Central China Securities Co., Ltd.

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your securities broker or other registered securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Central China Securities Co., Ltd. (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, securities broker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

(a joint stock company incorporated in 2002 in Henan Province, the People’s Republic of China with limited liability under the Chinese corporate name “ 中原證券股份有限公司 ” and carrying on business in Hong Kong as “ 中州證券 ”)

(Stock Code: 01375)

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES; AND PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

Letter from the Board is set out on pages 6 to 33 of this circular.

The annual general meeting (the “AGM”), the H share class meeting and the A share class meeting (the “Class Meetings”) of the Company will be held at 9:30 a.m., 11:00 a.m. or immediately after the conclusion of the AGM or any adjournment thereof (whichever is the later) and 11:30 a.m. or immediately after the conclusion of the H share class meeting or any adjournment thereof (whichever is the later) respectively on 22 May 2017 (Monday) at Conference Centre, Huanghe Yingbin Hotel, No. 1 Yingbin Road, Huiji District, Zhengzhou, Henan Province, the PRC.

The proxy forms for the AGM and the H share class meeting have been posted to you on 7 April 2017. Whether or not you are able to attend the AGM and the H Class Meeting in person, you are requested to complete and return the applicable proxy forms in accordance with the instructions printed thereon. In case of holders of H Shares, the proxy forms shall be lodged with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong; but in any event, not less than 24 hours before the time scheduled for holding the relevant meetings (or any adjournment thereof) or the time appointed for the taking of the poll. Completion and delivery of the proxy forms will not preclude you from attending and voting in person at the relevant meetings or any adjournment if you so desire.

5 May 2017

CONTENTS

Page

DEFINITIONS. . . .	DEFINITIONS. . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM	THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Proposed Grant of Mandate to Repurchase H Shares . . . . . . . . . . . . . . . . . . . . .			7
Proposal and Specific Mandate for Proposed Issuance of A Share Convertible
Corporate	Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		8
APPENDIX I	–	Explanatory Statement of Mandate to
		Repurchase H Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
APPENDIX II	–	Preliminary Proposal for the Public Issuance of A Share
		Convertible Corporate Bonds . . . . . . . . . . . . . . . . . . . . .	37
APPENDIX III	–	Report on Feasibility Analysis in respect of the Use of
		Proceeds from the Public Issuance of A Share
		Convertible Corporate Bonds by the Company . . . . . . .	99
APPENDIX IV	–	Report on Use of Proceeds Previously Raised . . . . . . . . . .	109
APPENDIX V	–	Dilution of Current Returns by the Public Issuance of
		the A Share Convertible Corporate Bonds and
		the Remedial Measures . . . . . . . . . . . . . . . . . . . . . . . . . .	112

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the expressions below have the meanings assigned:

“A Share(s)”
domestic listed ordinary shares with a nominal value of RMB1.00 each in the share capital of the Company, which are listed and traded on the Shanghai Stock Exchange
“A Share Class Meeting”
the A Share class meeting to be held at 11:30 a.m. on 22 May 2017 (Monday) or immediately after the conclusion of the H Share Class Meeting or any adjournment thereof (whichever is the later) for A Shareholders to consider and approve, inter alia , the resolutions regarding the proposed mandate to repurchase H Shares and proposal and Specific Mandate for the proposed issuance of the A Share Convertible Corporate Bonds
“A Share Convertible Corporate Bonds”
the A Share convertible corporate bonds in the total amount of not more than RMB2.7 billion (inclusive) which are convertible into new A Shares, proposed to be issued by the Company in the PRC
“A Share Convertible Corporate Bonds Holder(s)”
holder(s) of the A Share Convertible Corporate Bonds
“A Shareholder(s)”
holder(s) of A Shares
“AGM”

the annual general meeting (or any adjournment thereof) of the Company to be convened and held at 9:30 a.m. on 22 May 2017 (Monday) at Conference Centre, Huanghe Yingbin Hotel, No. 1 Yingbin Road, Huiji District, Zhengzhou, Henan Province, the PRC for the Shareholders to consider and approve, inter alia , the resolutions regarding the proposed mandate to repurchase H Shares and proposal and Specific Mandate for the proposed issuance of the A Share Convertible Corporate Bonds

“Articles of Association”
the articles of association of the Company as amended from time to time
“Board”
the board of Directors

– 1 –

DEFINITIONS

“Bohai Fund”
“Bohai Fund Management”
“Class Meetings”
“close associate”
“Company”
“connected person”
“connected transaction”
“Conversion Price”
“core connected person”
“CSRC”

Bohai Industrial Investment Fund (渤海產業投資基金), a fund established upon approval by the National Development and Reform Commission of the PRC (中國發展和改革委員會), on whose behalf Bohai Fund Management holds 608,000,000 A Shares, representing approximately 15.495% equity interest in the Company as at the Latest Practicable Date

Bohai Industrial Investment Fund Management Co., Ltd. (渤海產業投資基金管理有限公司), a company incorporated in the PRC with limited liability, which holds on behalf of Bohai Fund approximately 15.495% equity interest in the Company as at the Latest Practicable Date
the A Share Class Meeting and the H Share Class Meeting
has the meaning ascribed to it under the Listing Rules
Central China Securities Co., Ltd. (中原証券股份有限公司) (carrying on business in Hong Kong as “中州証券”, a joint stock company incorporated on 8 November 2002 in Henan Province, the PRC with limited liability, the H Shares and A Shares of which are listed on the Main Board of the Stock Exchange (stock code: 01375) and the Shanghai Stock Exchange (stock code: 601375), respectively)
has the meaning as ascribed to it under the Listing Rules
has the meaning as ascribed to it under the Listing Rules
the price at which the new A Shares will be issued upon conversion of the A Share Convertible Corporate Bonds, as may be adjusted from time to time
has the meaning ascribed to it under the Listing Rules
the China Securities Regulatory Commission

– 2 –

DEFINITIONS

“Dahe Paper”

Dahe Paper (Hong Kong) Co., Limited, a limited company incorporated in Hong Kong, which holds 37,807,000 H Shares as at the Latest Practicable Date (representing approximately 0.964% of the Company’s share capital in issue) and is also an indirect whollyowned subsidiary of Henan Investment Group

“Director(s)” director(s) of the Company
“H Share Class Meeting”
the H Share class meeting to be held at 11:00 a.m. on 22 May 2017 (Monday) or immediately after the conclusion of the AGM or any adjournment thereof (whichever is the later) for the H Shareholders to consider and approve, inter alia , the resolutions regarding the proposed mandate to repurchase H Shares and proposal and Specific Mandate for the proposed issuance of the A Share Convertible Corporate Bonds
“H Shareholders”
holders of H Shares
“H Shares”
overseas listed foreign ordinary shares with a nominal value of RMB1.00 each in the share capital of the Company, which are listed and traded on the Main Board of the Hong Kong Stock Exchange
“Henan Investment Group”
Henan Investment Group Co., Ltd. (河南投資集團有限公司), a joint stock company incorporated in the PRC with limited liability, which holds 822,983,847 A Shares at the Latest Practicable Date (representing approximately 20.975% equity interest in the Company)
“HKD”
Hong Kong Dollars, the lawful currency of Hong Kong
“Hong Kong”
Hong Kong Special Administrative Region of the PRC
“IT”
abbreviation of “information technology”
“Latest Practicable Date”
2 May 2017, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange

– 3 –

DEFINITIONS

“Mandatory Provisions”
“New Third Board”
“Offering Document”
“PRC” or “State”
“Repurchase Mandate”
“RMB”
“SAFE”
“Share(s)”
“Shareholders”

the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (《到境外上市公司章程必備條款》) promulgated by the former State Council Securities Commission and the former State Commission for Restructuring the Economic System of the PRC on 27 August 1994

abbreviation for “National Equities Exchange and Quotations System” (全國中小企業股份轉讓系統), a national securities trading venue established upon approval by the State Council, subject to operation and management of National Equities Exchange and Quotations Co., Ltd.
the offering memorandum in relation to the proposed issuance of the A Share Convertible Corporate Bonds
the People’s Republic of China (excluding, for the purpose of this circular, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan)
subject to the conditions set out in the proposed resolution(s) approving the repurchase mandate at the AGM and Class Meetings, the general mandate to be granted to the Board to exercise the power of the Company to repurchase H Shares, the aggregate nominal amount of which shall not exceed 10% of the aggregate nominal value of H Shares in issue as at the date of passing of the relevant resolution(s) as set out in the notices of the AGM and Class Meetings
the lawful currency of the PRC, Renminbi, the basic unit of which is “yuan”
the State Administration of Foreign Exchange of the PRC (中國國家外匯管理局)
ordinary share(s) with a nominal value of RMB1.00 each in the share capital of the Company, including A Shares and H Shares
the shareholders of the Company

– 4 –

DEFINITIONS

“Specific Mandate” the specific mandate in relation to the issuance of the A Share Convertible Corporate Bonds to be considered and approved at the AGM and Class Meetings “Stock Exchange” The Stock Exchange of Hong Kong Limited “subsidiary” has the meaning ascribed to it under the Listing Rules “Takeover Code” The Code on Takeovers and Mergers, as amended, supplemented or otherwise modified from time to time “%” per cent

– 5 –

LETTER FROM THE BOARD

Central China Securities Co., Ltd.

(a joint stock company incorporated in 2002 in Henan Province, the People’s Republic of China with limited liability under the Chinese corporate name “ 中原證券股份有限公司” and carrying on business in Hong Kong as “中州證券”)

(Stock Code: 01375)

Executive Directors: Mr. JIAN Mingjun (Chairman) Mr. ZHOU Xiaoquan

Non-executive Directors:

Mr. LI Xingjia Mr. WANG Lixin Mr. ZHANG Qiang Mr. ZHANG Xiaoqi Mr. YU Zeyang

Independent Non-executive Directors: Mr. YUAN Dejun Mr. YUEN Chi Wai Mr. NING Jincheng Mr. YU Xugang

Registered Address in the PRC: No. 10 Shangwu Waihuan Road Zhengdong New District Zhengzhou, Henan Province China

Headquarters/Principal Place of Business in the PRC: No. 10 Shangwu Waihuan Road Zhengdong New District Zhengzhou, Henan Province China

Principal Place of Business in Hong Kong: 18/F, Tesbury Centre 28 Queen’s Road East Wanchai, Hong Kong

To the Shareholders,

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES; AND PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

INTRODUCTION

Reference is made to the notices of the AGM and the H Share Class Meeting and the announcement of proposed issuance of A Share Convertible Corporate Bonds on 7 April 2017.

The purpose of this circular is to provide you with details of the aforementioned items.

– 6 –

LETTER FROM THE BOARD

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES

(I) Proposed Grant of Repurchase Mandate

General Mandate to Repurchase H Shares

The Company Law of the PRC (《中華人民共和國公司法》), the Mandatory Provisions and the Articles of Association provide for certain restrictions on share repurchase which are applicable to all classes of shares of the Company.

The Company Law of the PRC (《中華人民共和國公司法》) (to which the Company is subject) provides that a joint stock limited company incorporated in the PRC may not repurchase its shares unless such repurchase is effected (a) for the purposes of reducing its registered capital; (b) in connection with a merger between itself and another entity that holds its shares; (c) for the purposes of granting shares as reward to the staffs of the company; or (d) when the repurchase is made at the request of its shareholders who disagrees with shareholders’ resolutions in connection with a merger or division. The Mandatory Provisions, which the Company has incorporated in the Articles of Association, provide that subject to obtaining the approval of the relevant PRC regulatory authorities and in compliance with the Articles of Association, the Company may repurchase its issued Shares for the purpose of reducing its share capital or in connection with a merger between itself and another entity that holds its Shares or in circumstances permitted by laws or administrative regulations.

The Listing Rules permit the shareholders of a PRC joint stock limited company to grant a general mandate to the Board to repurchase shares of such company that is listed on the Stock Exchange. Such mandate is required to be given by way of an ordinary resolution passed by its shareholders at general meeting and ordinary resolutions passed by holders of A shares and holders of overseas listed foreign shares at separate meetings.

H Shares of the Company are traded on the Stock Exchange in Hong Kong dollars. Therefore, the repurchase of H Shares by the Company is subject to the approval of the SAFE (or its successor authority), and the price payable by the Company upon any repurchase of H Shares will be paid in Hong Kong dollars.

In accordance with the requirements of the Articles of Association applicable to capital reduction, the Company will have to notify its creditors of the passing of the resolution(s) for the reduction of the registered capital of the Company. In addition, the Company Law of the PRC (《中華人民共和國公司法》) provides that the shares repurchased by a company for the purpose of reducing its share capital will have to be cancelled and the registered capital of that company will therefore be reduced by an amount equivalent to the aggregate nominal value of the shares so cancelled. In the event of a reduction of registered capital, the Company shall inform its creditors by way of written notice and announcement within a prescribed period after the passing of the relevant resolution(s) approving such reduction. The creditors shall be entitled to request the Company for repayment of loan and/or provision of guarantee. The statutory notification requirement allows the creditors an opportunity for the recovery and/or security of the debt (in particular for those unsecured debts) where the Company’s registered capital is to be reduced.

– 7 –

LETTER FROM THE BOARD

Conditions to repurchase of H Shares

In order to provide flexibility to the Directors in any event that it becomes desirable to repurchase H Shares, approval is proposed to be sought from the Shareholders for the grant of the Repurchase Mandate to the Directors. In accordance with the requirements under the Company Law of the PRC (《中華人民共和國公司法》), the Mandatory Provisions and the Articles of Association, the Company is required to convene the AGM and Class Meetings to seek the aforesaid approval from the Shareholders. At each of the meetings, special resolution(s) will be proposed for the relevant Shareholders to consider and approve the Repurchase Mandate (i.e. a conditional general mandate to repurchase H Shares in issue on the Stock Exchange with an aggregate nominal value of not exceeding 10% of the aggregate nominal value of H Shares in issue as at the date of passing of such special resolution(s)).

The Repurchase Mandate will be conditional upon (a) the special resolution(s) for approving the grant of the Repurchase Mandate being passed at each of the AGM and Class Meetings; and (b) the approvals of and/or filings with SAFE (or its successor authority) and/or any other regulatory authorities as may be required by the laws, rules and regulations of the PRC being obtained by the Company, if appropriate. If the above conditions are not fulfilled, the Repurchase Mandate will not be exercisable by the Directors.

The Repurchase Mandate will expire on the earlier of (a) the conclusion of the next annual general meeting of the Company; or (b) the expiry of a period of twelve months following the passing of the relevant resolution(s) at the AGM and Class Meetings; or (c) the date on which the authority conferred by the special resolution(s) is revoked or varied by a special resolution of the Shareholders in a general meeting or by special resolutions of holders of H Shares or holders of A Shares at their respective Class Meetings.

The H Shares which may be repurchased by the Company pursuant to the Repurchase Mandate shall not exceed 10% of the aggregate nominal value of H Shares in issue as at the date of passing of the special resolution(s) approving the Repurchase Mandate at the AGM and Class Meetings.

An explanatory statement giving certain information regarding the Repurchase Mandate is set out in Appendix I to this circular.

PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

(II) Satisfaction of the Conditions for the Public Issue of the A Share Convertible Corporate Bonds by the Company

In order to further replenish the capital of the Company, enhance its comprehensive competitiveness and strengthen its sustainable development capability, the Company proposes the issuance and listing of the A Share Convertible Corporate Bonds (on the Shanghai Stock Exchange).

– 8 –

LETTER FROM THE BOARD

Pursuant to the relevant requirements under the Company Law of the PRC (《中華人民共和國公司法》), the Securities Law of the PRC (《中華人民共和國證券法》), the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》) and other laws and regulations and normative legal documents, upon examination of the Company against the qualification and requirements in relation to the issuance of the A Share Convertible Corporate Bonds, the Board considers that the Company has satisfied the relevant regulations and requirements and is eligible for the public issuance of the A Share Convertible Corporate Bonds.

On 6 April 2017, the Board approved and resolved to propose to the Shareholders to consider and, if thought fit, approve the conditions for the issue of the A Share Convertible Corporate Bonds at the AGM and Class Meetings, respectively, by way of special resolutions.

(III) Proposal for the Public Issue of A Share Convertible Corporate Bonds by the Company

On 6 April 2017, the Board approved and resolved to propose to the Shareholders to consider and, if thought fit, approve the proposal for the issue of the A Share Convertible Corporate Bonds at the AGM and Class Meetings, respectively, by way of special resolutions.

(1) Principal Terms

The principal terms of the proposed issuance of the A Share Convertible Corporate Bonds are as follows:

1. Type of securities to be issued

The type of securities to be issued by the Company are the A Share Convertible Corporate Bonds which can be converted into A Shares. The A Share Convertible Corporate Bonds and the A Shares to be converted therefrom in the future will be listed on the Shanghai Stock Exchange.

2. Issue size

The total amount of the A Share Convertible Corporate Bonds proposed to be issued will be not more than RMB2.7 billion (inclusive). The actual size of the issuance shall be determined by the Board or other authorised persons within the above range, subject to the authorization by the Shareholders at the AGM and Class Meetings.

3. Par value and issue price

The A Share Convertible Corporate Bonds will be issued at par with a nominal value of RMB100 each.

– 9 –

LETTER FROM THE BOARD

4. Term of bond

The term of the A Share Convertible Corporate Bonds will be six years from the date of issuance.

5. Interest rate of bond

The manner of determining the interest rate of the A Share Convertible Corporate Bonds and the final interest rate of each interest accrual year shall be determined by the Board or other authorised persons after discussion and agreement with the sponsor institution (the lead underwriter) in accordance with the PRC policies, market conditions and the actual conditions of the Company prior to the issuance of the A Share Convertible Corporate Bonds, pursuant to the authorization by the Shareholders at the AGM and Class Meetings.[*]

If prior to the completion of the issuance of the A Share Convertible Corporate Bonds, the bank deposit interest rate is adjusted, subject to the authorisation at the AGM and Class Meetings, the Board or other authorised persons shall make adjustments to the interest rate of the A Share Convertible Corporate Bonds accordingly.

6. Method and timing of interest payment

Interest on the A Share Convertible Corporate Bonds will be paid once a year and the principal amount and the interest for last year of all outstanding A Share Convertible Corporate Bonds will be repaid at maturity.

In accordance with (1) Article 16 of the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》): “the interest rate of convertible corporate bonds shall be determined by the issuing company and the lead underwriter through discussion, but it shall comply with relevant applicable state laws and regulations” and (2) the Circular on Matters on Relating to the Issuance of Convertible Corporate Bonds by State-owned Financial Enterprises (《關於國有金融企業發行可轉換公司債券有關事宜的通知》): “IV. To issue convertible corporate bonds, state-owned financial enterprises shall follow the market-oriented principle to comprehensively consider factors like bank loan interest rates, similar bond interest rates and the listed company’s future prospects and reasonably determine bond interest rates and conversion prices.”, the manner of determining the interest rate of the A Share Convertible Corporate Bonds and the final interest rate of each interest accrual year shall be determined through discussion and agreement among the Board or other authorised persons in accordance with the authorisation from the AGM and Class Meetings and the sponsor institution (the lead underwriter) with reference to the state policies, market conditions and the actual conditions of the Company, and such interest rate will not be a negative value. Based on the market practice and current market conditions, the Company expects the minimum interest rate of the A Share Convertible Corporate Bonds to be 0.2%.

– 10 –

LETTER FROM THE BOARD

(1) Calculation of the annual interest

The annual interest means the interest accrued to the A Share Convertible Corporate Bonds Holders in each year on each anniversary of the date of issuance of the A Share Convertible Corporate Bonds, calculated based on the aggregate nominal value of the A Share Convertible Corporate Bonds. The formula for calculating the annual interest is:

==> picture [63 x 9] intentionally omitted <==

I: denotes the annual interest;
B: denotes the aggregate nominal value of the A Share Convertible Corporate Bonds held by an A Share Convertible Corporate Bonds Holder as at the record date for interest payment in an interest accrual year (“ that year ” or “ each year ”);
i: denotes the interest rate of the A Share Convertible Corporate Bonds of that year.
(2) Method of interest payment
(a) Interest of the A Share Convertible Corporate Bonds will be paid annually, accruing from the date of issuance of the A Share Convertible Corporate Bonds.
(b) Interest payment date: The interest is payable annually on each anniversary of the date of issuance of the A Share Convertible Corporate Bonds. If such day falls on a statutory holiday or rest day, the interest payment date shall be postponed to the first working day immediately thereafter, provided that no additional interest will be accrued during the period of postponement. The period between an interest payment date and the immediately following interest payment date will be an interest accrual year.
(c) Record date for interest payment rights: The record date for interest payment rights in each year will be the last trading day preceding the interest payment date. The Company will pay the interest accrued in that year within five trading days from the interest payment date. The Company will not pay any interest for that year and subsequent interest accrual years to the A Share Convertible Corporate Bonds Holders whose A Share Convertible Corporate Bonds have been applied to be converted into the A Shares on or before the record date for interest payment rights.
(d) Tax payable on the interest income of the A Share Convertible Corporate Bonds Holder shall be borne by such A Share Convertible Corporate Bonds Holder.

– 11 –

LETTER FROM THE BOARD

7. Conversion period

The conversion period of the A Share Convertible Corporate Bonds commences on the first trading day immediately following the expiry of the six-month period after the date of issuance of the A Share Convertible Corporate Bonds and ends on the maturity date of the A Share Convertible Corporate Bonds.

8. Determination and adjustment of the conversion price of the A Share Convertible Corporate Bonds

(1) Basis for determining the initial Conversion Price

The initial Conversion Price of the A Share Convertible Corporate Bonds shall not be lower than the highest of the average trading prices of A Shares of the Company for the 30 trading days preceding the date of publication of the Offering Document (in the event that during such 30 trading days, the share price has been adjusted due to ex-rights or ex-dividend, the closing price of each of these trading days before adjustment shall be adjusted with reference to the ex-rights or ex-dividend share price), the 20 trading days preceding the date of publication of the Offering Document (in the event that during such 20 trading days, the share price has been adjusted due to ex-rights or ex-dividend, the closing price of each of these trading days before adjustment shall be adjusted with reference to the ex-rights or ex-dividend share price), and the average trading price of A Shares of the Company on the trading day preceding the date of publication of the Offering Document of the A Share Convertible Corporate Bonds, the latest audited net asset per Share and the par value of Shares. The actual initial Conversion Price shall be determined by the Board or other authorised persons after discussion and agreement with the sponsor institution (the lead underwriter) with reference to the market conditions in accordance with the authorization from the AGM and Class Meetings.[*]

In accordance with (1) Article 22 of the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》) :“The conversion price shall not be lower than the average price of the company’s shares in 20 trading days prior to the announcement of the offering document or the average price of the last trading day” and (2) the Circular on Matters Relating to the Issuance of Convertible Corporate Bonds by State-owned Financial Enterprises (《關於國有金融企業發行可轉換公司債券有關事宜的通知》) : “V. The conversion price of convertible corporate bonds shall not be lower than the highest of the average prices of trading of the company’s shares in 1, 20 and 30 trading days prior to the announcement of the prospectus”, the initial conversion price of the A Share Convertible Corporate Bonds shall not be lower than the average trading prices of the Company’s A Shares in 30 and 20 trading days prior to the announcement of the Offering Document and the average price of the Company’s A Shares in the last trading day before the date of Offering Document.

Meanwhile, in accordance with the relevant requirements under the Company Law of the PRC (《中華人民共和國公司法》) and in relation to the management of state-owned assets, the conversion price of the A Share Convertible Corporate Bonds shall not be less than the higher of the par value of the Shares (that is RMB1) and the latest audited net asset per Share (that is RMB2.70).

– 12 –

LETTER FROM THE BOARD

The average trading price of A Shares of the Company for the 30 trading days preceding the date of publication of the Offering Document means the total trading price of A Shares of the Company for the 30 trading days preceding the date of publication of the Offering Document divided by the total trading volume of A Shares of the Company for those 30 trading days; the average trading price of A Shares of the Company for the 20 trading days preceding the date of publication of the Offering Document means the total trading price of A Shares of the Company for the 20 trading days preceding the date of publication of the Offering Document divided by the total trading volume of A Shares of the Company for those 20 trading days; the average trading price of A Shares of the Company for the trading day preceding the date of publication of the Offering Document means the total trading price of A Shares of the Company for the trading day preceding the date of publication of the Offering Document divided by the total trading volume of A Shares of the Company for that day.

(2) Adjustments to the Conversion Price and calculation formula

Upon the occurrence of distribution of scrip dividend, capitalisation issue, issuance of new shares, rights issue or distribution of cash dividend (excluding any increase in the share capital as a result of conversion of the A Share Convertible Corporate Bonds) after the issuance, the Company will adjust the Conversion Price in accordance with the following formulae (the adjusted value shall be rounded off to two decimal places):

Distribution of scrip dividend or capitalisation issue: P1 = P0/(1+n);

Issuance of new shares or rights issue: P1 = (P0+A×k)/(1+k);

Two items above implemented simultaneously: P1 = (P0+A×k)/(1+n+k);

Distribution of cash dividend: P1 = P0–D;

Three items above implemented simultaneously: P1 = (P0–D+A×k)/(1+n+k).

Where: P0 is the Conversion Price before adjustments; n is the ratio of the scrip dividend or capitalisation; k is the ratio of issuance of new shares or rights issue; A is the price of issuance of new shares or rights issue; D is the cash dividend per share and P1 is the adjusted Conversion Price.

Where the abovementioned changes in shares and/or Shareholder’s interests occur, the Conversion Price will be adjusted accordingly and an announcement will be published on the media designated by the CSRC for disclosing information of listed companies. The announcement will indicate the date of adjustment to the Conversion Price, adjustment method and suspension period of share conversion (if necessary). An announcement will also be published in the Hong Kong market in

– 13 –

LETTER FROM THE BOARD

accordance with laws, rules and regulations such as the Listing Rules (if necessary). If the Conversion Price adjustment date is on or after the A Share Convertible Corporate Bonds Holder’s application for conversion, and before the share registration date, then such conversion will be based on the Conversion Price adjusted by the Company.

In the event that the rights and benefits of the A Share Convertible Corporate Bonds Holders derived from the issuance are affected by the change in the Company’s share class, quantity and/or Shareholders’ interest due to the possible share repurchase, consolidation, subdivision or any other circumstances which may occur, the Company will adjust the Conversion Price based on the actual situation and in accordance with the principles of fairness, justice, equality and full protection of the A Share Convertible Corporate Bonds Holders’ interests. The Conversion Price will be adjusted based on the relevant PRC laws and regulations and the relevant provisions of the securities regulatory authorities of that time.

