002,600 2,910,777

Total revenue, gains and other income 26,073,460 18,989,573

Depreciation and amortisation 10 (524,164) (283,673)Staff costs (3,442,950) (2,554,605)Commission to account executives (238,502) (289,468)Brokerage transaction fees and other services expenses 11 (1,108,832) (874,917)Interest expenses 12 (6,761,366) (6,443,120)Impairment losses under expected credit loss model 13 (1,059,233) (682,526)Impairment losses on other assets (12,260) (15,303)Other expenses 14 (5,073,822) (3,308,268)

Total expenses (18,221,129) (14,451,880)

Share of results of associates and joint ventures 151,426 (36,307)

Profit before income tax 8,003,757 4,501,386Income tax expense 15 (1,935,608) (1,042,017)

Profit for the period 6,068,149 3,459,369

Attributable to: Owners of the Company 5,526,505 3,030,926 Non-controlling interests 541,644 428,443 Including: Perpetual notes 24,851 24,707

6,068,149 3,459,369

Earnings per share (Expressed in RMB per share) – Basic 16 0.48 0.26 – Diluted 16 0.48 0.26

The accompanying notes form part of these unaudited condensed consolidated financial statements.

F-375

128 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Profit for the period 6,068,149 3,459,369

Other comprehensive income/(expenses):Items that will not be reclassified subsequently to profit or loss:Actuarial (losses)/gains on defined benefit obligations (63,879) 4,299Fair value gains/(losses) on equity instruments measured at fair value through other comprehensive income 1,086,063 (689,252)Income tax impact (264,795) 172,313

Subtotal 757,389 (512,640)

Items that may be subsequently reclassified to profit or loss:Exchange differences arising on translation of foreign operations 62,069 (195,160)Fair value (losses)/gains on hedges of net investments in foreign operations (3,457) 101,392Fair value gains/(losses) on: Debt instruments measured at fair value through other comprehensive income Net fair value changes during the period 79,076 (133,429) Reclassification adjustment to profit or loss on disposal (28,201) 5,311 Reclassification adjustment to profit or loss for expected credit losses (4,052) 29,352 Income tax relating to components of other comprehensive income (13,556) 43,997Share of other comprehensive income/(expenses) of associates and joint ventures, net of related income tax 66,557 (41,175)Others 1,002 –

Subtotal 159,438 (189,712)

Other comprehensive income/(expenses) for the period (net of tax) 916,827 (702,352)

Total comprehensive income for the period 6,984,976 2,757,017

Attributable to: Owners of the Company 6,389,628 2,281,030 Non-controlling interests 595,348 475,987 Including: Perpetual notes 24,738 24,145

6,984,976 2,757,017

The accompanying notes form part of these unaudited condensed consolidated financial statements.

F-376

129HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2019

2019/06/30 2018/12/31

RMB’000 RMB’000

NOTES (unaudited) (audited)

Non-current assets

Property and equipment 17 6,496,853 6,044,423

Right-of-use assets 18 1,754,718 –

Investment properties 177,283 213,429

Goodwill 19 4,061,541 4,046,190

Other intangible assets 511,344 517,795

Deferred tax assets 20 3,313,900 3,241,202

Investments accounted for using equity method 21 5,293,083 5,312,881

Finance lease receivables 22 26,794,282 30,824,664

Receivables arising from sale-and-leaseback arrangements 23 7,387,410 –

Equity instruments at fair value through

other comprehensive income 24 15,932,967 15,228,291

Debt instruments at fair value through

other comprehensive income 25 6,564,282 5,768,988

Debt instruments measured at amortised cost 26 1,736,542 679,214

Financial assets at fair value through profit or loss 27 26,460,990 18,368,406

Financial assets held under resale agreements 28 6,272,577 11,002,055

Other loans and receivables 29 3,439,034 5,647,819

Loans and advances 30 3,581,220 3,744,563

Deposits with exchanges 31 1,205,014 1,381,539

Restricted bank balances and cash 32 850,664 739,260

Other non-current assets 34 524,265 1,179,204

Total non-current assets 122,357,969 113,939,923

F-377

130 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2019

2019/06/30 2018/12/31

RMB’000 RMB’000

NOTES (unaudited) (audited)

Current assets

Advances to customers on margin financing 35 52,096,466 48,861,009

Accounts receivable 36 13,167,368 8,257,214

Finance lease receivables 22 29,575,235 30,828,048

Receivables arising from sale-and-leaseback arrangements 23 4,083,497 –

Debt instruments at fair value through

other comprehensive income 25 6,586,108 9,362,242

Debt instruments measured at amortised cost 26 1,411,410 4,082

Financial assets at fair value through profit or loss 27 170,270,376 158,837,008

Derivative financial assets 37 1,367,102 1,780,757

Financial assets held under resale agreements 28 59,558,212 71,676,737

Other loans and receivables 29 17,873,162 14,043,711

Loans and advances 30 469,900 618,924

Other current assets 38 3,336,458 3,031,728

Placements to banks and other financial institutions 110,378 31,144

Deposits with exchanges 31 8,060,179 5,601,350

Clearing settlement funds 39 8,217,968 7,646,561

Deposits with central banks 40 1,937,889 2,426,236

Deposits with other banks 40 231,262 253,908

Bank balances and cash 32 122,196,330 97,423,052

Total current assets 500,549,300 460,683,711

Total assets 622,907,269 574,623,634

F-378

131HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2019

2019/06/30 2018/12/31

RMB’000 RMB’000

NOTES (unaudited) (audited)

Current liabilities

Borrowings 41 58,204,250 52,489,162

Short-term financing bills payables 42 35,381,594 26,537,968

Bonds payable 43 57,220,798 41,923,410

Accounts payable to brokerage clients 44 90,371,199 71,893,535

Customer accounts 45 2,490,178 2,160,326

Contract liabilities 352,167 284,005

Other payables and accruals 46 15,930,742 13,455,014

Lease liabilities 18 332,264 –

Provisions 47 152,929 145,107

Tax liabilities 1,215,422 1,535,337

Financial liabilities at fair value through profit or loss 48 22,746,698 23,862,827

Derivative financial liabilities 37 2,002,562 2,218,774

Financial assets sold under repurchase agreements 49 65,712,895 56,372,903

Placements from banks and other financial institutions 50 3,101,419 8,482,577

Deposits from central banks 469,020 470,838

Deposits from other banks 21,140 19,950

Total current liabilities 355,705,277 301,851,733

Net current assets 144,844,023 158,831,978

Total assets less current liabilities 267,201,992 272,771,901

Equity

Share capital 51 11,501,700 11,501,700

Capital reserve 56,301,332 56,405,921

Revaluation reserve 52 429,452 (400,148)

Translation reserve (797,445) (803,870)

General reserves 19,911,451 19,819,343

Retained profits 35,048,844 31,335,629

Equity attributable to owners of the Company 122,395,334 117,858,575

Non-controlling interests 14,732,212 12,327,344

Including: Perpetual notes 1,241,080 1,266,286

Total equity 137,127,546 130,185,919

F-379

132 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2019

2019/06/30 2018/12/31

RMB’000 RMB’000

NOTES (unaudited) (audited)

Non-current liabilities

Long-term payables 53 7,121,977 6,664,935

Deferred tax liabilities 20 811,765 206,710

Long-term borrowings 41 28,511,034 27,714,158

Bonds payable 43 84,218,934 98,223,447

Other payables and accruals 46 875,844 1,197,086

Financial liabilities at fair value through profit or loss 48 1,695,469 2,338,127

Lease liabilities 18 616,918 –

Placements from banks and other financial institutions 50 6,222,505 6,241,519

Total non-current liabilities 130,074,446 142,585,982

Total equity and non-current liabilities 267,201,992 272,771,901

The accompanying notes form part of these unaudited condensed consolidated financial statements.

The unaudited condensed consolidated financial statements were approved by the Board of Directors on 30

August 2019 and signed on its behalf by:

周杰 瞿秋平 張信軍Chairman of Board Executive Director and

General Manager

Chief Financial Officer

F-380

133HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2019

Attributable to owners of the Company Non-controlling interests

Share

capital

Capital

reserve

Revaluation

reserve

Translation

reserve

General

reserves

Retained

profits Total

ordinary

shareholders

of

subsidiaries

Perpetual

Notes Total

Total

equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Note a)

Unaudited

At 31 December 2018 11,501,700 56,405,921 (400,148) (803,870) 19,819,343 31,335,629 117,858,575 11,061,058 1,266,286 12,327,344 130,185,919

Adjustment (Note 3) – – – – – (35,423) (35,423) (2,876) – (2,876) (38,299)

At 1 January 2019 (restated) 11,501,700 56,405,921 (400,148) (803,870) 19,819,343 31,300,206 117,823,152 11,058,182 1,266,286 12,324,468 130,147,620

Profit for the period – – – – – 5,526,505 5,526,505 516,793 24,851 541,644 6,068,149

Other comprehensive income/

(expense) for the period – – 856,698 6,425 – – 863,123 53,817 (113) 53,704 916,827

Total comprehensive income/

(expense) for the period – – 856,698 6,425 – 5,526,505 6,389,628 570,610 24,738 595,348 6,984,976

H shares issued by a subsidiary – (88,758) – – – – (88,758) 2,058,655 – 2,058,655 1,969,897

Shares issued under convertible

bond and share option schemes

of a subsidiary – 4,131 – – – – 4,131 2,119 – 2,119 6,250

Appropriation to general reserve – – – – 92,108 (92,108) – – – – –

Cash dividend recognised as

distribution (Note 57) – – – – – (1,725,255) (1,725,255) – – – (1,725,255)

Distribution to non-controlling

interests and perpetual

notes holders – – – – – 12,516 12,516 (213,254) (50,062) (263,316) (250,800)

Share-based payments of

a subsidiary – – – – – – – 21,811 – 21,811 21,811

Purchase of shares held under

the share award scheme

of a subsidiary – (19,662) – – – – (19,662) (11,272) – (11,272) (30,934)

Disposal of equity instruments

at fair value through other

comprehensive income – – (27,098) – – 27,098 – – – – –

Changes in non-controlling interests – (300) – – – – (300) 4,281 – 4,281 3,981

Others – – – – – (118) (118) – 118 118 –

At 30 June 2019 11,501,700 56,301,332 429,452 (797,445) 19,911,451 35,048,844 122,395,334 13,491,132 1,241,080 14,732,212 137,127,546

F-381

134 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the six months ended 30 June 2019

Attributable to owners of the Company Non-controlling interests

Share Capital Revaluation Translation General Retained

Ordinary

Shareholders Perpetual Total

capital reserve reserve reserve reserves profits Total of subsidiaries Notes Total equity

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Note a)

Unaudited

At 1 January 2018 11,501,700 56,357,980 1,359,762 (445,275) 18,018,053 30,560,381 117,352,601 10,647,409 1,264,427 11,911,836 129,264,437

Profit for the period – – – – – 3,030,926 3,030,926 403,736 24,707 428,443 3,459,369

Other comprehensive (expense)/

income for the period – – (607,725) (142,171) – – (749,896) 48,106 (562) 47,544 (702,352)

Total comprehensive (expense)/

income for the period – – (607,725) (142,171) – 3,030,926 2,281,030 451,842 24,145 475,987 2,757,017

Shares issued under convertible

bond and share option schemes

of a subsidiary – – – – – – – 11,416 – 11,416 11,416

Appropriation to general reserve – – – – 28,162 (28,162) – – – – –

Cash dividend recognised as

distribution (Note 57) – – – – – (2,645,391) (2,645,391) – – – (2,645,391)

Distribution to non-controlling

interests and perpetual

notes holders – – – – – 12,456 12,456 (375,733) (49,826) (425,559) (413,103)

Share-based payments of

a subsidiary – – – – – – – 17,380 – 17,380 17,380

Purchase of shares held under

the share award scheme

of a subsidiary – – – – – – – (18,966) – (18,966) (18,966)

Others – – – – – (1,620) (1,620) – 1,620 1,620 –

At 30 June 2018 11,501,700 56,357,980 752,037 (587,446) 18,046,215 30,928,590 116,999,076 10,733,348 1,240,366 11,973,714 128,972,790

Note a:

Capital reserve of the Group represents primarily (i) the share premium arisen from the issuance of the Company’s shares; (ii) the difference between the considerations paid or received over the proportionate share of net assets attributable to the changes of the Group’s equity interest in subsidiaries without loss of control; and (iii) the impact of share-based payments and share award scheme.

The accompanying notes form part of these unaudited condensed consolidated financial statements.

