Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong

Limited take no responsibility for the contents of this announcement, make no

representation as to its accuracy or completeness and expressly disclaim any liability

whatsoever for any loss howsoever arising from or in reliance upon the whole or any

part of the contents of this announcement.

SHANGHAI ELECTRIC GROUP COMPANY LIMITED

上海電氣集團股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 02727)

ANNOUNCEMENT ON RELEVANT MATTERS OF EXTERNAL

INVESTMENT

Reference is made to the announcement on discloseable transactions by way of share

purchase agreement and voting rights entrustment agreement ("Transactions") of

Shanghai Electric Group Company Limited (the “Company”) dated 3 June 2018.

The Company hereby sets out further information, among others, in respect of the

horizontal competition between the Company and Suzhou Thvow Technology Co.,

Ltd. (“Thvow Technology”), the rationale underlying the relevant arrangement to be

made and decision-making procedures, impact of the non-competition undertakings

on the Company. Details are as follows:

*

I. ANALYSIS ON OVERLAPPING BUSINESSES OF BOTH PARTIES TO THE

TRANSACTIONS

(I) Businesses of Thvow Technology and the Company

The principal business of Thvow Technology consists of three segments, namely

energy engineering services, manufacturing of high-end equipment and

military-civilian integration:

Business

segments Major contents

1

Energy

engineering

services

Engagement in the Engineering Procurement Construction

(the “EPC”) contracting, power engineering design and

consulting and other services in the power industry

2

Manufacturing of

high-end

equipment

Provision of solution plan through entire process from

design, manufacture, installation to aftersales technical

services for pressure vessels and complete set of

equipment

3 Military-civilian

integration

Production of numerous special equipment for military use

and for military and civil use and provision of military

equipment maintenance services; production of products

for civil use and provision of after-sales services, repair

and technical services and consulting services

The major products and services of Thvow Technology covers regional power plants,

captive power plants, cogeneration projects and other thermal power engineering

projects; photovoltaic power, wind power, solar-thermal power and other new energy

power engineering projects, power transmission and transformation engineering

projects; pressure vessels and non-standard equipment in the fields of petrochemical

industry, chemical industry, coal chemical industry and electricity industry;

amphibious pontoon bridge, special pontoon bridge, military auxiliary ship,

sightseeing boat, azimuth stern drive tug, and other equipment for military use and for

military and civil use, civil ship, offshore living quarters, steel structure, grid structure

construction, etc.

The principal business of the Company consists of four segments, namely the new

energy and environmental protection equipment, high efficiency and clean-energy

equipment, industrial equipment and modern services:

Business

segments Major contents

1

New energy and

environmental

protection

equipment

Design, manufacturing and sale of nuclear power nuclear

island equipment products, wind power equipment

products, and provision of solution package for

comprehensive utilisation of solid waste, power station

environment protection, sewage treatment and distributed

energy systems

2

High efficiency

and clean-energy

equipment

Design, manufacturing and sale of thermal power

equipment products and auxiliary equipment, nuclear

power conventional island equipment products and power

transmission and distribution equipment products

3 Industrial

equipment

Design, manufacturing and sale of elevators, electric

motors, machine tools, marine crankshafts and other

integrated electromechanical equipment products

4 Modern services

Provision of integrated engineering services for power

station projects and other industries, financial products

and services, and functional services including

international trading services

The major products and services of the Company include coal-fired power generating

units, wind power generating units, gas-fired power generating units, nuclear power

nuclear island equipment, nuclear power conventional island equipment and power

transmission and distribution equipment and its relevant auxiliary and control

equipment, elevators, machine tools, large and medium size of electric motors,

forging components of metallurgical equipment, power station EPC engineering,

power station services (power station retrofit and remote monitoring), repair and

maintenance of elevators, power transmission and distribution engineering, power

transmission and distribution testing services, energy conservation services, financial

services business and international trade, etc.

The controlling shareholder of the Company is Shanghai Electric (Group) Corporation

(上海電氣（集團）總公司, as "SEC"), an investment holding company, and its

business is mainly conducted through its subsidiaries. Apart from the Company, the

core enterprises controlled by SEC also include Shanghai Highly (Group) Co., Ltd.