9. Downward adjustment to the Conversion Price

(1) Adjustment authorization and permitted adjustment magnitude

The Conversion Price may be subject to downward adjustments if, during the term of the A Share Convertible Corporate Bonds, the closing prices of the A Shares in 15 trading days out of any 30 consecutive trading days are lower than 90% of the prevailing Conversion Price. The Board may propose any such adjustments for the the Shareholders’ to consider and seek their approval at a general meeting and Shareholders’ class meetings of the Company. The above-mentioned proposal is subject to approval of more than two-thirds of the participating Shareholders with voting rights present at the general meeting and the Shareholders’ class meetings. Shareholders holding the A Share Convertible Corporate Bonds should abstain from voting at the general meeting and the Shareholders’ class meetings. The adjusted Conversion Price shall not be lower than the highest of the average trading price of A Shares of the Company for the 30 trading days preceding the aforementioned general meeting and the Shareholders’ class meetings, the average trading price of A Shares of the Company for the 20 trading days preceding the aforementioned general meeting and Shareholders’ class meetings and the average trading price of A Shares of the Company for the trading day immediately before the aforesaid general meeting and Shareholders’ class meetings.

In the event that another adjustment of Conversion Price has been implemented in the aforementioned 30 trading days, the Conversion Price will be calculated based on the unadjusted Conversion Price and closing price of Shares during the trading days prior to adjustment, and the adjusted Conversion Price and closing price of Shares during the trading day on which the adjustment was made or the trading days afterwards.

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LETTER FROM THE BOARD

(2) Procedure of adjustment

If the Company decides to make a downward adjustment to the Conversion Price, the Company will publish an announcement on the media designated by the CSRC for disclosing information of listed companies. The information disclosed will cover the magnitude of the adjustment, the registration date of Shares, the suspension period of share conversion, and etc. (if necessary). An announcement will also be published in the Hong Kong market in accordance with laws, rules and regulations such as the Listing Rules (if necessary). Share conversion will be restored for application based on the adjusted Conversion Price on the first trading day after the registration date (i.e. the effective date of the adjustment to the Conversion Price).

If the adjustment date is on or after the share conversion application date and prior to the registration date, the share conversion application should be executed based on the price after the adjustment.

10. Method for determining the number of shares for conversion and method on handling fractional shares upon conversion

Where an A Share Convertible Corporate Bonds Holder applies to convert the A Share Convertible Corporate Bonds held by him/her during the conversion period, the formula for calculating the number of Shares to be issued upon conversion is as follows:

Q = V/P. Any fractional Share shall be rounded down to the nearest whole number.

In the aforesaid formula:

“Q” denotes the number of convertible Shares;

“V” denotes the aggregate nominal value of the A Share Convertible Corporate Bonds in respect of which the A Share Convertible Corporate Bonds Holder applies for conversion;

“P” denotes the prevailing Conversion Price as at the date of application for conversion.

Within five trading days from the conversion of the A Share Convertible Corporate Bonds by the A Share Convertible Corporate Bonds Holder, the Company will pay the A Share Convertible Corporate Bonds Holder in cash an amount equal to the nominal value of the remaining balance of such A Share Convertible Corporate Bonds which are insufficient to be converted into one A Share and the interest accrued on such balance in accordance with the relevant requirements of the Shanghai Stock Exchange and such other authorities.

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LETTER FROM THE BOARD

11. Terms of redemption

(1) Terms of redemption at maturity

Within five trading days after the maturity of the A Share Convertible Corporate Bonds, the Company will redeem all the unconverted A Share Convertible Corporate Bonds. The actual redemption price shall be determined by the Board or other authorised persons after discussion and agreement with the sponsor institution (the lead underwriter) in accordance with the authorization at the AGM and Class Meetings with reference to the market conditions at the time of issuance.

(2) Terms of conditional redemption

During the term of the A Share Convertible Corporate Bonds, if the closing price of the A Shares of the Company is equal to or not lower than 130% (inclusive)* of the prevailing Conversion Price in at least 15 trading days out of any 30 consecutive trading days, or when the balance of the outstanding A Share Convertible Corporate Bonds issued hereunder is less than RMB30 million, the Company has the right to redeem all or part of the A Share Convertible Corporate Bonds which have not been converted into shares based on the par value plus the accrued interest then.

Formula for calculating the then accrued interest is: IA = B × i × t/365

IA: Accrued interest for the current period;
B: Aggregate nominal value of the A Share Convertible Corporate Bonds issued hereunder that are held by the A Share Convertible Corporate Bonds Holders;
i: Interest rate of the A Share Convertible Corporate Bonds for current year; and
t: Number of days on which interest is accrued, meaning the actual number of calendar days from the last interest payment date to the redemption date (excluding the redemption date) of current year.

The adoption of 130% is determined based on the usual market practice combined with the actual condition of the proposed issuance of the A Share Convertible Corporate Bonds.

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12. Terms of sale back

If the actual usage of the proceeds from the issuance of the A Share Convertible Corporate Bonds by the Company differs from the undertaking of the use of proceeds set out by the Company in the Offering Document, and such difference is considered by the CSRC as a deviation in the use of the proceeds, the A Share Convertible Corporate Bonds Holders will have an one-off right to sell all or part of the A Share Convertible Corporate Bonds held by them back to the Company at the nominal value plus the interest then accrued. Under this scenario, the A Share Convertible Corporate Bonds Holders may sell their A Share Convertible Corporate Bonds back to the Company during the sale back declaration period[] . If the A Share Convertible Corporate Bonds Holders do not exercise their sale back rights during the sale back declaration period[] , the rights to sell back the A Share Convertible Corporate Bonds shall automatically lapse.

13. Dividend rights of the year of conversion

The new A Shares of the Company to be issued as a result of the conversion of the A Share Convertible Corporate Bonds shall rank pari passu with all the existing A Shares, and are entitled to dividends of that period for all ordinary Shareholders (including Shareholders derived from the conversion of the A Share Convertible Corporate Bonds) registered on the date of Share registration for dividend distribution.

14. Method of issuance and target investors

The actual method of the issuance of the A Share Convertible Corporate Bonds will be determined by the Board or other authorised persons with the sponsor institution (the lead underwriter) in accordance with the authorization at the AGM and Class Meetings. The target investors are natural persons, legal persons, securities investment funds and other investors that meet the conditions prescribed by the laws who have maintained securities accounts with the Shanghai Branch of China Securities Depository and Clearing Corporation Limited, except those prohibited by the State laws and regulations.

Pursuant to the requirements under the Rules Governing the Listing of Shares on the Shanghai Stock Exchange (《上海證券交易所股票上市規則》) “11.8.7 To change the use of the proceeds raised from the offering of convertible corporate bonds, the listed company shall grant the bond holders an one-off option within twenty trading days after the resolution on the change of the use of proceeds is being passed at the general meeting, and make relevant announcement at least thrice, i.e. at least once within the five trading days after the announcement of the resolution of the general meeting and prior to implementation of the sale back, at least once during the period of implementation of sale back, and the remaining once to be determined based on the then needs”, when it triggers the provisions in relation to the sale back of the A Share Convertible Corporate Bonds, the Company shall, in accordance with the then applicable laws, regulations and relevant requirements of relevant rules, submit to the Shanghai Stock Exchange and publish timely A Share Convertible Corporate Bond Sale Back Announcement and relevant reminder announcements, specifying to investors the sale back procedures, sale back price, payment method and payment time, etc.. Based on the current market practices, the sale back declaration period normally starts from 5 days after the date of passing the resolution on the change of use of proceeds at the general meeting and lasts for 5 days from then.

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15. Subscription arrangement for the existing A Shareholders

The existing A Shareholders shall have pre-emptive rights to subscribe for the A Share Convertible Corporate Bonds to be issued. The actual amount to be preferentially allocated to such existing A Shareholders shall be determined by the Board or other authorised persons with reference to the market conditions before issuance, in accordance with the authorization at the AGM and Class Meetings, and shall be disclosed in the Offering Document of the A Share Convertible Corporate Bonds. The exercise of such preferential allocation is subject to the Securities Law of the PRC (《中華人民共和國證券法》) and the Listing Rules (including but not limited to the requirements in relation to connected transactions under Chapter 14A of the Listing Rules) or all other applicable laws, rules and regulations of the government or regulatory bodies.

If the Company enters into a subscription agreement with a connected person for the subscription of the A Share Convertible Corporate Bonds, the subscription of the A Share Convertible Corporate Bonds would then constitute a connected transaction of the Company under Chapter 14A of the Listing Rules, upon which the Company shall comply with the relevant requirements under Chapter 14A of the Listing Rules including the announcement, circular and independent shareholders’ approval requirements.

As at the Latest Practicable Date, to the best knowledge of the Directors having made all reasonable enquiries, no connected person of the Company has expressed any intention to subscribe for the A Share Convertible Corporate Bonds.

16. Relevant matters on meetings of A Share Convertible Corporate Bonds Holders

(1) The rights and obligations of A Share Convertible Corporate Bonds Holders

(a) Rights of A Share Convertible Corporate Bonds Holders
(i) entitlement to agreed interests in accordance with the number of the A Share Convertible Corporate Bonds held by the A Share Convertible Corporate Bonds Holders;
(ii) rights to convert the A Share Convertible Corporate Bonds held into A Shares of the Company according to the agreed conditions;
(iii) entitlement to exercise right of sale back on agreed conditions;
(iv) assignment, bestowal or pledge of the A Share Convertible Corporate Bonds held in accordance with the laws, administrative regulations and the Articles of Association;
(v) access to relevant information in accordance with the laws and the Articles of Association;

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(vi) claim to the Company for principal and interests of the A Share Convertible Corporate Bonds in accordance with the agreed period and manner;
(vii) rights to participate in or appoint agencies to participate in the meetings with A Share Convertible Corporate Bonds Holders and exercise voting rights in accordance with the laws, administrative regulations and other relevant requirements; and
(viii) other rights granted by the laws, administrative regulations and Articles of Association as creditors of the Company.
(b) Obligations of the A Share Convertible Corporate Bonds Holders
(i) compliance with the relevant terms of the A Share Convertible Corporate Bonds of the Company;
(ii) making due payment of the subscription amount;
(iii) compliance with the valid resolutions of an A Share Convertible Corporate Bonds Holders’ meeting;
(iv) except as specified in laws, regulations, or the agreement of the Offering Document of the A Share Convertible Corporate Bonds, the A Share Convertible Corporate Bonds Holders shall not request the Company to make prepayment of the principal and interests of the A Share Convertible Corporate Bonds; and
(v) compliance with other obligations undertaken by the A Share Convertible Corporate Bonds Holders in accordance with the laws, administrative regulations and the Articles of Association.

(2) Meetings of the A Share Convertible Corporate Bonds Holders

The Board shall convene an A Share Convertible Corporate Bonds Holders’ meeting when any of the following circumstances arises during the term of the A Share Convertible Corporate Bonds:

(i) the Company’s proposal for changes of the agreements of the Offering Document;
(ii) the Company’s default in paying principal and interests of the A Share Convertible Corporate Bonds on time;

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(iii) reduction of the Company’s capital, merger, separation, dissolution or bankruptcy of the Company; and
(iv) the occurrence of other matters which may substantially affect the interests of the A Share Convertible Corporate Bonds Holders.

The Company will set out the method of protecting the interest of the A Share Convertible Corporate Bonds Holders and the rights, procedures and effective conditions of resolutions of the A Share Convertible Corporate Bonds Holders’ meeting in the Offering Document.

17. Use of proceeds

The total expected proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company after deducting the issue cost. The capital fund of the Company will be increased after share conversion by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

(I) An amount not exceeding RMB1.7 billion is proposed to be used in capital intermediary businesses

Margin trading and short selling, agreed repurchase type securities transactions, share pledge type repurchase transactions and other capital intermediary businesses bring not only a stable interest income to the Company but also potential innovation of brokerage business and other products, becoming important income and profit sources for securities companies. The expansion of capital intermediary business scale requires continuous input of capital configurations by securities companies. The Company proposes to input the proceeds raised into capital intermediary business so as to further optimize the Company’s revenue structure and improve its profitability.

(II) An amount not exceeding RMB0.8 billion is proposed to be used in investment and market making businesses

After the proceeds raised of the Company are ready, on the basis of robust operation and controllable risks, the Company will use the raised capital in proprietary trading businesses at proper times according to the market changes to expand new investment varieties, make quantitative transactions and derivatives investment, improve the structure of its proprietary investment and increase investment gains.

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Limited (中州國際金融控股有限公司) and Central China Blue Ocean Investment Management Company Limited (中州藍海投資管理有限公司) so as to replenish the capital fund and working capital of these subsidiaries, improve their competitiveness and risk resistance capacity and develop overseas businesses and other types of investment businesses.

After the proceeds raised are ready, the Company will accelerate its market making business through capital investment, selection and increase of new third board projects and form an effect of synergy with other businesses.

(III) An amount not exceeding RMB0.1 billion is proposed to be used in securities brokerage and investment banking businesses and information system building

The Company intends to use the proceeds raised in business outlet building and layout optimization, to select key areas both inside and outside the province to build business outlets especially light outlets, to optimize the existing outlets and to relocate or transform the outlets with unreasonable layout. Also, the Company will optimize the structure of brokers, strength professional finance team building, deepen the transformation of brokerage business from channel type service to wealth management value-added service and improve its wealth management service capacity. In addition, it will stably improve the service capacity of organizations in sales and investment research.

The availability of the proceeds raised will allow the Company to undertake more equity and debt financing projects and increase the underwriting capacity of investment banks. Also, the Company will make more efforts to build and develop investment banking teams, increase training input and fully increase the capacity of securities sponsoring and underwriting and financial consulting services.

The Company will use the proceeds raised to perfect IT operation and management systems and IT backup capacity, strengthen database application system, improve IT infrastructure, increase efforts to build new business information systems and further increase its support and service efforts to business development.

(IV) An amount not exceeding RMB0.1 billion is proposed to be used in asset management business

After the proceeds raised are ready, the Company will allocate more resources to investment research and marketing, set up its own brand, actively explore financing asset management and asset securitization and further develop the asset management business.

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18. Changes in shareholding structure

Following the conversion of the A Share Convertible Corporate Bonds, the number of A Shares of the Company will be increased. Equity interests in the Company held by existing Shareholders will be diluted as a result of the exercise of rights to convert A Share Convertible Corporate Bonds. The actual number of increase of A Shares will be determined by the finalized terms of A Share Convertible Corporate Bonds, including the issue size of the A Share Convertible Corporate Bonds and the Conversion Price, etc.

To assess the impact on the Company’s shareholding structure as a result of converting all the A Share Convertible Corporate Bonds into shares, the Company hereby makes the following assumptions:

assuming that the proceeds raised in the issuance are RMB2.7 billion, without considering the impact of issuance cost, etc. The size of the actual proceeds in the issuance shall be finally determined according to the approval by the regulatory authorities, conditions of issuance and subscription and issue cost;
assuming that the issuance will be completed by December 2017 and all holders of the A Share Convertible Corporate Bonds will complete share conversion by June 2018. The completion dates are only estimates by the Company. The completion date of issuance is subject to approval by CSRC and the actual date of share conversion completion by the A Share Convertible Corporate Bond Holders shall prevail;
the profits for the half year of 2016 have been allocated. The annual profit distribution plan of 2016 remains to be subject to the deliberation at the AGM. It is further assumed that the amount of cash dividends in 2017 is the same with 2016 and a total of cash dividends of RMB797,145,368.70 are issued;
assuming that the Conversion Price in the issuance is the highest of the average trading price of A Shares of the Company for the 30 trading days preceding the 32nd meeting of the fifth session of the Board (i.e. 6 April 2017), the average trading price of A Shares of the Company for the 20 trading days preceding the aforementioned meeting and the average trading price of A Shares of the Company for the trading day immediately before the aforesaid meeting, that is, RMB12.04 per Share. Upon the implementation of the annual profit distribution plans of the Company of 2016 and 2017, assuming that the adjustment of the Conversion Price is completed before the share conversion registration date, the adjusted Conversion Price would be RMB11.71 per Share. The Conversion Price above would only be used to calculate the impact to the shareholding structure of the Company. The finalised initial Conversion Price shall be determined by the Board, in accordance with the authorization at the AGM and Class Meetings before issuance with reference to market conditions, and may be subject to adjustments due to ex-rights or ex-dividend or downward adjustments; and

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assuming other actions that may or potentially affect the total equity capital (including the exercise of the power of the Company by the Board pursuant to the Repurchase Mandate (if passed by the Shareholders at the AGM and Class Meeting by way of special resolutions) to repurchase 10% of the aggregate nominal value of H Shares in issue at the date the relevant resolutions are passed) are not considered except for the issuance.

Based on the assumptions above, the maximum convertible A Shares amounted to 230,572,160 Shares, the total equity capital of the Company will change from 3,923,734,700 to 4,154,306,860 Shares after the full conversion of the issued A Share Convertible Corporate Bonds.

It is further assumed that all the issued A Share Convertible Corporate Bonds are subscribed by public Shareholders independent from the Company. If the A Share Convertible Corporate Bonds are subscribed by connected persons, the Company will comply with the relevant requirements under Chapter 14A of the Listing Rules including publishing announcement and circular and seeking independent shareholders’ approval. For the time being, no consideration is given to the scenario in which Henan Investment Group and Bohai Fund Management (on behalf of Bohai Fund)/Bohai Fund increase their respective shareholding in the Company in addition to subscribing the issued A Share Convertible Corporate Bonds.

The above assumptions are for assessment of the impact of the issuance on the Company’s shareholding structure only and do not represent any anticipation or commitments of the issuance plan, the subscription intention of controlling shareholders/substantial shareholders or the result of the issuance. The actual issuance plan is to be determined by the Board or other authorised persons with the authorisation of the AGM and Class Meetings based on the actual market condition and to be disclosed in the announcement in relation to the issuance of the A Share Convertible Corporate Bonds. The actual status of issuance shall be disclosed in the announcement in relation to the listing of the A Share Convertible Corporate Bonds.

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Based on the assumptions above, the Company’s shareholding structure at the Latest Practicable Date/immediately before the completion of issuance of A Share Convertible Corporate Bonds/immediately following the completed issuance of A Share Convertible Corporate Bonds but before the conversion and immediately following the full conversion of A Share Convertible Corporate Bonds is as below:

Shareholders A Shares Non-public Shares Of which: Henan Investment Group Bohai Fund Management (on behalf of Bohai Fund) Public Shares No. of public Shares Total No. of A Shares H Shares Non-public Shares Of which: Dahe Paper Public Shares No. of public Shares Total No. of H Shares A + H Shares Total No. of Shares of the Company*	At the Latest Practicable Date / immediately before the completion of issuance of A Share Convertible Corporate Bonds / immediately following the completion of issuance of A Share Convertible Corporate Bonds but before the conversion No. of Shares Approximate percentage of the total number of shares in issue of the Company 1,973,705,700 50.302% 822,983,847 20.975% 608,000,000 15.495% 700,000,000 17.840% 2,673,705,700 68.142% 37,807,000 0.964% 37,807,000 0.964% 1,212,222,000 30.895% 1,250,029,000 31.858% 3,923,734,700 100%	Immediately following the completion of issuance of A Share Convertible Corporate Bonds and assuming that the A Share Convertible Corporate Bonds are fully converted at the Conversion Price assumed above No. of Shares Approximate percentage of the total number of shares in issue as enlarged then 1,973,705,700 47.510% 822,983,847 19.810% 608,000,000 14.635% 930,572,160 22.400% 2,904,277,860 69.910% 37,807,000 0.910% 37,807,000 0.910% 1,212,222,000 29.180% 1,250,029,000 30.090% 4,154,306,860 100%	Immediately following the completion of issuance of A Share Convertible Corporate Bonds and assuming that the A Share Convertible Corporate Bonds are fully converted at the Conversion Price assumed above No. of Shares Approximate percentage of the total number of shares in issue as enlarged then 1,973,705,700 47.510% 822,983,847 19.810% 608,000,000 14.635% 930,572,160 22.400% 2,904,277,860 69.910% 37,807,000 0.910% 37,807,000 0.910% 1,212,222,000 29.180% 1,250,029,000 30.090% 4,154,306,860 100%
			69.910% 0.910% 0.910% 29.180%
			30.090%
			100%

Dahe Paper is an indirect wholly-owned subsidiary of Henan Investment Group

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No adverse effect will occur to the minimum number of H Shares and of Shares respectively to be held by the public as required by the Listing Rules as a result of the issuance of A Share Convertible Corporate Bonds. Furthermore, pursuant to the requirements set out in Paragraph 2, Article 1 of the Circular on Matters Relating to the Issuance of Convertible Corporate Bonds by State-owned Financial Enterprises (《關於國有金融企業發行可轉換公司債券有關事宜的通知》) (Cai Jin [2013] No. 116) issued by the Ministry of Finance of the PRC, “Principle of controlling ability. Where state-owned financial enterprises issue convertible corporate bonds, they shall practically protect the rights and interests of state-owned capital contributors and maintain state-owned controlling ability. After exercising the right of convertible corporate bonds, the state-owned controlling status shall remain the same in principle”, after the full conversion of issued A Share Convertible Corporate Bonds, no change in controlling interests shall occur as a result thereof. The Company will make further announcement upon determination of the terms of the A Share Convertible Corporate Bonds and issuance of relevant statements on fund raising.

19. Guarantee and securities

There is no guarantee or security in relation to the proposed issuance of the A Share Convertible Corporate Bonds.

20. Deposit of proceeds

The Company has established its Administrative System of Proceeds, according to which proceeds from the issuance of the A Share Convertible Corporate Bonds will be deposited into a designated account determined by the Board, and the substantive matters related to the account opening will be determined by the Board before the issuance.

21. The validity period of the resolution

The resolutions of the issuance of the A Share Convertible Corporate Bonds will be valid for 12 months from the date of the passing of the relevant resolutions at the AGM and Class Meetings.

(IV) Preliminary proposal for the Public Issuance of A Share Convertible Corporate Bonds

The full text of the preliminary proposal for the public issuance of the A Share Convertible Corporate Bonds is set out in Appendix II to this circular. The preliminary proposal for the public issuance of the A Share Convertible Corporate Bonds has been passed by the Board on 6 April 2017 and proposed to the AGM and Class Meetings for approval, and, if considered fit, to be approved by way of special resolutions.

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(V) Report on Feasibility Analysis in respect of the Use of Proceeds from the Public Issuance of A Share Convertible Corporate Bonds by the Company

The full text of Report on Feasibility Analysis in respect of the Use of Proceeds from the Public Issuance of A Share Convertible Corporate Bonds by the Company is set out in Appendix III to this circular. The feasibility report has been considered and passed by the Board on 6 April 2017 and proposed to the AGM and Class Meetings for approval, and, if thought fit, to be approved by way of special resolutions.

(VI) Report of Use of Proceeds Previously Raised

The full text of report on the use of proceeds from previous fund raising activities of the Company as of 31 March 2016 is set out in Appendix IV to this circular. On 6 April 2017, the Board approved and resolved to propose to the AGM and Class Meetings to approve the report on the use of proceeds from previous fund raising activities by way of special resolutions.

(VII) Authorization granted to the Board to handle matters in relation to the public issue of the A Share Convertible Corporate Bonds

Pursuant to the Company Law of the PRC (《中華人民共和國公司法》), the Securities Law of the PRC (《中華人民共和國證券法》) and other relevant laws and regulations as well as the relevant provisions of the Articles of Association, it is proposed by the Board to the AGM and Class Meetings to authorize the Board to handle matters regarding the issuance of the A Share Convertible Corporate Bonds under the framework and principles as approved at the AGM and Class Meetings. The period of authorization shall be 12 months commencing from the effective date of the resolutions of the AGM and Class Meetings. The Board will, according to the actual conditions of the A Share Convertible Corporate Bonds issuance, seek a new mandate from the AGM and Class Meetings before the expiry of the authorization period.

The actual content and scope of the authorization shall include, among other matters, the following:

(i) in accordance with the PRC laws and regulations and the relevant requirements of securities regulatory authorities and in view of the specific conditions of the Company, to formulate and implement the specific plan of the issuance, appropriately amend, adjust and supplement the terms of the issuance of the A Share Convertible Corporate Bonds, determine the specific terms and proposal of issuance before the issuance, formulate and implement the final proposal of the issuance, including but not limited to, confirming the issue size, method of issuance, target investors, proportion of preferential allotment to existing A Shareholders, the determination of the initial Conversion Price, adjustment to the Conversion Price, redemption, interest rate, the A Share Convertible Corporate Bonds Holders’ rights to meetings and procedures for convening the meetings and conditions for the resolutions to become effective, determine the timing of the issuance, open a new

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account for the proceeds from the issuance of the A Share Convertible Corporate Bonds, and execute tripartite monitoring agreements for the account and any other matters in relation to the issuance proposal;

(ii) to approve, sign, amend, supplement, submit, present, effect all the agreements, disclosure documents and other documents regarding the issuance and to deal with all relevant procedural requirements such as applications, approvals, registrations and filings;
(iii) to engage relevant intermediaries and sign relevant agreements with them to handle the matters relating to the issuance; to prepare, amend and issue disclosure materials relevant to the issuance and listing pursuant to the requirements of the regulatory authorities and reply to the comments of the securities regulatory authorities with full discretion;
(iv) to deal with relevant matters in relation to the utilization of proceeds from the issuance and to adjust the utilization and specific arrangements of proceeds from the issuance within the scope as approved by the AGM and Class Meetings;
(v) upon the completion of the issuance, to complete the relevant registration and listing matters in relation to the issuance of A Share Convertible Corporate Bonds with the Shanghai Stock Exchange and the Shanghai Branch of China Securities Depository and Clearing Corporation Limited;
(vi) to appropriately amend the relevant provisions of the Articles of Association based on the conditions of issuance and conversion of the A Share Convertible Corporate Bonds and to deal with matters in relation to the business and industrial filings and registration of changes in registered share capital etc.;
(vii) subject to compliance with the then applicable laws of the PRC, if new requirements were introduced by laws, regulations and other regulatory documents as well as relevant regulatory authorities to the policy of the issuance of A share convertible corporate bonds by listing companies and the market conditions changed, to adjust the issuance plan and the utilization of proceeds and continue to deal with relevant matters of the issuance in accordance with relevant provisions and requirements of the securities regulatory authorities (including reviews and feedback for the issuance application) as well as market conditions, save and except those matters which are required to be re-voted at a general meeting and the Shareholders’ class meetings and authorization of which is not permitted pursuant to requirements of relevant laws and regulations as well as the Articles of Association;
(viii) if as a result of force majeure or other matters that the issuance plan cannot be implemented or if implemented may lead to adverse consequences to the Company, or if the policy in relation to the issuance of A Share Convertible Corporate Bonds changes, to decide to postpone or terminate the issuance plan in advance at its discretion;

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(ix) to conduct all other necessary, appropriate and proper matters in relation to the issuance insofar as permitted by relevant laws and regulations on behalf of the Company; and
(x) authorization and delegation in connection with the issuance by the Board.

In order to seize market opportunities, streamline internal approval procedures and improve decision-making efficiency, after the public issuance of the A Share Convertible Corporate Bonds has been approved by the AGM and Class Meetings, the Chairman of the Board, the President of the Company or the Secretary to the Board can be delegated with full power to jointly or individually handle matters relating to the issuance.