F-382

135HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018

RMB’000 RMB’000

(unaudited) (unaudited)

OPERATING ACTIVITIESProfit before income tax 8,003,757 4,501,386

Adjustments for Interest expenses 5,298,856 5,160,107

Share of results of associates and joint ventures (151,426) 36,307

Depreciation and amortisation 524,164 283,673

Impairment losses under expected credit loss model 1,059,233 682,526

Impairment losses of other assets 12,260 15,303

Share-based payment of a subsidiary 21,811 17,380

Losses on disposal of property and equipment

and other intangible assets 1,653 4,134

Foreign exchange losses, net 23,437 926

Losses on partial disposal of an associate – 5,398

Interest income from debt instruments at fair value

through other comprehensive income (302,351) (232,104)

Interest income from debt instruments measured

at amortised cost (16,657) –

Dividend income arising from equity instruments

at fair value through other comprehensive income (2,494) (2,000)

Net gains arising from debt instruments at fair value

through other comprehensive income (25,707) (27,657)

Net realised gains and income arising from FVTPL (236,351) (205,012)

Fair value change of financial instruments at fair value

through profit or loss (1,301,650) 511,861

Others (21,761) 41,735

Operating cash flows before movements in working capital 12,886,774 10,793,963

F-383

136 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018

RMB’000 RMB’000

(unaudited) (unaudited)

Increase in finance lease receivables and receivables arising

from sale-and-leaseback arrangements (6,605,764) (9,078,113)

Increase in financial assets at fair value through profit or loss

and derivative financial assets (17,606,309) (28,520,716)

Decrease/(increase) in financial assets held under resale agreements 16,580,908 (1,744,001)

(Increase)/decrease in other loans and receivables (1,763,169) 1,386,978

Decrease in loans and advances 342,016 768,529

(Increase)/decrease in advances to customers on margin financing (3,463,765) 2,633,877

Increase in accounts receivables and other current assets (5,115,260) (6,487,872)

(Increase)/decrease in placements to banks and other

financial institutions (79,307) 638,117

Increase in deposits with exchanges (2,255,341) (419,029)

(Increase)/decrease in deposit with central banks (9,988) 6,410

Decrease in restricted bank deposits 193,643 1,045,296

(Increase)/decrease in cash held on behalf of clients (14,331,432) 1,004,562

Increase in accounts payable to brokerage clients and

other payables and accruals 19,868,206 545,230

Increase/(decrease) in customer accounts 329,852 (1,403,338)

Increase in contract liabilities 68,162 457,461

Increase/(decrease) in provisions 11,762 (106,172)

(Decrease)/increase in financial liabilities at fair value

through profit or loss and derivative financial liabilities (1,974,999) 3,574,873

Increase in financial assets sold under repurchase agreements 10,096,848 7,701,816

(Decrease)/increase in placements from banks and other

financial institutions (5,278,193) 10,138,437

Decrease in deposit from central banks (1,818) (9,048)

Increase/(decrease) in deposit from other banks 1,190 (86,979)

Cash from/(used in) operations 1,894,016 (7,159,719)

Income taxes paid (2,019,701) (2,064,057)

Interest paid (1,351,476) (1,208,956)

NET CASH USED IN OPERATING ACTIVITIES (1,477,161) (10,432,732)

F-384

137HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018

RMB’000 RMB’000

NOTES (unaudited) (unaudited)

INVESTING ACTIVITIESDividends received from associates and other investments 544,548 101,693

Dividends received from equity instruments at fair value

through other comprehensive income 2,494 2,000

Purchases of property and equipment and other intangible assets (906,898) (404,650)

Purchases of investment properties – (240,620)

Payments for rental deposits (364) –

Proceeds on disposal of property and equipment 2,119 9,526

Purchase of investments accounted for using equity method (176,400) (30,000)

Proceeds from partial disposal of an associate – 1,607,596

Purchases of

equity instruments at fair value through other

comprehensive income (1,676) –

debt instruments at fair value through other

comprehensive income (6,285,836) (16,031,087)

debt instruments measured at amortised cost (2,467,232) –

financial assets at fair value through profit or loss (779,849) (2,228,640)

Proceeds from disposal of or interest received from

equity instruments at fair value through other

comprehensive income 383,064 –

debt instruments at fair value through other

comprehensive income 8,213,457 12,814,730

debt instruments at amortised cost 16,657 –

financial assets at fair value through profit or loss 684,093 2,401,173

NET CASH USED IN INVESTING ACTIVITIES (771,823) (1,998,279)

F-385

138 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSFor the six months ended 30 June 2019

Six months ended 30 June

2019 2018

RMB’000 RMB’000

NOTES (unaudited) (unaudited)

FINANCING ACTIVITIESDividends paid (189,673) (326,670)

Proceeds from issuance of subsidiaries’ shares 2,401 –

Proceeds from H share issuance of a subsidiary 2,039,249 –

Payments on capital returned to non-controlling shareholders (1,470) –

Borrowings raised 12,611,794 43,640,927

Interest paid for borrowings and bonds (4,972,557) (5,170,144)

Interest paid for perpetual notes (50,062) (49,826)

Issuance cost paid for short-term financing bills payables,

non-convertible bonds and others (221,749) (35,202)

Repayment of borrowings, short-term financing bills payables,

non-convertible bonds and others (69,901,553) (88,117,989)

Repayments of leases liabilities (219,139) –

Proceeds from short term bonds, non-convertible

bonds and others 73,988,269 63,190,478

Proceeds from share issued upon exercise of

share options of a subsidiary 6,250 9,525

Purchase of shares held under the share award scheme (30,934) (18,966)

NET CASH FROM FINANCING ACTIVITIES 13,060,826 13,122,133

NET INCREASE IN CASH AND CASH EQUIVALENTS 10,811,842 691,122

CASH AND CASH EQUIVALENTS

AT BEGINNING OF THE PERIOD 38,110,682 31,820,863

Effect of foreign exchange rate changes 12,530 (21,766)

CASH AND CASH EQUIVALENTS AT END OF THE PERIOD 33 48,935,054 32,490,219

Total interest paid (6,374,095) (6,428,926)

The accompanying notes form part of these unaudited condensed consolidated financial statements.

F-386

139HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

1. GENERAL INFORMATION

Haitong Securities Co., Ltd. (the “Company”) was transformed from Shanghai Haitong Securities Company (上海海通證券公司), which was established in 1988, to a limited liability company upon the authorisation by the People’s Bank of China in September 1994 and changed its name to 海通證券有限公司. In December 2001, the Company was further transformed to a joint-stock company upon the approval from China Securities Regulatory Commission (the “CSRC”). In January 2002, the Company changed its name from 海通證券有限公司 to Haitong Securities Co., Ltd. (海通證券股份有限公司). In June 2007, the Company’s merger with former Shanghai Urban Agro-Business Co., Ltd. (上海市都市農商社股份有限公司) was approved by the CSRC, and was listed on the Shanghai Stock Exchange in July in the same year. After its listing, its name was changed to “Haitong Securities”. On 27 April 2012, the Company issued H shares which were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”).

The address of the Company’s registered office and the principal place of business is Haitong Securities Building, No. 689 Guangdong Road, Shanghai, the People’s Republic of China (the “PRC”).

The Company and its subsidiaries (the “Group”) are principally engaged in securities and futures contracts dealing and broking, proprietary trading, margin and other financing, underwriting, assets management, direct equity investments, finance lease business, banking services, corporate finance business, individual finance business, fund management business and provision of investment advisory and consultancy services.

The condensed consolidated financial statements are presented in Renminbi (“RMB”), which is also the functional currency of the Company.

Significant events and transactions in the current interim period

On 3 June 2019, Haitong UniTrust International Leasing Co., Ltd., a subsidiary of the Group, was listed on the Main Board of Hong Kong Stock Exchange and issued 1,235,300,000 H shares with par value of RMB1. The gross proceeds amounted to HK$2,322,364 thousand.

2. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting” issued by the International Accounting Standards Board (“IASB”) as well as with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”).

The condensed consolidated financial statements of the Group should be read in conjunction with its 2018 annual financial statements.

F-387

140 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair value, as appropriate.

Other than changes in accounting policies resulting from application of new and amendments to International Financial Reporting Standards (“IFRSs”), the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2019 are the same as those presented in the Group’s annual financial statements for the year ended 31 December 2018.

Application of new and amendments to IFRSs

In the current interim period, the Group has applied, for the first time, the following new and amendments to IFRSs issued by the IASB, which are mandatorily effective for the annual period beginning on or after 1 January 2019 for the preparation of the Group’s condensed consolidated financial statements.

IFRS 16 LeasesIFRIC 23 Uncertainty over Income Tax TreatmentsAmendments to IAS 19 Plan Amendment, Curtailment or SettlementAmendments to IAS 28 Long-term Interests in Associates and Joint VenturesAmendments to IFRSs Annual Improvements to IFRSs 2015-2017 Cycle

Except as described below, the application of the new and amendments to IFRSs in the current period has had no material impact on the Group’s financial performance and positions for the current and prior periods and on the disclosures set out in these condensed consolidated financial statements.

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases

The Group has applied IFRS 16 for the first time in the current interim period. IFRS 16 superseded IAS 17 Leases (“IAS 17”), and related interpretations.

3.1.1 Key change in accounting policies resulting from application of IFRS 16

The Group applied the following accounting policies in accordance with the transition provisions of IFRS 16.

Definition of a lease

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

For contracts entered into or modified on or after the date of initial application, the Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.

F-388

141HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.1 Key change in accounting policies resulting from application of IFRS 16 (continued)

As a lessee

Allocation of consideration to components of a contract

For a contract that contains a lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components. Non-lease components are separated from lease component on the basis of their relative stand-alone prices.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the recognition exemption for lease of low-value assets. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight line basis over the lease term.

Right-of-use assets

Except for short-term leases and leases of low value assets, the Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

The cost of right-of-use asset includes:

• the amount of the initial measurement of the lease liability;

• any lease payments made at or before the commencement date, less any lease incentives received;

• any initial direct costs incurred by the Group; and

• an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.

Right-of-use assets in which the Group is reasonably certain to obtain ownership of the underlying leased assets at the end of the lease term is depreciated from commencement date to the end of the useful life. Otherwise, right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

The Group presents right-of-use assets as a separate line item on the condensed consolidated statement of financial position.

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142 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.1 Key change in accounting policies resulting from application of IFRS 16 (continued)

As a lessee (continued)

Leasehold land and building

For payments of a property interest which includes both leasehold land and building elements, the entire property is presented as property and equipment of the Group when the payments cannot be allocated reliably between the leasehold land and building elements.

Lease liabilities

At the commencement date of a lease, the Group recognises and measures the lease liability at the present value of lease payments that are unpaid at that date. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

The lease payments include:

• fixed payments (including in-substance fixed payments) less any lease incentives receivable;

• variable lease payments that depend on an index or a rate;

• amounts expected to be paid under residual value guarantees;

• the exercise price of a purchase option reasonably certain to be exercised by the Group; and

• payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

After the commencement date, lease liabilities are adjusted by interest accretion and lease payments.

The Group remeasures lease liabilities (and makes a corresponding adjustment to the related right-of-use assets) whenever:

• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the related lease liability is remeasured by discounting the revised lease payments using a revised discount rate at the date of reassessment.

• the lease payments change due to changes in market rental rates following a market rent review, in which cases the related lease liability is remeasured by discounting the revised lease payments using the initial discount rate.

F-390

143HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.1 Key change in accounting policies resulting from application of IFRS 16 (continued)

As a lessee (continued)

Lease modifications

The Group accounts for a lease modification as a separate lease if:

• the modification increases the scope of the lease by adding the right to use one or more underlying assets; and

• the consideration for the leases increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the particular contract.

For a lease modification that is not accounted for as a separate lease, the Group remeasures the lease liability based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

Taxation

For the purposes of measuring deferred tax for leasing transactions in which the Company recognises the right of-use assets and the related lease liabilities, the Company first determines whether the tax deductions are attributable to the right-of-use assets or the lease liabilities.

For leasing transactions in which the tax deductions are attributable to the lease liabilities, the Company applies IAS 12 Income Taxes requirements to right-of-use assets and lease liabilities separately. Temporary differences relating to right-of-use assets and lease liabilities are not recognised at initial recognition and over the lease terms due to application of the initial recognition exemption.

As a lessor

Allocation of consideration to components of a contract

Effective on 1 January 2019, the Group applies IFRS 15 Revenue from Contracts with Customers (“IFRS 15”) to allocate consideration in a contract to lease and non-lease components. Non-lease components are separated from lease component on the basis of their relative stand-alone selling prices.

Refundable rental deposits

Refundable rental deposits received are accounted under IFRS 9 and initially measured at fair value. Adjustments to fair value at initial recognition are considered as additional lease payments from lessees.

F-391

144 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.1 Key change in accounting policies resulting from application of IFRS 16 (continued)

As a lessor (continued)

Lease modification

The Group accounts for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.

Sale and leaseback transactions

The Group acts as a buyer-lessor

For a transfer of asset that does not satisfy the requirements of IFRS 15 to be accounted for as a sale of asset, the Group as a buyer-lessor does not recognise the transferred asset and recognises receivables arising from sales and leaseback arrangements equal to the transfer proceeds within the scope IFRS 9.

3.1.2 Transition and summary of effects arising from initial application of IFRS 16

Definition of a lease

The Group has elected the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease and not apply this standards to contracts that were not previously identified as containing a lease. Therefore, the Group has not reassessed contracts which already existed prior to the date of initial application.

For contracts entered into or modified on or after 1 January 2019, the Group applies the definition of a lease in accordance with the requirements set out in IFRS 16 in assessing whether a contract contains a lease.

F-392

145HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

As a lessee

The Group has applied IFRS 16 retrospectively with the cumulative effect recognised at the date of initial application, 1 January 2019. Any difference at the date of initial application is recognised in the opening retained profits and comparative information has not been restated.