(上海海立（集團）股份有限公司, as "Shanghai Highly"). The principal businesses

of Shanghai Highly are production and sale of air-conditioning compressor and

electric motors. Shanghai Highly and other enterprises (other than the Company)

controlled by SEC are not engaged in the same or similar business as that of Thvow

Technology.

(II) Analysis on the Differences Between the Business of Thvow Technology

and the Company

Set out below is the comparable analysis of business between Thvow Technology and

the Company based on the classification of business segment of Thvow Technology:

1. Energy engineering services segment

The energy engineering services of Thvow Technology is mainly power engineering

design and EPC contracting, which is principally implemented by its subsidiary China

Sinogy Electric Engineering Co., Ltd. (中機國能電力工程有限公司 , as the

“CSEEC”). The scope of service of modern services business segment of the

Company is broader, including power station engineering, power transmission and

distribution engineering business. In addition, new energy and environmental

protection equipment, high efficiency and clean-energy equipment segments provide

relevant engineering business with equipment. Part of the business of both companies

is in the same field, but there are differences in terms of business model, target

customers and product mix, which are as follows:

(1) For thermal power, from the perspective of business model, CSEEC, a subsidiary

of Thvow Technology, is a design institute with several grade A qualifications in the

electrical engineering industry and prevailing competence in design. Its electrical

engineering contracting business has particular emphasis on design and consulting

work. The Company is principally a manufacturer of power generation equipment and

undertakes relevant projects for the purpose of sales of equipment, but is not engaged

in the design for electrical engineering. From the perspective of industrial positioning,

Thvow Technology mainly provides large-scale industry enterprises and industry park

areas with captive power plant and power island engineering services mainly for heat

and power cogeneration, being a captive power source for users. The Company

mainly provides power sources of the five largest power companies and local power

companies with power engineering services. From the perspective of installed

capacity, the installed capacity of heat and power cogeneration thermal engineering

projects engaged in by Thvow Technology is mainly 350MW or below; the installed

capacity of thermal power engineering projects engaged in by the Company is mainly

600MW or above. Therefore, there are significant differences between thermal power

fields of Thvow Technology and the Company in terms of business model, product

positioning and installed capacity with no substantial horizontal competition.

(2) For wind power, Thvow Technology is engaged in EPC contracting of wind power

engineering and not equipped with equipment manufacture capability, having been

into the wind power engineering services industry for rather a short period of time; the

Company is one of the most important manufacturers of wind power equipment in the

People's Republic of China (the “PRC”), but currently has not been engaged in wind

power engineering services. Both companies have no overlapping business and no

substantial horizontal competition.

(3) For photovoltaic power, Thvow Technology and the Company are both engaged in

the EPC contracting of photovoltaic power station engineering. There exists

horizontal competition between the two companies in such business scope, but due to

the large-scale photovoltaic EPC market, and a dispersed market competition

landscape with low concentration level in the market, both companies retain their

respective advantages in photovoltaic power station engineering services as before.

Thvow Technology is qualified in relevant design and survey for photovoltaic power

station while the Company has accumulated good market reputation and operational

advantages by relying on its long-term experience in thermal power engineering

projects. Therefore, both companies doing such business simultaneously will not

cause substantial damages and adverse impact on both companies.

(4) For solar thermal power, Thvow Technology invested and undertook the EPC

contracting of Zheng Jia Sha Wo Molten Salt Tower 50MW Solar Thermal Power

Project in Yumen (玉門鄭家沙窩熔鹽塔式 5萬千瓦光熱發電項目), which applies

the advanced molten salt tower power generation technology based on secondary

reflection concentration of sunlight and is one of the very first 20 demonstration solar

thermal power generation projects approved in the PRC. The major operating entity

for solar thermal power projects of the Company is Shanghai Electric BrightSource

Solar Thermal Engineering Co., Ltd. (上海電氣亮源光熱工程有限公司) jointly

established by the Company and BrightSource HK Holding Limited and the tower

power generation technology based on sunlight concentration will be adopted.