(VIII) Authorization granted to Relevant Persons to handle matters in relation to the public issuance of the A Share Convertible Corporate Bonds

Pursuant to relevant laws and regulations and relevant provisions of the Articles of Association, it is proposed by the Board to the AGM and Class Meetings to authorize the Board, which will then delegate to the Chairman of the Board, the President of the Company or the Secretary to the Board (the “ Relevant Persons ”) the power to, jointly or individually, handle matters regarding the issuance of the A Share Convertible Corporate Bonds under the framework and principles approved at the AGM and Class Meetings. The period of authorization shall be 12 months commencing from the effective date of the resolutions of the AGM and Class Meetings. The Board will, according to the actual conditions of the A Share Convertible Corporate Bonds issuance, seek a new mandate from a general meeting and Shareholders’ class meetings before the expiry of the authorization period.

The actual content and scope of the authorization shall include, among other matters, the following:

(i) in accordance with the PRC laws and regulations and the relevant requirements of securities regulatory authorities and in view of the specific conditions of the Company, to formulate and implement the specific plan of the issuance, appropriately amend, adjust and supplement the terms of the issuance of the A Share Convertible Corporate Bonds, determine the specific terms and proposal of issuance before issuance, formulate and implement the final proposal of the issuance, including but not limited to, confirming the issue size, method of issuance, target investors, proportion of preferential allotment to existing A Shareholders, the determination of the initial Conversion Price, adjustment to the Conversion Price, redemption, interest rate, the A Share Convertible Corporate Bonds Holders’ rights to meetings and procedures for convening the meetings and conditions for the resolutions to become effective, determine the timing of the issuance, open a new account for the proceeds from the issuance of the A Share Convertible Corporate Bonds, and execute tripartite monitoring agreements for the account and any other matters in relation to the issuance proposal;
(ii) to approve, sign, amend, supplement, submit, present, effect all the agreements, disclosure documents and other documents regarding the issuance and to deal with all relevant procedural requirements such as applications, approvals, registrations and filings;

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LETTER FROM THE BOARD

(iii) to engage relevant intermediaries and sign relevant agreements with them to handle the matters relating to the issuance; to prepare, amend and issue disclosure materials relevant to the issuance and listing pursuant to the requirements of the regulatory authorities and reply to the comments of the securities regulatory authorities with full discretion;
(iv) to deal with relevant matters in relation to the utilization of proceeds from the issuance and to adjust the utilization and specific arrangements of proceeds from the issuance within the scope as approved by the AGM and Class Meetings;
(v) upon the completion of the issuance, to complete the relevant registration and listing matters in relation to the issuance of A Share Convertible Corporate Bonds with the Shanghai Stock Exchange and the Shanghai Branch of China Securities Depository and Clearing Corporation Limited;
(vi) to appropriately amend the relevant provisions of the Articles of Association based on the conditions of issuance and conversion of the A Share Convertible Corporate Bonds and to deal with matters in relation to the business and industrial filings and registration of changes in registered share capital etc.;
(vii) subject to compliance with the then applicable laws of the PRC, if new requirements were introduced by laws, regulations and other regulatory documents as well as relevant regulatory authorities to the policy of the issuance of A share convertible corporate bonds by listing companies and the market conditions changed, to adjust the issuance plan and the utilization of proceeds and continue to deal with relevant matters of the issuance in accordance with relevant provisions and requirements of the securities regulatory authorities (including reviews and feedback for the issuance application) as well as market conditions, save and except those matters which are required to be re-voted at a general meeting and the Shareholders’ class meetings and authorization of which is not permitted pursuant to requirements of relevant laws and regulations as well as the Articles of Association;
(viii) if as a result of force majeure or other matters that the issuance plan cannot be implemented or if implemented may lead to adverse consequences to the Company, or if the policy in relation to the issuance of A Share Convertible Corporate Bonds changes, to decide to postpone or terminate the issuance plan in advance at its discretion; and
(ix) to conduct all other necessary, appropriate and proper matters in relation to the issuance insofar.

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LETTER FROM THE BOARD

(IX) Dilution of current returns by the public issuance of A Share Convertible Corporate Bonds and the remedial measures

The full text of the dilution of current returns and the remedial measures for the issuance of the A Share Convertible Corporate Bonds is set out in Appendix V to this circular. The dilution of current returns and the remedial measures has been considered and passed by the Board on 6 April 2017 and proposed to the AGM and Class Meetings for approval, and, if thought fit, to approve the dilution of current returns and remedial measures by way of special resolutions.

Recent Equity Fund Raising Activities in the Past Twelve Months

The equity fund raising activities conducted by the Company during the past twelve months immediately preceding the Latest Practicable Date are set out as below:

Date of	Fund raising	Net proceeds			Actual use of net	Actual use of net
announcement/circular	activity	(approximate)	Intended use of net proceeds		proceeds
The announcements of the	Issuance of A	RMB2.8	After deducting the expenses		As	at the 31 March
Company dated	Shares	billion	incurred for the A Share Issue, the		2017, after
29 September 2014,			net proceeds are proposed to be fully		deducting the
14 November 2014,			used to replenish the working capital		expenses incurred
1 December 2014,			of the Company to support future		for	the A Share
5 December 2014,			business developments of the		Issue, the net
19 October 2015,			Company and facilitate achievement		proceeds have been
7 December 2015,			of strategic growth objectives of the		applied to the
29 December 2015,			Company. Specific purposes and		following purposes:
2 February 2016,			arrangements of the proceeds raised
23 March 2016,			include:		1)	approximately
22 June 2016,						80% was used
29 September 2016,			1)	To increase the scale of fund		to increase the
14 October 2016,				allocation for capital-based		scale of fund
4 November 2016,				intermediary business;		allocation for
9 November 2016,						capital-based
18 November 2016,			2)	To actively expand the offshore		intermediary
25 November 2016,				business;		business;
8 December 2016,
15 December 2016 and			3)	To increase and optimise	2)	approximately
30 December 2016 and				network layout and construction		9% was used
the circulars of the				of off-site service platform to		to expand the
Company dated 29				enhance the overall strength of		scale of our
October 2014,				brokerage business;		proprietary
20 November 2015,						trading
8 March 2016 and			4)	To expand the scale of our		business
3 November 2016				proprietary trading business		moderately
				moderately according to market		according to
				conditions;		market
						conditions; and
			5)	To improve the underwriting
				capabilities and staff capabilities	3)	approximately
				of investment banking;		0.1% was used
						to increase
			6)	To steadily strengthen the asset		financial
				management business and		support for
				improve investment research		innovative
				and integrated marketing		business.
				capabilities;
			7)	To conduct capital increase to
				Zhongding Kaiyuan Venture
				Capital Management Co., Ltd. (中鼎開源創業投資管理有限公司);
			(8)	To conduct capital increase to
				Central China Futures Co., Ltd. (中原期貨股份有限公司);
			(9)	To increase financial support for
				innovative business;
			(10) To accelerate the construction of
				internet finance; and
			(11) To strengthen the building of
				information system and other
				projects.

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LETTER FROM THE BOARD

Save for the above, the Company did not conduct any other equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

Reasons for and Benefits of the Issuance of A Share Convertible Corporate Bonds

In order to expand the net capital size of the Company and meet the net capital and working capital requirements of the Company’s business development in the future, the Company proposes to raise not more than RMB2.7 billion (inclusive) through the public issuance of the A Share Convertible Corporate Bonds. All proceeds from the issuance, after deducting the issue cost, will be used to replenish the working capital of the Company, and the amount received after the conversion of the A Share Convertible Corporate Bonds by the A Share Convertible Corporate Bonds Holders will be used to replenish the capital of the Company, so as to support future development of the Company’s business, comprehensively improve the market competitiveness and risk resistance capacity of the Company, capture the opportunities arising from the development of the Central China Economic Zone (中原經濟區), explore the development potentials of the security industry in Henan province, respond to the opportunities and challenges brought by the fast development of the security industry in the PRC, and achieve the Company’s strategic development targets.

Listing Rules Implications

Pursuant to Rule 19A.38 of the Listing Rules, the grant of Specific Mandate is subject to the requirements of approval at the AGM and Class Meetings.

The proposal in relation to the issuance of the A Share Convertible Corporate Bonds and the grant of the Specific Mandate were considered and approved by the Board on 6 April 2017. None of the Directors has material interest in the abovementioned matters and hence no Director abstained from voting on such Board resolution.

The Board expects that the Company will continue to maintain sufficient public float to comply with the minimum public float requirement set out in the Listing Rules.

AGM and Class Meetings

The AGM, the H Share Class Meeting and the A Share Class Meeting will be held at 9:30 a.m., 11:00 a.m. or immediately after the conclusion of the AGM or any adjournment thereof (whichever is the later) and 11:30 a.m. or immediately after the conclusion of the H Share Class Meeting or any adjournment thereof (whichever is the later) respectively on 22 May 2017 (Monday) at Conference Centre, Huanghe Yingbin Hotel, No. 1 Yingbin Road, Huiji District, Zhengzhou, Henan Province, the PRC.

No Shareholder is required to abstain from voting in connection with the matters to be resolved at the AGM or Class Meetings.

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LETTER FROM THE BOARD

The proxy forms for the AGM and Class Meetings have been posted to you on 7 April 2017. Whether or not you are able to attend the AGM and the H Share Class Meeting in person, you are requested to complete and return the accompanying applicable proxy forms in accordance with the instructions printed thereon. In case of holders of H Shares, the proxy forms shall be lodged with the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, but in any event, not less than 24 hours before the time scheduled for holding the relevant meetings (or any adjournment thereof) as soon as practicable. Completion and delivery of the proxy forms will not preclude you from attending and voting in person at the relevant meetings or any adjournment if you so desire.

VOTING

According to Rule 13.39(4) of the Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. Therefore, the respective resolutions as stated in the notice of AGM and notice of Class Meetings will be taken by way of a poll under the Article 124 of the Articles.

During the poll, every Shareholder present in person or by proxy (or in case of Corporation, its duly authorised representative) at the AGM and Class Meetings shall have one vote for each share registered in his/her name in the register of members. A Shareholder entitled to more than one vote needs not use all his/her votes or cast all the votes he/she uses in the same manner.

RECOMMENDATION

The Board considered that all resolutions to be proposed at the AGM and Class Meetings are in the interests of the Company and the Shareholders as a whole. Therefore, the Board recommends the Shareholders to vote in favour of all resolutions to be proposed at the meetings.

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

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LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the other information set out in the Appendices to this circular.

Yours faithfully, On behalf of the Board Central China Securities Co., Ltd. JIAN Mingjun Chairman

5 May 2017

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EXPLANATORY STATEMENT OF MANDATE TO REPURCHASE H SHARES

APPENDIX I

This appendix serves as an explanatory statement, as required by the Listing Rules, to enable the Shareholders to make an informed decision on whether to vote for or against the grant of the Repurchase Mandate.

LISTING RULES RELATING TO THE REPURCHASES OF SECURITIES

The Listing Rules permit companies whose primary listing is on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions, the most important of which are summarised below. The Company is empowered by the Articles of Association to repurchase its own securities.

SHARE CAPITAL

As at the Latest Practicable Date, the registered share capital of the Company was RMB3,923,734,700 comprising 2,673,705,700 A Shares and 1,250,029,000 H Shares. Subject to the passing of the proposed resolution for the grant of the Repurchase Mandate and on the basis that no H Shares will be allotted and issued or repurchased by the Company on or prior to the date of the AGM and the Class Meetings, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 125,002,900 H Shares, being the maximum of 10% of the total H Shares in issue as at the date of passing the relevant resolution. The Directors believe that the Repurchase Mandate is in the interests of the Company and the Shareholders. An exercise of the Repurchase Mandate may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made if the Directors believe that such repurchases will benefit the Company and its Shareholders.

FUNDING OF REPURCHASES

In repurchasing its H Shares, the Company may only apply funds from the Company’s internal resources legally available for such purpose in accordance with the Articles of Association, the Listing Rules and the applicable laws, rules and regulations of the PRC, including but not limited to surplus funds and undistributed profits of the Company or the proceeds of a fresh issue of Shares made for the purpose of the repurchase.

Taking into account the current working capital position of the Company, the Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of the Company as compared with its position as at 31 December 2016, being disclosed in the Company’s latest published audited accounts contained in the annual report for the year ended 31 December 2016. However, the Directors do not intend to make any repurchases to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements or the gearing position of the Company which in the opinion of the Directors are from time to time appropriate for the Company. The number of H Shares to be repurchased on any occasion and the price and other terms upon which the same are repurchased will be decided by the Directors at the relevant time having regard to the circumstances then prevailing, in the best interests of the Company.

– 34 –

EXPLANATORY STATEMENT OF MANDATE TO REPURCHASE H SHARES

APPENDIX I

STATUS OF REPURCHASED H SHARE

The Listing Rules provide that the listing of all the H Shares repurchased by the Company shall automatically be cancelled and the relevant share certificates shall be cancelled and destroyed. Under the PRC laws, the H Shares repurchased by the Company will be cancelled and the Company’s registered capital will be reduced by an amount equivalent to the aggregate nominal value of the H Shares so cancelled.

H SHARE PRICES

The highest and lowest prices at which the H Shares have traded on the Stock Exchange during each of the previous twelve months preceding the Latest Practicable Date were as follows:

	Highest	Lowest
	(HK$)	(HK$)
2016
April	4.250	3.850
May	3.930	2.970
June	3.520	3.050
July	3.470	3.260
August	3.760	3.260
September	3.920	3.520
October	4.220	3.660
November	4.980	3.900
December	4.660	4.100
2017
January	4.380	3.890
February	4.650	3.850
March	4.620	4.050
April	4.240	3.920
May (up to the Latest Practicable Date)	4.150	4.080

DIRECTORS’ UNDERTAKING

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the power of the Company to make purchases pursuant to the Repurchase Mandate in accordance with the Listing Rules, the Articles of Association and the applicable laws, rules and regulations of the PRC.

DISCLOSURE OF INTERESTS

To the best of knowledge of the Directors having made all reasonable enquiries, none of the Directors or their respective close associates have any present intention to sell to the Company any of the H Shares in the Company if the Repurchase Mandate is approved at the AGM and the Class Meetings.

– 35 –

EXPLANATORY STATEMENT OF MANDATE TO REPURCHASE H SHARES

APPENDIX I

As at the Latest Practicable Date, no core connected person of the Company has notified the Company that he/she/it has a present intention to sell any H Shares nor has such core connected person undertaken not to sell any of the securities held by him/her/it to the Company in the event that the Repurchase Mandate is granted.

IMPLICATIONS UNDER THE TAKEOVERS CODE

If a Shareholder’s proportionate interest in the voting rights of the Company increases on the Company exercising its powers to repurchase securities pursuant to the Repurchase Mandate, such increase will be treated as an acquisition for the purposes of Rule 32 of the Takeovers Code. As a result, a Shareholder or a group of Shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rules 26 and 32 of the Takeovers Code.

As at the Latest Practicable Date, to the best of the knowledge and belief of the Directors, (i) Henan Investment Group was a substantial Shareholder holding 822,983,847 A Shares, representing approximately 20.975% of the registered capital of the Company; (ii) Bohai Fund Management (on behalf of Bohai Fund) and Bohai Fund were the substantial Shareholders holding 608,000,000 A Shares, representing 15.495% of the registered capital of the Company. On the basis that 3,923,734,700 Shares were in issue as at the Latest Practicable Date and assuming that no other Shares will be issued or repurchased by the Company on or prior to the date of the AGM and the Class Meetings, if the Repurchase Mandate are exercised in full, the percentage interests in the Company held by Henan Investment Group and its close associates will increase to approximately 22.660% of the then registered share capital of the Company, the percentage interests in the Company held by Bohai Fund Management (on behalf of Bohai Fund) / Bohai Fund and their close associates would increase to approximately 16.005% of the then registered share capital of the Company. The Directors are not aware of any consequences which will arise under the Takeovers Code and/or any similar applicable law as a result of any repurchases to be made under the Repurchase Mandate. Moreover, the Directors will not make share repurchase on the Stock Exchange if such repurchase would result in the requirements under Rule 8.08 of the Listing Rules not being complied with.

SECURITIES REPURCHASE MADE BY THE COMPANY

The Company had not purchased any H Shares (whether on the Stock Exchange or otherwise) during the six months immediately preceding the Latest Practicable Date.

– 36 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

The English version of this appendix is an unofficial translation of the Chinese version, should there be discrepancies, the Chinese version shall prevail.

The full text of the Preliminary Proposal for the Public Issuance of A Share Convertible Corporate Bonds is as follows:

Central China Securities Co., Ltd.

Preliminary Proposal for the Public Issuance of A Share Convertible Corporate Bonds

The Supervisory Committee and all Supervisors warrant that in respect of the information contained in this report, there are no misrepresentations or misleading statements, or material omission, and individually and collectively accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report.

Important Tips:

Name and issuance method of the securities: A Share Convertible Corporate Bonds with an amount not more than RMB2.7 billion (inclusive) for issuance (hereinafter referred to as the “issuance”).

Participation of affiliates in the issuance: The existing holders of A Shares of the Company shall have pre-emptive rights to subscribe for the A Share Convertible Corporate Bonds to be issued. The actual amount to be preferentially allocated to the existing holders of A Shares shall be determined by the Board or other authorized persons with reference to the market conditions before issuance, according to the authorization at the general meeting, and shall be disclosed in the Offering Document for the issuance. The exercise of such preferential allocation is subject to the Securities Law of the PRC (《中華人民共和國證券法》) and the Listing Rules or all other applicable laws, rules and regulations (including but not limited to the regulations and requirements related to connected transactions) of government or regulatory bodies.

I. THE ISSUANCE SATISFIES THE REQUIREMENTS IN RELATION TO THE ISSUANCE OF THE SECURITIES SPECIFIED IN THE ADMINISTRATIVE MEASURES FOR THE ISSUANCE OF SECURITIES BY LISTED COMPANIES

Pursuant to the relevant requirements under the Company Law of the PRC (《中華人民共和國公司法》), the Securities Law of the PRC (《中華人民共和國證券法》), the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》) and other laws and regulations and normative legal documents, Central China Securities Co., Ltd. (“Central China Securities” or the “Company”) deems that it has satisfied the relevant qualifications and requirements in relation to the issuance of the A Share Convertible Corporate Bonds by reference to the qualifications and requirements for the issuance of A Share Convertible Corporate Bonds by Listed Companies by carefully checking individual items.

– 37 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

II. OVERVIEW OF THE ISSUANCE

(I) Type of Securities to be Issued

The type of securities to be issued by the Company are the A Share Convertible Corporate Bonds which can be converted into A Shares A Share Convertible Corporate Bonds. The A Share Convertible Corporate Bonds and the A Shares to be converted therefrom in the future will be listed on the Shanghai Stock Exchange.

(II) Issue Size

The total amount of the A Share Convertible Corporate Bonds proposed to be issued will be not more than RMB2.7 billion (inclusive). The actual size of the issuance shall be determined by the Board or other authorized persons within the above range, subject to the authorization at the general meeting.

(III) Par Value and Issue Price

The A Share Convertible Corporate Bonds will be issued at par with a nominal value of RMB100 each.

(IV) Term of Bond

The term of the A Share Convertible Corporate Bonds will be six years from the date of issuance.

(V) Interest rate of Bond

The manner of determining the interest rate of the A Share Convertible Corporate Bonds and the final interest rate of each interest accrual year shall be determined by the Board or other authorized persons after discussion and agreement with the sponsor institution (the lead underwriter) in accordance with the PRC policies, market conditions and the actual conditions of the Company prior to the issuance of the A Share Convertible Corporate Bonds, according to the authorization at the general meeting.

If prior to the completion of the issuance of A Share Convertible Corporate Bonds, the bank deposit interest rate is adjusted, subject to the authorization at the general meeting, the Board or other authorized persons shall make adjustments to the interest rate of the A Share Convertible Corporate Bonds accordingly.

(VI) Method and Timing of Interest Payment

Interest on the A Share Convertible Corporate Bonds for the issuance will be paid once a year and the principal amount and the interest for last year of all outstanding A Share Convertible Corporate Bonds will be repaid at maturity.

– 38 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

1. Calculation of the Annual Interest

The formula for calculating the annual interest is: I=B×i

I: denotes the annual interest;
B: denotes the aggregate nominal value of the A Share Convertible Corporate Bonds held by a A Share Convertible Corporate Bonds Holder as at the record date for interest payment in an interest accrual year (“that year” or “each year”);
i: denotes the interest rate of the A Share Convertible Corporate Bonds of that year.

2. Method of Interest Payment

(1) Interest of the A Share Convertible Corporate Bonds will be paid annually, accruing from the date of issuance of the A Share Convertible Corporate Bonds.
(2) Interest payment date: The interest is payable annually on each anniversary of the date of issuance of the A Share Convertible Corporate Bonds. If such day falls on a statutory holiday or rest day, the interest payment date shall be postponed to the first working day immediately thereafter, provided that no additional interest will be accrued during the period of postponement. The period between an interest payment date and the immediately following interest payment date will be an interest accrual year.
(3) Record date for interest payment rights: The record date for interest payment rights in each year will be the last trading day preceding the interest payment date. The Company will pay the interest accrued in that year within five trading days from the interest payment date. The Company will not pay any interest for that year and subsequent interest accrual years to the A Share Convertible Corporate Bonds Holders whose A Share Convertible Corporate Bonds have been applied to be converted into the A Shares on or before the record date for interest payment rights.
(4) Tax payable on the interest income of a A Share Convertible Corporate Bonds Holder shall be borne by such A Share Convertible Corporate Bonds Holder.

– 39 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

(VII) Conversion Period

(VIII) Determination and Adjustment of the Conversion Price of the A Share Convertible Corporate Bonds

1. Basis for Determining the Initial Conversion Price

The initial Conversion Price of the A Share Convertible Corporate Bonds for the issuance shall not be lower than the highest of the average trading prices of A Shares of the Company for the 30 and 20 trading days preceding the date of publication of the Offering Document (in the event that during such 30 or 20 trading days, the share price has been adjusted due to ex-rights or ex-dividend, the closing price of each of these trading days before adjustment shall be adjusted with reference to the ex-rights or ex-dividend share price) and the average trading price of A Shares of the Company on the trading day preceding the date of publication of the Offering Document of the A Share Convertible Corporate Bonds. The actual initial Conversion Price shall be determined by the Board or other authorized persons after discussion and agreement with the sponsor institution (the lead underwriter) with reference to the market conditions, according to the authorization at the general meeting.

– 40 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

2. Adjustments to the Conversion Price and Calculation Formula

Upon the occurrence of distribution of scrip dividend, capitalization issue, issuance of new shares, rights issue or distribution of cash dividend (excluding any increase in the share capital as a result of conversion of the A Share Convertible Corporate Bonds) after the issuance, the Company will adjust the Conversion Price in accordance with the following formulas (the adjusted value shall be rounded off to two decimal places):

Distribution of scrip dividend or capitalization issue: P1 = P0/(1+n);

Issuance of new shares or rights issue: P1 = (P0+A×k)/(1+k);

Two items above implemented simultaneously: P1 = (P0+A×k)/(1+n+k);

Distribution of cash dividend: P1= P0-D;

Three items above implemented simultaneously: P1 = (P0-D+A×k)/(1+n+k).

Where: P0 is the Conversion Price before adjustments; n is the ratio of the scrip dividend or capitalization; k is the ratio of issuance of new shares or rights issue; A is the price of issuance of new shares or rights issue; D is the cash dividend per share and P1 is the adjusted Conversion Price.

Where the abovementioned changes in shareholding and/or Shareholder’s interests occur, the Conversion Price will be adjusted accordingly and an announcement will be published on the media designated by the CSRC for disclosing information of listed companies. The announcement will indicate the date of adjustment to the Conversion Price, adjustment method and suspension period of share conversion (if necessary). An announcement will also be published in the Hong Kong market in accordance with laws, rules and regulations such as the Listing Rules (if necessary). If the Conversion Price adjustment date is on or after the A Share Convertible Corporate Bonds Holder’s application for conversion, and before the share registration date for the issuance, then such conversion will be based on the Conversion Price adjusted by the Company.

– 41 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

(IX) Downward Adjustment to the Conversion Price

1. Adjustment Authorization and Permitted Adjustment Magnitude

The Conversion Price may be subject to downward adjustments if, during the term of the A Share Convertible Corporate Bonds, the closing prices of the A Shares in 15 trading days out of any 30 consecutive trading days are lower than 90% of the prevailing Conversion Price. The Board may propose any such adjustments for the Shareholders to consider and seek their approval at a general meeting of the Company. The abovementioned proposal is subject to approval of more than two-thirds of the participating Shareholders with voting rights present at the general meeting. Shareholders holding the A Share Convertible Corporate Bonds should abstain from voting at the general meeting. The adjusted Conversion Price shall not be lower than the highest of the average trading price of A Shares of the Company for the 30 trading days preceding the aforementioned general meeting, the average trading price of A Shares of the Company for the 20 trading days preceding the aforementioned general meeting and the average trading price of A Shares of the Company for the trading day immediately before the aforesaid general meeting.

In the event that another adjustment of Conversion Price has been implemented in the aforementioned 30 trading days, the Conversion Price will be calculated based on the unadjusted Conversion Price and closing price of Shares during the trading days prior to adjustment, and the adjusted Conversion Price and closing price of Shares during the trading days on which the adjustment was made or the trading day afterwards.

2. Procedure of adjustment

If the Company decides to make a downward adjustment to the Conversion Price, the Company will publish an announcement on the media designated by the CSRC for disclosing information of listed companies. The information disclosed will cover the magnitude of the adjustment, the registration date of Shares, the suspension period of share conversion, and etc (if necessary). An announcement will also be published in the Hong Kong market in accordance with laws, rules and regulations such as the Listing Rules (if necessary). Share conversion will be restored for application based on the adjusted Conversion Price on the first trading day after the registration date (i.e. the effective date of the adjustment to the Conversion Price).

– 42 –

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

(X) Method for Determining the Number of Shares for Conversion and Method on Handling Fractional Shares upon Conversion

Where a A Share Convertible Corporate Bonds Holder applies to convert the A Share Convertible Corporate Bonds held by him/her/them during the conversion period, the formula for calculating the number of the Shares to be issued upon conversion: Q=V/P. Any fractional Share shall be rounded down to the nearest whole number. In the aforesaid formula:

“Q” denotes the number of convertible Shares;
“V” denotes the aggregate nominal value of the A Share Convertible Corporate Bonds in respect of which the A Share Convertible Corporate Bonds Holders apply for conversion;
“P” denotes the prevailing Conversion Price as at the date of application for conversion.

Within five trading days from the conversion of the A Share Convertible Corporate Bonds by the A Share Convertible Corporate Bonds Holders, the Company will pay the A Share Convertible Corporate Bonds Holders in cash an amount equal to the nominal value of the remaining balance of such A Share Convertible Corporate Bonds which are insufficient to be converted into one A Share and the interest accrued on such balance in accordance with the relevant requirements of the Shanghai Stock Exchange and such other authorities.

(XI) Terms of Redemption

1. Terms of Redemption at Maturity

Within five trading days after the maturity of the A Share Convertible Corporate Bonds in the issuance, the Company will redeem all the A Share Convertible Corporate Bonds which have not been converted into Shares. The actual redemption price shall be determined by the Board or other authorized persons after discussion and agreement with the sponsor institution (the lead underwriter) according to the authorization at the general meeting with reference to the market conditions at the time of issuance.