When applying the modified retrospective approach under IFRS 16 at transition, the Group applied the following practical expedients to leases previously classified as operating leases under IAS 17, on lease-by-lease basis, to the extent relevant to the respective lease contracts:

• Relied on the assessment of whether leases are onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets as an alternative of impairment review;

• Applied a single discount rate to a portfolio of leases with similar characteristics;

• Elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within 12 months of the date of initial application;

• Excluded initial direct costs from measuring the right-of-use assets at the date of initial application; and

• used hindsight based on facts and circumstances as at date of initial application in determining the lease term for the Group’s leases with extension and termination options.

On transition, the Group has made the following adjustments upon application of IFRS 16:

As at 1 January 2019, the Group recognised additional lease liabilities and measured right-of-use assets at the carrying amounts as if IFRS 16 had been applied since commencement dates, but discounted using the incremental borrowing rates of the relevant group entities at the date of initial application by applying IFRS 16.C8(b) (i) transition.

When recognising the lease liabilities for leases previously classified as operating leases, the Group has applied incremental borrowing rates of the relevant group entities at the date of initial application. The weighted average lessee’s incremental borrowing rate applied by the relevant group entities ranges from 3.03% to 5.26%.

F-393

146 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

As a lessee (continued)

The reconciliation of the operating lease commitments and the opening balance of lease liabilities as at 1 January 2019 comprises the following:

2019/1/1RMB’000

Operating lease commitments disclosed as at 31 December 2018 1,008,160

Lease liabilities discounted at relevant incremental borrowing rates 930,358Less: Recognition exemption – short-term leases (78,352) Recognition exemption – low value assets (20)

Lease liabilities as at 1 January 2019 851,986

Analysed for reporting purpose as Current liabilities 310,494 Non-current liabilities 541,492

851,986

F-394

147HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

As a lessee (continued)

The carrying amount of right-of-use assets as at 1 January 2019 comprises the following:

2019/1/1RMB’000

Right-of-use assets relating to operating leases recognised upon application of IFRS 16 813,687Reclassified from prepaid lease payments (Note) Non-current 808,713 Current 503Reclassified from prepaid rental expense (Note) Current 1,661

1,624,564

By class:Buildings 818,201Leasehold land 795,218Others 11,145

1,624,564

Note：

As at 31 December 2018, upfront payments for leasehold land and buildings in the PRC were classified as prepaid lease payments, and prepaid rental expenses were classified as other receivables and prepayments. Upon application of IFRS 16, the prepaid lease payments and prepaid rental expenses were reclassified to right-of-use assets.

As a lessor

In accordance with the transitional provisions in IFRS 16, the Group is not required to make

any adjustment on transition for leases in which the Group is a lessor but account for these

leases in accordance with IFRS 16 from the date of initial application and comparative

information has not been restated.

Upon application of IFRS 16, new lease contracts entered into but commence after the date

of initial application relating to the same underlying assets under existing lease contracts are

accounted as if the existing leases are modified as at 1 January 2019. The application has had

no impact on the Group’s condensed consolidated statement of financial position at 1 January

2019. However, effective 1 January 2019, lease payments relating to the revised lease term

after modification are recognised as income on straight-line basis over the extended lease

term.

F-395

148 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

As a lessor (continued)

Before application of IFRS 16, refundable rental deposits received were considered as rights

and obligations under leases to which IAS 17 applied. Based on the definition of lease

payments under IFRS 16, such deposits are not payments relating to the right-of-use assets

and were adjusted to reflect the discounting effect at transition.

Effective on 1 January 2019, the Group has applied IFRS 15 to allocate consideration in the

contract to each lease and non-lease components. The change in allocation basis has had

no material impact on the condensed consolidated financial statements of the Group for the

current period.

Sales and leaseback transactions - the Group acts as a buyer-lessor

In accordance with the transition provisions of IFRS 16, sale and leaseback transactions entered

into before the date of initial application were not reassessed. Upon application of IFRS 16,

the Group as a buyer-lessor does not recognise the transferred asset if such transfer does not

satisfy the requirements of IFRS 15 as a sale. During the period, several sales and leaseback

transactions in which the relevant seller-lessees have an obligation or a right to repurchase the

relevant assets were accounted as financing arrangements under IFRS 9.

The following table summarises the impact of transition to IFRS 16 on retained profits at 1 January 2019.

Impact of adopting

IFRS 16 at 1 January 2019

RMB’000

Retained profits (35,423)

Impact at 1 January 2019 (35,423)

F-396

149HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

The following adjustments were made to the amounts recognised in the condensed consolidated statement of financial position at 1 January 2019. Line items that were not affected by the changes have not been included.

2018/12/31 IFRS 16 2019/1/1RMB’000 RMB’000 RMB’000(audited) (unaudited) (unaudited)

Non- current assets Right-of-use assets – 1,624,564 1,624,564 Other assets 1,179,204 (808,713) 370,491

Current assets Other receivables and prepayments 3,031,728 (2,164) 3,029,564

Equity Retained profits 31,335,629 (35,423) 31,300,206 Non-controlling interests 12,327,344 (2,876) 12,324,468

Current liabilities Lease liabilities – 310,494 310,494

Non-current liabilities Lease liabilities – 541,492 541,492

F-397

150 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

3. PRINCIPAL ACCOUNTING POLICIES (continued)

3.1 Impacts and changes in accounting policies of application on IFRS 16 Leases (continued)

3.1.2 Transition and summary of effects arising from initial application of IFRS 16 (continued)

The following tables summarise the impacts of applying IFRS 16 as a lessor on the Group’s condensed consolidated statement of financial position as at June 30, 2019 and its condensed consolidated statement profit or loss for the current interim period for each of the line items affected. Line items that were not affected by the changes have not been included.

Impact on the condensed consolidated statement of financial position

Amounts without

application ofIFRS 16, as a

As reported Adjustments lessorRMB’000 RMB’000 RMB’000

(Unaudited) (Unaudited) (Unaudited)

Non-current assets Finance lease receivables 26,794,282 7,387,410 34,181,692 Receivables arising from sale and leaseback arrangements 7,387,410 (7,387,410) –

Current assets Finance lease receivables 29,575,235 4,083,497 33,658,732 receivables arising from sale and leaseback arrangements 4,083,497 (4,083,497) –

Impact on the condensed consolidated statement of profit and loss

Amounts without

application ofIFRS 16, as a

As reported Adjustments lessorRMB’000 RMB’000 RMB’000

(Unaudited) (Unaudited) (Unaudited)

Finance lease income 2,359,689 156,122 2,515,811Interest income 6,654,733 (156,122) 6,498,611

4. KEY SOURCES AND CRITICAL ACCOUNTING JUDGEMENT

The preparation of the condensed consolidated financial statements requires management to make judgment, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. Actual results in the future may differ from those reported as a result of the use of estimation and assumptions about future conditions.

The key sources of estimation uncertainty used in the condensed consolidated financial statement for the six months ended 30 June 2019 are the same as those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2018.

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151HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

5. SEGMENT REPORTING

Information reported to the chief operating decision maker (the “CODM”), being the board of directors of the Company, for the purposes of resource allocation and assessment of segment performance focuses on the nature of products sold and services provided by the Group, which is also consistent with the Group’s basis of organisation, whereby the businesses are organised and managed separately as individual strategic business units that offers different products and serves different markets. With changes in environment of security market and constant development of various business activities, the Group will make adjustments to business segments in order to facilitate implementation of the Group’s strategic planning and satisfy internal management in the meantime. The Group’s business segments are classified in accordance with the requirements of International Financial Reporting Standards, and are based on the internal organisation structure, management requirements and internal reporting system. The reporting segments are determined based on business segments. A business segment is a component of the Group with all the following conditions satisfied: (1) such component is able to generate revenue and expenses in the ordinary course of the Group, (2) CODM periodically evaluates the operating results of these reporting segments to make decisions about resources to be allocated to the segments and assess their performance; (3) the Group has access to such component’s accounting information including financial position, operating results and cash flows. If two or more business segments have similar economic characteristics or a similar business model, they may be combined as one business segment. Based on its strategic planning and internal management requirements, the Group determines six business segments: wealth management, investment banking, asset management, trading and institution, finance lease and others. Classification of reporting segments is consistent with that of business segments.

Segment information is measured in accordance with the accounting policies and measurement criteria adopted by each segment when reporting to CODM, which are consistent with the accounting and measurement criteria in the preparation of the condensed consolidated financial statements.

Specifically, the Group’s operating segments are as follows:

(1) Wealth Management Segment engages in provision of a full range of financial services and investment solutions to retail and high net-worth clients. Services provided include brokering and dealing in securities and futures, investment consulting, wealth management as well as financial services such as margin financing, security lending, stock pledge, etc.;

(2) Investment Banking Segment engages in provision of sponsoring and underwriting services to enterprises and government clients for their fund raising activities in equity and debt capital markets, and also engages in provision financial consulting services for enterprises for their corporate actions such as merger and assets restructuring services as well as provision of services related to the National Equities Exchange and Quotations;

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152 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

5. SEGMENT REPORTING (continued)

(3) Asset Management Segment engages in provision of investment management services on diversified and comprehensive investment products including asset management, fund management, and private equity management to individual, corporate and institutional clients;

(4) Trading and Institution Segment engages in provision of stock sales and trading, prime brokerage, stock lending, and stock research in financial markets across the world to global institutional clients, and also engages in provision of market-making services for fixed income, currency and commodity products, futures and options, and derivatives on major exchanges around the world. At the same time, through investment funds and private equity projects, we enhance the synergistic advantages of all business divisions of the group, and focus on exploring investment opportunities with reasonable capital returns, so as to expand customer relations and promote the overall growth of the group’s business;

(5) Finance Lease Segment engages in provision of innovative financial solutions, including finance lease, operating lease, factoring, entrustment loans and relevant consulting to individuals, enterprises and government clients;

(6) Others Segment engages in provision of other comprehensive financial and information services to institutions clients, including warehouse receipts pledge service, pricing service, market-making service and services related to risk management.

Segment profit/loss represents the profit earned by/loss measured by each segment without allocation of income tax expenses. This is the measure reported to CODM for the purposes of resource allocation and performance assessment.

Share of result of associates and joint ventures are allocated to segment profit/loss while the corresponding investments in associates and joint ventures are not allocated to each segment.

During the six-months ended 30 June 2019, there has been no material changes in segment assets and liabilities. Accordingly, the condensed consolidated financial statements do not disclose such information.

F-400

153HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

5. SEGMENT REPORTING (continued)

Operating and Reportable segment

For the six months ended 30 June 2019 (unaudited)

Wealth management

Investment banking

Asset management

Trading and institution

Finance lease Others

Consolidated total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and results

Revenue and net investment gains 7,624,227 1,881,772 1,439,706 7,385,728 2,753,952 (14,525) 21,070,860Other income and gains 130,631 51,966 19,400 114,702 952,035 3,733,866 5,002,600

Segment revenue 7,754,858 1,933,738 1,459,106 7,500,430 3,705,987 3,719,341 26,073,460Segment expenses 4,976,628 1,124,210 722,221 4,683,724 2,961,051 3,753,295 18,221,129

Segment results 2,778,230 809,528 736,885 2,816,706 744,936 (33,954) 7,852,331

Share of results of associates and joint ventures – – 104,585 39,684 7,157 – 151,426

Profit before income tax 2,778,230 809,528 841,470 2,856,390 752,093 (33,954) 8,003,757

For the six months ended 30 June 2018 (unaudited)

Wealth Investment Asset Trading and Finance Consolidatedmanagement banking management institution lease Others total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Segment revenue and results

Revenue and net investment gains 7,675,843 1,598,308 981,523 3,651,251 2,111,400 60,471 16,078,796Other income and gains 120,191 65,603 18,580 224,037 513,712 1,968,654 2,910,777

Segment revenue 7,796,034 1,663,911 1,000,103 3,875,288 2,625,112 2,029,125 18,989,573Segment expenses 5,043,785 1,214,747 545,818 3,659,684 1,984,707 2,003,139 14,451,880

Segment results 2,752,249 449,164 454,285 215,604 640,405 25,986 4,537,693

Share of results of associates and joint ventures – – 96,451 (152,416) 19,658 – (36,307)

Profit before income tax 2,752,249 449,164 550,736 63,188 660,063 25,986 4,501,386

F-401

154 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

6. COMMISSION AND FEE INCOME

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Commission and fee income of securities brokerage business 2,494,218 2,171,290Commission and fee income of futures brokerage business 715,965 605,347Financial advisory and consultancy fee income 600,218 610,382Underwriting and sponsors fees 1,194,102 1,022,195Asset management fee income (including fund management fee income) 1,143,944 897,721Others 61,475 40,305

6,209,922 5,347,240

The major business types of commission and fee income from customers are as follows:

(1) Brokerage

The Group provides broking, dealing and handling services for securities, futures and options contracts. Commission income is recognised at a point in time on the execution date of the trades at a certain percentage of the transaction value of the trades executed.

(2) Investment Banking

The Group provides placing, underwriting or sub-underwriting services to customers for their fund raising activities in equity and debt capital markets, and also structured products arrangement services. Revenue is recognised at a point in time when the relevant placing, underwriting, sub-underwriting or structured products arrangement activities are completed. The Group also provides sponsoring services to clients for their fund raising activities and corporate advisory services to corporate clients for their corporate actions. The Group considers that all the services promised in a particular contract of being a sponsor or corporate advisor are interdependent and interrelated and should therefore be accounted for as a single performance obligation.