Currently, solar thermal power is still under the demonstration and promotion stage in

the PRC and various technologies are still under the competition and optimization

stage with uncertainties in market scale and development potential. The project owner

mainly adopts the appropriate technology and determines the main contractor with

corresponding capability after taking into consideration the construction site location,

technology preference and policy support. As Thvow Technology and the Company

adopt different technologies for solar thermal power generation, there exist significant

differences in their respective projects, hence there is currently no substantial

horizontal competition between the companies.

(5) For power transmission and distribution business, Thvow Technology are

principally engaged in power grid projects and has a small volume of power

distribution terminal business, with power grid users as its major customers and small

quantity of industrial and corporate customers. Currently, Thvow Technology

primarily conducts its power transmission and distribution business in the

southwestern region in the PRC. The power transmission and distribution business of

the Company mainly includes the manufacture and sale of related products for power

transmission and distribution while a majority portion of its engineering services

business is mainly being conducted overseas. As the power transmission and

distribution businesses of Thvow Technology and the Company differentiate from

each other in terms of geographical coverage, scope of business and custormer type,

there is currently no substantial horizontal competition between the companies.

2. High-end equipment manufacturing segment

The high-end equipment manufacturing business of Thvow Technology mainly

includes the manufacturing of non-standard pressure vessels in the fields of the

petroleum industry, coal chemical industry and other chemical industry as well as

non-ferrous metals. In addition, the business also covers a small volume of nuclear

power equipment manufacturing, which mainly engages the provision of spare parts

for nuclear power equipment, and has launched various auxiliary equipment for

nuclear power system over the past two years, which mainly includes diesel fuel

power generators for nuclear emergency, lubrication oil tanks, expansion water tanks,

daily fuel oil tanks, main heat exchangers with low-temperature and low-pressure

circuit and air-cooled condensers. The Company is one of the largest groups of

equipment manufacturer and the most essential manufacturer of main nuclear power

equipment in the PRC. On top of the above, the Company is also engaged in the

manufacture of certain chemical pressure vessels and equipment.

(1) For chemical pressure vessels, the relevant business of the Company is mainly

operated through Shanghai Boiler Works, Ltd. (上海鍋爐廠有限公司), one of its

second-tier subsidiaries. However, the pressure vessels of Shanghai Boiler Works,

Ltd., one of the largest domestic manufacturers of power station boilers, are mainly

power station boilers related equipment, and the manufacture business of

non-standard chemical pressure vessels is merely a business conducted for the

utilization of surplus production capacity, which accounted for no more than 2% of

the total revenue of Shanghai Boiler Works, Ltd. and no more than 0.2% of the total

revenue of the Company for the past three years on average. Thvow Technology is a

key manufacturer of non-standard chemical pressure vessels in our country, which is

specialized in manufacture of non-standard pressure vessels in the fields of the

petroleum industry, coal chemical industry, and possesses relatively significant

competitive advantages and brand awareness in the industry, making it an all-time

top-tier supplier with revenue from such business a major integral part to the business

revenue of Thvow Technology. In addition, over the past three years, the primary

chemical pressure vessels manufactured by Shanghai Boiler Works, Ltd. were

“Dongfang” boilers and gasifier products and did not include aerospace boilers,

whereas the gasifier products manufactured by Thvow Technology were mainly

aerospace boilers, which substantially differentiated from each other in terms of

technology with manufacturers remaining relatively stable. The customers generally

select the supplier after determining the type of gasifiers to be purchased based on the

actual needs of the project. To sum up, the small-scale business of chemical pressure

vessels operated by the Company does not constitute substantial horizontal

competition with that of Thvow Technology.

(2) For nuclear power equipment, the Company has experience of over 20 years in the

manufacture of nuclear power equipment and possesses Grade A qualification for

nuclear power products for civil use. It is primarily engaged in the manufacture of

core nuclear power equipment and possesses a dominant position in the market of

reactor vessel internals and control rods drive mechanisms. On the contrary, Thvow

Technology, having a comparatively shorter history in the nuclear power equipment

field, possesses Grade B qualification for nuclear power products for civil use and is

primarily engaged in the manufacture of auxiliary spare parts and products for nuclear

power equipment. It substantially differentiates itself from the Company in terms of

product mix and processing capability. The auxiliary spare parts for nuclear power

equipment manufactured by Thvow Technology have a small market share. In 2016

and 2017, there was no sales revenue of such auxiliary spare parts for nuclear power

equipment. The sales revenue in 2015 was only RMB850,000. In the past three years,

the nuclear power equipment produced by the Company is mainly core nuclear power

equipment. Thvow Technology has a cost advantage over the Company in

manufacturing auxiliary spare parts for nuclear power equipment. The Company did

not undertake the production of auxiliary spare parts for nuclear power equipment of

Thvow Technology. Therefore, there is no substantial horizontal competition between

them for nuclear power equipment.