2. Terms of Conditional Redemption

During the term of the A Share Convertible Corporate Bonds, if the closing price of the A Shares of the Company is equal to or not lower than 130% of the prevailing Conversion Price in at least 15 trading days out of any 30 consecutive trading days, or when the balance of the outstanding A Share Convertible Corporate Bonds issued hereunder is less than RMB30 million, the Company has the right to redeem all or part of the A Share Convertible Corporate Bonds which have not been converted into shares based on the par value plus the accrued interest then.

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

Formula for calculating the interest accrued then is: IA=B×i×t/365

IA: Accrued interest for the current period;
B: Aggregate nominal value of the A Share Convertible Corporate Bonds issued hereunder that are held by the A Share Convertible Corporate Bonds Holders;
i: Interest rate of the A Share Convertible Corporate Bonds for current year; and
t: Number of days on which interest is accrued, meaning the actual number of calendar days from the last interest payment date to the redemption date (excluding the redemption date) of current year.

In the event that another adjustment of Conversion Price has been implemented in the aforementioned 30 trading days, the Conversion Price will be calculated based on the unadjusted Conversion Price and closing price of Shares during the trading days prior to adjustment, and the adjusted Conversion Price and closing price of Shares during the trading days on which the adjustment was made or the trading day afterwards.

(XII) Terms of Sale Back

If the actual usage of the proceeds from the issuance of the A Share Convertible Corporate Bonds by the Company differs from the undertaking of the use of proceeds set out by the Company in the Offering Document, and such difference is considered by the CSRC as a deviation from the use of the proceeds, the A Share Convertible Corporate Bonds Holders will have a one-off right to sell all or part of the A Share Convertible Corporate Bonds held by them back to the Company at the nominal value plus the interest accrued then. Under this scenario, the A Share Convertible Corporate Bonds Holders may sell their A Share Convertible Corporate Bonds back to the Company during the sale back declaration period. If the A Share Convertible Corporate Bonds Holders do not exercise their sale back rights during the sale back declaration period, the rights to sell back the A Share Convertible Corporate Bonds shall automatically lapse.

(XIII) Dividend Rights of the Year of Conversion

The new A Shares of the Company to be issued as a result of the conversion of the A Share Convertible Corporate Bonds shall rank pari passu with all the existing A Shares, and are entitled to dividend of that period for all ordinary Shareholders (including Shareholders derived from the conversion of the A Share Convertible Corporate Bonds) registered on the date of Share registration for dividend distribution.

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

(XIV) Method of Issuance and Target Investors

The actual method of the issuance of the A Share Convertible Corporate Bonds will be determined by the Board or other authorized persons with the sponsor institution (the lead underwriter), according to the authorization at the general meeting. The target investors are natural persons, legal persons, securities investment funds and other investors that meet the conditions prescribed by the laws who have maintained securities accounts with the Shanghai Branch of China Securities Depository and Clearing Corporation Limited, except those prohibited by the state laws and regulations.

(XV) Subscription Arrangement for the Existing A Shareholders

The existing holders of A Shares of the Company shall have pre-emptive rights to subscribe for the A Share Convertible Corporate Bonds to be issued. The actual amount to be preferentially allocated to the existing holders of A Shares shall be determined by the Board or other authorized persons with reference to the market conditions before issuance, according to the authorization at the general meeting, and shall be disclosed in the Offering Document of the A Share Convertible Corporate Bonds. The exercise of such preferential allocation is subject to the Securities Law of the PRC (《中華人民共和國證券法》) and the Listing Rules or all other applicable laws, rules and regulations (including but not limited to the regulations and requirements related to connected transactions) of government or regulatory bodies.

(XVI) Relevant Matters on Meetings of A Share Convertible Corporate Bonds Holders

1. The Rights and Obligations of A Share Convertible Corporate Bonds Holders

(1) Rights of A Share Convertible Corporate Bonds Holders
① Entitlement to agreed interests in accordance with the number of the A Share Convertible Corporate Bonds held by the A Share Convertible Corporate Bonds Holders;
② Rights to convert the A Share Convertible Corporate Bonds held into A Shares of the Company according to the agreed conditions;
③ Entitlement to exercise right of sale back on agreed conditions;
④ Assignment, bestowal or pledge of the A Share Convertible Corporate Bonds held in accordance with the laws, administrative regulations and the Articles of Association;
⑤ Access to relevant information in accordance with the laws and the Articles of Association;
⑥ Claim to the Company for principal and interests of the A Share Convertible Corporate Bonds in accordance with the agreed period and manner;

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

⑦ Rights to participate in or appoint agencies to participate in the meetings with A Share Convertible Corporate Bonds Holders and exercise voting rights in accordance with the laws, administrative regulations and other relevant requirements;
⑧ Other rights granted by the laws, administrative regulations and Articles of Association as creditors of the Company.
(2) Obligations of the A Share Convertible Corporate Bonds Holders
① Compliance with the relevant terms of the A Share Convertible Corporate Bonds of the Company;
② Making due payment of the subscription amount;
③ Compliance with the valid resolutions of a A Share Convertible Corporate Bonds Holders’ meeting;
④ Except as specified in laws, regulations, or the agreement of the Offering Document of the A Share Convertible Corporate Bonds, the A Share Convertible Corporate Bonds Holders shall not request the Company to make prepayment of the principal and interests of the A Share Convertible Corporate Bonds;
⑤ Compliance with other obligations undertaken by the A Share Convertible Corporate Bonds Holders in accordance with the laws, administrative regulations and the Articles of Association.

2. Meetings of the A Share Convertible Corporate Bonds Holders

The Board shall convene an A Share Convertible Corporate Bonds Holders’ meeting when any of the following circumstances arises during the term of the A Share Convertible Corporate Bonds for the issuance:

(1) the Company’s proposal for changes of the agreements of the Offering Document;
(2) the Company’s default in paying principal and interests of the A Share Convertible Corporate Bonds on time;
(3) reduction of the Company’s capital, merger, separation, dissolution or bankruptcy of the Company; and
(4) the occurrence of other matters which may substantially affect the interests of the A Share Convertible Corporate Bonds Holders.

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

(XVII) Use of Proceeds

The total proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital and develop the principal business of the Company after deducting the issue cost and the amount received after the conversion of the A Share Convertible Corporate Bonds will be used to replenish the capital of the Company.

(XVIII) Guarantee and Securities

There is no guarantee or security in relation to the proposed issuance of the A Share Convertible Corporate Bonds.

(XIX) Deposit of Proceeds

The Company has established its Administrative System of Proceeds, according to which proceeds from the issuance of the A Share Convertible Corporate Bonds will be deposited into a special account determined by the Board, and specific matters related to the account opening will be determined by the Board before the issuance.

(XX) The Validity Period of the Resolution

The resolution of the issuance of the A Share Convertible Corporate Bonds will be valid for 12 months from the date of the passing of the relevant resolutions at the AGM and Class Meetings.

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

III. FINANCIAL INFORMATION AND THE MANAGEMENT’S DISCUSSION AND ANALYSIS

The financial statements 2014, 2015 and 2016 of the Company have been audited by ShineWing Certified Public Accountants (Special General Partnership), which has issued the standard unqualified audit reports XYZH/2016BJA10669 and XYZH/2017BJA10391 for the Company

(I) Consolidated Financial Statements for the Previous Three Years

1. Consolidated Balance Sheet

Unit: Yuan

	31 December	31 December	31 December
Assets	2016	2015	2014
Assets:
Cash and cash equivalents	12,090,415,132.84	12,707,460,600.77	8,682,415,845.44
Including: Customer deposit	7,720,676,538.03	10,739,355,587.37	7,225,908,380.13
Deposit reservation for balance	3,096,957,086.10	4,455,615,703.22	2,620,867,294.28
Including: Customer reserves	2,353,173,197.34	3,356,888,084.19	2,271,018,557.10
Lendings to banks and other financial
institutions	–	–	–
Financing funds	6,119,265,370.45	8,158,803,094.69	7,331,517,309.15
Financial assets measured at fair and changes
of which included in current profit and loss	8,037,095,626.37	5,045,128,204.70	4,099,282,492.37
Derivative financial assets	–	–	–
Redemptory monetary capital for sale	5,911,696,190.30	6,826,689,334.44	2,889,714,967.29
Receivables	43,496,697.92	27,587,801.49	17,409,000.48
Interest receivable	397,345,286.70	257,757,840.45	173,998,005.45
Refundable deposit	490,078,050.96	422,906,511.10	727,404,219.54
Classified as liabilities held for sale	–	39,428,945.46	–
Available-for-sale financial assets	2,581,937,630.58	2,443,599,475.10	751,235,010.28
Held-to-maturity investment	–	–	–
Long-term equity investment	370,421,607.85	106,705,532.33	49,684,441.40
Investment real estate	22,953,353.76	21,225,064.10	23,066,429.75
Fixed assets	238,033,229.01	235,552,941.92	217,045,958.96
Construction in progress	4,051,439.24	543,150.00	100,000.00
Intangible assets	155,559,401.13	155,960,703.60	153,742,738.81
Goodwill	21,466,082.83	7,268,756.37	7,268,756.37
Deferred income tax assets	117,928,755.39	209,334,510.90	104,468,520.25
Other assets	685,871,695.61	529,680,445.78	420,021,343.45
Total assets	40,384,572,637.04	41,651,248,616.42	28,269,242,333.27

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

	31 December	31 December	31 December
Liabilities and owners’ equity	2016	2015	2014
Liabilities:
Short-term borrowings	661,118,923.35	–	–
Short-term financing payable	3,809,755,009.59	5,106,960,000.00	1,441,280,000.00
Borrowings from banks and other financial
institutions	400,000,000.00	–	2,373,000,000.00
Financial liabilities measured and changes of
which included in current profit and loss	1,208,177,431.99	1,144,170,407.34	791,073,957.93
Derivative financial liabilities	131,955.20	–	–
Financial assets sold for repurchase	5,607,978,821.81	4,712,964,571.21	5,587,234,329.83
Receiving from vicariously traded securities	9,426,088,091.08	13,281,216,869.23	8,863,873,220.48
Receiving from vicariously traded securities
in credit trade	942,002,264.58	1,586,034,162.71	795,959,787.78
Receiving from vicariously sold securities	–	–	–
Payroll Payable	472,060,797.32	711,032,900.34	375,914,561.22
Taxes payable	96,475,098.96	267,155,238.02	239,670,103.73
Payables	207,332,187.36	152,466,664.69	92,165,449.54
Interest payable	354,923,124.12	327,496,490.03	111,765,349.00
Classified as liabilities held for sale	–	11,695,776.24	–
Estimated liabilities	–	–	–
Long-term borrowings	55,327,275.46	51,818,408.77	–
Bonds payable	5,494,298,598.03	5,291,078,013.77	1,490,027,198.49
Deferred income tax liabilities	28,707,013.93	49,157,422.62	27,836,514.57
Other liabilities	73,427,210.85	81,547,942.18	222,646,742.26
Total liabilities	28,837,803,803.63	32,774,794,867.15	22,412,447,214.83
Owner’s equity
Capital stock	3,923,734,700.00	3,223,734,700.00	2,631,615,700.00
Capital reserve	3,842,379,808.39	1,865,166,967.63	504,887,745.32
Less: Treasury share	–	–	–
Other comprehensive income	63,826,190.55	36,261,558.91	26,508,007.42
Surplus reserve	697,014,082.63	604,796,786.78	399,282,433.40
Generic risk reserve	599,107,697.29	531,481,680.34	380,771,154.53
Trade risk reserve	564,870,336.92	503,392,139.69	366,382,570.77
Retained earnings	891,183,507.88	1,396,746,640.39	1,477,258,852.53
Total owners’ equity attributable to parent
company	10,582,116,323.66	8,161,580,473.74	5,786,706,463.97
Minority shareholders’ equity	964,652,509.75	714,873,275.53	70,088,654.47
Total owners’ equity	11,546,768,833.41	8,876,453,749.27	5,856,795,118.44
Total liabilities and owners’ equity	40,384,572,637.04	41,651,248,616.42	28,269,242,333.27

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

2. Consolidated Income Statement

Unit: Yuan

Item	2016	2015	2014
I. Operating income	2,026,810,960.79	4,004,355,251.90	1,808,216,779.12
Fee and commission income	1,259,619,100.49	2,716,354,159.22	1,072,655,213.61
Including: Securities brokerage service
income	715,338,829.85	2,128,093,353.37	794,863,348.77
Investment banking income	304,410,665.01	209,363,864.17	100,757,994.55
Investment consulting service income	123,506,393.84	285,424,405.67	130,642,404.47
Asset management service income	63,173,935.35	53,079,392.97	9,106,315.59
Fund management service income	3,506,499.60	554,972.67	403,163.07
Interest income	318,306,944.02	561,575,861.59	274,986,314.16
Investment income (“-” for loss)	477,944,617.68	599,018,351.30	376,441,950.15
Including: Income from investment to joint
ventures and cooperative enterprises	12,706,868.44	1,725,476.63	-315,558.60
Income from fair value variation
(“-” for loss)	-60,751,105.21	56,061,634.06	73,245,007.16
Exchange gain (“-” for loss)	-3,442,833.21	62,062,152.53	3,529,031.51
Other operating income	35,134,237.02	9,283,093.20	7,359,262.53
II. Operating costs	1,067,838,746.83	2,093,232,661.80	1,078,677,482.41
Taxes and surcharges	57,418,589.52	255,484,062.30	103,517,886.25
Business and administration expenses	1,009,437,684.55	1,709,009,930.66	946,477,300.28
Assets impairment loss	-27,005,101.48	127,631,057.07	27,716,089.32
Other operating costs	27,987,574.24	1,107,611.77	966,206.56
III. Operating profits	958,972,213.96	1,911,122,590.10	729,539,296.71
Plus: Non-operating revenue	39,621,993.23	21,225,594.03	32,364,428.98
Less: Non-operating expenses	6,064,619.74	6,957,329.28	7,132,217.08
Plus: Total profits held in the subsidiaries
to be sold	-17,962,957.50	-34,421,696.14	–
IV. Total profits	974,566,629.95	1,890,969,158.71	754,771,508.61
Less: Income tax expenses	227,841,848.25	488,588,592.72	204,788,774.47
V. Net Profits	746,724,781.70	1,402,380,565.99	549,982,734.14
Net profits attributable to parent
company owners	718,646,243.11	1,405,500,406.97	562,290,151.78
Minority shareholders’ profits and losses	28,078,538.59	-3,119,840.98	-12,307,417.64

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

Item		2016	2015	2014
VI.	Net amount of other comprehensive
	income after tax	33,449,696.04	11,475,235.64	30,326,501.00
(I)	Other comprehensive income that
	cannot be reclassified into profit and
	loss	–	–	–
1.	Re-measured variation of net assets or
	liabilities of defined benefit plan	–	–	–
2.	Share in other comprehensive income
	that cannot be classified into profit and
	loss in the invested enterprises under
	equity method	–	–	–
(II)	Other comprehensive income that will
	be reclassified into the profit and loss	33,449,696.04	11,475,235.64	30,326,501.00
1.	Share in other comprehensive income
	that will be reclassified into profit and
	loss in the invested enterprises under
	equity method	–	–	–
2.	Changes in fair value through profit and
	loss of available-for-sale financial
	assets	6,168,845.75	5,679,745.67	30,326,501.00
3.	Held-to-maturity investment reclassified
	into available-for-sale financial assets	–	–	–
4.	Effective part of cash-flow hedge profit
	and loss	–	–	–
5.	Balance arising from the translation of
	foreign currency financial statements	27,280,850.29	5,795,489.97	–
VII.	Total comprehensive income	780,174,477.74	1,413,855,801.63	580,309,235.14
Total	comprehensive income attributable to
parent company owners		746,210,874.75	1,415,253,958.46	592,616,652.78
Total	comprehensive income attributable to
minority shareholders		33,963,602.99	-1,398,156.83	-12,307,417.64
VIII.	Earnings per share (EPS)
(I)	Basic earnings per share	0.22	0.49	0.24
(II)	Diluted earnings per share	0.22	0.49	0.24

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

3. Consolidated Cash Flow Statement

Unit: Yuan

Item	2016	2015	2014
I. Cash flow arising from operating
activities
Net increase in disposal of financial assets
measured at fair value and changes of
which included in current profit and loss	–	–	–
Cash receipts from interest, fees and
commission	2,248,941,692.88	4,376,472,945.35	1,703,680,477.16
Net increase in borrowings from banks and
other financial institutions	400,000,000.00	–	1,973,000,000.00
Net increase in repurchasing business funds	1,897,800,233.23	–	1,358,062,836.15
Net decrease in financing funds	2,035,131,099.49	–	–
Net cash receipts from vicariously traded
securities	–	5,207,408,247.63	4,665,762,485.54
Other cash receipts relating to operating
activities	327,240,285.44	889,889,915.95	169,731,992.97
Total cash inflows from operating activities	6,909,113,311.04	10,473,771,108.93	9,870,237,791.82
Net increase in disposal of financial assets
measures at fair value and changes of
which included in current profit and loss	2,476,003,106.91	340,561,399.39	167,724,502.36
Net increase in borrowings from banks and
other financial institutions	–	2,373,000,000.00	–
Net increase in repurchasing business funds	–	4,591,805,624.81	–
Net increase in financing funds	–	826,850,479.80	5,082,571,990.27
Net cash payments from vicariously traded
securities	4,499,160,676.28	–	–
Cash payments for interest, fees and
commission	315,644,037.60	747,949,451.62	224,164,643.67
Cash payments to and on behalf of employees	950,258,167.20	1,060,272,767.63	515,699,389.36
Cash payments for taxes	583,123,607.72	695,208,790.43	257,861,277.21
Other cash payments relating to operating
activities	786,914,139.38	900,263,888.55	976,845,378.62
Total cash outflows from operating
activities	9,611,103,735.09	11,535,912,402.23	7,224,867,181.49
Net cash flows from operating activities	-2,701,990,424.05	-1,062,141,293.30	2,645,370,610.33
II. Cash flow arising from investment
activities
Cash receipts from investment withdrawal	–	–	83,000,000.00
Cash receipts from return on investments	58,854,693.11	74,850,323.19	36,443,070.09
Net cash receipts from disposal of
subsidiaries and other business units	43,877,593.48	–	–
Other cash receipts relating to investment
activities	2,842,141.18	591,592.60	501,430.63
Total cash inflows from investment
activities	105,574,427.77	75,441,915.79	119,944,500.72

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

Item	2016	2015	2014
Cash payments to acquire investments	186,017,665.63	1,842,205,732.47	383,510,055.57
Net payments to acquire fixed assets,
intangible assets and other long-term assets	92,276,469.83	92,125,002.56	51,703,903.63
Net cash payments to acquire any subsidiaries
and other business units	14,616,100.12	–	–
Other cash payments relating to investment
activities	–	–	–
Total cash outflows from investment
activities	292,910,235.58	1,934,330,735.03	435,213,959.20
Net cash outflows from investment
activities	-187,335,807.81	-1,858,888,819.24	-315,269,458.48
III. Cash flows arising from financing
activities
Cash receipts from investments by others	2,906,257,373.49	2,441,880,999.89	1,259,448,654.27
Including : Cash receipts from subsidiary
investments from minority shareholders	236,445,631.07	670,792,000.00	–
Cash receipts from borrowings	664,627,790.04	51,818,408.77	–
Cash receipts from issuance of bonds	4,013,245,593.85	14,043,482,000.00	6,333,280,000.00
Other cash receipts relating to financing
activities	–	–	–
Total cash inflows from financing activities	7,584,130,757.38	16,537,181,408.66	7,592,728,654.27
Cash payments of amounts borrowed	5,107,230,000.00	6,579,480,000.00	4,200,000,000.00
Cash paid for distribution of dividends or
profits or cash payments of interests	1,559,835,777.36	1,238,940,284.38	52,770,120.89
Including: Dividends and profits paid to
minority shareholders from subsidiaries	15,837,669.90	–	–
Other cash payments relating to financing
activities	–	–	8,317,327.00
Total cash outflows from financing
activities	6,667,065,777.36	7,818,420,284.38	4,261,087,447.89
Net cash flows from financing activities	917,064,980.02	8,718,761,124.28	3,331,641,206.38
IV. Effect of exchange rate changes on
cash and cash equivalents	-3,442,833.21	62,062,152.53	3,529,031.51
V. Net increase in cash and cash
equivalents	-1,975,704,085.05	5,859,793,164.27	5,665,271,389.74
Plus: Beginning balance of cash and cash
equivalents	17,163,076,303.99	11,303,283,139.72	5,638,011,749.98
VI. Closing balance of cash and cash
equivalents	15,187,372,218.94	17,163,076,303.99	11,303,283,139.72

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

			Minority	shareholders’ Total owners’	equity equity	714,873,275.53 8,876,453,749.27	– –	– –	– –		714,873,275.53 8,876,453,749.27	249,779,234.22 2,670,315,084.14	28,078,538.59 746,724,781.70	5,885,064.40 33,449,696.04	33,963,602.99 780,174,477.74		236,445,631.07 2,906,257,373.49	236,445,631.07 2,906,257,373.49		– –		– –	– –
					Others	–	–	–	–		–	–	–	–	–		–	–		–		–	–
				Trade risk Retained	reserve earnings	503,392,139.69 1,396,746,640.39	– –	– –	– –		503,392,139.69 1,396,746,640.39	61,478,197.23 -505,563,132.51	– 718,646,243.11	– –	– 718,646,243.11		– –	– –		– –		– –	– –
4. *Consolidated Statement of Changes in Owners’ Equity*	(1) Consolidated Statement of Changes in Owners’ Equity 2016	Item Owners’ equity attributable to parent company	Less: Other	Treasury comprehensive Surplus Generic risk	Share stock Capital reserve stock income reserve reserve	I. Balance at the end of previous year 3,223,734,700.00 1,865,166,967.63 – 36,261,558.91 604,796,786.78 531,481,680.34	Plus: Accounting policy changes – – – – – –	Early error correction – – – – – –	Others – – – – – –	II. Balance at the beginning of current	year 3,223,734,700.00 1,865,166,967.63 – 36,261,558.91 604,796,786.78 531,481,680.34	III. Increase/decrease in current year 700,000,000.00 1,977,212,840.76 – 27,564,631.64 92,217,295.85 67,626,016.95	(I) Net profits – – – – – –	(II) Other comprehensive income – – – 27,564,631.64 – –	Total of (I) and (II) – – – 27,564,631.64 – –	(III) Capital contributed by shareholders and	capital decrease 700,000,000.00 1,969,811,742.42 – – – –	1. Capital contributed by shareholders 700,000,000.00 1,969,811,742.42 – – – –	2. The amount of share-based payments	recorded in owners’ equity – – – – – –	3. Equity transaction with minority	shareholders – – – – – –	4. Others – – – – – –

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APPENDIX II

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

	Minority	shareholders’ Total owners’	equity equity	-15,837,669.90 -1,015,195,426.90	– –	– –	– –	-15,837,669.90 -1,015,195,426.90	– –	– –	– –	– –	– –	– –	– –	– –	– –	-4,792,329.94 -921,340.19	964,652,509.75 11,546,768,833.41
			Others	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
		Trade risk Retained	reserve earnings	61,478,197.23 -1,220,679,267.03	– -92,217,295.85	– -67,626,016.95	61,478,197.23 -61,478,197.23	– -999,357,757.00	– –	– –	– –	– –	– –	– –	– –	– –	– –	– -3,530,108.59	564,870,336.92 891,183,507.88
Owners’ equity attributable to parent company	Other	comprehensive Surplus Generic risk	income reserve reserve	– 92,217,295.85 67,626,016.95	– 92,217,295.85 –	– – 67,626,016.95	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	63,826,190.55 697,014,082.63 599,107,697.29
	Less:	Treasury	stock	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
			Share stock Capital reserve	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– 7,401,098.34	3,923,734,700.00 3,842,379,808.39
Item				(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’ equity	1. Capital transferred from capital reserves	2. Capital (transferred from surplus reserves	3. Recovery of losses by surplus reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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APPENDIX II

	Minority	shareholders’ Total owners’	equity equity	70,088,654.47 5,856,795,118.44	– –	– –	– –		70,088,654.47 5,856,795,118.44	644,784,621.06 3,019,658,630.83	-3,119,840.98 1,402,380,565.99	1,721,684.15 11,475,235.64	-1,398,156.83 1,413,855,801.63		670,792,000.00 2,623,190,222.31	670,792,000.00 2,623,190,222.31		– –		– –	– –
			Others	–	–	–	–		–	–	–	–	–		–	–		–		–	–
		Trade risk Retained	reserve earnings	366,382,570.77 1,477,258,852.53	– –	– –	– –		366,382,570.77 1,477,258,852.53	137,009,568.92 -80,512,212.14	– 1,405,500,406.97	– –	– 1,405,500,406.97		– –	– –		– –		– –	– –
Owners’ equity attributable to parent company	Other	comprehensive Surplus Generic risk	income reserve reserve	26,508,007.42 399,282,433.40 380,771,154.53	– – –	– – –	– – –		26,508,007.42 399,282,433.40 380,771,154.53	9,753,551.49 205,514,353.38 150,710,525.81	– – –	9,753,551.49 – –	9,753,551.49 – –		– – –	– – –		– – –		– – –	– – –
	Less:	Treasury	stock	–	–	–	–		–	–	–	–	–		–	–		–		–	–
			Share stock Capital reserve	2,631,615,700.00 504,887,745.32	– –	– –	– –		2,631,615,700.00 504,887,745.32	592,119,000.00 1,360,279,222.31	– –	– –	– –		592,119,000.00 1,360,279,222.31	592,119,000.00 1,360,279,222.31		– –		– –	– –
Item				I. Balance at the end of previous year	Plus: Accounting policy changes	Early error correction	Others	II. Balance at the beginning of current	year	III. Increase/decrease in current year	(I) Net profits	(II) Other comprehensive income	Total of (I) and (II)	(III) Capital contributed by shareholders and	capital decrease	1. Capital contributed by shareholders	2. The amount of share-based payments	recorded in owners’ equity	3. Equity transaction with minority	shareholders	4. Others

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APPENDIX II

	Minority	shareholders’ Total owners’	equity equity	– -992,778,171.00	– –	– –	– –	– -992,778,171.00	– –	– –	– –	– –	– –	– –	– –	– –	– –	-24,609,222.11 -24,609,222.11	714,873,275.53 8,876,453,749.27
			Others	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
		Trade risk Retained	reserve earnings	137,009,568.92 -1,486,012,619.11	– -205,514,353.38	– -150,710,525.81	137,009,568.92 -137,009,568.92	– -992,778,171.00	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	503,392,139.69 1,396,746,640.39
Owners’ equity attributable to parent company	Other	comprehensive Surplus Generic risk	income reserve reserve	– 205,514,353.38 150,710,525.81	– 205,514,353.38 –	– – 150,710,525.81	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	36,261,558.91 604,796,786.78 531,481,680.34
	Less:	Treasury	stock	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
			Share stock Capital reserve	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	3,223,734,700.00 1,865,166,967.63
Item				(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’ equity	1. Capital transferred from capital reserves	2. Capital (transferred from surplus reserves	3. Recovery of losses by surplus reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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APPENDIX II