(3) Asset management

The Group provides asset management and investment advisory services on diversified and comprehensive investment products to customers. The customers simultaneously receives and consumes the benefit provided by the Group, hence the revenue is recognised as a performance obligation satisfied over time. Asset management fee income is charged at a fixed percentage per month of the net asset value of the managed accounts under management of the Group. The Group is also entitled to a performance fee when there is a positive performance for the relevant performance period and it is recognised at the end of the relevant performance period, when it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

F-402

155HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

7. INTEREST INCOME

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Bank interest income 1,321,976 1,520,141Interest income from advances to customers on margin financing 1,850,169 2,021,665Interest income from loans and advances 635,625 544,552Interest income from financial assets held under resale agreements 2,103,725 2,682,483Interest income from debt instruments at fair value through other comprehensive income and amortised cost 319,008 232,104Interest income from receivables arising from sale-and-leaseback arrangements 156,122 –Other interest income 268,108 404,114

6,654,733 7,405,059

8. INVESTMENT INCOME AND GAINS (NET)

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Net realised gains arising from financial assets/liabilities at fair value through profit or loss 4,516,665 2,118,775Fair value change of financial instruments at fair value through profit or loss 1,301,650 (511,861)Dividend income from equity instruments at fair value through other comprehensive income 2,494 2,000Net gains arising from debt instruments at fair value through other comprehensive income 25,707 27,657

5,846,516 1,636,571

F-403

156 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

9. OTHER INCOME AND GAINS

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Government grants 338,769 380,807Rental income from investment properties 6,378 6,883Rental income from operating lease 212,320 73,872Foreign exchange losses (23,437) (926)Sales income 3,729,827 1,962,314Others 738,743 487,827

5,002,600 2,910,777

10. DEPRECIATION AND AMORTISATION

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Depreciation for property and equipment 238,656 193,566Depreciation for right-of-use assets 201,018 –Depreciation for investment properties 3,636 597Amortisation of other intangible assets 80,854 79,107Amortisation of prepaid lease payments – 10,403

524,164 283,673

11. BROKERAGE TRANSACTION FEES AND OTHER SERVICES EXPENSES

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Securities and futures dealing and broking expenses 1,076,140 830,130Services expenses for underwriting, financial advisory and others 32,692 44,787

1,108,832 874,917

F-404

157HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

12. INTEREST EXPENSES

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Interest expense for: – Bank loans and overdrafts 1,620,793 1,171,358 – Placements from banks and other financial institutions 100,333 79,085 – Financial assets sold under repurchase agreements 866,358 751,319 – Accounts payable to brokerage clients 270,326 163,436 – Advances from China Securities Finance Corporation Ltd. 22,098 223,028 – Bond payables and short-term financing bills payable 3,660,899 3,988,749 – Lease liabilities 17,164 – – Others 203,395 66,145

6,761,366 6,443,120

13. IMPAIRMENT LOSSES UNDER EXPECTED CREDIT LOSS MODEL

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Expected credit losses in respect of: – Finance lease receivables 271,823 412,544 – Receivables arising from sale-and-leaseback arrangements 146,229 – – Advances to customers on margin financing 226,179 51,108 – Financial assets held under resale agreements 267,091 109,195 – Other loans and receivables 142,503 (107,953) – Debt instruments at amortised cost 2,589 – – Debt instruments at fair value through other comprehensive income (4,052) 29,352 – Loans and advances (5,646) 143,673 – Other financial assets and other items 12,517 44,607

1,059,233 682,526

F-405

158 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

14. OTHER EXPENSES

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Cost of sales 3,707,918 1,964,458Taxes and surcharges 93,236 85,792Others 1,272,668 1,258,018

5,073,822 3,308,268

15. INCOME TAX EXPENSE

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Current tax: PRC Enterprise Income Tax and other jurisdictions 1,433,011 913,771 Hong Kong Profits Tax 201,189 167,596

1,634,200 1,081,367

Adjustments to current income tax in relation to prior years: PRC Enterprise Income Tax and other jurisdictions 65,626 14,936

65,626 14,936

Deferred tax (Note 20) 235,782 (54,286)

1,935,608 1,042,017

Under the Law of the People’s Republic of China Enterprise Income Tax (the “EIT Law”) and Implementation Regulation of the EIT Law, the tax rate is 25% from 1 January 2008.

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment)(No.7) Bill 2017, which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2018 and was gazetted on the following day. Under the two-tiered profits tax rates regime, the first HK$2 million of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2 million will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

F-406

159HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

16. EARNINGS PER SHARE

The calculation of basic and diluted earnings per share attributable to owners of the Company is as follows:

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Earning for the purpose of basic earnings per share Profit for the period attributable to owners of the Company 5,526,505 3,030,926Effect of dilutive potential ordinary shares: Adjustment to the share of profit of subsidiaries based on dilution of their earnings per share (Notes i, ii, iii) (46,260) (22,197)

Earnings for the purpose of diluted earnings per share 5,480,245 3,008,729

Number of shares for basic and diluted earnings per share (in thousand) 11,501,700 11,501,700

Basic earnings per share (expressed in RMB per share) 0.48 0.26Diluted earnings per share (expressed in RMB per share) 0.48 0.26

Notes:

(i) A subsidiary of the Company issued convertible bonds. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of the subsidiary, assuming outstanding convertible bonds were fully converted to ordinary shares of that subsidiary on the first day of the period.

(ii) Subsidiaries of the Company operated various share option or share awards schemes. Diluted earnings per share takes into account the potential impacts to the Group’s share of profits of these subsidiaries when additional shares have to be issued to relevant employees.

(iii) The calculation of diluted earnings per share for the six months ended 30 June 2019 has not taken into the over-allotment share option of Haitong UniTrust International Leasing Co., Ltd., a subsidiary of the Group, since the exercise price was higher than the average market price of shares of Haitong UniTrust International Leasing Co., Ltd. during the exercisable option period.

F-407

160 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

17. PROPERTY AND EQUIPMENT

Leasehold Furniture,land and Leasehold Electronic Transportation fixtures and Constructionbuildings improvements equipment equipment equipment in progress TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

UnauditedCOSTAs at 1 January 2019 1,885,031 966,503 1,197,111 4,287,539 196,022 37,522 8,569,728Additions during the period 699 13,785 68,458 488,796 5,302 65,053 642,093Disposals during the period – (19,600) (40,762) (4,792) (19,357) – (84,511)Transfer in from investment property during the period 34,367 – – – – – 34,367Transfer during the period – 9,475 – – – (9,475) –Exchange difference 1,094 1,366 389 19,413 899 – 23,161

As at 30 June 2019 1,921,191 971,529 1,225,196 4,790,956 182,866 93,100 9,184,838

ACCUMULATED DEPRECIATIONAs at 1 January 2019 472,163 811,235 863,994 209,445 138,086 – 2,494,923Provided for the period 28,830 38,079 73,860 89,430 8,457 – 238,656Eliminated on disposals – (19,600) (38,146) (4,184) (18,674) – (80,604)Transfer in from investment property during the period 1,056 – – – – – 1,056Exchange difference 17 1,117 226 1,377 835 – 3,572

As at 30 June 2019 502,066 830,831 899,934 296,068 128,704 – 2,657,603

ALLOWANCE FOR IMPAIRMENT LOSSESAs at 31 December 2018 and30 June 2019 30,382 – – – – – 30,382

CARRYING VALUESAs at 30 June 2019 1,388,743 140,698 325,262 4,494,888 54,162 93,100 6,496,853

F-408

161HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

17. PROPERTY AND EQUIPMENT (continued)

Leasehold Furniture,land and Leasehold Electronic Transportation fixtures and Constructionbuildings improvements equipment equipment equipment in progress TotalRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

COSTAs at 1 January 2018 1,246,460 906,216 1,166,343 1,603,132 192,224 40,512 5,154,887Additions during the year 591,273 30,765 153,259 2,623,343 38,333 21,470 3,458,443Disposals during the year – – (129,297) (7,361) (37,420) (331) (174,409)Transfer in from investment property during the year 47,192 – – – – – 47,192Transfer during the year – 23,660 332 – 738 (24,730) –Exchange difference 106 5,862 6,474 68,425 2,147 601 83,615

As at 31 December 2018 1,885,031 966,503 1,197,111 4,287,539 196,022 37,522 8,569,728

ACCUMULATED DEPRECIATIONAs at 1 January 2018 426,150 741,634 818,887 144,748 130,716 – 2,262,135Provided for the year 45,212 65,113 154,465 71,161 22,619 – 358,570Eliminated on disposals – – (114,159) (6,939) (17,030) – (138,128)Transfer in from investment property during the year 793 – – – – – 793Exchange difference 8 4,488 4,801 475 1,781 – 11,553

As at 31 December 2018 472,163 811,235 863,994 209,445 138,086 – 2,494,923

ALLOWANCE FOR IMPAIRMENT LOSSESAs at 1 January 2018 and31 December 2018 30,382 – – – – – 30,382

CARRYING VALUESAs at 31 December 2018 1,382,486 155,268 333,117 4,078,094 57,936 37,522 6,044,423

Transportation equipment of the Group includes aircraft held for operating lease businesses. As at 30 June 2019, the cost of aircraft amounted to RMB4,622,186 thousand (31 December 2018: RMB4,115,892 thousand), accumulated depreciation amounted to RMB165,097 thousand (31 December 2018: RMB81,162 thousand), and the carrying values of aircraft amounted to RMB4,457,089 thousand (31 December 2018: RMB4,034,730 thousand).

F-409

162 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

18. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

Right-of-use assets (unaudited)

BuildingsLeasehold

land Other assets TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019Cost 1,146,918 795,218 13,600 1,955,736Less: depreciation 188,032 10,152 2,834 201,018

958,886 785,066 10,766 1,754,718

During the six months ended 30 June 2019, the Group entered into new lease agreements for the use of buildings and others. On lease commencement, the Group recognised right-of-use assets of RMB340,381 thousand.

Lease liabilities (unaudited)

As at 30 June 2019, the current and non-current lease liabilities were RMB332,264 thousand and RMB616,918 thousand, respectively.

19. GOODWILL

Cost and carrying values

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 4,046,190 3,863,520Exchange adjustments 15,351 182,670

At end of the period/year 4,061,541 4,046,190

20. DEFERRED TAXATION

For the purpose of presentation in the Group’s condensed consolidated statement of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Deferred tax assets 3,313,900 3,241,202Deferred tax liabilities (811,765) (206,710)

2,502,135 3,034,492

F-410

163HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

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F-411

164 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

21. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Cost of unlisted investments in associates and joint ventures 4,651,686 4,611,140Share of post-acquisition profits and other comprehensive income, net of dividends received 641,397 701,741

Total 5,293,083 5,312,881

Details of material investments accounted for using equity method:

Place of Proportion ofName of entity establishment Principal activities ownership interest

2019/06/30 2018/12/31

上海彤關投資管理合夥企業（有限合夥） PRC Investing in equity; 50.00% 50.00%Shanghai Tong Guan Investment Investment Management Limited Partnership* management services

貴安恒信融資租賃（上海）有限公司 PRC Finance leasing 40.00% 40.00%Gui’an UT Financial Leasing (Shanghai) Co., Ltd*

遼寧中德產業股權投資基金 PRC Investing in equity 20.00% N/A

合夥企業（有限合夥）Liaoning China-Germany Industrial Equity Investment Fund (Limited Partnership)*

富國基金管理有限公司 PRC Provision of fund 27.775% 27.775%Fullgoal Fund Management Co. Ltd.* trading distribution

services

F-412

165HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

Place of Proportion ofName of entity establishment Principal activities ownership interest

2019/06/30 2018/12/31

吉林省現代農業和新興產業 PRC Investing in securities 35.71% 35.71%

投資基金有限公司Jilin Modern Agricultural and Emerging Markets Investment Fund Limited*

西安航天新能源產業基金投資有限公司 PRC Investing in securities 37.06% 37.06%Xi’an Aerospace and New Energy Industry Fund*

上海文化產業股權投資基金 PRC Investing in securities 42.83% 42.83%

合夥企業（有限合夥）Shanghai Cultural Industries Investment Fund (Limited Partnership)*

上海併購股權投資基金合夥企業（有限合夥） PRC Investing in securities 33.68% 33.68%Shanghai Equity Investment Fund Limited Partnership*

海通（吉林）現代服務業創業 PRC Investing in securities 34.71% 34.71%

投資基金合夥企業（有限合夥）Haitong (Jilin) Modern Service Industry Investment Fund Limited Partnership*

海通興泰（安徽）新興產業 PRC Investing in equity; 27.58% 27.58%

投資基金（有限合夥） InvestmentHaitong Xingtai (Anhui) Emerging management services Industry Investment Fund Limited Partnership*

21. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

F-413

166 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

21. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD (continued)

Place of Proportion ofName of entity establishment Principal activities ownership interest

2019/06/30 2018/12/31

海通齊東（威海）股權投資 PRC Investing in equity; 34.38% 34.38% 基金合夥企業（有限合夥） InvestmentHaitong Qidong (Weihai) Equity management services Investment Fund Limited Partnership*

廣東南方媒體融合發展 PRC Investing in equity; 27.76% 27.76% 投資基金（有限合夥） InvestmentGuangdong South Media Integration management services Fund Limited Partnership*

海通（吉林）股權投資基金 PRC Private equity funds 27.02% 27.02% 合夥企業（有限合夥） investmentHaitong (Jilin) Equity Investment Fund Limited Partnership*

西安軍融電子衛星基金投資有限公司 PRC Investment 35.71% 35.71%Xi’an Civil-Military Integration Satellite management services Investment Fund Co., Ltd*

嘉興海通旭初股權投資基金 PRC Investing in equity; 20.00% 19.39% 合夥企業（有限合夥） InvestmentJiaxing Haitong Xuchu Equity management services Investment Fund Limited Partnership*

上海併購股權投資基金二期 PRC Investing in securities 19.67% 19.67% 合夥企業（有限合夥）Shanghai Equity Investment Fund II Limited Partnership*

* The English translated name is for identification only.