3. Military-civilian integration segment

For the military-civilian integration segment, Thvow Technology is mainly engaged

in the manufacture of amphibious pontoon bridge, special pontoon bridge, military

auxiliary ship, sightseeing boat, azimuth stern drive tug, and relevant equipment for

military use and for military and civil use, while conducting at the same time the

business of civil ship, offshore living quarters, steel structure, grid structure

construction, etc. On the contrary, the Company is not engaged in such businesses,

and there is no horizontal competition between them for such business segment.

(III) Non-competition Undertakings Made by the Company

The Company made the following undertakings in order to avoid potential horizontal

competition with Thvow Technology:

1. The Company guarantees not to be involved in acts detrimental to the interests

of Thvow Technology and its minority shareholders by taking advantage of its

controlling shareholder position in Thvow Technology.

2. For photovoltaic power field, the Company guarantees to participate in market

competition independent of Thvow Technology based on the principles of

openness, fairness and impartiality, without prejudice to the interests of Thvow

Technology and its minority shareholders. Regarding the EPC contracting of

photovoltaic power station undertaken by the Company, Thvow Technology

will be given the priority to contract for the design work under the same

conditions and with the consent of the owner.

3. For thermal power, wind power, solar thermal power and other energy

engineering services field, the Company will have Thvow Technology

maintaining its independent participation in market competition and support

Thvow Technology to give play to its inherent advantages. In the event that

the Company independently obtains orders of the corresponding business in

the market, and within the reach of Thvow Technology, the Company will give

Thvow Technology the priority to contract for the design business under the

same conditions and with the consent of the owner.

4. For chemical pressure vessels field, the Company will have Thvow

Technology maintaining its independent participation in market competition

and support Thvow Technology to enhance its competitive advantages in the

field of non-standard pressure vessels.

5. For nuclear power equipment, the Company will have Thvow Technology

maintaining its independent participation in market competition and will,

within the reach of Thvow Technology, preferentially purchase spare parts for

nuclear power equipment from Thvow Technology under the same conditions.

6. Such undertakings shall continue to be valid during the period in which the

Company acts as a direct/indirect controlling shareholder of Thvow

Technology. The Company guarantees to strictly perform all the undertakings

in the undertaking letter, and will bear the corresponding liability for

compensation for losses to Thvow Technology as a result of breach of such

undertakings by the Company.

II. RATIONALE UNDERLYING THE RELEVANT ARRANGEMENTS IN

RELATION TO HORIZONTAL COMPETITION

In view of the Non-competition Undertakings issued by the Company, considerations

of the relevant arrangements in relation to horizontal competition are as follows:

(I) Photovoltaic Power Field

For photovoltaic power field, as both parties are engaged in the business of EPC

contracting of photovoltaic power station, there exists horizontal competition to a

certain extent in such business field. Thvow Technology and the Company have

maintained their respective advantages in previous business operations. Considering

that both the Company and Thvow Technology are listed companies, and with the

purpose of maintaining the independence of both parties and safeguarding the

interests of their respective minority shareholders, the Company undertakes to

“participate in market competition independent of Thvow Technology based on the

principles of openness, fairness and impartiality”. Meanwhile, considering that upon

the completion of the Transactions and corresponding changes in equity interests in

Thvow Technology, the Company will become the controlling shareholder of Thvow

Technology, the Company guarantees that, “in terms of the EPC contracting of

photovoltaic power station undertaken by the Company, Thvow Technology will be

given the priority to contract for the design work under the same conditions and with

the consent of the owner”. As Thvow Technology is qualified for the relevant design

and survey of photovoltaic power station and focuses itself on the design and

consulting of power engineering in the EPC contracting business, while the Company,

which mainly acts as an equipment supplier, does not possess the relevant design and

survey qualifications, and therefore acted as the general contractor and subcontracted

the relevant engineering design business of previous photovoltaic power station

projects to third parties. Accordingly, the Company guarantees that, in terms of the

EPC contracting of photovoltaic power station undertaken by the Company, Thvow

Technology will be given the priority to contract for the design under the same

conditions and with the consent of the owner, without prejudice to the interests of the

Company and its minority shareholders.