	Minority	shareholders’ Total owners’	equity equity	83,940,165.60 4,175,281,322.52	– –	– –	– –		83,940,165.60 4,175,281,322.52	-13,851,511.13 1,681,513,795.92	-12,307,417.64 549,982,734.14	– 30,326,501.00	-12,307,417.64 580,309,235.14		– 1,102,748,654.27	– 1,102,748,654.27		– –		– –	– –
			Others	–	–	–	–		–	–	–	–	–		–	–		–		–	–
		Retained	earnings	1,119,117,840.01	–	–	–		1,119,117,840.01	358,141,012.52	562,290,151.78	–	562,290,151.78		–	–		–		–	–
		Trade	risk reserve	310,090,449.69	–	–	–		310,090,449.69	56,292,121.08	–	–	–		–	–		–		–	–
Owners’ equity attributable to parent company	Other	comprehensive Surplus Generic	income reserve risk reserve	-3,818,493.58 314,844,251.79 317,352,317.96	– – –	– – –	– – –		-3,818,493.58 314,844,251.79 317,352,317.96	30,326,501.00 84,438,181.61 63,418,836.57	– – –	30,326,501.00 – –	30,326,501.00 – –		– – –	– – –		– – –		– – –	– – –
	Less:	Treasury	stock	–	–	–	–		–	–	–	–	–		–	–		–		–	–
		Capital	reserve	239,091.05	–	–	–		239,091.05	504,648,654.27	–	–	–		504,648,654.27	504,648,654.27		–		–	–
		Share	stock	2,033,515,700.00	–	–	–		2,033,515,700.00	598,100,000.00	–	–	–		598,100,000.00	598,100,000.00		–		–	–
Item				I. Balance at the end of previous year	Plus: Accounting policy changes	Early error correction	Others	II. Balance at the beginning of current	year	III. Increase/decrease in current year	(I) Net profits	(II) Other comprehensive income	Total of (I) and (II)	(III) Capital contributed by shareholders and	capital decrease	1. Capital contributed by shareholders	2. The amount of share-based payments	recorded in owners’ equity	3. Equity transaction with minority	shareholders	4. Others

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

		Total owners’	equity	-1,544,093.49	–	–	–	-1,544,093.49	–	–	–	–	–	–	–	–	–	–	5,856,795,118.44
	Minority	shareholders’	equity	-1,544,093.49	–	–	–	-1,544,093.49	–	–	–	–	–	–	–	–	–	–	70,088,654.47
			Others	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
		Trade Retained	risk reserve earnings	56,292,121.08 -204,149,139.26	– -84,438,181.61	– -63,418,836.57	56,292,121.08 -56,292,121.08	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –	366,382,570.77 1,477,258,852.53
Owners’ equity attributable to parent company	Other	comprehensive Surplus Generic	income reserve risk reserve	– 84,438,181.61 63,418,836.57	– 84,438,181.61 –	– – 63,418,836.57	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	– – –	26,508,007.42 399,282,433.40 380,771,154.53
	Less:	Treasury	stock	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–
		Capital	reserve	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	504,887,745.32
		Share	stock	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	2,631,615,700.00
Item				(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’ equity	1. Capital transferred from capital reserves	2. Capital (transferred from surplus reserves	3. Recovery of losses by surplus reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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APPENDIX II

(II) Financial Statements of the Parent Company for the Previous Three Years

1. Balance Sheet of the Parent Company

Unit: Yuan

	31 December	31 December	31 December
Assets	2016	2015	2014
Assets:
Cash and cash equivalents	10,906,368,493.26	11,457,340,401.40	7,990,225,464.93
Including: Customer deposit	7,374,121,594.90	10,427,087,870.49	7,006,583,932.33
Deposit reservation for balance	2,861,279,822.91	4,229,637,630.04	2,354,883,475.09
Including: Customer reserves	2,031,159,961.17	3,067,436,655.14	1,967,214,237.50
Lendings to banks and other financial
institutions	–	–	–
Financing funds	5,873,865,210.42	8,095,545,444.73	7,331,517,309.15
Financial assets measured at fair and changes
of which included in current profit and loss	5,633,991,564.70	3,408,279,450.37	2,841,018,782.98
Derivative financial assets	–	–	–
Redemptory monetary capital for sale	5,569,169,690.51	6,796,689,334.44	2,869,314,967.29
Receivables	37,744,827.45	27,727,443.35	24,089,681.65
Interest receivable	350,720,629.73	225,861,868.53	156,117,688.84
Refundable deposit	153,314,654.39	126,996,046.28	507,135,406.17
Classified as liabilities held for sale	–	102,000,000.00	–
Available-for-sale financial assets	2,206,904,169.42	2,492,219,724.16	894,874,793.49
Held-to-maturity investment	–	–	–
Long-term equity investment	1,976,973,001.74	1,258,021,592.08	611,561,592.08
Investment real estate	33,547,229.79	32,121,196.67	30,506,028.53
Fixed assets	217,025,434.60	216,739,162.10	206,188,560.26
Construction in progress	4,051,439.24	543,150.00	100,000.00
Intangible assets	151,913,078.20	152,894,136.21	145,347,083.87
Goodwill	–	–	–
Deferred income tax assets	105,280,666.29	205,857,043.12	100,844,910.15
Other assets	100,553,253.47	84,430,975.06	147,959,342.51
Total assets	36,182,703,166.12	38,912,904,598.54	26,211,685,086.99

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APPENDIX II

	31 December	31 December	31 December
Liabilities and owners’ equity	2016	2015	2014
Liabilities:
Short-term borrowings	–	–	–
Short-term financing payable	3,809,755,009.59	5,106,960,000.00	1,441,280,000.00
Borrowings from banks and other financial
institutions	400,000,000.00	–	2,373,000,000.00
Financial liabilities measured at fair value
and changes of which included in current
profit and loss	–	–	–
Derivative financial liabilities	131,955.20	–	–
Financial assets sold for repurchase	5,313,078,821.81	4,568,564,571.21	5,189,434,329.83
Receiving from vicariously traded securities	8,659,499,538.04	12,616,675,912.75	8,241,142,589.97
Receiving from vicariously traded securities
in credit trade	924,703,379.22	1,580,445,192.56	795,959,787.78
Receiving from vicariously sold securities	–	–	–
Payroll Payable	440,892,284.86	694,688,726.76	358,658,098.32
Taxes payable	80,816,232.69	261,981,469.33	235,723,471.46
Payables	206,752,599.23	151,036,473.96	92,165,449.54
Interest payable	354,310,519.57	327,486,881.86	111,765,349.00
Estimated liabilities	–	–	–
Long-term borrowings	–	–	–
Bonds payable	5,494,298,598.03	5,291,078,013.77	1,490,027,198.49
Deferred income tax liabilities	17,076,060.34	46,764,785.19	22,155,414.59
Other liabilities	49,772,669.96	65,174,355.30	36,820,467.05
Total liabilities	25,751,087,668.54	30,710,856,382.69	20,388,132,156.03
Owner’s equity
Capital stock	3,923,734,700.00	3,223,734,700.00	2,631,615,700.00
Capital reserve	3,838,825,951.77	1,865,166,967.63	504,887,745.32
Less: Treasury share	–	–	–
Other comprehensive income	44,727,315.54	74,957,872.01	26,178,327.65
Surplus reserve	697,014,082.63	604,796,786.78	399,282,433.40
Generic risk reserve	595,102,127.73	527,476,110.78	376,765,584.97
Trade risk reserve	564,870,336.92	503,392,139.69	366,382,570.77
Retained earnings	767,340,982.99	1,402,523,638.96	1,518,440,568.85
Total owners’ equity attributable to
parent company	10,431,615,497.58	8,202,048,215.85	5,823,552,930.96
Liabilities and minority shareholders’
equity	36,182,703,166.12	38,912,904,598.54	26,211,685,086.99

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APPENDIX II

2. Income Statement of the Parent Company

Unit: Yuan

Item	2016	2015	2014
I. Operating income	1,675,470,543.09	3,830,667,870.00	1,719,882,113.74
Fee and commission income	1,167,829,229.77	2,674,977,424.98	1,052,228,889.37
Including: Securities brokerage service
income	715,952,414.77	2,139,063,004.45	804,245,778.30
Investment banking income	265,115,836.09	206,884,614.17	100,757,994.55
Investment consulting service income	122,209,779.91	269,915,506.82	128,578,967.58
Asset management service income	64,551,199.00	59,114,299.54	18,646,148.94
Interest income	227,783,168.24	494,786,640.45	246,988,167.13
Investment income (“-” for loss)	352,346,572.34	549,515,991.11	353,916,845.79
Including: Income from investment to joint
ventures and cooperative enterprises	-8,506,839.76	–	–
Income from fair value variation
(“-” for loss)	-78,447,490.81	39,295,953.79	53,897,596.19
Exchange gain (“-” for loss)	-3,719,786.18	62,040,935.35	5,156,987.49
Other operating income	9,678,849.73	10,050,924.32	7,693,627.77
II. Operating costs	878,133,176.47	1,997,794,031.23	985,795,420.88
Taxes and surcharges	53,783,791.80	250,225,051.11	100,422,717.82
Business and administration expenses	877,980,916.52	1,618,839,535.74	858,871,244.37
Assets impairment loss	-55,481,838.54	127,389,387.78	25,334,449.37
Other operating costs	1,850,306.69	1,340,056.60	1,167,009.32
III. Operating profits	797,337,366.62	1,832,873,838.77	734,086,692.86
Plus: Non-operating revenue	34,574,908.89	10,223,964.59	29,987,878.93
Less: Non-operating expenses	6,050,208.91	6,952,760.58	7,080,613.82
IV. Total profits	825,862,066.60	1,836,145,042.78	756,993,957.97
Less: Income tax expenses	211,080,094.31	466,049,353.56	194,072,747.22
V. Net Profits	614,781,972.29	1,370,095,689.22	562,921,210.75
VI. Net amount of other comprehensive
income after tax	-30,230,556.47	48,779,544.36	35,212,940.36
(I) Other comprehensive income that
cannot be reclassified into profit
and loss	–	–	–
1. Re-measured variation of net assets or
liabilities of defined benefit plan	–	–	–
2. Share in other comprehensive income
that cannot be classified into profit and
loss in the invested enterprises under
equity method	–	–	–

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APPENDIX II

Item		2016	2015	2014
(II)	Other comprehensive income that will
	be reclassified into the profit and loss	-30,230,556.47	48,779,544.36	35,212,940.36
1.	Share in other comprehensive income
	that will be reclassified into profit and
	loss in the invested enterprises under
	equity method	–	–	–
2.	Changes in fair value through profit and
	loss of available-for-sale financial
	assets	-30,230,556.47	48,779,544.36	35,212,940.36
3.	Held-to-maturity investment reclassified
	into available-for-sale financial assets	–	–	–
4.	Effective part of cash-flow hedge profit
	and loss	–	–	–
5.	Balance arising from the translation of
	foreign currency financial statements	–	–	–
VII.	Total comprehensive income	584,551,415.82	1,418,875,233.58	598,134,151.11

3. Cash Flow Statement of the Parent Company

			Unit: Yuan
Item	2016	2015	2014
I. Cash flow arising from operating
activities
Net increase in disposal of financial assets
measured at fair value and changes of
which included in current profit and loss	–	–	531,971,360.43
Cash receipts from interest, fees and
commission	2,124,166,428.03	4,255,917,119.83	1,635,459,963.73
Net increase in borrowings from banks and
other financial institutions	400,000,000.00	–	1,973,000,000.00
Net increase in repurchasing business funds	2,066,126,123.69	–	858,911,683.01
Net decrease in financing funds	2,224,429,689.56	–	–
Net increase in vicariously traded securities	–	5,160,018,727.56	4,577,714,868.67
Other cash receipts relating to operating
activities	73,174,993.65	472,322,445.65	130,486,992.37
Total cash inflows from operating activities	6,887,897,234.93	9,888,258,293.04	9,707,544,868.21

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APPENDIX II

Item	2016	2015	2014
Net decrease in disposal of financial assets
measures at fair value and changes of
which included in current profit and loss	2,087,961,941.68	27,796,369.44	–
Net increase in borrowings from banks and
other financial institutions	–	2,373,000,000.00	–
Net increase in repurchasing business funds	–	4,581,084,299.10	–
Net increase in financing funds	–	763,592,829.84	5,082,571,990.27
Net decrease in vicariously traded securities	4,612,918,188.05	–	–
Cash payments for interest, fees and
commission	351,643,086.88	731,952,605.35	270,159,853.10
Cash payments to and on behalf of employees	881,414,678.84	1,003,590,174.59	459,476,042.50
Cash payments for taxes	421,480,877.05	678,048,546.87	247,174,748.24
Other cash payments relating to operating
activities	196,939,739.60	424,959,538.75	572,522,618.06
Total cash outflows from operating
activities	8,552,358,512.10	10,584,024,363.94	6,631,905,252.17
Net cash flows from operating activities	-1,664,461,277.17	-695,766,070.90	3,075,639,616.04
II. Cash flow arising from investment
activities
Cash receipts from investment withdrawal	–	–	–
Cash receipts from return on investments	82,412,044.27	107,592,751.99	55,107,417.91
Net cash receipts from disposal of
subsidiaries and other business units	43,877,593.48	–	–
Other cash receipts relating to investment
activities	–	578,254.92	495,378.33
Total cash inflows from investment
activities	126,289,637.75	108,171,006.91	55,602,796.24
Cash payments to acquire investments	335,063,972.17	2,287,610,100.46	925,108,514.33
Net payments to acquire fixed assets,
intangible assets and other long-term assets	85,666,131.85	137,073,042.45	49,330,623.80
Other cash payments relating to investment
activities	467,977.88	–	–
Total cash outflows from investment
activities	421,198,081.90	2,424,683,142.91	974,439,138.13
Total cash flows from investment activities	-294,908,444.15	-2,316,512,136.00	-918,836,341.89

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

Item

2016

2015

2014

III. Cash flows arising from financing activities

Cash receipts from investments by others 2,669,811,742.42 1,999,435,210.50 1,102,748,654.27 Cash receipts from borrowings – – – Cash receipts from issuance of bonds 4,013,245,593.85 14,045,160,000.00 6,333,280,000.00 Other cash receipts relating to financing activities – – – Total cash inflows from financing activities 6,683,057,336.27 16,044,595,210.50 7,436,028,654.27 Cash payments of amounts borrowed 5,107,230,000.00 6,579,480,000.00 4,200,000,000.00 Cash paid for distribution of dividends or profits or cash payments of interests 1,532,067,544.04 1,173,008,847.53 51,226,027.40 Other cash payments relating to financing activities – – 8,317,327.00 Total cash outflows from financing activities 6,939,297,544.04 7,752,488,847.53 4,259,543,354.40 Net cash flows from financing activities 43,759,792.23 8,292,106,362.97 3,176,485,299.87 IV. Effect of exchange rate changes on cash and cash equivalents -3,719,786.18 62,040,935.35 5,156,987.49 V. Net increase in cash and cash equivalents -1,919,329,715.27 5,341,869,091.42 5,338,445,561.51 Plus: Beginning balance of cash and cash equivalents 15,686,978,031.44 10,345,108,940.02 5,006,663,378.51 VI. Closing balance of cash and cash equivalents 13,767,648,316.17 15,686,978,031.44 10,345,108,940.02

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APPENDIX II

	Total owners’	equity		8,202,048,215.85	–	–	–		8,202,048,215.85	2,229,567,281.73	614,781,972.29	-30,230,556.47	584,551,415.82		2,669,811,742.42	2,669,811,742.42			–	–
	Retained	earnings		1,402,523,638.96	–	–	–		1,402,523,638.96	-635,182,655.97	614,781,972.29	–	614,781,972.29		–	–			–	–
	Trade risk	reserve		503,392,139.69	–	–	–		503,392,139.69	61,478,197.23	–	–	–		–	–			–	–
	Generic risk	reserve		527,476,110.78	–	–	–		527,476,110.78	67,626,016.95	–	–	–		–	–			–	–
	Surplus	reserve		604,796,786.78	–	–	–		604,796,786.78	92,217,295.85	–	–	–		–	–			–	–
Other	comprehensive	income		74,957,872.01	–	–	–		74,957,872.01	-30,230,556.47	–	-30,230,556.47	-30,230,556.47		–	–			–	–
	Less:	Treasury stock		–	–	–	–		–	–	–	–	–		–	–			–	–
	Capital	reserve		1,865,166,967.63	–	–	–		1,865,166,967.63	1,973,658,984.14	–	–	–		1,969,811,742.42	1,969,811,742.42			–	–
	Share	stock		3,223,734,700.00	–	–	–		3,223,734,700.00	700,000,000.00	–	–	–		700,000,000.00	700,000,000.00			–	–
		Item	I. Balance at the end of previous	year	Plus: Accounting policy changes	Early error correction	Others	II. Balance at the beginning of	current year	III. Increase/decrease in current year	(I) Net profits	(II) Other comprehensive income	Total of (I) and (II)	(III) Capital contributed by shareholders	and capital decrease	1. Capital contributed by shareholders	2. The amount of share-based	payments recorded in owners’	equity	3. Others

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APPENDIX II

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

	Total owners’	equity	-999,357,757.00	–	–	–	-999,357,757.00	–		–		–		–		–	–	–	–	–	-25,438,119.51	10,431,615,497.58
	Retained	earnings	-1,220,679,267.03	-92,217,295.85	-67,626,016.95	-61,478,197.23	-999,357,757.00	–		–		–		–		–	–	–	–	–	-29,285,361.23	767,340,982.99
	Trade risk	reserve	61,478,197.23	–	–	61,478,197.23	–	–		–		–		–		–	–	–	–	–	–	564,870,336.92
	Generic risk	reserve	67,626,016.95	–	67,626,016.95	–	–	–		–		–		–		–	–	–	–	–	–	595,102,127.73
	Surplus	reserve	92,217,295.85	92,217,295.85	–	–	–	–		–		–		–		–	–	–	–	–	–	697,014,082.63
Other	comprehensive	income	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	44,727,315.54
	Less:	Treasury stock	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	–
	Capital	reserve	–	–	–	–	–	–		–		–		–		–	–	–	–	–	3,847,241.72	3,838,825,951.77
	Share	stock	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	3,923,734,700.00
		Item	(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’	equity	1. Capital transferred from capital	reserves	2. Capital (transferred from surplus	reserves	3. Recovery of losses by surplus	reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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APPENDIX II

PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

	Total owners’	equity		5,823,552,930.96	–	–	–		5,823,552,930.96	2,378,495,284.89	1,370,095,689.22	48,779,544.36	1,418,875,233.58		1,952,398,222.31	1,952,398,222.31			–	–
	Retained	earnings		1,518,440,568.85					1,518,440,568.85	-115,916,929.89	1,370,095,689.22		1,370,095,689.22		–
	Trade	risk reserve		366,382,570.77					366,382,570.77	137,009,568.92			–		–
	Generic	risk reserve		376,765,584.97					376,765,584.97	150,710,525.81			–		–
	Surplus	reserve		399,282,433.40					399,282,433.40	205,514,353.38			–		–
Other	comprehensive	income		26,178,327.65					26,178,327.65	48,779,544.36		48,779,544.36	48,779,544.36		–
	Less:	Treasury stock		–					–	–			–		–
	Capital	reserve		504,887,745.32					504,887,745.32	1,360,279,222.31		–	–		1,360,279,222.31	1,360,279,222.31
	Share	stock		2,631,615,700.00					2,631,615,700.00	592,119,000.00			–		592,119,000.00	592,119,000.00
		Item	I. Balance at the end of previous	year	Plus: Accounting policy changes	Early error correction	Others	II. Balance at the beginning of	current year	III. Increase/decrease in current year	(I) Net profits	(II) Other comprehensive income	Total of (I) and (II)	(III) Capital contributed by shareholders	and capital decrease	1. Capital contributed by shareholders	2. The amount of share-based	payments recorded in owners’	equity	3. Others

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

	Total owners’	equity	-992,778,171.00	–	–	–	-992,778,171.00	–		–		–		–		–	–	–	–	–	–	8,202,048,215.85
	Retained	earnings	-1,486,012,619.11	-205,514,353.38	-150,710,525.81	-137,009,568.92	-992,778,171.00			–												1,402,523,638.96
	Trade	risk reserve	137,009,568.92			137,009,568.92	–			–												503,392,139.69
	Generic	risk reserve	150,710,525.81		150,710,525.81					–												527,476,110.78
	Surplus	reserve	205,514,353.38	205,514,353.38						–												604,796,786.78
Other	comprehensive	income	–							–												74,957,872.01
	Less:	Treasury stock	–							–												–
	Capital	reserve	–							–												1,865,166,967.63
	Share	stock	–							–												3,223,734,700.00
		Item	(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’	equity	1. Capital transferred from capital	reserves	2. Capital (transferred from surplus	reserves	3. Recovery of losses by surplus	reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

	Total owners’	equity		4,122,670,125.58	–	–	–		4,122,670,125.58	1,700,882,805.38	562,921,210.75	35,212,940.36	598,134,151.11		1,102,748,654.27	1,102,748,654.27			–	–
	Retained	earnings		1,158,170,993.97	–	–	–		1,158,170,993.97	360,269,574.88	562,921,210.75	–	562,921,210.75		–	–			–	–
	Trade	risk reserve		310,090,449.69	–	–	–		310,090,449.69	56,292,121.08	–	–	–		–	–			–	–
	Generic	risk reserve		314,844,251.79	–	–	–		314,844,251.79	61,921,333.18	–	–	–		–	–			–	–
	Surplus	reserve		314,844,251.79	–	–	–		314,844,251.79	84,438,181.61	–	–	–		–	–			–	–
Other	comprehensive	income		-9,034,612.71	–	–	–		-9,034,612.71	35,212,940.36	–	35,212,940.36	35,212,940.36		–	–			–	–
	Less:	Treasury stock		–	–	–	–		–	–	–	–	–		–	–			–	–
	Capital	reserve		239,091.05	–	–	–		239,091.05	504,648,654.27	–	–	–		504,648,654.27	504,648,654.27			–	–
	Share	stock		2,033,515,700.00	–	–	–		2,033,515,700.00	598,100,000.00	–	–	–		598,100,000.00	598,100,000.00			–	–
		Item	I. Balance at the end of previous	year	Plus: Accounting policy changes	Early error correction	Others	II. Balance at the beginning of	current year	III. Increase/decrease in current year	(I) Net profits	(II) Other comprehensive income	Total of (I) and (II)	(III) Capital contributed by shareholders	and capital decrease	1. Capital contributed by shareholders	2. The amount of share-based	payments recorded in owners’	equity	3. Others

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

	Total owners’	equity	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	5,823,552,930.96
	Retained	earnings	-202,651,635.87	-84,438,181.61	-61,921,333.18	-56,292,121.08	–	–		–		–		–		–	–	–	–	–	–	1,518,440,568.85
	Trade	risk reserve	56,292,121.08	–	–	56,292,121.08	–	–		–		–		–		–	–	–	–	–	–	366,382,570.77
	Generic	risk reserve	61,921,333.18	–	61,921,333.18	–	–	–		–		–		–		–	–	–	–	–	–	376,765,584.97
	Surplus	reserve	84,438,181.61	84,438,181.61	–	–	–	–		–		–		–		–	–	–	–	–	–	399,282,433.40
Other	comprehensive	income	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	26,178,327.65
	Less:	Treasury stock	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	–
	Capital	reserve	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	504,887,745.32
	Share	stock	–	–	–	–	–	–		–		–		–		–	–	–	–	–	–	2,631,615,700.00
		Item	(IV) Profit distribution	1. Appropriation of surplus reserves	2. Withdrawal of generic risk reserves	3. Withdrawal of trade risk reserves	4. Distribution to shareholders	5. Others	(V) Transfers within shareholders’	equity	1. Capital transferred from capital	reserves	2. Capital (transferred from surplus	reserves	3. Recovery of losses by surplus	reserves	4. Others	(VI) Special reserves	1. Withdrawal in current year	2. Utilization in current year	(VII) Others	IV. Balance at end of current year

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APPENDIX II

(III) Scope of Financial Statements and Its Changes

1. Changes in the Scope of Financial Statements of the Company During the Previous Three Years

Company Name	2016	2015	2014
Subsidiaries included in the scope of consolidation
Central China Futures Co., Ltd.	Yes	Yes	Yes
Zhongding Kaiyuan Venture Capital Management
Co., Ltd.	Yes	Yes	Yes
Henan Zhongzheng Kaiyuan Venture Capital Fund
Management Co., Ltd.	Yes	Yes	Yes
Yuxin Investment Management (Shanghai) Co., Ltd.	Yes	Yes	No
Zhongzhou Hefu (Beijing) Venture Capital Management
Co., Ltd.	Yes	Yes	No
Zhongzhou Jishi Capital Management Co., Ltd.	Yes	Yes	No
Central China Equity Exchange Co., Ltd.(1)	Yes	Yes	No
Zhongzhou Lanhai Venture Capital Management
Co., Ltd.	Yes	Yes	No
Central China International Financial Holdings
Company Limited	Yes	Yes	No
Central China International Securities Co., Ltd.	Yes	Yes	No
Central China International Investment Co., Ltd.	Yes	Yes	No
Central China International Futures Co., Ltd.	Yes	Yes	No
Central China International Finance Co., Ltd.	Yes	Yes	No
Central China International Capital Limited	Yes	No	No
Zhongzhou Huilian Information Technology Service
(Shenzhen) Co., Ltd.	Yes	No	No
Central China International Holdings Co., Ltd.	Yes	No	No
Central China Financial Holdings Co., Ltd.	Yes	No	No
Central China International Asset Management
Co., Ltd.	Yes	No	No
Central China International Finance Group Co., Ltd.	Yes	No	No
Central China Consulting Service (Shenzhen) Co., Ltd.	Yes	No	No
Ashmore-CCSC Fund Management Company Limited(2)	No	Yes	Yes

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PRELIMINARY PROPOSAL FOR THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

APPENDIX II

Company Name	2016	2015	2014
Structural entities included in the scope of consolidation
Tianhong-Central China Robust No. 1 Asset
Management Plan	Yes	Yes	Yes
Tianhong-Central China Robust No. 2 Asset
Management Plan	Yes	Yes	Yes
Yanhuang No. 1 Premium Fund Family Asset
Management Plan of Central China Securities
Co., Ltd.	Yes	Yes	Yes
Yanhuang No.2 Premium Fund Family Asset
Management Plan of Central China Securities
Co., Ltd.	Yes	Yes	Yes
Zhongyuan Yingshi-ICBC-Quantitative Dynamic Multi-
strategy Alpha Phase I Asset Management Plan	No	Yes	Yes
Henan Zhongzheng Kaiyuan Venture Investment Fund
(Limited Partnership)	Yes	Yes	Yes
Tianhong-Central China Robust No. 3 Asset
Management Plan	Yes	Yes	No
Tianhong-Central China Robust No. 4 Asset
Management Plan	Yes	Yes	No
Zhongyuan Yingshi Flexibly Configured Hybrid
Securities Investment Fund	No	Yes	No
Central China Securities Co., Ltd. Panshi No. 1 Asset
Family Management Plan	Yes	Yes	No
CITIC-Prudential Fund Overseas Premium No. 1
Designated Asset Management Plan	Yes	Yes	No
Henan Technology Venture Capital Fund (Limited
Partnership)	Yes	Yes	No
Central China Securities Changsheng No. 2
Quantitative Asset Family Management Plan	Yes	No	No

(1) Three shareholders of Central China Equity Exchange Co., Ltd., namely Li Xinfeng, Henan Investment Group and Tianming City Construction and Development Company Limited, each of which contributed 16% of the registered capital of Central China Equity Exchange Co., Ltd., signed a Letter of Commitment with the Company. They agreed that they would make the same votes on all important matters of Central China Equity Exchange Co., Ltd and the Company shall have the actual right to control.
(2) On May 13, 2015, the 48th meeting of the 4th Board of Directors of the Company was held. At the meeting, the Proposal of Central China Securities Co., Ltd. on the Listing Transfer of 34% Shares of Zhongyuan Yingshi Fund Management Co., Ltd. was approved through deliberation. After the share transfer, the Company had its shareholding percentage in Zhongyuan Yingshi Fund Management Co., Ltd. from the original 51% to 17%. Meanwhile, Taiping Asset Management Co., Ltd, the transferee of the shares, contributed a capital of RMB27 million, after which the Company had its shareholding percentage in Zhongyuan Yingshi from the previous 17% to 14.98%. On July 27, 2015, the Company completed the bidding, auction and listing procedures in relation to the transferred shares at the Property Rights Trading Center in Henan Province in accordance with the laws, regulations and policies concerning the administration of State-owned asset transfer of financial enterprises, which was approved by China Insurance Regulatory Commission (CIRC) and China Securities Regulatory Commission (CSRC) earlier on February 15 and July 26, 2016 respectively. The aforementioned share transfer and capital increase had been completed. On August 22, 2016, Zhongyuan Yingshi completed its industrial and commercial registration of changes and renamed itself as Taiping Fund Management Co., Ltd.