All of these associates and joint ventures are unlisted entities without quoted market price available.

All of these associates and joint ventures are accounted for using the equity method in these condensed consolidated financial statements.

F-414

167HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

22. FINANCE LEASE RECEIVABLES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Minimum finance lease receivables – Not later than one year 33,345,359 34,796,245 – Later than one year and not later than five years 29,773,952 34,344,977 – Later than five years 233,436 284,646

Gross amount of finance lease receivables 63,352,747 69,425,868Less: unrealised finance income (5,291,417) (6,068,188)

Present value of minimum finance lease receivables 58,061,330 63,357,680Less: Allowance for credit losses (1,691,813) (1,704,968)

Carrying amount of finance lease receivables 56,369,517 61,652,712

Present value of minimum finance lease receivables – Not later than one year 30,513,134 31,754,869 – Later than one year and not later than five years 27,343,247 31,343,044 – Later than five years 204,949 259,767

Total 58,061,330 63,357,680

Analysed for reporting purpose as: Current assets 29,575,235 30,828,048 Non-current assets 26,794,282 30,824,664

56,369,517 61,652,712

F-415

168 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

22. FINANCE LEASE RECEIVABLES (continued)

Movement of allowance for credit losses:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 1,704,968 1,496,208Credit losses recognised 271,823 722,061Derecognition upon repossession (39,572) (145,304)Recoveries of amount written off in previous years 23,983 20,261Written-off (269,389) (388,258)

At end of the period/year 1,691,813 1,704,968

Stage analysis on allowance for credit losses

Lifetime ECL Lifetime ECL

12m ECLnot credit-

impairedcredit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 824,897 470,679 396,237 1,691,813

As at 31 December 2018 (audited) 995,408 365,352 344,208 1,704,968

F-416

169HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

23. RECEIVABLES ARISING FROM SALE-AND-LEASEBACK ARRANGEMENTS

2019/06/30RMB’000

(unaudited)

Not later than one year 4,684,720Later than one year and not later than five years 8,475,075

Gross amount of receivables arising from sale-and-leaseback arrangements 13,159,795Less: Interest adjustment (1,542,659)

Present value of receivables arising from sale-and-leaseback arrangements 11,617,136Less: allowance for credit losses (146,229)

Carrying amount of receivables arising from sale-and-leaseback arrangements 11,470,907

Present value of receivables arising from sale-and-leaseback arrangements:– Not later than one year 4,135,553– Later than one year and not later than five years 7,481,583

Total 11,617,136

Analysed for reporting purpose as: Current assets 4,083,497 Non-current assets 7,387,410

Total 11,470,907

Movement of allowance for credit losses:

2019/06/30RMB’000

(unaudited)

At beginning of the period –Credit losses recognised 146,229

At end of the period 146,229

Stage analysis on allowance for credit losses

Lifetime ECL Lifetime ECL

12m ECLnot credit-

impairedcredit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 141,908 3,900 421 146,229

F-417

170 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

24. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

China Securities Finance Corporation Limited (“CSFCL”) (Note i) 15,665,826 14,651,458Other equity investments (Note ii) 267,141 576,833

15,932,967 15,228,291

Analysed as: – Listed 56,120 366,853 – Unlisted 15,876,847 14,861,438

15,932,967 15,228,291

Note:

As the above equity instruments are not held for trading purpose, the Group has designated these investments as equity instruments at fair value through other comprehensive income.

(i) This is the investment into a fund managed by CSFCL. As of 30 June 2019 and 31 December 2018, the cost of the investment was RMB15 billion, and the Company determined the fair value on the basis of the report provided by CSFCL. CSFCL executes unified operation and investment management, while all the investors including the Company share investment risks as well as potential income in proportion to their contributions.

(ii) As of 30 June 2019, the cost of the other equity investments was RMB 314,274 thousand (31 December 2018: RMB 668,673 thousand), the accumulated gains of investments disposed from these investments during the six months ended 30 June 2019 accounted to RMB 27,098 thousand was reclassified from revaluation reserve to retained profits and there was no dividend income from these investments, the main reason for the disposal is the change of the Company’s investment strategies.

F-418

171HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

25. DEBT INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Unlisted bond investments 7,432,542 10,650,869Listed bond investments 5,717,848 4,480,361

13,150,390 15,131,230

Analysed for reporting purpose as: Current assets 6,586,108 9,362,242 Non-current assets 6,564,282 5,768,988

13,150,390 15,131,230

Loss allowance 14,870 20,379

As at 30 June 2019 and 31 December 2018, a substantial proportion of debt instruments at fair value through other comprehensive income is at stage 1 of which the loss allowance is measured at 12 month ECL.

26. DEBT INSTRUMENTS MEASURED AT AMORTISED COST

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Debt securities 3,154,040 686,808Less: impairment allowance (6,088) (3,512)

3,147,952 683,296

Analysed for reporting purpose as: Current assets 1,411,410 4,082 Non-current assets 1,736,542 679,214

3,147,952 683,296

As at 30 June 2019 and 31 December 2018, a substantial proportion of debt instruments measured at amortised cost is at stage 1 of which the loss allowance is measured at 12 month ECL.

F-419

172 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

27. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Debt securities 113,236,074 103,204,443Equity securities (Note i, ii) 20,306,345 17,652,596Funds (Note i) 38,621,514 28,143,504Others 24,567,433 28,204,871

196,731,366 177,205,414

Analysed for reporting purpose as: Current assets 170,270,376 158,837,008 Non-current assets 26,460,990 18,368,406

196,731,366 177,205,414

Notes:

(i) As at 30 June 2019, the Group has entered into securities lending arrangement with clients that resulted in the transfer of financial assets at fair value through profit or loss with a total fair value of RMB307,227 thousand (31 December 2018: RMB1,832 thousand) to external clients. Since the arrangement will be settled by the securities with the same quantity lent, the economic risks and benefits of those securities are not transferred and it does not result in derecognition of the financial assets.

(ii) Included in the Group’s listed equity securities are amounts of approximately RMB443,503 thousand as at 30 June 2019 (31 December 2018: RMB3,282 thousand), which are restricted shares with a legally enforceable restriction on these securities that prevents the Group to dispose of within the specified period. The fair values of these securities have taken into account the relevant features including the restrictions.

F-420

173HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

28. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Analysed by collateral type: Stock (Note) 50,828,605 56,406,877 Bonds 14,944,945 25,643,247 Structured products 121,971 372,030 Finance lease receivables 936,715 990,990Less: allowance for credit losses (1,001,447) (734,352)

65,830,789 82,678,792

Analysed by market: Stock Exchange 55,615,090 67,936,433 Inter-bank 10,158,461 8,448,313 Over the counter (“OTC”) 1,058,685 7,028,398Less: allowance for credit losses (1,001,447) (734,352)

65,830,789 82,678,792

Analysed for reporting purpose as: Current assets 59,558,212 71,676,737 Non-current assets 6,272,577 11,002,055

65,830,789 82,678,792

Movement of allowance for credit losses:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 734,352 478,459Credit losses recognised 267,091 255,804Exchange difference 4 89

At end of the period/year 1,001,447 734,352

F-421

174 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

28. FINANCIAL ASSETS HELD UNDER RESALE AGREEMENTS (continued)

Stage analysis on allowance for credit losses

Lifetime ECL Lifetime ECL

12m ECLnot credit-

impairedcredit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 50,894 54,744 895,809 1,001,447

As at 31 December 2018 (audited) 46,530 108,902 578,920 734,352

Note: The financial assets (pledged by stock) held under resale agreements are those resale agreements which qualified investors entered into with the Group with a commitment to purchasing the specified securities at a future date with an agreed price.

As of 30 June 2019, the fair value of the collateral received was RMB150,524,727 thousand (31 December 2018: RMB142,590,350 thousand).

29. OTHER LOANS AND RECEIVABLES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Factoring receivables 7,474,268 6,346,945Debt investments classified as receivables, entrusted loans and other loans 14,546,804 13,999,739

Less: allowance for credit losses (708,876) (655,154)

21,312,196 19,691,530

Analysed for reporting purpose as: Current assets 17,873,162 14,043,711 Non-current assets 3,439,034 5,647,819

21,312,196 19,691,530

F-422

175HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

29. OTHER LOANS AND RECEIVABLES (continued)

Movement of allowance for credit losses:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 655,154 781,031Credit losses recognised/(reversed) 142,503 (68,165)Written-off (89,292) (68,033)Exchange difference 511 10,321

At end of the period/year 708,876 655,154

Stage analysis on allowance for credit losses

Lifetime ECL Lifetime ECL

12m ECLnot credit-

impairedcredit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 152,176 519,013 37,687 708,876

As at 31 December 2018 (audited) 228,025 334,523 92,606 655,154

F-423

176 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

30. LOANS AND ADVANCES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Customer loans and advances 4,630,239 4,972,255Less: allowance for credit losses (579,119) (608,768)

4,051,120 4,363,487

Analysed for reporting purpose as: Current assets 469,900 618,924 Non-current assets 3,581,220 3,744,563

4,051,120 4,363,487

Movement of allowance for credit losses:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 608,768 939,409Credit losses (reversed)/recognised (5,646) 181,479Written-off (22,408) (519,785)Exchange difference (1,595) 7,665

At end of the period/year 579,119 608,768

Stage analysis on allowance for credit losses

12m ECL

Lifetime ECL not credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 23,355 27,425 528,339 579,119

As at 31 December 2018 (audited) 21,923 34,407 552,438 608,768

F-424

177HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

31. DEPOSITS WITH EXCHANGES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Deposits with stock exchanges – Shanghai Stock Exchange 619,172 394,362 – Shenzhen Stock Exchange 88,933 83,606 – National Equities Exchange and Quotations 1,052 1,089 – Stock Exchange of Hong Kong Limited 1,319 1,314 – Others – 372

Subtotal 710,476 480,743

Deposits with futures and commodity exchanges – Shanghai Futures Exchange 2,256,100 1,928,026 – Dalian Commodity Exchange 956,603 612,824 – Zhengzhou Commodity Exchange 564,565 517,536 – China Financial Futures Exchange 2,931,284 1,670,105 – Shanghai Gold Exchange 2,595 1,874 – HKFE Clearing Corporation Limited 6,638 4,200 – The Chinese Gold & Silver Exchange Society 603 601 – Collateral deposits placed with overseas stock exchange and brokers 1,341,741 1,478,443

Subtotal 8,060,129 6,213,609

Trading rights and other deposits – Guarantee fund paid to Shanghai Stock Exchange 21,965 19,227 – Guarantee fund paid to Shenzhen Stock Exchange 25,757 19,461 – Deposit with China Securities Finance Corporation Ltd. 255,622 74,742 – Deposit with Shanghai Clearing House 76,100 48,589 – Guarantee fund paid to the SEHK Options Clearing House Ltd. 6,072 6,555 – Guarantee fund paid to Hong Kong Securities Clearing Company Ltd. 53,768 49,043 – Guarantee fund paid to Securities and Futures Commission 308 307 – Others 54,996 70,613

Subtotal 494,588 288,537

Total 9,265,193 6,982,889

Analysed for reporting purpose as: Current assets 8,060,179 5,601,350 Non-current assets 1,205,014 1,381,539

9,265,193 6,982,889

F-425

178 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

32. BANK BALANCES AND CASH

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

General accounts 47,051,592 35,648,527Cash held on behalf of clients (Note i) 75,997,241 62,515,537Less: allowance for credit losses (1,839) (1,752)

123,046,994 98,162,312Less: non-current restricted bank deposits (Note ii) (850,664) (739,260)

122,196,330 97,423,052

Bank balances and cash comprise of cash on hand and demand deposits which bear interest at the prevailing market rates.

Notes:

(i) The Group received and held money deposited by clients in the course of the conduct of the regulated activities. The Group has recognised the corresponding amount in accounts payable to brokerage clients (Note 44). The Group currently does not have a legally enforceable right to offset these payables with deposit placed.

(ii) The non-current restricted bank deposits are restricted for fund management risk reserve purpose, pledged bank deposit and margin deposits over one year.

33. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of the following:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Bank balances and cash – general account (excluding accrued interest) 46,975,966 35,574,425Less: Restricted bank deposits (Note) (1,440,464) (1,634,107)Deposits with other banks (excluding accrued interest) 231,240 253,915Deposits with central banks other than legal reserve 1,886,226 2,384,561Clearing settlement funds – House accounts 1,282,086 1,531,888

48,935,054 38,110,682

Note:

The current restricted bank deposits are margin deposits for notes receivable, margin deposits for borrowings and other pledge of bank deposits within one year.