(II) Thermal Power, Wind Power and Solar Thermal Power Generation

Field

For energy engineering fields such as thermal power, wind power and solar thermal

power generation, as both parties differentiate from each other in terms of business

model, target customers, product mix, business positioning and technology routes,

there is no substantial horizontal competition between the companies. Considering

that both the Company and Thvow Technology are listed companies, and with the

purpose of maintaining the independence of both parties and safeguarding the

interests of their respective minority shareholders, the Company undertakes to “have

Thvow Technology maintaining its independent participation in market competition

and support Thvow Technology to give play to its inherent advantages”. Meanwhile,

the Company guarantees that, “in the event that the Company independently obtains

orders of the corresponding business in the market, and within the reach of Thvow

Technology, the Company will give Thvow Technology the priority to contract for the

design business under the same conditions and with the consent of the owner”. The

Company is one of the largest equipment manufacturing groups in the PRC and is

primarily engaged in equipment manufacturing in the provision of engineering

services in the fields of thermal power, wind power and solar thermal power

generation. As the Company does not possess the qualifications for power engineering

design, the relevant engineering design business of previous thermal power projects

was subcontracted to third parties. If the Company is to conduct the provision of

power engineering services in the future, it is necessary for the Company to

subcontract the relevant design business to third parties. Therefore, the Company

guarantees that, within the reach of Thvow Technology, the Company will give

Thvow Technology the priority to contract for the design business under the same

conditions and with the consent of the owner, without prejudice to the interests of the

Company and its minority shareholders.

(III) Chemical Pressure Vessels Field

For chemical pressure vessels field, the Company only operates a small scale of

chemical pressure vessel business making use of its surplus production capacity,

while Thvow Technology is a significant manufacturer in the field of non-standard

chemical pressure vessels in the PRC. As the Company and Thvow Technology

substantially differentiate from each other in terms of business positioning and

technology routes, there is no substantial horizontal competition between the

companies. Considering that both the Company and Thvow Technology are listed

companies, and with the purpose of maintaining the independence of both parties and

safeguarding the interests of their respective minority shareholders, the Company

undertakes to “have Thvow Technology maintaining its independent participation in

market competition and support Thvow Technology to enhance its competitive

advantages in the field of non-standard pressure vessels”.

(IV) Nuclear power equipment Field

For nuclear power equipment field, the Company, as a major manufacturer for core

nuclear power equipment in the PRC, possesses Grade A qualification for nuclear

power products for civil use and has experience of over 20 years in manufacturing

such equipment, while Thvow Technology possesses Grade B qualification for

nuclear power products for civil use and is primarily engaged in the manufacture of

auxiliary spare parts for nuclear power equipment. As the Company and Thvow

Technology substantially differentiate from each other in terms of production

qualification, product mix and processing capability, there is no substantial horizontal

competition between the companies. Considering that both the Company and Thvow

Technology are listed companies, and with the purpose of maintaining the

independence of both parties and safeguarding the interests of their respective

minority shareholders, the Company undertakes to “have Thvow Technology

maintaining its independent participation in market competition”. Meanwhile, the

Company undertakes to, “within the reach of Thvow Technology, preferentially

purchase spare parts for nuclear power equipment from Thvow Technology under the

same conditions”. As the Company needs to purchase spare parts from third parties in

the course of business, and currently Thvow Technology has a cost advantage over

the Company in manufacturing auxiliary spare parts for nuclear power equipment,

therefore given that the technical capability and product quality of Thvow Technology

meet the relevant requirements, the Company guarantees its priority to purchase the

spare parts manufactured by Thvow Technology, without prejudice to the interests of

the Company and its minority shareholders.