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APPENDIX II

2. Overview of the Company Included in the Scope of Consolidation

As of 31 December 2016, the overview of the Company included in the scope of consolidation is shown as follows:

					Shareholding	Shareholding
	Place of	Business		Registered	percentage (%)
Company Name	registration	nature		capital	Direct	Indirect
Subsidiaries acquired through business combinations under common				control
Central China Futures	Zhengzhou	Futures	RMB330 million		51.36
Co., Ltd.		brokerage
Central China International	Hong Kong	Investment	HKD10 million			100.00
Capital Limited		banking
Subsidiaries acquired by means of incorporation or investment, etc.
Zhongding Kaiyuan Venture	Beijing	Equity	RMB1.38 billion		64.86
Capital Management		investment,
Co., Ltd.		etc.
Henan Zhongzheng Kaiyuan	Luoyang	Equity	RMB40 million			21.00
Venture Capital Fund		investment
Management Co., Ltd.		management
Yuxin Investment Management	Shanghai	Investment	RMB50 million			51.36
(Shanghai) Co., Ltd.		management
Zhongzhou Hefu (Beijing)	Beijing	Investment	RMB10 million			33.08
Venture Capital Management		management
Co., Ltd.
Zhongzhou Jishi Capital	Zhengzhou	Asset	RMB50 million			64.86
Management Co., Ltd.		management
Central China Equity Exchange	Zhengzhou	Equity	RMB350 million		35.00
Co., Ltd.		investment,
		etc.
Zhongzhou Lanhai Venture	Qingdao	Additional	RMB500 million		100.00
Capital Management Co., Ltd.		investment
Central China International	Hong Kong	Investment	HKD500 million		100.00
Financial Holdings Company		holding
Limited
Central China International	Hong Kong	Securities	HKD200 million			100.00
Securities Co., Ltd.		brokerage
Central China International	Hong Kong	Investment	HKD10 million			100.00
Investment Co., Ltd.		consulting
Central China International	Hong Kong			HKD1		100.00
Futures Co., Ltd.

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APPENDIX II

						Shareholding	Shareholding
	Place of	Business			Registered	percentage (%)
Company Name	registration	nature			capital	Direct	Indirect
Central China International	Hong Kong				HKD1		100.00
Finance Co., Ltd.
Central China Huilian	Shenzhen	Financial			HKD50 million		60.00
Information Technology		intermediary
Service (Shenzhen) Co., Ltd.		service
Central China International	BVI	Share holding			USD50,000		100.00
Holdings Co., Ltd.
Central China Financial	BVI	Share holding			USD1		100.00
Holdings Co., Ltd.
Central China International	Hong Kong	Asset			HKD10 million		100.00
Asset Management Co., Ltd.		management
Central China International	Hong Kong	Investment			HKD1 billion		100.00
Finance Group Co., Ltd.		holding
Central China Consulting	Shenzhen	Consulting			RMB10 million		100.00
Service (Shenzhen) Co., Ltd.		service
Management’s Discussion and Analysis
*Major Financial Indicators of the*		*Company*	*for the Previous Three Years*
Item			2016		2015		2014
Basic earnings per share(1)
(RMB per share)				0.22	0.49		0.24
Diluted earnings per share
(RMB per share) (1)				0.22	0.49		0.24
Basic earnings per share after
reduction of non-recurring gains
and losses(1) (RMB per	share)			0.21	0.49		0.23
Weighted average return on
equity(1)		8.89%			20.54%		11.41%
Weighted average return on equity
after reduction of non-recurring
gains and losses(1)		8.23%			20.43%		11.06%
Equity of shareholders per share
attributable to parent company(2)
(RMB per share)				2.70	2.53		2.20

(IV) The Management’s Discussion and Analysis

1. Major Financial Indicators of the Company for the Previous Three Years

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APPENDIX II

(1) The earnings per share and the return on equity shall be calculated in accordance with the provisions of the Compilation Rules for Information Disclosures by Companies Offering Securities to the Public No. 9-Calculation and Disclosure of Return on Equity and Earnings per Share (2010 Revision).
(2) Equity per share=equity attributable to parent company at the end of year/total amount of share stock at the end of year

2. Net Capital and Risk Control Indicators of the Parent Company

In the previous three years, all risk control indicators of the Company, including net capital, consistently satisfy regulatory requirements. The major risk control indicators are shown as follows:

	31 December	31 December	31 December
Major indicators	2016	2015	2014
Net capital (RMB0,000)	1,021,717.78	701,080.14	400,104.14
Equity (RMB0,000)	1,043,161.55	820,204.82	582,355.29
Net capital/sum of venture capital reserves	444.34%	648.51%	423.08%
Net capital/equity	97.94%	85.48%	68.70%
Net capital/liabilities	63.20%	42.45%	35.25%
Equity/liabilities	64.52%	49.67%	51.30%
Self-operated equity securities and securities
derivatives/net capital	22.34%	42.42%	17.41%
Self-operated securities of fixed income
type/net capital	55.29%	43.71%	78.41%
Flow coverage	2,053.26%	478.62%	309.08%
NSFR	158.58%	140.64%	111.27%

Note: The standards for calculation of relevant indicators have been adjusted compared to the end of 2014 and the end of 2015 since October 2016, when the Decision on Amending the Measures for the Risk Control Indicators of Securities Companies issued by China Securities Regulatory Commission (CSRC) (Order No. 125 of CSRC) was implemented.

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APPENDIX II

3. Brief Analysis of Financial Position of the Company

(1) Composition of assets

The composition of the assets of the Company in the previous three years is shown as follows:

Unit: RMB0,000

Assets	31 December 2016	31 December 2016	31 December 2015	31 December 2015	31 December 2015	31 December 2015
	Amount	Percentage	Amount	Percentage	Amount	Percentage
Cash and cash equivalents	1,209,041.51	29.94%	1,270,746.06	30.51%	868,241.58	30.71%
Including: Customer deposit	772,067.65	19.12%	1,073,935.56	25.78%	722,590.84	25.56%
Deposit reservation for balance	309,695.71	7.67%	445,561.57	10.70%	262,086.73	9.27%
Including: Customer reserves	235,317.32	5.83%	335,688.81	8.06%	227,101.86	8.03%
Lendings to banks and other
financial institutions	611,926.54	15.15%	815,880.31	19.59%	733,151.73	25.93%
Financial assets measured at
fair and changes of which
included in current profit
and loss	803,709.56	19.90%	504,512.82	12.11%	409,928.25	14.50%
Redemptory monetary
capital for sale	591,169.62	14.64%	682,668.93	16.39%	288,971.50	10.22%
Receivables	4,349.67	0.11%	2,758.78	0.07%	1,740.90	0.06%
Interest receivable	39,734.53	0.98%	25,775.78	0.62%	17,399.80	0.62%
Refundable deposit	49,007.81	1.21%	42,290.65	1.02%	72,740.42	2.57%
Classified as liabilities held
for sale	–	–	3,942.89	0.09%	–	–
Available-for-sale financial
assets	258,193.76	6.39%	244,359.95	5.87%	75,123.50	2.66%
Long-term equity investment	37,042.16	0.92%	10,670.55	0.26%	4,968.44	0.18%
Investment real estate	2,295.34	0.06%	2,122.51	0.05%	2,306.64	0.08%
Fixed assets	23,803.32	0.59%	23,555.29	0.57%	21,704.60	0.77%
Construction in progress	405.14	0.01%	54.32	0.00%	10.00	0.00%
Intangible assets	15,555.94	0.39%	15,596.07	0.37%	15,374.27	0.54%
Goodwill	2,146.61	0.05%	726.88	0.02%	726.88	0.03%
Deferred income tax assets	11,792.88	0.29%	20,933.45	0.50%	10,446.85	0.37%
Other assets	68,587.17	1.70%	52,968.04	1.27%	42,002.13	1.49%
Total assets	4,038,457.26	100.00%	4,165,124.86	100.00%	2,826,924.23	100.00%

The assets of the Company are divided into client assets and self-owned assets. The former includes the part of cash and cash equivalents, deposit reservation for balance and refundable deposit attributable to clients; the latter mainly refers to cash and cash equivalents, financing funds, financial assets measured at fair value and changes of which included in current profit and loss, redemptory monetary capital for sale and available-for-sale financial assets.

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As at the end of 2014, 2015 and 2016, the Company has total assets of RMB28,269,242,300, RMB41,651,248,600 and RMB40,384,572,600, including client assets of RMB9,659,833,000, RMB14,867,251,000 and RMB10,368,090,400 and self-owned assets of RMB18,609,409,300, RMB26,783,997,600 and RMB30,016,482,200. As at the end of 2015, the total assets of the Company had a huge increase compared to the end of 2014, which was mainly derived from active trading in the securities market and increase in client assets in 2015. Also, the Company witnessed a growth of its self-owned assets to a large extent due to the expansion of margin trading and short selling, share pledge type repurchase, direct investment and other businesses as well as continuous improvement of its profitability by means of debt and equity financing. However, as at the end of 2016, the total assets of the Company saw a slight decrease compared to the end of 2015, which was mainly derived from the weakened activity of securities market transactions in the year and huge decrease in client assets. Nevertheless, in December 2016, the Company made an initial offering of its proceeds out of A shares equivalent to RMB2.8 billion and the increase in the financial assets measured at fair value and changes of which included in current profit and loss, which made up for the impact of the decrease in clients’ asset scale on the total assets of the Company.

During the reporting periods, the client assets of the Company were derived from monetary assets of securities and futures businesses. Monetary and nonmonetary financial assets with high liquidity dominate in self-owned assets, in which long-term and other assets shared low proportions and enjoy a high liquidity. Thus, the asset structure of the Company is rational and conforms to the characters of industry operation.

(2) Composition of liabilities

The composition of liabilities of the Company in the previous three years is as follows:

Unit: RMB0,000

Liabilities	31 December 2016	31 December 2016	31 December 2015	31 December 2015		31 December 2014	31 December 2014
	Amount Percentage		Amount Percentage			Amount Percentage
Short-term borrowings	66,111.89	2.29%	–		–	–	–
Short-term financing payable	380,975.50	13.21%	510,696.00	15.58%		144,128.00	6.43%
Borrowings from banks and
other financial institutions	40,000.00	1.39%	–		–	237,300.00	10.59%
Financial liabilities measured at
fair value and changes of
which included in current
profit and loss	120,817.74	4.19%	114,417.04	3.49%		79,107.40	3.53%

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Liabilities	31 December 2016	31 December 2016	31 December 2015	31 December 2015	31 December 2014	31 December 2014
	Amount	Percentage	Amount	Percentage	Amount	Percentage
Derivative financial liabilities	13.20	0.00%	–	–	–	–
Financial assets sold for
repurchase	560,797.88	19.45%	471,296.46	14.38%	558,723.43	24.93%
Receiving from vicariously
traded securities	942,608.81	32.69%	1,328,121.69	40.52%	886,387.32	39.55%
Receiving from vicariously
traded securities in credit
trade	94,200.23	3.27%	158,603.42	4.84%	79,595.98	3.55%
Payroll Payable	47,206.08	1.64%	71,103.29	2.17%	37,591.46	1.68%
Taxes payable	9,647.51	0.33%	26,715.52	0.82%	23,967.01	1.07%
Payables	20,733.22	0.72%	15,246.67	0.47%	9,216.54	0.41%
Interest payable	35,492.31	1.23%	32,749.65	1.00%	11,176.53	0.50%
Classified as liabilities held
for sale	–	–	1,169.58	0.04%	–	–
Long-term borrowings	5,532.73	0.19%	5,181.84	0.16%	–	–
Bonds payable	549,429.86	19.05%	529,107.80	16.14%	149,002.72	6.65%
Deferred income tax liabilities	2,870.70	0.10%	4,915.74	0.15%	2,783.65	0.12%
Other liabilities	7,342.72	0.25%	8,154.79	0.25%	22,264.67	0.99%
Total liabilities	2,883,780.38	100.00%	3,277,479.49	100.00%	2,241,244.72	100.00%

The liabilities of the Company mainly include short-term financing payable, Borrowings from banks and other financial institutions, financial liabilities measured at fair value and changes of which included in profit and loss, receiving from vicariously traded securities, financial assets sold for repurchase, bonds payable, etc. As at the end of 2014, 2015 and 2016, the Company had total liabilities of RMB22,412,447,200, RMB32,774,794,900 and RMB28,837,803,800.

During the reporting periods, receiving from vicariously traded securities and receiving from vicariously traded securities in credit trade shared the most in the liabilities of the Company, representing 43.10%, 45.36% and 35.95% respectively. Both items are the receipts arising from securities transaction by the Company on behalf of clients, subject to the authorization by clients. The items were kept by third parties and independent from self-owned assets of the Company. They would not substantially cause major influence over the solvency of the Company but would be impacted by client transaction activities, market situation and other external factors beyond the control of other companies.

During the reporting periods, the Company gradually expanded its financing channels and financing scale and raised capital through corporate debt, secondary debt, gain certificate, repurchase, refinancing and inter-bank market so as to satisfy the development requirements of various businesses. As at the end of reporting periods, the Company had an increase in the total liabilities after reduction of receiving from vicariously traded securities and receiving from vicariously traded securities in credit trade, namely RMB12,752,614,200, RMB17,907,543,800 and RMB18,469,713,400.

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(3) Solvency analysis

The major solvency indicators of the Company in the previous three years are shown as follows:

	31 December	31 December	31 December
Item	2016/2016	2015/2015	2014/2014
Asset liability ratio (as per the
standards of parent company)	60.78%	66.81%	66.09%
Loan repayment ratio	100.00%	100.00%	100.00%
Interest payment ratio	100.00%	100.00%	100.00%

Note: Asset liability ratio= (total liabilities-receiving from vicariously traded securitiesreceiving from vicariously traded securities in credit trade)/(total assets-receiving from vicariously traded securities-receiving from vicariously traded securities in credit trade)

As at the end of 2014, 2015 and 2016, the Company had asset liability ratios (as per the standards of parent company) of 66.09%, 66.81% and 60.78% respectively, which maintained stable on the whole. There is no problem with insufficient long-term solvency. As at the end of 2016, the Company had a decrease in asset liability ratio of 6.03% (as per the standards of parent company), which was mainly due to the following facts: the Company returned some short-term financing including short-term financing bonds, secondary debt and income certificates, leading to the decrease in liabilities; and the asset scale kept relatively stable.

The Company has a rational structure of assets, enjoys high asset liquidity and risk resistance capacity and adopts prudent financial policies. Sufficient provision of depreciation has been made to the assets with a sign of depreciation. Also, the Company strictly implements the relevant in-house control systems in relation to capital management and liquidity management, actively expand financing channels, enrich debt financing instruments and enhance its solvency through improvement of its financing ability. Overall, the solvency of the Company is guaranteed.

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(4) Profitability analysis

The major profitability indicators of the Company in the previous three years are shown as follows:

Unit: 0,000

Item	2016	2015	2014
Operating income	202,681.10	400,435.53	180,821.68
Operating cost	106,783.87	209,323.27	107,867.75
Operating profits	95,897.22	191,112.26	72,953.93
Total profits	97,456.66	189,096.92	75,477.15
Net profits	74,672.48	140,238.06	54,998.27
Owners’ net profits attributable to
parent company	71,864.62	140,550.04	56,229.02

During the reporting periods, the Company actively facilitated the transformation of brokerage service towards securities investment, accelerated strategic arrangement and business innovation and promoted international layout, further increasing its comprehensive competitiveness. However, the operating income of the Company was mainly derived from capital intermediary services such as securities brokerage, securities investment and margin trading and short selling and its profitability was highly associated with factors including macroeconomic environment, fluctuation of securities market and investors’ behavior, with a strong periodicity and fluctuation. In 2014, 2015 and 2016, the Company had an operating income of RMB1,808,216,800, RMB4,004,355,300 and RMB2,026,811,000 and net profits of RMB549,982,700, RMB1,402,380,600 and RMB746,724,800 respectively.

In 2015, the securities market first went up and then down, with active trading in the market. Innovative businesses including margin trading and short selling witnessed a sustained rapid growth and the overall profitability of the securities industry was improved to a large extent. In this context, the Company witnessed a huge growth of business income on a year-on-year basis and further improved comprehensive competitiveness.

The year 2016 saw a gloomy securities market and huge drop in the transaction volume of Shanghai and Shenzhen Stock Exchanges, when the income from the businesses including securities brokerage, margin brokerage and securities investment dropped. The Company will continue to accelerate its business transformation, enhance risk control, promote the transition towards international strategic layout, optimize its revenue structure and get rid of the adverse impact caused by large fluctuation of the market to the Company’s operation.

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APPENDIX II

IV. USE OF THE PROCEEDS

The total expected proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company after deducting the issue cost. The proceeds of the Company will be increased after share conversion by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

An amount not exceeding RMB1.7 billion is proposed to be used in capital intermediary businesses, including but not limited to margin trading and short selling, agreed repurchased securities transaction, share pledge type repurchase transaction and other over-the-counter and non-over-the-counter capital intermediary businesses.
An amount not exceeding RMB0.8 billion is proposed to be used in investment and market making, including but not limited to self-operated investment, investment to subsidiaries and market making.
An amount not exceeding RMB0.1 billion is proposed to be used in securities brokerage, investment banking and information system building.
An amount not exceeding RMB0.1 billion is proposed to be used in asset management.

V. DILUTION OF CURRENT RETURNS AND REMEDIAL MEASURES

(I) Impact of the Issuance on the Major Financial Indicators of the Company

The total expected proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company after deducting the issue cost. The proceeds of the Company will be increased after share transfer by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

1. Major Assumptions

(1) Assuming that no major adverse change occurs to the macroeconomic environment and securities industry;

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APPENDIX II

(2) Assuming that that the issuance will be completed by December 2017 and all holders of the A Share Convertible Corporate Bonds will complete share conversion by June 2018. The complete dates are only estimates by the Company. The completion date of issuance approved by CSRC and the actual date of share conversion completion by the Holders of the A Share Convertible Corporate Bonds shall prevail. This assumption does not represent the commitment made by the Company on the actual completion date. Investors shall not make determinations on investment based on the assumption. Where any loss is caused to any investor in its investment due to reliance on the assumption, the Company will bear no liability for compensation.
(3) Assuming that the proceeds from the Issuance is RMB2.7 billion, without regard to the impact of from the Issuance expenses. The proceeds actually generated from the Issuance shall be determined on the basis of such factors as per the approval of the regulatory authorities, the subscription of the Issuance and the Issuance expenses.
(4) Considering the fact that corporate performance is impacted by macro economy, industry cycle and business development conditions, it seems difficult to predict the overall gains of the Company in the future. Assume the owners’ net profits attributable to the parent company after reduction of non-recurring gains and losses in 2017 remain the same as 2016; and the owners’ net profits attributable to the parent company after reduction of non-recurring gains and losses in 2018 remain the same, have 10% increase and 10% decrease on the basis of 2017 for calculation. The above assumptions are only used to predict the impact of the dilution of current returns in the issuance. Neither of them shall neither represent the adjustment of the Company on the future operation conditions and trend nor constitute profitability prediction. Investors shall not make determinations on investment based on the assumptions. Where any loss is caused to any investor in its investment due to reliance on the assumptions, the Company will bear no liability for compensation.
(5) The profits for the half year of 2016 have been allocated. The annual profit distribution plan 2016 remains to be subject to the deliberation at the general meeting. Assume the amount of cash dividend in 2017 is the same as 2016. And a total of cash dividends of RMB797,145,368.70 are issued.
(6) The Conversion Price of the A Share Convertible Corporate Bonds in the issuance is the highest of the average trading price of A Shares of the Company for the 30 trading days preceding the 32nd meeting of the 5th board of directors (or April 6, 2017), the average trading price of A Shares of the Company for the 20 trading days preceding the aforementioned meeting and the average trading price of A Shares of the Company for the trading day immediately

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APPENDIX II

before the aforesaid meeting, or RMB12.04 per share. Upon the implementation of the profit distribution plan of the Company in 2016 and 2017, assume the adjustment of the Conversion Price is completed before the share conversion registration date and the adjusted Conversion Price is RMB11.71 per share. The Conversion Price is only used to calculate the impact of the dilution of the current returns in the issuance on major financial indicators. And the final initial Conversion Price shall be determined by the Board of Directors before issuance with reference to market conditions, subject to the authorization at the general meeting. And the Conversion Price may be subject to ex-rights or ex-dividend or downward adjustments.

(7) Assuming that no other factors that may affect or potentially affect the total share capital of the Company are not considered except for the issuance.
(8) Assuming that no impact of the proceeds generated from the issuance on the Company’s production, operation and financial condition (such as financial costs and investment revenue) and no impact from the interest cost of the A Share Convertible Corporate Bonds are considered.

2. Impact on the Major Financial Indicators of the Company

Based on the above assumptions, the Company calculated the impact of the impact of the issuance on the major financial indicators of the Company, specifically:

		2018/31 December 2018	2018/31 December 2018
	2017/	Fully	Fully
	31 December	unconverted	converted
Item	2017	share	share
Total share capital	3,923,734,700	3,923,734,700	4,154,306,860
Assumption: The net profits of the
Company in 2017 and 2018 remain
the same as 2016
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and
losses (RMB)	665,312,398.19	665,312,398.19	665,312,398.19
Basic earnings per share ordinary
shareholders attributable to parent
company after reduction of non-
recurring gains and losses
(RMB per share)	0.17	0.17		0.16

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APPENDIX II

		2018/31 December 2018	2018/31 December 2018
	2017/	Fully	Fully
	31 December	unconverted	converted
Item	2017	share	share
Diluted earnings per share ordinary
shareholders attributable to parent
company after reduction of non-
recurring gains and losses
(RMB per share)	0.17	0.16		0.16
Assumption: The net profits of the
Company in 2017 are the same with
2016 and those in 2018 has an
increase of 10% compared to 2017.
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and
losses (RMB)	665,312,398.19	731,843,638.01	731,843,638.01
Basic earnings per share ordinary
shareholders attributable to parent
company after reduction of non-
recurring gains and losses
(RMB per share)	0.17	0.19		0.18
Diluted earnings per share ordinary
shareholders attributable to parent
company after reduction of non-
recurring gains and losses
(RMB per share)	0.17	0.18		0.18
Assumption: The net profits of the
Company in 2017 are the same with
2016 and those in 2018 has an
decrease of 10% compared to 2017.
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and
losses (RMB)	665,312,398.19	598,781,158.37	598,781,158.37
Basic earnings per share ordinary
shareholders attributable to parent
company after reduction of non-
recurring gains and losses (RMB)	0.17	0.15		0.15
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and
losses (RMB)	0.17	0.14		0.14

Note: The basic earnings per share and the diluted earnings per share shall be calculated in accordance with the provisions of the Compilation Rules for Information Disclosures by Companies Offering Securities to the Public No. 9-Calculation and Disclosure of Return on Equity and Earnings Per Share (《公開發行證券的公司信息披露編報規則第9號–淨資產收益率和每股收益的計算及披露》). Also, the impact of the non-recurring gains and losses is ignored.

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APPENDIX II

Upon the issuance, the number of all outstanding ordinary shares and potential diluted ordinary shares of the Company will be increased accordingly. It will take some time and efforts for the Company to replenish its working capital and develop principal business for interest earning by use of the proceeds. Thus, the basic earnings per share and diluted earnings per share after reduction of non-recurring gains and losses may be subject to drop. Also, the clauses on the downward adjustment of the A Share Convertible Corporate Bonds are formulated. After the clauses are triggered, the Company may apply for downward adjustment of the Conversion Price, which may lead to the increase in the newly increased stock capital due to the share conversion of A Share Convertible Corporate Bonds, thus expanding the potential dilution effect of the A Share Convertible Corporate Bonds on the existing shareholders of the Company.

Investors are hereby warned against any risk of slight dilution of current returns that may be caused by such issuance.

(II) Necessity and Rationality of the Issuance

1. Necessity of the Issuance

(1) Seizing the development opportunities of the Central Plains Economic Zone, tapping the potential of securities industry in Henan

The Company is the sole incorporated securities company registered in Henan. Henan, as a major province in the central part of China, has ranked the top among 18 provinces in the middle and western regions of China and the 5th for 13 consecutive years, in the whole country in terms of GDP. In 2014, 2015 and 2016, Henan had a GDP of RMB3,493.824 billion, RMB3,701.025 billion and RMB4,016.001 billion respectively. Currently, the province is making all efforts to implement four major national strategies, namely Central Plains Economic Zone, Zhengzhou Airport Economy Zone, planning and construction of National Core Grain Growing Area National Central City. On April 1, 2017, the new pilot free trade zone set up by the State Council was established, giving a strong momentum to the development of real economy. However, Henan has a relatively backward financial industry. As at the end of 2016, the province had a securitization ratio of only 22.5%, far below the average 68.2% level of the whole country. Although the Company has provided intensive services in Henan for years, it remains to have some gaps with leading domestic securities traders in terms of business scale and competition status.

Thus, it is urgently necessary for the Company to increase its capital strength through the issuance of the A Share Convertible Corporate Bonds, further improve its market competitiveness, tap the development potential of securities industry of Henan based on its unique regional strength and seize the flooding business opportunities following the rapid growth of China’s capital market.

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(2) Further increasing net capital strength*, expanding business scale, optimizing business structure and improving the ability to hedge against risks.