F-426

179HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

34. OTHER NON-CURRENT ASSETS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Foreclosed assets 147,226 148,584Prepaid lease payments – 808,713Others 377,039 221,907

524,265 1,179,204

35. ADVANCES TO CUSTOMERS ON MARGIN FINANCING

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Loans to margin clients (Note) 53,120,014 49,656,249Less: allowance for credit losses (Note) (1,023,548) (795,240)

52,096,466 48,861,009

Analysed for reporting purpose as: Current assets 52,096,466 48,861,009

Movement of allowance for credit losses:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year 795,240 334,384Credit losses recognised 226,179 456,508Written-off – (6,492)Effect of exchange difference 2,129 10,840

At end of the period/year 1,023,548 795,240

F-427

180 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

35. ADVANCES TO CUSTOMERS ON MARGIN FINANCING (continued)

Stage analysis on allowance for credit losses

12m ECL

Lifetime ECL not credit-

impaired

Lifetime ECL credit-

impaired TotalRMB’000 RMB’000 RMB’000 RMB’000

As at 30 June 2019 (unaudited) 32,912 59,148 931,488 1,023,548

As at 31 December 2018 (audited) 30,270 48,962 716,008 795,240

Note:

The credit facility limits to margin clients are determined by the discounted market value of the collateral securities accepted by the Group.

The majority of the loans to margin clients which are secured by the underlying pledged securities are interest bearing. The Group maintains a list of approved stocks for margin lending at a specified loan to collateral ratio. Any excess in the lending ratio will trigger a margin call which the customers have to make up the shortfall.

Loans to margin clients as at 30 June 2019 were secured by the customers’ securities to the Group as collateral with undiscounted market value of approximately RMB167,484,318 thousand (31 December 2018: RMB155,961,015 thousand).

As at 30 June 2019, included in the Group’s accounts payable to brokerage clients were approximately RMB7,003,486 thousand (31 December 2018: RMB3,934,801 thousand) cash collateral received from clients for securities lending and margin financing arrangement.

F-428

181HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

36. ACCOUNTS RECEIVABLE

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Accounts receivable from: – Cash clients 395,099 1,074,065 – Brokers, dealers and clearing house 11,695,080 6,434,981 – Advisory and financial planning 25,430 19,558 – Asset and fund management 839,814 589,570 – Others 339,945 262,246

13,295,368 8,380,420Less: allowance for credit losses on accounts receivable (128,000) (123,206)

13,167,368 8,257,214

Aging analysis:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Between 0 and 3 months 12,609,577 7,563,111Between 4 and 6 months 146,968 32,677Between 7 and 12 months 246,076 490,998Over 1 year 164,747 170,428

13,167,368 8,257,214

F-429

182 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

37. DERIVATIVE INSTRUMENTS

2019/06/30 (unaudited) 2018/12/31 (audited)Assets Liabilities Assets Liabilities

RMB’000 RMB’000 RMB’000 RMB’000

Stock index futures contracts (Note i) – – – –Treasury futures contracts (Note ii) – – – –Commodity futures contracts (Note iii) – – 5,956 –Interest rate swap contracts (Note iv) 1,107,256 1,256,201 1,165,165 1,350,329Equity swap (Note v) 63,672 214,044 153,309 176,291Forward contracts 59,285 467 56,126 118,753Options (Note vi) 121,327 425,318 386,392 507,744Embedded equity instruments – 2,230 421 29,543Foreign exchange swap 5,599 71,643 2,671 24,943Credit default swap 9,963 32,659 10,717 11,171

Total 1,367,102 2,002,562 1,780,757 2,218,774

Notes:

(i) Stock index futures

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in stock index futures (“SIF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 30 June 2019 and 31 December 2018. Accordingly, the net position of the SIF contracts in derivative instruments was nil at the end of reporting period. As at 30 June 2019 the contract value of the outstanding stock index futures contracts that the Group held for the market risk of the securities lent or to be lent to clients is RMB1,197,306 thousand (31 December 2018: RMB2,230,590 thousand), recognising net derivative liabilities of RMB20,855 thousand (31 December 2018: net derivative assets of RMB46,050 thousand) before settlement.

F-430

183HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

37. DERIVATIVE INSTRUMENTS (continued)

Notes: (continued)

(ii) Treasury futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in treasury futures (“TF”) were settled daily and the corresponding payments or receipts were included in “clearing settlement funds” as at 30 June 2019 and 31 December 2018. Accordingly, the net position of the TF contracts in derivative instruments was nil at the end of reporting period.

2019/06/30 (unaudited)Contract value Fair value

Contract RMB’000 RMB’000

T1909 3,704,810 (31,504)T1909 1,267,435 11,030TF1909 2,504,628 (10,876)TS1909 10,013 (2)

Total 7,486,886 (31,352)

Plus: settlement 31,352

Net position of TF contracts –

2018/12/31 (audited)Contract value Fair value

Contract RMB’000 RMB’000

T1903 3,908,400 (56,747)T1903 1,954,200 10,967TF1903 1,590,080 (5,191)

Total 7,452,680 (50,971)

Plus: settlement 50,971

Net position of TF contracts –

F-431

184 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

37. DERIVATIVE INSTRUMENTS (continued)

Notes: (continued)

(iii) Commodity futures contracts

Under the daily mark-to-market and settlement arrangement, any gains or losses of the Group’s position in commodity futures were settled daily and the corresponding payments or receipts were included in “clearing settlement funds”. As at 30 June 2019, the net position of the commodity futures contracts under the daily mark-to-market and settlement arrangement was nil (31 December 2018: nil).

As at 30 June 2019, the fair value gains of commodity future contract that the Group holds not under the daily mark-to-market and settlement arrangement was nil (31 December 2018: RMB5,956 thousand).

2019/06/30 (unaudited) 2018/12/31 (audited)Contract

valueFair

valueContract

valueFair

valueContract RMB’000 RMB’000 RMB’000 RMB’000

Commodity – – 283,351 5,956

Total – – 283,351 5,956

(iv) Interest rate swap contracts

Under the daily mark-to-market and settlement arrangements, any gains or losses of the Group’s position in interest rate swap (“IRS”) were settled daily in Shanghai Clearing House and the corresponding payments or receipts were included in “clearing settlement funds” as at 30 June 2019. Accordingly, the net position of the IRS contracts in derivative instruments was nil at the end of reporting period.

F-432

185HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

37. DERIVATIVE INSTRUMENTS (continued)

Notes: (continued)

(iv) Interest rate swap contracts (continued)

For IRS contracts in mainland China and Hong Kong market not under the daily mark-to-market and settlement arrangement are presented gross at the end of reporting period.

2019/06/30 (unaudited)Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 20,880,000 115,082 (122,845)IRS – non-centralised settlement 26,020,497 1,107,256 (1,256,201)

Total 46,900,497 1,222,338 (1,379,046)

Plus: settlements (115,082) 122,845

Net position of IRS contracts 1,107,256 (1,256,201)

2018/12/31 (audited)Contract value Assets Liabilities

RMB’000 RMB’000 RMB’000

IRS – settled in Shanghai Clearing House 16,280,000 20,566 –IRS – non-centralised settlement 34,208,897 1,165,165 (1,350,329)

Total 50,488,897 1,185,731 (1,350,329)

Plus: settlements (20,566) –

Net position of IRS contracts 1,165,165 (1,350,329)

(v) Equity swap

At 30 June 2019, the notional amount of the equity swap held by the Group was approximately RMB1,695,422 thousand (31 December 2018: RMB1,248,278 thousand).

(vi) Options

As at 30 June 2019, the notional principal amounts of the Group’s options purchased or written in Mainland China were approximately RMB13,180,918 thousand (31 December 2018: RMB16,866,539 thousand). The notional principal amounts of the Group’s listed options purchased or written outside Mainland China were approximately RMB17,108,962 thousand (31 December 2018: RMB20,949,114 thousand).

F-433

186 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

38. OTHER CURRENT ASSETS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Dividend receivable 72,270 387Inventory 829,644 789,039Other receivables and prepayments 2,918,942 2,711,405

3,820,856 3,500,831Less: allowance for credit losses (Note) (484,398) (469,103)

3,336,458 3,031,728

Note:

Included in the allowance for credit losses of the Group mainly represents a gross receivable of RMB440,894 thousand from an independent third party. In the opinion of the directors of the Company, the balance was fully impaired in prior year.

39. CLEARING SETTLEMENT FUNDS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Clearing settlement funds held with clearing houses for: House accounts 1,282,086 1,531,888 Customers 6,935,882 6,114,673

8,217,968 7,646,561

These clearing settlement funds are held by the clearing houses for the Group and can be withdrawn by the Group at will. These balances carry interest at prevailing market interest rates.

F-434

187HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

40. DEPOSITS WITH CENTRAL BANKS AND OTHER BANKS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Deposits with central banks other than legal reserve 1,886,226 2,384,561Legal reserve 51,663 41,675

1,937,889 2,426,236

Deposits with other banks 231,272 253,915Less: allowance for credit losses (10) (7)

231,262 253,908

Total 2,169,151 2,680,144

Deposits with central banks other than legal reserve is repayable on demand. Legal reserve deposits are non-interesting bearing.

41. BORROWINGS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Short-term borrowings: Secured borrowings (Note) 625,933 2,515,041 Unsecured borrowings 39,977,796 34,401,597

40,603,729 36,916,638

Long-term borrowing: Secured borrowings (Note) 22,734,485 23,643,301 Unsecured borrowings 23,377,070 19,643,381

46,111,555 43,286,682

Total 86,715,284 80,203,320

F-435

188 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

41. BORROWINGS (continued)

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Current liabilities: Short-term borrowings 40,603,729 36,916,638 Long-term borrowings due within one year 17,600,521 15,572,524

58,204,250 52,489,162

Non-current liabilities: Long-term borrowings 28,511,034 27,714,158

86,715,284 80,203,320

Analysis by maturity: Less than 1 year 58,204,250 52,489,162 1-2 year 10,091,273 13,489,297 2-5 year 15,963,238 12,692,442 Over 5 years 2,456,523 1,532,419

86,715,284 80,203,320

Note:

As at 30 June 2019, borrowings of RMB51 million (31 December 2018: RMB57 million) are secured by the 33th floor of No.689 Guangdong Road, Haitong Securities Tower, Shanghai, the PRC.

As at 30 June 2019, borrowings of RMB386 million (31 December 2018: RMB489 million) are secured by the land of 4/2, No.169, Bund Street, Shanghai, the PRC, and 100% shares of Shanghai Weitai Property Management Co., Ltd. held by the Group.

As at 30 June 2019, borrowings of RMB2,639 million (31 December 2018: RMB2,629 million) are secured by investment funds at fair value amounting to RMB3,590 million (31 December 2018: RMB3,430 million). The fair value of the collateral is the net asset value of the fund, which was based on the observable quoted price of underlying investment portfolio in active markets.

As at 30 June 2019, borrowings of RMB2,176 million (31 December 2018: RMB2,155 million) is secured by debt securities held by the company at fair value of RMB2,106 million (31 December 2018: RMB2,102 million).

As at 30 June 2019, borrowings of RMB12,224 million (31 December 2018: RMB14,490 million) are secured by finance lease receivables of RMB17,235 million (31 December 2018: RMB21,192 million) and receivables arising from sale-and-leaseback arrangements of RMB1,677 million (31 December 2018: Nil). Certain secured borrowings were also pledged by the shares of Haitong UniTrust International Leasing Co., Ltd held by the Group.

As at 30 June 2019, borrowings of RMB5,859 million (31 December 2018: RMB5,857 million) are secured by the shares of Haitong UT Capital Group Co., Limited and Haitong Bank.S.A held by the Group.

F-436

189HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

42. SHORT-TERM FINANCING BILLS PAYABLES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Analysed as: Inter-bank (Note i) 5,647,277 5,358,876 Other (Note ii) 29,734,317 21,179,092

35,381,594 26,537,968

Note i:

During the six months ended 30 June 2019, the Group newly issued inter-bank short-term financing bills with an aggregate principal amount of RMB2,998 million, and repaid matured short-term financing bills amounting to RMB2,352 million. The balance as at 30 June 2019 carried interest rates ranging from 3.10% to 4.30% per annum, with terms ranging from 7 months to 1 year.

Note ii:

During the six months ended 30 June 2019, the Group newly issued other short-term financing bills (excluding short term income certificate) with an aggregate principal amount of RMB6,554 million, and repaid matured short-term financing bills amounting to RMB8,078 million. The balance as at 30 June 2019 carried interest rates ranging from 2.60% to 4.30% per annum, with terms of 1 year.

The balance of short-term income certificate as at 30 June 2019 carried interest rates ranging from 2.50% to 5.6% per annum, with terms ranging from 6 days to 1 year.