The Company guarantees not to be involved in acts detrimental to the interests of

Thvow Technology and its minority shareholders by taking advantage of its

controlling shareholder position in Thvow Technology. The undertakings shall

continue to be valid during the period in which the Company acts as a direct/indirect

controlling shareholder of Thvow Technology. The Company undertakes to strictly

perform all the undertakings in the undertaking letter, and will bear the corresponding

liability for compensation for losses to Thvow Technology as a result of breach of

such undertakings by the Company.

The aforementioned Non-competition Undertakings was considered and approved by

the 70th meeting of the fourth session of the Board of Directors ("Board") of the

Company.

III. IMPACT OF THE ARRANGEMENTS IN RELATION TO HORIZONTAL

COMPETITION ON THE COMPANY

Being optimistic about the development of Thvow Technology, the Company

implements the Transactions mainly to obtain its control over Thvow Technology. The

Company will become the controlling shareholder of Thvow Technology upon

completion of the Transactions, which is conducive to enhancing the business

development capability and financial strength of Thvow Technology, strengthening its

competitive strength and increasing its value. Meanwhile, the implementation of the

Transactions is a significant measure for the Company to improve its industrial layout

and strengthen its comprehensive strength of the energy segment. It is in line with the

development direction of the strategic business of the Company and is conducive to

accelerating the business transformation and upgrading of the Company towards

“manufacturing + service” model.

There are overlaps to a certain extent in some of the businesses conducted by the

Company and Thvow Technology in the energy engineering services segment and

high-end equipment manufacturing segment. In order to avoid future possible

horizontal competition with Thvow Technology, the Company issued the letter of

Non-competition Undertakings:

For the energy engineering services segment (including thermal power, wind power,

photovoltaic power and solar thermal power), the Company undertakes to support the

independent participation of Thvow Technology in market competition. As one of the

largest equipment manufacturing groups in the PRC, the Company does not possess

the qualifications for power engineering design and focuses on equipment

manufacturing in the provision of energy engineering services. Thvow Technology, on

the other hand, possesses the qualifications for power engineering design and is able

to engage itself in the design and consulting of power engineering in the provision of

energy engineering services. The Company acted as the general contractor and

subcontracted the relevant engineering design business of previous energy

engineering projects to third parties. Therefore, the Company's undertaking for Thvow

Technology to be given the priority to contract for the design business under the same

conditions and with the consent of the owner will not be prejudice to the interests of

the Company and its minority shareholders.

For the high-end equipment manufacturing segment, the Company is one of the

largest equipment manufacturing groups in the PRC. Its subsidiaries only operate a

small scale of chemical pressure vessel business making use of its surplus production

capacity, while Thvow Technology is a significant manufacturer in the field of

non-standard chemical pressure vessels in the PRC. The Company's undertaking to

have Thvow Technology maintaining its independent participation in market

competition will not be prejudice to the interests of the Company and its minority

shareholders. For nuclear power equipment, the Company and Thvow Technology

substantially differentiate from each other in terms of production qualification,

product mix and processing capability. As a major manufacturer for core nuclear

power equipment in the PRC, the Company needs to purchase auxiliary spare parts for

the relevant equipment from third parties in the course of business, and currently the

Thvow Technology has a cost advantage over the Company in manufacturing

auxiliary spare parts for nuclear power equipment. Therefore, the Company's

undertaking to give its priority to purchase the spare parts manufactured by Thvow

Technology given that the technical capability and product quality of Thvow

Technology meet the relevant requirements will not be prejudice to the interests of the

Company and its minority shareholders.

The issuance of the letter of Non-competition Undertakings by the Company will not

pose limitations on the ordinary business development of the Company and will not

be prejudice to the interests of the Company and its minority shareholders.

By order of the Board

Shanghai Electric Group Company Limited

ZHENG Jianhua

Chairman of the Board

Shanghai, the PRC, 10 August 2018

As of the date of this announcement, the executive director of the Company is Mr.

ZHENG Jianhua; the non-executive directors of the Company are Mr. LI Jianjin, Mr.

ZHU Kelin and Ms. YAO Minfang; and the independent non-executive directors of the

Company are Dr. LUI Sun Wing, Mr. KAN Shun Ming and Dr. CHU Junhao.

* For identification purpose only