Within the regulatory system centered on net capital and fluidity, the development of securities companies has something to do with their capital scale, which in turn determines the market status, profitability and final competitiveness of these companies. Securities companies are in need of potential capital scale support in order to increase the strength of their traditional businesses and develop innovative businesses. Net capital has become a key factor to decide the future development of securities companies.

① Increased net capital will facilitate the Company to expand its business scale and improve its competition status

Sufficient net capital represents the key for securities enterprises to expand their business scale and their improve competitiveness. Specific requirements are proposed for the capital scale of businesses of securities companies in the Measures for the Risk Control Indicators of Securities Companies (證券公司風險控制指標管理辦法). The business qualification acquisition, risk resistance capacity and business scale of a securities company directly links to its net capital strength. Traditional businesses including brokerage, self-operated businesses, distribution, underwriting and asset management, and innovative businesses including direct investment and margin trading and short selling are closely associated with the net capital scale of the Company. A securities company must have sufficient capital support in order to expand its business scale and improve its competitiveness.

The net capital of the securities company consists of net core capital (核心淨資本) and net supplement capital (附屬淨資本), of which:

Net core capital = net assets – risk adjustment of capital items – risk adjustment of contingent liabilities -/+ other adjustments recognized or approved by the CSRC;

Net supplement capital = long-term subordinated debts × stipulated ratio -/+ other adjustments recognized or approved by the CSRC.

Upon the conversion of the A Share Convertible Corporate Bonds, the net assets of the Company will be increased directly and thereby the net capital strength of the Company will be enhanced.

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APPENDIX II

improve its capital level through financing in the capital market, which pose further threat to the industry status of the Company. Therefore, it is urgently necessary for the Company to increase net capital, expand business scale, enhance competitiveness strength and improve market competitiveness through the issuance of the A Share Convertible Corporate Bonds.

② Increased net capital can contribute to further optimized business structure and improved profitability of the Company.

The profit-making model of the securities sector is under gradual transition, from the previous single channel charging to diversified modes. The former dominated in the past among the profit-making models. With successively promulgation of a series of new policies in the capital market and encourage of industry innovation, capital intermediary and innovation businesses including margin trading and short selling, share pledge type repurchase, agreed repurchase type securities trade and market making have become new profit growth points of securities companies. Also, the establishment of multi-layered capital market in China as well as the increase in the type and scale of securities financing also mean better development opportunities for securities investment. The profit-making model of securities companies is starting to transform towards the diversified profit-making model attaching equal importance to channel and non-channel charging and capital intermediary income.

In this context, the Company actively develops non-channel businesses including capital intermediary business, innovative business and self-operated securities, constructs a diversified business structure and cultivates new profit growth points, as well as begin to been fruit. However, constrained by net capital and working capital, the Company is constrained in the scale of the abovementioned non-channel businesses and remains to have some gap with leading brokers of the industry. It is urgent that the Company should replenish its capital to completely optimize its business structure, develop innovative businesses and lay a solid foundation for its increase in business income and improvement of profitability.

③ Increased net capital can increase the ability of the Company to hedge against risks

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APPENDIX II

company is directly associated with its capital scale. Only by maintaining the capital scale matching business scale can we better prevent and solve various risks arising from market, credit, operation and liquidity. Thus, upon the issuance and share transfer of the A Share Convertible Corporate Bonds, the net capital scale of the Company may be further enhanced, so will the risk resistance capacity.

(3) Need for achieving the strategic development goals of the Company

The accelerated transition of development modes for China’s economy and profound changes in China’s capital market environment are followed by successive promulgation of a series of new policies in the capital market. Under the background, the securities market of China is witnessing rapid growth, featuring significantly improved overall strength of the industry, further improved basic functions, enhanced ability of serving real economy, expanded business scope, diversified product types, improved profitability of securities industry, accelerated arrangement of online securities arrangement and pace of internationalization for securities business. The current days are a key period for transition of China’s securities industry and also for breaking and reshaping of market patterns.

In this instance, powered by the A+H listing, the Company commits itself to building a first-class large-scale modern financial holdings group covering securities, futures, direct investment and funds, making it rank among the top in China’s securities industry in terms of overall strength and financial performance. As for business development pattern, the Company will vigorously develop capital intermediary businesses with margin trading and short selling and stock pledging as focus and innovative businesses with shares, equity, OTC market and market maker as representatives while consistently facilitating securities brokerage, investment banking, self-operated investment, asset management and futures business. At the same time, the Company actively develops other new business and profit growth points, mainly accelerating the building of a “six in one” industry chain with Central China Equity Exchange as source and actively developing internet finance and overseas businesses, etc.

In order to realize the strategic goals of the Company as early as possible, the Company should further accelerate its income restructuring and increase its capacity of sustained profitability, all of which cannot do without the support of potential capital strength. Upon the issuance and share transfer of the A Share Convertible Corporate Bonds, the Company will increase its net capital scale and working capital strength, thus laying a foundation for realization of its strategic goals as early as possible.

2. Rationality of the issuance

In terms of issuance conditions, the Company has a complete organization structure, sound operation, sustainable profitability and sound financial position. There is no false

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information contained in the financial documents. The amount and use of the proceeds raised conforms to relevant provisions. No major legal violations are made. Thus, The Company has satisfied the requirements in relation to the issuance of the A Share Convertible Corporate Bonds under the Company Law of the PRC (《中華人民共和國公司法》), the Securities Law of the PRC (《中華人民共和國證券法》), the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》) and other laws and regulations and owned the qualifications and conditions for issuance of the A Share Convertible Corporate Bonds.

In terms of national policy, a lot of industry policies and normative documents issued in China in recent years gives a strong support to the securities industry and helps to create a better policy environment for the development of securities companies. The Company proposes to replenish its working capital and support future business development using the A Share Convertible Corporate Bonds issued, which conforms to the national industry policy orientation.

In terms of market conditions, the securities industry is experiencing recovery, especially in asset scale and profitability. The replenished capital enjoys favorable market conditions.

Also, the amount and use of the proceeds in the issuance is compatible with the current production and operation scale, technical level and management capability of the Company.

Overall, the issuance of the A Share Convertible Corporate Bonds is rational.

(III) Relationship between Use of Proceeds and the Current Businesses of the Company, Reserves of Personnel, Technology and Market

All of the proceeds from the issuance of the A Share Convertible Corporate Bonds will be used to replenish the working capital of the Company after deducting the issue cost. The capital of the Company will be increased after share transfer by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals.

(1) Personnel reserves

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owned stable high-end talents and management teams. As at 31 December 2016, the Company had 2,542 employees, including 498 personnel with educational background of master degrees and above. The personnel reserves lay a solid foundation for business development upon capital raising. Also, upon the raising of the capital, the Company will expand its scale in brokerage, capital intermediary service, self-operation, investment banking, asset management and innovative business and will introduce more talents accordingly so as to satisfy the demand for business scale development.

(2) Technical reserves

As a key strategic resource for corporate development, IT relates to the strategic deployment, business development and brand image of the Company. The Company has built a central transaction system, online securities transaction system, asset management related systems, financial system and risk control system to deal with transactions, data storage and risk control. And the Company attaches great importance to the application of IT in securities brokerage. There is advanced online authorization system and phone authorization system available. In the early 2014, the internet finance platform of Central China Securities (up.ccnew.com) was launched online. The platform offers diversified types of spot and non-spot transactions and provides a fast, convenient and efficient information service channel for investors.

In the future, in combination with the IT development trend of the industry, corporate business and management informatization demand, the Company will further improve IT infrastructure, increase the input into new business information system building and enhance the efforts to build the international system building. Also, the Company will increase its support to back-office service following the rapid development of its fore-office service.

(3) Market reserves

The Company is the sole incorporated securities company based in Henan. Over ten years, it has built itself into a comprehensive securities company with unique regional strength. As at 31 December 2016, the Company has set up 65 offices in the province, with a good client base. Also, 17 securities offices are set up in overseas developed cities or middle and western cities such as Beijing, Shanghai, Hangzhou, Guangzhou, Shenzhen, Wuhan, Changsha, Jishou, Zhangjiagang, Jinan, Qingdao, Shijiazhuang, Tianjin and Xi’an. Also, the Company has the qualification to deal with futures and fund transactions, further expanding its business scale and market coverage of comprehensive services. Currently, securities brokerage and investment banking, as principal businesses of the Company, have occupied a leading position in Henan market. The huge economic scale, population dividend and low securitization ratio of the province provides an enormous market space for the Company. The Company set up its management headquarters in Shanghai, with focused research and investment efforts here. The Company ranks among the top in terms of the quantity of listing in the new third board

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of China, with projects sourced from different regions of the country. After being listed in Hong Kong, the Company has set up Central China International Financial Holdings Co., Ltd. and other holding subsidiaries here so as to accelerate the development of the Company towards conglomeration and internationalization. The pattern featuring basing in Central Plains, radiation towards the whole country and going global has taken into shape.

The Company will accelerate the development of other traditional businesses including underwriting, sponsoring and securities self-operation and innovative businesses including direct investment and marine trading. Meanwhile, new businesses of the Company including new third board, Agreed repurchase transaction, proxy sale of financial products as well as funds and share pledge type repurchase transactions are breaking the ice. In the future, the revenue structure of the Company will become further diversified. All these provide good market reserves for the capital raising this time.

(IV) Measures on Filling the Return on Capital Formulated by the Company

1. Operation Status of the Current Business Segments, Development Trend, Major Risks and Improvement Measures

(1) Operation status of the current business segments

Over years, the Company has expanded its business scope into diversified development patterns including securities brokerage, investment banking, securities investment, margin trading and short selling, asset management and futures brokerage, etc. The operation status of the current business segments is described as follows:

① Brokerage

Investment brokerage represents an advantageous business of the Company and maintains a leading position in China. Through new outlet arrangement and strategic layout adjustment all over the country, the Company has set up 17 securities business offices in overseas developed countries or middle and western countries. The strategic framework of brokerage business featuring “Henan based, China oriented” has gradually formed.

② Investment banking

The investment banking of the Company mainly covers securities underwriting and sponsoring, bonds underwriting, financial consulting and the business for sponsoring brokers of the National Equities Exchange and Quotations. In recent years, the Company has made all of its efforts to develop the capital market of Henan based on rich resources of the province and gradually perfect its business layout oriented towards the whole country, striving to build a investment banking brand of Central China Securities.

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③ Self-operated investment

As a comprehensive broker approved by CSRC, the Company has obtained the qualifications for securities self-operation since its founding. The Company has followed the principles of value investment, flexible configuration and robust operation in the development of its self-operated securities business, which effectively controls investment risks and receives sound investment gains.

④ Capital intermediary business

The Credit Headquarters (the former Margin trading and short selling Headquarters) was set up in the Company, which is responsible for development planning, business management and innovation of capital intermediary business including margin trading and short selling, share pledge type repurchase transactions and agreed repurchase type securities transactions. In June 2012, the Company obtained the qualifications of margin trading and short selling. In April 2013, the Company obtained the qualifications of margin trading conversion and got involved in such business. In June 2014, the Company also obtained the qualifications of short selling conversion. Later, in July 2013, the Company obtained the authority for share pledge type repurchase transactions at the Shenzhen Stock Exchange and Shanghai Stock Exchanges. And in October 2012 and April 2013, the Company obtained the authority for repurchase type securities transaction at both exchanges above.

⑤ Asset management

The Company provides all-round professional and personalized investment services for clients by following the principles of “professionalism, standardization and market orientation”. While effectively controlling risks, the Company is building four business modules, namely collective investment, targeted investment, trust consulting and market value management through processional management and scientific investment operation. Currently, a perfect product development system, marketing system, investment management system, risk control system and service system has been built for asset management of the Company.

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⑥ Futures brokerage

The Company conducts futures business via its subsidiary Central China Futures Co., Ltd. During the process of its development and transition, Central China Futures has attached great importance to marketing team building and research and development service capability. Through active introduction of excellent talents from the outside, optimization of marketing incentive assessment system, enhanced marketing personnel training, improvement of situation research and judgment ability and increased efforts of research and development support has further accelerated the development of futures business and brought about a sound momentum for business development.

⑦ Direct investment

The Company conducts direct investment business via Zhongding Kaiyuan Venture Capital Management Co., Ltd. (中鼎開源創業投資管理有限公司), a controlling subsidiary, and its subsidiaries. Since the founding of Zhongding Kaiyuan, it has formulated rules and regulations, enhanced in-house management and control risks strictly in accordance with corporate governance and regulation requirements on the one hand and actively explored market and gradually reserved feasible quality projects according to the requirements of professionalism, standardization and market orientation, receiving sound phased results.

⑧ Overseas business

Approved by CSRC, the Company set up Central China International Financial Holdings Company Limited (中州國際金融控股有限公司). in Hong Kong, which conducts overseas securities business via its affiliates. Currently, business licenses including Type I securities transaction, Type IV provision of comments on securities, Type VI provision of comments on institutional financing and Type IX provision of asset management have been issued by Securities & Futures Commission of Hong Kong. Also, the money lender’s license has been issued by the court of Hong Kong. Current, the business scope covers securities brokerage, development financing, investment banking, asset management, securities research and share pledge financing, etc.

(2) Overall development trend of the Company

The Company is the sole incorporated securities company based in Henan. Over ten years, it has built itself into a comprehensive securities company with unique regional strength. It has witnessed obviously quickened development pace and listed in A+H. In recent years, the Company has conducted operations by following regulations in terms of securities brokerage, securities investment,

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investment banking, capital intermediary service and futures brokerage, etc. and witnessed a robust development. The Company has formed its competitive competition strength and market brand strength and all of its businesses have maintained a trend of steady growth. In the future, the Company will continue to follow the robust operation style, further develop the market of Henan and surrounding regions, enhance its regional strength and increase its market share in the country. It will vigorously develop Hong Kong and overseas market. Meanwhile, it will further improve its business management and risk control capacity so as to facilitate the successful achievement of the Company’s strategic development goals.

(3) Risks facing business operation of the Company and improvement measures

Affected by particular operation risks, the securities operation of the Company is influenced by industry and business characteristics, including possible adverse market risks caused to the business and operation performance, financial position and liquidity of the Company due to the changes in macroeconomic environment and securities market; risks hidden in innovative business or services such as securities brokerage, investment banking, self-operation, asset management, futures, direct investment, funds, margin trading and short selling; as well as credit, operation and liquidity risks, etc.

In response to the above risks, the Company has built a set of effective risk management and in-house control systems. The Company will, according to business operation characters, development requirements and risk features, consistently improve the risk management modes and methods of the Company so as to ensure the realization of the Company’s strategic development goals and maximization of shareholders’ and the Company’s benefits.

2. Increasing Daily Operating Efficiency, Reducing Operating Costs and Improving Corporate Business Performance

In order to ensure effective use of the capital raised, effectively prevent the risks of current returns from being diluted and improve the ability of the Company to gain continuous return in the future, upon the issuance of the A Share Convertible Corporate Bonds, the Company will accelerate the development of its principal business and improve its overall operating efficiency. Also, it will accelerate the use of the capital raised and make future gains increased so as to reduce the impact of the dilution of shareholders’ current returns in the issuance. The proposed measures are as follows:

(1) Fully developing businesses and accelerating the development of principal business, with innovation as drive

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businesses with shares, futures, over-the-counter market and market maker as representatives. Also, it will actively exploit new business and profit growth points, accelerate the building of “six in one” industry chain with Central China Equity Exchange as source, develop international finance and expand overseas business so as to accelerate the development of the principal business of the Company.

(2) Enhancing the support from middle-and back-office departments, increasing overall operating efficiency

The Company will make more efforts to build middle-and back-office departments by enhancing business research, risk control and compliance management, human resources management, IT management and planned financial management so as to improve overall operating efficiency and play a supporting role in the development of the fore-office business of the Company. Also, the Company will enhance strategic costs management research and continue to perfect whole cost management and increase cost management capability.

(3) Accelerating the use of the capital raised and improving the utilization efficiency of the capital

The capital raised in the issuance will be used in capital intermediary service, investment, market making, investment banking, IT system building and asset management. Upon the capital raised is in place, the Company will accelerate the use of the capital raised and improve the utilization efficiency of the capital so as to increase the operation and risk resistance capacity of the Company, promote the development of businesses, improve the operational performance of the Company, increase the return to shareholders in subsequent years and reduce the risk of dilution of shareholders’ current returns caused by the issuance.

(4) Strictly implementing the dividend policy and guaranteeing the return to shareholders of the Company

In accordance with the Notice on Issues Relating to Further Implementation of Cash Dividends by Listed Companies (《關於進一步落實上市公司現金分紅有關事項的通知》), Guidelines No. 3 on the Supervision and Administration of Listed Companies – Distribution of Cash Dividends of Listed Companies (《上市公司監管指引第3號–上市公司現分紅》) and Guidelines on the Cash Dividends of the Companies Listed at Shanghai Stock Exchange (《上海證券交易所上市公司現金分紅指引》), the Company formulated and perfected relevant clauses concerning profit distribution in the Articles of Association, which specifies the requirements, percentage and forms of the Company’s profit distribution especially cash dividends as well as distribution requirements for shares and dividends, perfects the decision-making procedures and mechanisms for profit distribution and principles for adjusting profit distribution policies and enhances the interest guarantee

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mechanism of small-and medium-investors. Upon the issuance, the Company will, in accordance with relevant laws and regulations, strictly implement the dividend policy of the Company, practically maintain the lawful rights and interest of investors and guarantee the return to its shareholders.

(V) Commitments of Controlling Shareholders, Directors and Executive Officers on Practical Filling of Return

The Controlling Shareholders, Directors and Executive officers of the Company make the following commitments on the practical filling of return in accordance with the Guidance Opinion on Matters Pertaining to dilution of return for the Current Period Resulting from Initial Offering and Refinancing or Material Asset Restructuring (《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》) issued by CSRC.

1. Controlling Shareholders

Henan Investment Group as Controlling Shareholder of the Company, commits that it will neither intervene in the business management activities of the Company nor infringe the interests of the Company without authorization.

The Controlling Shareholder shall assume relevant liabilities specified by law if it causes any loss to the Company or any shareholder due to the violation of the above commitments.

2. Directors and Executive Officers

(1) They will neither convey any interest to any other unit or individual based on unpaid or unfair conditions nor harm the interests of the Company by other means;
(2) They will bind their consumption behavior by the convenience of their titles;
(3) They will not get involved in any investment or consumption activity that has nothing to do with their responsibility fulfillment by using the assets of the Company;
(4) The remuneration system formulated by the Board of Directors or the remuneration committee will link the implementation of the return filling measures taken by the Company;
(5) If any equity incentive policy is promulgated by the Company, the right exercise conditions for equity incentive of the Company proposed to be issued will link the implementation of the return filling measures taken by the Company.

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The Director or Executive Officer shall assume relevant liabilities specified by law if it causes any loss to the Company or any shareholder due to the violation of the above commitments.

This Announcement is hereby issued.

Board of Directors of Central China Securities Co., Ltd

7 April 2017

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APPENDIX III REPORT ON FEASIBILITY ANALYSIS IN RESPECT OF THE USE OF PROCEEDS FROM THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS BY THE COMPANY

The English version of this appendix is an unofficial translation of the Chinese version, should there be discrepancies, the Chinese version shall prevail.

The full text of Report on Feasibility Analysis in respect of the Use of Proceeds from the Public Issuance of A Share Convertible Corporate Bonds by the Company is as follows:

Central China Securities Co., Ltd.

Report on Feasibility Analysis in respect of the Use of Proceeds from the Public Issuance of A Share Convertible Corporate Bonds by the Company

In recent years, with the promulgation of a series of new policies in the securities industry, China’s securities market is starting to undergone complete reform and the development environment of the securities industry to accelerate its changes. Securities companies will face new strategic opportunities and challenges, significantly changed in profit-making model and revenue structure, reduced percentage of income from traditional channels and gradually increased importance of innovative businesses including asset management, direct investment, margin trading and short selling, agreed repurchase type securities transactions, share pledge type repurchase transactions and stock index futures. Under the circumstances, capital scale will play a more important role in the development of securities companies and capital replenishing and business operation leverage will become normal. Central China Securities Co., Ltd. (“Central China Securities” or the “Company”) will, by following policy orientation and paying close attention to market and industry trend and adhering to its cultural concepts featuring sincerity, integrity, rigorousness and pragmatism, make intensive efforts to develop core economy and transform itself towards the modern business model with policy orientation, investment bank follow-up, securities brokerage and other basic businesses as important support. While better serving core economy, the Company will gradually strive towards the strategic goal of building a modern international large-scale financial holdings group.

In order to further drive the development of the Company, Central China Securities proposes to raise capital through the public issuance (the “issuance”) of the A Share Convertible Corporate Bonds (the “Convertible Bonds”), which will be used to replenish the working capital of the Company. The capital of the Company will be increased after share conversion by the A Share Convertible Corporate Bonds Holders so as to support future business development, optimize business structure and improve its market competitiveness and risk resistance capacity.

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APPENDIX III

I. OVERVIEW OF THE ISSUANCE

The total expected proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company after deducting the issue cost. The proceeds of the Company will be increased after share conversion by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

An amount not exceeding RMB1.7 billion is proposed to be used in capital intermediary businesses, including but not limited to margin trading and short selling, agreed repurchased securities transaction, share pledge type repurchase transaction and other over-the-counter and non-over-the-counter capital intermediary businesses permitted by future regulatory authorities.
An amount not exceeding RMB0.8 billion is proposed to be used in investment and market making, including but not limited to self-operated investment, investment to subsidiaries and market making.
An amount not exceeding RMB0.1 billion is proposed to be used in securities brokerage, investment banking and information system building.
An amount not exceeding RMB0.1 billion is proposed to be used in asset management.

II. NECESSITY OF THE ISSUANCE

(I) Seizing the development opportunities of the Central Plains Economic Zone, tapping the potential of securities industry in Henan

The Company is the sole incorporated securities company registered in Henan. Henan, as a major province in the central part of China, has ranked the top among 18 provinces in the middle and western regions of China and the 5th for 13 consecutive years, in the whole country in terms of GDP. In 2014, 2015 and 2016, Henan had a GDP of RMB3,493.824 billion, RMB3,701.025 billion and RMB4,016.001 billion respectively. Currently, the province is making all efforts to implement four major national strategies, namely Central Plains Economic Zone, Zhengzhou Airport Economy Zone, planning and construction of National Core Grain Growing Area National Central City. On 1 April 2017, the new pilot free trade zone set up by the State Council was established, giving a strong momentum to the development of real economy. However, Henan has a relatively backward financial industry. As at the end of 2016, the province had a securitization ratio of only 22.5%, far below the average level of the whole country. Although the Company has provided intensive services in Henan for years, it remains to have some gaps with leading domestic securities traders in terms of business scale and competition status.

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(II) Further increasing net capital strength, expanding business scale, optimizing business structure and improving the ability to hedge against risks.

1. Increased net capital will facilitate the Company to expand its business scale and improve its competition status

Sufficient net capital represents the key for securities enterprises to expand their business scale and their improve competitiveness. Specific requirements are proposed for the capital scale of businesses of securities companies in the Measures for the Risk Control Indicators of Securities Companies (《證券公司風險控制指標管理辨法》). The business qualification acquisition, risk resistance capacity and business scale of a securities company directly links to its net capital strength. Traditional businesses including brokerage, self-operated businesses, distribution, underwriting and asset management, and innovative businesses including direct investment and margin trading and short selling are closely associated with the net capital scale of the Company. A securities company must have sufficient capital support in order to expand its business scale and improve its competitiveness.

According to the statistical data from the Securities Association of China, as at 31 December 2015, the Company had an equity and net capital of RMB8.202 billion and 7.011 billion by comparison of RMB68.851 billion and 58.419 billion, the average of the top 10 securities companies in terms of capital scale during the same period. It can be seen that there remains a large gap between the Company and leading securities companies in the industry. For the recent years, in the great era featuring active innovation and rapid growth of China’s securities sector, securities companies are striving to improve its capital level through financing in the capital market, which pose further threat to the industry status of the Company. Therefore, it is urgently necessary for the Company to increase net capital, expand business scale, enhance competitiveness strength and improve market competitiveness through the issuance of the A Share Convertible Corporate Bonds.

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2. Increased net capital can contribute to further optimized business structure and improved profitability of the Company

In this context, the Company actively develops non-channel businesses including capital intermediary business, innovative business and self-operated securities, constructs a diversified business structure and cultivates new profit growth points, as well as begin to bear fruit. However, constrained by net capital and working capital, the Company is constrained in the scale of the abovementioned non-channel businesses and remains to have some gap with leading brokers of the industry. It is urgent that the Company should replenish its capital to completely optimize its business structure, develop innovative businesses and lay a solid foundation for its increase in business income and improvement of profitability.

3. Increased net capital can increase the ability of the Company to hedge against risks

Risk control remains the priority of securities companies in developing businesses. As innovative products are being promoted in the securities industry, the risk management of both traditional and innovative businesses should be further enhanced. And the risk resistance capacity of a securities company also has a direct impact on its sustained profitability, survivability and development. In light of its intensive capital, such capacity of a securities company is directly associated with its capital scale. Only by maintaining the capital scale matching business scale can we better prevent and solve various risks arising from market, credit, operation and liquidity. Thus, upon the issuance and share transfer of the A Share Convertible Corporate Bonds, the net capital scale of the Company may be further enhanced, so will the risk resistance capacity.

(III) Need for achieving the strategic development goals of the Company

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industry, further improved basic functions, enhanced ability of serving real economy, expanded business scope, diversified product types, improved profitability of securities industry, accelerated arrangement of online securities arrangement and pace of internationalization for securities business. Nowadays is a key period for transition of China’s securities industry and also for breaking and reshaping of market patterns.

In this context, the Company tightly builds up the momentum to become A+H shares listed in both the PRC and Hong Kong, striving to become a large modernized financial holding group covering securities, futures, direct investments and funds and the top matrix in the securities industry in the PRC in terms of comprehensive capabilities and economic efficiency. In the aspect of business development pattern, on the basis of continued development of securities brokerage, investment banking, self-operated investment, asset management and futures businesses, the Company shall further expand its capital intermediary businesses highlighted by margin trading and short-selling and stock pledge, as well as innovative businesses represented by stock options, over-the-counter market and market making; in the meantime, the Company shall proactively develop new businesses and profit-generating points, including building an industrial chain originated from Central China Securities, proactively develop internet finance and overseas business, etc.

III. FEASIBILITY OF THE ISSUANCE

(I) Satisfaction with the Requirements Specified in Laws, Regulations and Normative Documents

In terms of issuance conditions, the Company has a complete organization structure, sound operation, sustainable profitability and sound financial position. There is no false information contained in the financial documents. The amount and use of the proceeds raised conforms to relevant provisions. No major legal violations are made. Thus, The Company has satisfied the requirements in relation to the issuance of the A Share Convertible Corporate Bonds under the Company Law of the PRC (《中華人民共和國公司法》), the Securities Law of the PRC (《中華人民共和國證券法》), the Administrative Measures for the Issuance of Securities by Listed Companies (《上市公司證券發行管理辦法》) and other laws and regulations and owned the qualifications and conditions for issuance of the A Share Convertible Corporate Bonds.