F-437

190 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

43. BONDS PAYABLE

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Liabilities component of convertible bonds 3,495,347 3,451,821Non-convertible bonds (Note i) 80,445,603 90,403,444Subordinated notes (Note ii) 16,963,318 13,451,167Asset backed securities (Note iii) 30,292,404 21,712,467Others (Note iv) 10,243,060 11,127,958

141,439,732 140,146,857

Analysed for reporting purpose as: Current liabilities 57,220,798 41,923,410 Non-current liabilities 84,218,934 98,223,447

141,439,732 140,146,857

Note i:

During the six months ended 30 June 2019, the Group newly issued non-convertible bonds with an aggregate principal amount of RMB 6,800 million, and repaid matured non-convertible bonds amounting to RMB 18,850 million. The balance as at 30 June 2019 carried interest rates ranging from 1.34% to 9.7% per annum, with terms ranging from 3 years to 10 years.

Note ii:

During the six months ended 30 June 2019, the Group newly issued subordinated notes with an aggregate principal amount of RMB 3,300 million, and repaid matured subordinated notes amounting to RMB 276 million. The balance as at 30 June 2019 carried interest rates ranging from 3.30% to 6.05% per annum, with terms ranging from 3 years to 5 years.

Note iii:

During the six months ended 30 June 2019, the Group newly issued asset backed securities with an aggregate principal amount of RMB 15,022 million, and repaid matured asset backed securities amounting to RMB 6,170 million. The balance as at 30 June 2019 carried interest rates ranging from 3.4% to 6.2% per annum, with terms ranging from 1 year to 6 years.

Note iv:

The balance of long-term income certificate as at 30 June 2019 carried interest rates ranging from 3.7% to 5.5% per annum, with terms ranging from 1 year to 2 years.

F-438

191HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

44. ACCOUNTS PAYABLE TO BROKERAGE CLIENTS

The majority of the accounts payable balance is repayable on demand except where certain accounts payable to brokerage clients represent margin deposits received from clients for their trading activities under normal course of business. Only the excess amounts over the required margin deposits stipulated are repayable on demand.

No ageing analysis is disclosed as in the opinion of the directors of the Company, the ageing analysis does not give additional value in view of the nature of these businesses.

Accounts payable mainly include money held on behalf of clients at the banks and at the clearing houses by the Group.

As at 30 June 2019, included in the Group’s accounts payable to brokerage clients were approximately RMB7,003,486 thousand (31 December 2018: RMB3,934,801 thousand) cash collateral received from clients for securities lending and margin financing arrangement.

Accounts payable to brokerage clients is interest bearing at the prevailing interest rate.

45. CUSTOMER ACCOUNTS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Demand deposits – corporate 127,502 87,618Time deposits – corporate 851,684 1,292,921Demand deposits – individual 1,552 1,503Time deposits – individual 1,509,440 778,284

2,490,178 2,160,326

Analysed for reporting purpose as: Current liabilities 2,490,178 2,160,326

F-439

192 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

46. OTHER PAYABLES AND ACCRUALS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Payable to employees (Note i) 4,438,688 4,588,200Other tax payable 503,188 537,677Dividends payable 1,795,889 47,052Risk reserve 416,546 390,878Client settlement payables 1,778,971 2,247,856Pending payable to clearing house 134,842 326,484Commission and fee payables 28,464 32,832Finance lease guarantee deposits 2,629,608 2,043,319Amounts due to brokers 1,144,678 1,010,567Notes payable 1,042,663 755,726Others (Note ii) 2,893,049 2,671,509

16,806,586 14,652,100

Analysed for reporting purpose as: Current liabilities 15,930,742 13,455,014 Non-current liabilities (Note i) 875,844 1,197,086

16,806,586 14,652,100

Notes:

(i) The Group set up a detailed plan for the payment of employees’ bonus accrued based on the performance of preceding year. A balance of RMB400,924 thousand (31 December 2018: RMB394,336 thousand) of the Group is planned to be settled after one year and classified as non-current liabilities.

(ii) Others mainly represent liabilities arising from transfer of loans and receivables not qualifying for derecognition, and other payables and accruals.

47. PROVISIONS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Contingencies 141,855 130,763ECL impairment for loan commitments, financial guarantee and letters of credit 11,074 14,344

152,929 145,107

F-440

193HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

48. FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Financial liabilities held for trading 1,559,333 4,804,747Liabilities arising from consolidation of structured entities 3,398,290 3,585,089Designated as financial liabilities at fair value through profit or loss – Structured products (Note i) 13,884,538 12,350,482 – Gold option (Note ii) 5,426,673 5,460,636 – Others 173,333 –

24,442,167 26,200,954

Analysed for reporting purpose as: Current liabilities 22,746,698 23,862,827 Non-current liabilities 1,695,469 2,338,127

24,442,167 26,200,954

Notes:

(i) As at 30 June 2019 and 31 December 2018, included in the Group’s financial liabilities designated at fair value through profit or loss are financial products generally issued in the form of notes of which payouts are linked to the values/returns of certain underlying investments related to listed equity investments, listed/unlisted debt investments, listed/unlisted investment funds, unlisted financial products and unlisted equity or partnership investments.

The risk of economic exposure on these structured products is primarily hedged using financial assets at fair value through profit or loss. These structured products are designated as fair value through profit or loss as the risks to which the Group is a contractual party are managed on a fair value basis as part of the Group’s trading portfolio and the risk is reported to key management personnel on this basis.

(ii) The Group entered into a number of option contracts in relation to fair value of gold bullions. These contracts as a combination intend to enable the Group to pay a fixed cash flow despite the volatilities of fair value of gold bullions. These contracts were designated at fair value through profit or loss.

F-441

194 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

49. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Analysed as collateral type: Stock 1,368,418 1,866,306 Bonds 57,139,386 52,075,760 Loans and advances to customers on margin financing 100,076 500,636 Others 7,105,015 1,930,201

65,712,895 56,372,903

Analysed by market: Stock exchanges 10,915,250 7,289,147 Inter-bank market 46,224,136 44,786,613 OTC 8,573,509 4,297,143

65,712,895 56,372,903

Analysed for reporting purpose as: Current liabilities 65,712,895 56,372,903

Sales and repurchase agreements are transactions in which the Group sells a security and simultaneously agrees to repurchase it (or an asset that is substantially the same) at a fixed price on a future date. Since the repurchase prices are fixed, the Group is still exposed to substantially all the credit risks and market risks and rewards of those securities sold. These securities are not derecognised from the financial statements but regarded as “collateral” for the liabilities because the Group retains substantially all the risks and rewards of these securities.

F-442

195HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

49. FINANCIAL ASSETS SOLD UNDER REPURCHASE AGREEMENTS (continued)

The following tables provide a summary of carrying amounts and fair values related to transferred financial assets of the Group that are not derecognised in their entirety and the associated liabilities:

As at 30 June 2019 (unaudited)

Financialassets at

fair value through

profit or loss

Debtinstrument

at fair value through other comprehensive

income

Advances to customers on margin financing

Financialassets held

under resaleagreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 53,318,023 1,230,552 104,309 2,054,144 19,669,505 76,376,534Carrying amount of associated liabilities 45,150,511 1,145,600 100,076 1,949,438 17,367,270 65,712,895

Net position 8,167,512 84,952 4,233 104,706 2,302,235 10,663,639

As at 31 December 2018 (audited)

Financial assets at fair value

through profit or loss

Debt instruments at fair value

through other comprehensive

income

Advances to customers on margin financing

Financial assets held under

resale agreements Others Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Carrying amount of transferred assets 49,794,272 2,837,179 536,109 768,726 10,792,131 64,728,417Carrying amount of associated liabilities 42,647,263 2,717,641 500,636 669,589 9,837,774 56,372,903

Net position 7,147,009 119,538 35,473 99,137 954,357 8,355,514

F-443

196 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

50. PLACEMENTS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Placements from banks 8,323,327 13,723,467Placements from China Securities Finance Corporation Ltd. 1,000,597 1,000,629

9,323,924 14,724,096

Analysed for reporting purpose as: Current liabilities 3,101,419 8,482,577 Non-current liabilities 6,222,505 6,241,519

9,323,924 14,724,096

51. SHARE CAPITAL

Listed A shares Listed H shares Total

Number of shares Amount

Number of shares Amount

Number of shares Amount

’000 RMB’000 ’000 RMB’000 ’000 RMB’000

Registered, issued and fully paid at RMB1.0 per share:At 31 December 2018(audited) and at 1 January 2019, and at 30 June 2019 (unaudited) 8,092,131 8,092,131 3,409,569 3,409,569 11,501,700 11,501,700

F-444

197HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

52. REVALUATION RESERVE

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

At beginning of the period/year (400,148) 1,359,762Debt instrument measured at fair value through other comprehensive income 31,297 21,921Equity instrument measured at fair value through other comprehensive income Net fair value changes during the period 1,086,295 (2,039,573) Transfer to retained earnings (27,098) – Income tax impact (264,834) 509,893Share of other comprehensive income/(expenses) of associates and joint ventures 66,557 (231,985)Actuarial losses on defined benefit obligations (63,879) (20,166)Others 1,262 –

At end of the period/year 429,452 (400,148)

53. LONG-TERM PAYABLES

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Finance lease guarantee deposits 6,501,721 5,667,627Deferred income 383,883 497,799Others 236,373 499,509

7,121,977 6,664,935

Long-term payables are mainly due to guaranteed funds received by the Group through finance leasing business. These amounts will expire beyond one year upon contract agreement and are classified as non-current liabilities.

F-445

198 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

54. CREDIT COMMITMENT

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Contingent liabilities Guarantees and standby letters of credit 997,387 1,172,904

997,387 1,172,904

Commitments Irrevocable credit commitments 141,433 129,183

141,433 129,183

Guarantees and standby letters of credits are banking operations that may imply out-flow by the Group only at default condition.

Irrevocable credit commitments represent contractual agreements to extend credit to the Haitong Bank.S.A’s customers (e.g. unused credit lines). These agreements are, generally, contracted for fixed periods of time or with other expiration requisites, and usually require the payment of a commission. Substantially, all credit commitments require that clients maintain certain conditions verified at the time when the credit was granted.

Notwithstanding the particular characteristics of these guarantees and commitments, the analysis of these operations follows the same basic principles of any other commercial operation, namely the solvency of the underlying client and business, being that the Haitong Bank.S.A requires these operations to be adequately covered by collaterals when needed.

As it is expected that the majority of these guarantees and commitment will expire without being used, the amounts disclosed above are not representative of the future cash outflows.

F-446

199HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

55. OPERATING LEASE ARRANGEMENTS

The Group as lessor

The Group had contracted with tenants for the following future minimum lease payments:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Within one year 455,222 430,199In the second to fifth year, inclusive 1,850,362 1,626,758Over five years 960,664 1,073,703

3,266,248 3,130,660

56. CAPITAL COMMITMENT

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Capital expenditure in respect of acquisition of property and equipment: – Contracted but not provided 1,381,645 2,045,388

F-447

200 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

57. DIVIDENDS

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Dividends recognised as distribution 1,725,255 2,645,391

Pursuant to the resolution of annual general meeting 2019 and 2018, the Company declared 2018 and 2017 final dividend of RMB0.15 (taxes inclusive) and RMB0.23 (taxes inclusive) per share respectively, amounting to RMB1,725,255 thousand (taxes inclusive) and RMB2,645,391 thousand (taxes inclusive) in total respectively, satisfied by cash.

The directors of the Company have determined that no dividend will be paid in respect of the interim period by the Company.

58. RELATED PARTY TRANSACTIONS

In addition to the joint ventures and associates of the Group set out in Note 21 above, the name and the relationship of other related parties are set out as below:

Name of the related party Relationship of the related party

BNP Paribas Investment Partners BE Holding SA Holds more than 10% shares of the Group’s subsidiaryBNP Paribas (China) Limited Note ABNP Paribas Investment Partners Japan Ltd Note ABNP Paribas Investment Partners Singapore Ltd Note ABNP Paribas Wealth Management Bank Note ABNP Paribas Investment Partners Switzerland Ltd Note ABNP Paribas SA Note ABNP Paribas Investment Partners Hong Kong Ltd Note AShinhan BNP Paribas Asset Management (Hong Kong) Co., Ltd Note ABNP Paribas Investment Ltd (Asia) Note ALiaoning Energy Investment (Group) Co., Ltd. Holds more than 10% shares of the Group’s subsidiaryShanghai Shengyuan Real-Estate (Group) Co., Ltd Holds more than 10% shares of the Group’s subsidiaryChina-Belgium Direct Equity Investment Fund A fund managed by the subsidiary

Note A: Subsidiaries of BNP Paribas Investment Partners BE Holding SA. The entities listed above are also known as “Entities related to BNP Paribas”.

The Group’s major transactions with related parties are as follows.

F-448

201HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

58. RELATED PARTY TRANSACTIONS (continued)

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Commission and fee income: – Shanghai Equity Investment Fund Limited Partnership 30,152 30,730 – Xi’an Aerospace and New Energy Industry Fund 9,396 9,790 – Jilin Modern Agricultural and Emerging Markets Investment Fund Limited 6,990 24,365 – Shanghai Cultural Industries Investment Fund (Limited Partnership) 12,968 9,315 – Fullgoal Fund Management Co. Ltd. 20,396 35,354 – Haitong (Jilin) Modern Service Industry Investment Fund Limited Partnership 2,774 2,774 – Haitong Xingtai (Anhui) Emerging Industry Investment Fund (Limited Partnership) 9,457 9,456 – China-Belgium Direct Equity Investment Fund 32,217 25,077 – Haitong (Jilin) Equity Investment Fund Limited Partnership 1,132 1,132 – Guangdong South Media Integration Fund Limited Partnership 3,944 3,944 – Xi’an Civil-Military Integration Satellite Investment Fund Co., Ltd 2,014 2,014 – Entities related to BNP Paribas 1,265 2,281 – Others 12 71

Administration expense: – Shanghai Shengyuan Real-Estate (Group) Co., Ltd. – 41 – Entities related to BNP Paribas 62 –

Investment income: – Shanghai Equity Investment Fund Limited Partnership 1,213 –

Interest expense: – Entities related to BNP Paribas 10,540 –

Interest income: – Gui’an UT Financial Leasing (Shanghai) Co., Ltd 38,196 855 – Others 148 338

Interest rate swap: – Entities related to BNP Paribas – 460,000

F-449

202 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

58. RELATED PARTY TRANSACTIONS (continued)

The Group had the following material balances with the related parties as at 30 June 2019 and 31 December 2018:

2019/06/30 2018/12/31RMB’000 RMB’000

(unaudited) (audited)

Other receivables and prepayments from – Fullgoal Fund Management Co. Ltd. – 5 – Entities related to BNP Paribas 509 529 – China-Belgium Direct Equity Investment Fund 13,821 – – Shanghai Equity Investment Fund Limited Partnership 31,560 –

Other payables and accruals to: – Haitong (Jilin) Modern Service Industry Investment Fund Limited Partnership (2,391) – – Jilin Modern Agricultural and Emerging Markets Investment Fund Limited (7,390) – – Entities related to BNP Paribas (31) (32)

Accounts payable to brokerage clients: – Shanghai Equity Investment Fund Limited Partnership (55) (38,244) – Haitong Qidong (Weihai) Equity Investment Fund Limited Partnership (1,407) (489) – Jilin Modern Agricultural and Emerging Markets Investment Fund Limited (4,093) (20) – Haitong (Jilin) Modern Service Industry Investment Fund Limited Partnership (123) (123) – Haitong Xingtai (Anhui) Emerging Industry Investment Fund Limited Partnership (2,432) (10,000) – Liaoning Energy Investment (Group) Co., Ltd. (58,044) (4,971) – Shanghai Tong Guan Investment Management Limited Partnership (3,615) (1,447) – Entities related to BNP Paribas (255,397) – – Others (70) (77)

Dividends payable to – Entities related to BNP Paribas (47,258) (39,276)

Long-term borrowings and interests – Entities related to BNP Paribas (514,152) (443,958)

Bank balance and cash – Entities related to BNP Paribas 176,288 133,819

Financial assets held under resale agreements and interests – Gui’an UT Financial Leasing (Shanghai) Co., Ltd 936,961 984,323

F-450

203HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

58. RELATED PARTY TRANSACTIONS (continued)

The remuneration of the key management personnel of the Group was as follows:

Six months ended 30 June

2019 2018RMB’000 RMB’000

(unaudited) (unaudited)

Short-term benefits: – Fees, salaries, commission and bonuses 30,407 29,750Post-employment benefits: – Employer’s contribution to pension schemes/annuity plans 407 2,429

Total 30,814 32,179

59. FINANCIAL RISK MANAGEMENT

The Group’s major financial instruments include debt instruments at fair value through other comprehensive income, financial instruments at fair value through profit or loss, derivative instruments, financial assets held under resale agreements, other loans and receivables, loans and advances, advances to customers on margin financing, accounts receivable, other receivables, placements to banks and other financial institutions, deposits with exchanges, clearing settlement funds, restricted bank deposits, bank balances and cash, receivables arising from sale-and-leaseback arrangements, borrowings, financial assets sold under repurchase agreements, accounts payable to brokerage clients and other payables and accruals. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments and finance lease receivables include market risk (price risk, currency risk and interest rate risk), credit risk and liquidity risk. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

During the six-months ended 30 June 2019, there has been no material changes in the risk management policies. The condensed consolidated financial statements do not include all financial risk management information and disclosure and should be read in conjunction with the consolidated financial statements for the year ended 31 December 2018.

F-451

204 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

60. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Some of the Group’s financial assets and liabilities are measured at fair value for financial reporting purposes. The board of directors of the Group has set up certain process to determine the appropriate valuation techniques and inputs for fair value measurements. The appropriateness of the process and the determination of fair value are reviewed by the board of directors periodically.

The fair value of financial assets and financial liabilities are determined as follows:

• Level 1 fair value measurements are quoted prices (unadjusted) in active market for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Financial instruments not measured at fair value

The table below summarises the carrying amounts and expected fair values with obvious variances of those financial assets and liabilities not presented on the Group’s consolidated statement of financial position at their fair values.

As at 30 June 2019 (unaudited)

As at 31 December 2018 (audited)

Carryingamount Fair value

Carryingamount Fair value

RMB’000 RMB’000 RMB’000 RMB’000

Financial assetsDebt instruments at amortised cost 3,147,952 3,108,914 683,296 682,726

Financial liabilitiesNon-convertible bonds 135,958,344 137,213,923 134,024,662 137,495,291

Except for the above, the directors of the Group consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Group’s statements of financial position approximate their fair values.

F-452

205HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

60. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Financial instruments measured at fair value on a recurring basis

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3.

Financial assets/Financial liabilities Classified as

Fair value as at30 June

2019(unaudited)

RMB’000

Fair value as at31 December

2018(audited)RMB’000

Fair valuehierarchy

Derivative instruments Listed options – 13,606 Level 1(Assets)

40,734 52,994(Liabilities) (Liabilities)

52,517 148,522 Level 2(Assets) (Assets)296,568 182,389

(Liabilities) (Liabilities)Unlisted options 64,065 206,960 Level 2

(Assets) (Assets)82,589 256,652

(Liabilities) (Liabilities)4,745 17,304 Level 3

(Assets) (Assets)5,427 15,709

(Liabilities) (Liabilities)Forward contracts 59,285 55,757 Level 2

(Assets) (Assets)63 118,393

(Liabilities) (Liabilities)– 369 Level 3

(Assets)404 360

(Liabilities) (Liabilities)Interest rate, foreign exchange and credit default swap contracts

1,087,180(Assets)

1,092,435(Assets)

Level 2

1,309,448 1,280,185(Liabilities) (Liabilities)

35,638 86,118 Level 3(Assets) (Assets)

51,055 106,258(Liabilities) (Liabilities)

F-453

206 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

Financial assets/Financial liabilities Classified as

Fair value as at30 June

2019(unaudited)

RMB’000

Fair value as at31 December

2018(audited)RMB’000

Fair valuehierarchy

Derivative instruments Embedded equity instruments – 421 Level 2(Assets)

2,230 29,543(Liabilities) (Liabilities)

Equity swap contracts 62,153 – Level 2(Assets)209,791 877

(Liabilities) (Liabilities)1,519 153,309 Level 3

(Assets) (Assets)4,253 175,414

(Liabilities) (Liabilities)Commodity future – 5,956 Level 2

(Assets)

Financial assets at fair value through profit or loss

Listed equity investments (non-restricted shares), funds investments and debt investments

33,358,646 24,089,383 Level 1

43,101,205 51,465,472 Level 2146,700 228,120 Level 3

Unlisted equity investments 2,219,413 2,491,334 Level 25,912,590 6,109,148 Level 3

Unlisted debt investments 51,521,850 39,277,054 Level 229,433 474,192 Level 3

Unlisted fund investments 35,127,776 24,565,065 Level 2302,817 83,670 Level 3

Investments in wealth investment products, trust and other products (investing in equity or debt other than unlisted private equity)

17,262,561 19,402,155 Level 2

– 241,110 Level 3Restricted shares – 213,823 Level 2

443,503 3,282 Level 3Investments in structure products 7,302,997 8,516,228 Level 2

1,875 45,378 Level 3

60. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-454

207HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

Financial assets/Financial liabilities Classified as

Fair value as at30 June

2019(unaudited)

RMB’000

Fair value as at31 December

2018(audited)RMB’000

Fair valuehierarchy

Financial liabilities at fair value through profit or loss

Listed equity investments (non-restricted shares), funds investments and debt investments

433,469 757,061 Level 1

1,279,510 3,239,462 Level 2Unlisted debt investments 15,232 1,044,240 Level 2

– 1,499 Level 3Financial liabilities arising from consolidation of structured entities

3,398,290 3,585,088 Level 2

Structured notes issued 13,326,518 11,813,581 Level 2389,142 299,387 Level 3

Gold options 5,426,673 5,460,636 Level 2Others 173,333 – Level 2

Financial assets at fair value through other comprehensive income

Listed equity investments (non-restricted shares), and debt investments

5,994,793 7,221,765 Level 1

Unlisted equity investments 15,666,868 14,651,459 Level 2266,099 266,571 Level 3

Unlisted debt investments 6,334,948 7,439,937 Level 2820,649 779,789 Level 3

Valuation methods for financial instruments

For Level 1 financial instruments, fair values are unadjusted quotes in active markets for identical assets.

For Level 2 financial instruments, valuations are generally calculated based on the fair value of the underlying investments which are debt securities or publicly traded equity instruments in each portfolio or obtained from third party pricing services agent such as China Central Depository & Clearing Co., Ltd. which are based on the discounted cash flow models, recent transaction prices or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.

For Level 3 financial instruments, the management obtains valuation quotations from counterparties or uses valuation techniques to determine the fair value, including discounted cash flow analysis, net asset value, market comparison approach and option pricing model, etc. The fair value of these financial instruments may be based on unobservable inputs which may have significant impact on the valuation of these financial instruments, and therefore, these assets and liabilities have been classified by the Group as level 3. The unobservable inputs which may have impact on the valuation include weighted average cost of capital, liquidity discount, price to book ratio, etc.

60. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Financial instruments measured at fair value on a recurring basis (continued)

F-455

208 HAITONG SECURITIES CO., LTD. Interim Report 2019 (H Share)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended 30 June 2019

60. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued)

Reconciliation of Level 3 fair value measurements of financial assets and financial liabilities

30 June 2019 (unaudited)

Financial Financialassets at Equity Debt liabilities at

fair value instruments instruments fair valuethrough at at through Derivative Derivative

profit or loss FVTOCI FVTOCI profit or loss assets liabilitiesRMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

As at 31 December 2018 7,184,900 266,571 779,789 300,886 257,100 297,741Transfer in 261,867 – – 84,507 24,803 –Purchase/(disposal) (452,319) – 24,452 (1,499) (73,251) (81,152)Transfer out (Note) (232,304) – – – (164,845) (167,275)Total losses and gains – other losses and gains 74,774 (472) 16,408 5,248 (1,905) 11,825

As at 30 June 2019 6,836,918 266,099 820,649 389,142 41,902 61,139

31 December 2018 (audited)As at 1 January 2018 7,510,589 268,457 558,205 274,655 – –Transfer in 793,733 – – 75,482 257,100 297,741Purchase/(disposal) 513,324 – 198,182 (58,647) – –Transfer out (1,949,253) – – (42,518) – –Total losses and gains – other losses and gains 316,507 (1,886) 23,402 51,914 – –

As at 31 December 2018 7,184,900 266,571 779,789 300,886 257,100 297,741

Note: Transfers out from Level 3 occurred when financial instruments became unrestricted or their recent active transaction prices were obtained.

61. COMPARATIVE FIGURES

Certain comparative figures have been reclassified and restated to conform to the current period’s presentation.

ISSUER GUARANTOR

Haitong International Finance Holdings 2015 LimitedMaples Corporate Services (BVI) Limited

Kingston ChambersPO Box 173

Road Town, TortolaBritish Virgin Islands

Haitong Securities Co., Ltd.Haitong Securities BuildingNo. 689 Guangdong Road

ShanghaiPRC

TRUSTEE

Citicorp International Limited20/F, Citi Tower

One Bay East83 Hoi Bun Road

Kwun TongKowloon

Hong Kong

PRINCIPAL PAYING AGENT ANDTRANSFER AGENT

REGISTRAR

Citibank, N.A., London Branchc/o Citibank, N.A., Dublin Branch

1 North Wall QuayDublin, Ireland

Citibank, N.A., London BarnchCitigroup CentreCanada SquareCanary Wharf

London E14 5LBUnited Kingdom

LEGAL ADVISERS

To the Issuer and the Guarantoras to English law

To the Issueras to British Virgin Islands law

To the Issuer and the Guarantoras to PRC law

Clifford Chance27th Floor

Jardine HouseOne Connaught Place

CentralHong Kong

Maples and Calder (Hong Kong) LLP53rd Floor, The Center

99 Queen’s Road CentralHong Kong

Allbright Law Offices11, 12/F, Shanghai Tower

No. 501, Yincheng Middle RoadShanghai 200120 P.R. China

To the Managers and the Trusteeas to English law

To the Managersas to PRC law

Linklaters11th Floor

Alexandra HouseChater RoadHong Kong

Jia Yuan Law OfficesF408, Ocean Plaza

158 Fuxing Men Nei AvenueXicheng District

Beijing, 100031, P.R. China

AUDITORS OF THE ISSUER

Deloitte Touche Tohmatsu35/F One Pacific Place

88 QueenswayHong Kong