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(II) The Issuance Conforms to the National Industry Policy Orientation

A lot of industry policies and normative documents issued in China in recent years gives a strong support to the securities industry and helps to create a favorable policy environment for the development of securities companies.

Meanwhile, with increasing marketization of domestic capital market, even higher requirements are proposed on the risk control of securities industry. The Measures for the Risk Control Indicators of Securities Companies (《證券公司風險控制指標管理辨法》) promulgated in November 2006 signifies the initial establishment of a regulatory system for securities companies with net capital as key indicator and further improve the requirements for net capital of securities companies. In September 2014, CSRC issued the Circular on Further Strengthening the Capital of Securities Companies (《關於鼓勵證券公司進一步補充資本的通知》), which encouraged securities to replenish capital through multiple channels and cancelled the restrictive provisions of securities companies on equity financing. In June 2016, CSRC revised again the Measures for the Administration of Risk Control Indicators of Securities Companies (《證券公司風險控制指標管理辨法》), which intended to build a rational and effective risk control system and enhance risk monitoring through four key indicators including risk coverage, capital leverage, liquidity coverage and net stable capital ratio. In the future, with the evolvement of securities industry, much higher requirements will be proposed for the capital scale of innovative businesses including capital intermediary and investment as well as traditional businesses including securities self-operation, underwriting and sponsoring, etc.

The Company proposes to use the proceeds raised in the issuance to replenish the working capital of the Company and support its future business development, which conform to the industry policy orientation of the State.

(III) The Amount and Use of the Proceeds are Consistent with the Production and Operation Scale, Technical Level and Management Capacity of the Company

1. Adaptability to the Current Production and Operation Scale of the Company

The Company is the sole incorporated securities company based in Henan. Over ten years, it has built itself into a comprehensive securities company with unique regional strength and has been successfully listed in A+H. It has witnessed obviously quickened development pace and listed in A+H. During the reporting periods, the Company has conducted operations by following regulations in terms of securities brokerage, securities investment, investment banking, capital intermediary service and futures brokerage, etc. and witnessed a robust development. The Company has formed its competitive competition strength and market brand strength and all of its businesses have maintained a trend of steady growth. The proceeds in the issuance may further expand the size of various businesses, optimize the business structure of the Company, increase the risk resistance capacity of the Company as well as business income and profitability of the Company.

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2. Adaptability to the Current Technical Level of the Company

The Company has built a central transaction system, online securities transaction system, asset management related systems, financial system and risk control system to deal with transactions, data storage and risk control. And the Company attaches great importance to the application of IT in securities brokerage. There is advanced online authorization system and phone authorization system available. In the early 2014, the internet finance platform of Central China Securities (up.ccnew.com) was launched online. The platform offers diversified types of spot and non-spot transactions and provides a fast, convenient and efficient information service channel for investors.

By raising capital in the issuance, the Company will further improve IT infrastructure business management system and IT backup capacity, enhance the database application system, improve IT infrastructure and increase more efforts to build new business information systems, which are consistent with the current technical level of the Company.

3. Adaptability to the Current Management Capacity of the Company

The Company established a perfect and complete corporate governance structure involving General Meeting, Board of Directors, Board of Supervisors and Senior Management. The General Meeting, Board of Directors and Board of Supervisions can independently and effectively operate according to the power and rules of procedure specified in relevant laws, regulations and the Articles of Association. Also, the Company set up an ideal risk management and in-house control systems so as to guarantee the operation of various businesses by following regulations. The Company also has an experienced management team, which can guarantee the implementation of various rules of the Company and effective operation of internal mechanisms.

Upon the capital raised in the issuance is in place, the Company will expand its capital intermediary business, innovative business and investment business and introduce more talents accordingly so as to satisfy the demand for expansion of business scale, which is consistent with the current management capacity of the Company.

IV. USE OF THE PROCEEDS

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so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

(I) An amount not exceeding RMB1.7 billion is proposed to be used in capital intermediary businesses

(II) An amount not exceeding RMB0.8 billion is proposed to be used in investment and market making businesses

After the proceeds raised of the Company are ready, the Company will, depending on the actual demand for business development, make investments in its subsidiaries including Central China International Financial Holdings Company Limited (中州國際金融控股有限公司) and Central China Blue Ocean Investment Management Company Limited (中州藍海投資管理有限公司) so as to replenish the capital fund and working capital of these subsidiaries, improve their competitiveness and risk resistance capacity and develop overseas businesses and other types of investment businesses.

After the proceeds raised are of the Company is ready, the Company will accelerate its market making business through capital investment, selection and increase of new third board projects and form an effect of synergy with other businesses.

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APPENDIX III REPORT ON FEASIBILITY ANALYSIS IN RESPECT OF THE USE OF PROCEEDS FROM THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS BY THE COMPANY

(III) An amount not exceeding RMB0.1 billion is proposed to be used in securities brokerage and investment banking businesses and information system building

(IV) An amount not exceeding RMB0.1 billion is proposed to be used in asset management business

After the proceeds raised are is ready, the Company will allocate more resources to investment research and marketing, set up its own brand, actively explore financing asset management and asset securitization and further develop the asset management business.

V. IMPACT OF PUBLIC ISSUANCE OF THE A SHARE CONVERTIBLE CORPORATE BONDS ON BUSINESS MANAGEMENT AND FINANCIAL POSITION OF THE COMPANY
(I) Impact of Public Issuance of the A Share Convertible Corporate Bonds on Business Management of the Company

The total expected proceeds from the issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company, support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals after deducting the issue cost.

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APPENDIX III REPORT ON FEASIBILITY ANALYSIS IN RESPECT OF THE USE OF PROCEEDS FROM THE PUBLIC ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS BY THE COMPANY

(II) Impact of the Public Issuance of the A Share Convertible Corporate Bonds on Financial Position of the Company

The availability of the raised capital will help to increase the Company’s capital strength. The capital of the Company will be increased after share conversion by the Holders of the A Share Convertible Corporate Bonds so as to further improve risk resistance capacity. And it may take some time and efforts for the Company to raise capital to replenish the working capital and develop the principal business for benefit generation. Shareholders’ equity and return may become diluted in a short time. The Company will rationally apply the raised capital, actively develop the principal business, increase its business income and profitability and maximize shareholders’ interests.

VI. Conclusions

In conclusion, the issuance could facilitate the Company to replenish the working capital, expand its capital scale and improve its capital strength after share conversion; to vigorously develop the principal business, optimize the profit-making model and income structure; to further increase the risk resistance capacity and market competitiveness; and to increase its corporate value and maximize shareholders’ interests. Thus, the issuance is quite necessary and feasible.

(The remainder of this page is intentionally left blank and serves as a signing page for this Report)

Board of Directors of Central China Securities Co., Ltd.

6 April 2017

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REPORT ON USE OF PROCEEDS PREVIOUSLY RAISED

APPENDIX IV

The English version of this appendix is an unofficial translation of the Chinese version, should there be discrepancies, the Chinese version shall prevail.

The full text of Report on Use of Proceeds Previously Raised is as follows:

Report on use of proceeds previously raised as at 31 December 2016 From 1 January 2016 to 31 December 2016

(Unless otherwise specified in this report, all amounts are indicated in RMB)

Central China Securities Co., Ltd. For the Period Ended 31 December 2016 Report on Use of Proceed Previously Raised

The Board of Directors of Central China Securities Co., Ltd. (the “Company”) prepared the Report on Use of Proceeds Raised in December 2016 for the Period Ended 31 December 2012 (“Report on Use of Proceeds from the Previous Fund Raising”) in accordance with Administrative Measures for the Issuance of Securities by Listed Companies (Order No. 30 of the China Securities Regulatory Commission) (《上市公司證券發行管理辦法》(中國證券監督管理委員會第30令)) and Rules on the Report on the Use of Proceeds from Previous Fund Raising Activities (Zheng Jian Fa Xing Zi [2007] No. 500) (《關於前次募集資金使用情況報告的規定》(證監發行字[2007] 500號)). The Board of Directors undertakes that the Report on Use of Proceeds from the Previous Fund Raising is true, accurate, complete and without any false record, misrepresentation or material omission.

I. PROCEEDS FROM THE PREVIOUS ISSUANCE

Pursuant to Reply on the Approval of the Initial Public Offering of Central China Securities Co., Ltd.” (Zheng Jian Xu Ke [2016] No. 2868) (《關於核準中原證券股份有限公司首次公開發行股票的批復》(證監許可[2016]2868號)) by China Securities Regulatory Commission, Central China Securities Co., Ltd. (the “Company”) issued 700,000,000 shares of ordinary shares of the Company to the public on 22 December 2016 at the price of RMB4.00/share, raising a total amount of RMB2,800,000,000.00. After deducting the outstanding underwriting and sponsors fees of RMB102,800,000.00, the Company has deposit the remaining proceeds of RMB2,697,200,000.00 in the following bank accounts opened by the Company on 22 December 2016: RMB300,000,000.00 in Shanghai Pudong Development Bank Co. Ltd Zhengzhou Jinshui Branch (account number: 76080153400000011), RMB500,000,000.00 in Zhongyuan Bank Co., Ltd, Zhengzhou Jinshui Road Branch (account number: 410101015110000901), RMB597,200,000.00 in China Construction Bank Corporation Zhengzhou Qihuocheng Branch (account number: 41050100400800000371), RMB500,000,000.00 in Bank of Communications Co., Ltd. Zhengzhou Qihuo Building (account number: 411899991010003720319), RMB500,000,000.00 in Hengfeng Bank Co., Ltd. Zhengzhou Branch Office (account number: 837110010125700477), RMB300,000,000.00 in Industrial and Commercial Bank of China Limited Zhengzhou Huayuan Road Branch (account number: 1702020629200566665). The proceeds were certified by ShineWing Certified Public Accountants Co., Ltd. ((Special General Partnership) in its Verification Report (XYZH/2016BJA10719).

In addition, the Company incurred cumulatively RMB17,388,257.58 of information disclosure fees and other relevant offering costs. The net proceeds amounted to RMB2,669,811,742.42 after deducting underwriting and sponsors fees and other offering costs cumulatively incurred by the Company.

As at 31 December 2016, the year-end balance of the Company’s proceeds amounted to RMB2,697,200,000.00.

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APPENDIX IV

Unit: RMB10,000	Proceeds accumulatively used: 0.00	Total proceeds used in the corresponding year: 0.00	2016 0.00		Cumulative investment with the proceeds Date on which the	as of the cut-off date project reached the	working condition Pre-money Post-money Actual Proportion of	for its intended commitment commitment investment actual investment	use/stage of to post-money	Completion as at commitments	the cut-off date	266,981.17 266,981.17 0.00 266,981.17 –		266,981.17 266,981.17 0.00 266,981.17 –
Comparison of the Use of Proceeds from the Previous Issuance	Total net proceeds: 266,981.17		Total proceeds with changes in the use: None	Proportion of the proceeds with changes in the use: None	Investment projects Total investment with the proceeds		No. Investment project committed Actual Pre-money Post-money Actual	investment commitment commitment investment	project			1 Replenish the operating capital of Not used 266,981.17 266,981.17 0.00	the Company	Total 266,981.17 266,981.17 0.00

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APPENDIX IV

III. COMPARISON OF THE ACTUAL USE OF THE PROCEEDS FROM PREVIOUS FUND RAISING AND THE RELEVANT CONTENTS IN THE COMPANY’S DISCLOSURE DOCUMENTS

No discrepancy was found upon item-by-item comparison of the actual use of the proceeds from previous fund raising and the relevant contents in other disclosure documents.

Board of Directors of Central China Securities Co., Ltd.

6 April 2017

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APPENDIX V

The English version of this appendix is an unofficial translation of the Chinese version, should there be discrepancies, the Chinese version shall prevail.

The full text of Dilution of Current Returns by the Public Issuance of A Share Convertible Corporate Bonds and Remedial Measures is as follows:

Central China Securities Co., Ltd.

Dilution of Current Returns by the Public Issuance of the A Share Convertible Corporate Bonds and Remedial Measures

Central China Securities Co., Ltd. (hereinafter referred to as “Central China Securities” or “the Company”) plans to offer public issuance of A Share Convertible Corporate Bonds (hereinafter referred to “Convertible Bonds”). Pursuant to Pursuant to the Guiding Opinions of CSRC in relation to matters relevant to Dilution of Current Returns by Initial Offering, Refinancing and Material Assets Reorganisation (Zheng Jian Hui Gong Gao [2015] No. 31) (《關於首發及再融資、重大資產重組攤薄即期回報有關事項的指導意見》 (證監會公告[2015]31 號)), the Company shall make an analysis on the possible effects of the public issuance of A Share Convertible Corporate Bonds (hereinafter referred to as the “Issuance”) on shareholder equity of common shares and current returns and formulate relevant remedial measures to be adopted based on the actual status. Details are listed as below:

I. IMPACT OF THE ISSUANCE ON THE MAJOR FINANCIAL INDICATORS OF THE COMPANY

The total expected proceeds from the Issuance of the A Share Convertible Corporate Bonds will not exceed RMB2.7 billion (inclusive), all of which will be used to replenish the working capital the Company after deducting the issue cost. The proceeds of the Company will be increased after share transfer by the A Share Convertible Corporate Bonds Holders so as to support future business development, improve its market competitiveness and risk resistance capacity and promote the realization of its strategic development goals. The specific use is described as follows:

(I) Major Assumptions

Assuming that no major adverse change occurs to the macroeconomic environment and securities industry.

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DILUTION OF CURRENT RETURNS BY THE PUBLIC ISSUANCE OF THE A SHARE CONVERTIBLE CORPORATE BONDS AND THE REMEDIAL MEASURES

Assuming that the Issuance will be completed by December 2017 and all holders of the A Share Convertible Corporate Bonds will complete share conversion by June 2018. The completion dates are only estimates by the Company. The completion date of Issuance approved by CSRC and the actual date of share conversion completion by the Holders of the A Share Convertible Corporate Bonds shall prevail. This assumption does not represent the commitment made by the Company on the actual completion date. Investors shall not make determinations on investment based on the assumption. Where any loss is caused to any investor in its investment due to reliance on the assumption, the Company will bear no liability for compensation.
Assuming that the proceeds from the Issuance is RMB2.7 billion, without regard to the impact of from the Issuance expenses. The proceeds actually generated from the Issuance shall be determined on the basis of such factors as per the approval of the regulatory authorities, the subscription of the Issuance and the Issuance expenses.
Considering the fact that corporate performance is impacted by macro economy, industry cycle and business development conditions, it seems difficult to predict the overall gains of the Company in the future. Assume the owners’ net profits attributable to the parent company after reduction of non-recurring gains and losses in 2017 remain the same as 2016; and the owners’ net profits attributable to the parent company after reduction of non-recurring gains and losses in 2018 remain the same, have 10% increase and 10% decrease on the basis of 2017 for calculation. The above assumptions are only used to predict the impact of the dilution of current returns in the issuance. Neither of them shall neither represent the adjustment of the Company on the future operation conditions and trend nor constitute profitability prediction. Investors shall not make determinations on investment based on the assumptions. Where any loss is caused to any investor in its investment due to reliance on the assumptions, the Company will bear no liability for compensation.
The profits for the half year of 2016 have been allocated. The annual profit distribution plan 2016 remains to be subject to the deliberation at the general meeting. Assume the amount of cash dividend in 2017 is the same as 2016. And a total of cash dividends of RMB797,145,368.70 are issued.
The Conversion Price of the A Share Convertible Corporate Bonds in the issuance is the highest of the average trading price of A Shares of the Company for the 30 trading days preceding the 32nd meeting of the 5th board of directors (or April 6, 2017), the average trading price of A Shares of the Company for the 20 trading days preceding the aforementioned meeting and the average trading price of A Shares of the Company for the trading day immediately before the aforesaid meeting, or RMB12.04 per share. Upon the implementation of the profit distribution plan of the Company in 2016 and 2017, assume the adjustment of the Conversion Price is completed before the share conversion registration date and the adjusted Conversion Price is RMB11.71 per share. The Conversion Price is only used to calculate the impact of the dilution of the current returns in the issuance on major financial

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DILUTION OF CURRENT RETURNS BY THE PUBLIC ISSUANCE OF THE A SHARE CONVERTIBLE CORPORATE BONDS AND THE REMEDIAL MEASURES

indicators. And the final initial Conversion Price shall be determined by the Board of Directors before issuance with reference to market conditions, subject to the authorization at the general meeting. And the Conversion Price may be subject to ex-rights or ex-dividend or downward adjustments.

Assuming that no other factors that may affect or potentially affect the total share capital of the Company are not considered except for the Issuance.
Assuming that no impact of the proceeds generated from the Issuance on the Company’s production, operation and financial conditions (such as financial costs and investment revenue) and no impact from the interest cost of the A Share Convertible Corporate Bonds are considered.

(II) Impact on the Major Financial Indicators of the Company

Based on the above assumptions, the Company calculated the impact of the issuance on the major financial indicators of the Company, specifically:

		2018/	2018/
	2017/	31 December		2018
	31 December	None		Fully
Item	2017	converted		converted
Total share capital	3,923,734,700	3,923,734,700	4,154,306,860
Assumption: The net profits of
the Company in 2017 and 2018
remain the same as 2016
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB)	665,312,398.19	665,312,398.19	665,312,398.19
Basic earnings per share ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB per share)	0.17	0.17		0.16
Diluted earnings per share ordinary
shareholders attributable to parent company
after reduction of non-recurring gains and
losses (RMB per share)	0.17	0.16		0.16

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APPENDIX V

		2018/	2018/
	2017/	31 December		2018
	31 December	None		Fully
Item	2017	converted		converted
Assumption: The net profits of the
Company in 2017 are the same with 2016
and those in 2018 has an increase of 10%
compared to 2017.
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB)	665,312,398.19	731,843,638.01	731,843,638.01
Basic earnings per share ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB per share)	0.17	0.19		0.18
Diluted earnings per share ordinary
shareholders attributable to parent company
after reduction of non-recurring gains and
losses (RMB per share)	0.17	0.18		0.18
Assumption: The net profits of the
Company in 2017 are the same with 2016
and those in 2018 has an decrease of 10%
compared to 2017.
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB)	665,312,398.19	598,781,158.37	598,781,158.37
Basic earnings per share ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB)	0.17	0.15		0.15
Net profits of ordinary shareholders
attributable to parent company after
reduction of non-recurring gains and losses
(RMB)	0.17	0.14		0.14

Note: The basic earnings per share and the diluted earnings per share shall be calculated in accordance with the provisions of the Compilation Rules for Information Disclosures by Companies Offering Securities to the Public No. 9-Calculation and Disclosure of Return on Equity and Earnings Per Share (《公開發行證券的公司信息披露編報規則第9號—淨資產收益率和每股收益的計算及披露》). Also, the impact of the non-recurring gains and losses is ignored.

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DILUTION OF CURRENT RETURNS BY THE PUBLIC ISSUANCE OF THE A SHARE CONVERTIBLE CORPORATE BONDS AND THE REMEDIAL MEASURES

Upon the issuance, the number of all outstanding ordinary shares and potential diluted ordinary shares of the Company will be increased accordingly. And it costs some time and efforts for the Company to replenish its working capital and develop principal business for interest earning by use of the proceeds. Thus, the basic earnings per share and diluted earnings per share after reduction of non-recurring gains and losses may be subject to drop. Also, the clauses on the downward adjustment of the A Share Convertible Corporate Bonds are formulated. After the clauses are triggered, the Company may apply for downward adjustment of the Conversion Price, which may lead to the increase in the newly increased stock capital due to the share conversion of A Share Convertible Corporate Bonds, thus expanding the potential dilution effect of the A Share Convertible Corporate Bonds on the existing shareholders of the Company.

Investors are hereby warned against any risk of slight dilution of current returns that may be caused by such issuance.

II. NECESSITY AND RATIONALITY OF THE ISSUANCE

(I) Necessity of the Issuance

1. Seizing the development opportunities of the Central Plains Economic Zone, tapping the potential of securities industry in Henan

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2. Further increasing net capital strength, expanding business scale, optimizing business structure and improving the ability to hedge against risks.

(1) Increased net capital will facilitate the Company to expand its business scale and improve its competition status

Sufficient net capital represents the key for securities enterprises to expand their business scale and their improve competitiveness. Specific requirements are proposed for the capital scale of businesses of securities companies in the Measures for the Risk Control Indicators of Securities Companies (《證券公司風險控制指標管理辦法》). The business qualification acquisition, risk resistance capacity and business scale of a securities company directly links to its net capital strength. Traditional businesses including brokerage, self-operated businesses, distribution, underwriting and asset management, and innovative businesses including direct investment and margin trading and short selling are closely associated with the net capital scale of the Company. A securities company must have sufficient capital support in order to expand its business scale and improve its competitiveness.

According to the statistical data from the Securities Association of China, as at 31 December 2015, the Company had an equity and net capital of RMB8.202 billion and 7.011 billion by contrast to the RMB68.851 billion and 58.419 billion, the average of the top 10 securities companies in terms of capital scale during the same period. It can be seen that there remains a large gap between the Company and leading securities companies in the industry. For the recent years, in the great era featuring active innovation and rapid growth of China’s securities sector, securities companies are striving to improve its capital level through financing in the capital market, which pose further threat to the industry status of the Company. Therefore, it is urgently necessary for the Company to increase net capital, expand business scale, enhance competitiveness strength and improve market competitiveness through the issuance of the A Share Convertible Corporate Bonds.

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(2) Increased net capital can contribute to further optimized business structure and improved profitability of the Company.

The profit-making model of the securities sector is under gradual transition, from the previous single channel charging to diversified models. The former dominated in the past among the profit-making models. With successively promulgation of a series of new policies in the capital market and encourage of industry innovation, capital intermediary and innovation businesses including margin trading and short selling, share pledge type repurchase, agreed repurchase type securities trade and market making have become new profit growth points of securities companies. Also, the establishment of multi-layered capital market in China as well as the increase in the type and scale of securities financing also mean better development opportunities for securities investment. The profit-making model of securities companies is starting to transform towards the diversified profit-making model attaching equal importance to channel and non-channel charging and capital intermediary income.

In this context, the Company actively develops non-channel businesses including capital intermediary business, innovative business and self-operated securities, constructs a diversified business structure and cultivates new profit growth points, as well as begin to bear fruit. However, constrained by net capital and working capital, the Company is constrained in the scale of the abovementioned non-channel businesses and remains to have some gap with leading brokers of the industry. It is urgent that the Company should replenish its capital to completely optimize its business structure, develop innovative businesses and lay a solid foundation for its increase in business income and improvement of profitability.

(3) Increased net capital can increase the ability of the Company to hedge against risks

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APPENDIX V

3. Need for achieving the strategic development goals of the Company

The accelerated transition of development modes for China’s economy and profound changes in China’s capital market environment are followed by successive promulgation of a series of new policies in the capital market. Under the background, the securities market of China is witnessing rapid growth, featuring significantly improved overall strength of the industry, further improved basic functions, enhanced ability of serving real economy, expanded business scope, diversified product types, improved profitability of securities industry, accelerated arrangement of online securities arrangement and pace of internationalization for securities business. Nowadays is a key period for transition of China’s securities industry and also for breaking and reshaping of market patterns.

(II) Rationality of the issuance

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APPENDIX V

In terms of national policy, various industry policies and normative documents issued in China in recent years gives a strong support to the securities industry and helps to create a better policy environment for the development of securities companies. The Company proposes to replenish its working capital and support future business development using the A Share Convertible Corporate Bonds issued, which conforms to the national industry policy orientation.

In terms of market conditions, the securities industry is experiencing recovery, especially in asset scale and profitability. The replenished capital enjoys favorable market conditions.

Also, the amount and use of the proceeds in the issuance is compatible with the current production and operation scale, technical level and management capability of the Company.

Overall, the issuance of the A Share Convertible Corporate Bonds is rational.

III. RELATIONSHIP BETWEEN USE OF PROCEEDS AND THE CURRENT BUSINESSES OF THE COMPANY, RESERVES OF PERSONNEL, TECHNOLOGY AND MARKET

1. Personnel reserves

The Company has been attaching great importance to talent training and introduction for years. Currently, the Company has set up a set of perfect personnel deployment system in years’ operation. Also, it has developed overseas business in Hong Kong, etc. Recently, the Company has been listed at the Hong Kong Stock Exchange and set up its subsidiaries based in Hong Kong. Also, necessary personnel are allocated to accelerate the development of its overseas business. Since its founding, the Company has owned stable high-end talents and management teams. As at 31 December 2016, the Company had 2,542 employees, including 498 personnel with educational background of master degrees and above. The personnel reserves lay a solid foundation for business development upon capital raising. Also, upon the raising of the capital, the Company will expand its scale in brokerage, capital intermediary service, self-operation, investment banking, asset management and innovative business and will introduce more talents accordingly so as to satisfy the demand for business scale development.

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APPENDIX V

2. Technical reserves

3. Market reserves

* For identification purpose only

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The Company will accelerate the development of other traditional businesses including underwriting, sponsoring and securities self-operation and innovative businesses including direct investment and marine trading. Meanwhile, new businesses of the Company including New Third Board market, agreed repurchase transaction, proxy sale of financial products as well as funds and share pledge type repurchase transactions are breaking the ice. In the future, the revenue structure of the Company will become further diversified. All these provide good market reserves for the funds raised this time.

IV. MEASURES ON FILLING THE RETURN ON CAPITAL FORMULATED BY THE COMPANY

(I) Operation Status of the Current Business Segments, Development Trend, Major Risks and Improvement Measures

1. Operation status of the current business segments

(1) Brokerage

(2) Investment banking

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APPENDIX V

(3) Self-operated investment

(4) Capital intermediary business

(5) Asset management

(6) Futures brokerage

The Company conducts futures business via its subsidiary Central China Futures Co., Ltd. During the process of its development and transition, Central China Futures has attached great importance to marketing team building and research and development in full service capability. Through active introduction of excellent talents from the outside, optimization of marketing incentive assessment system, enhanced marketing personnel training, improvement of situation research and judgment ability and increased efforts of research and development in full support has further accelerated the development of futures business and brought about a sound momentum for business development.

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APPENDIX V

(7) Direct investment

(8) Overseas business

Approved by CSRC, the Company set up Central China International Financial Holdings Co., Ltd. (中州國際金融控股有限公司) in Hong Kong, which conducts overseas securities business via its affiliates. Currently, business licenses including Type I securities transaction, Type IV provision of comments on securities, Type VI provision of comments on institutional financing and Type IX provision of asset management have been issued by Securities & Futures Commission of Hong Kong. Also, the money lender’s license has been issued by the court of Hong Kong. Current, the business scope covers securities brokerage, development financing, investment banking, asset management, securities research and share pledge financing, etc.

2. Overall development trend of the Company

The Company is the sole incorporated securities company based in Henan. Over ten years, it has built itself into a comprehensive securities company with unique regional strength. It has witnessed obviously quickened development pace and listed in A+H. In recent years, the Company has conducted operations by following regulations in terms of securities brokerage, securities investment, investment banking, capital intermediary service and futures brokerage, etc. and witnessed a robust development. The Company has formed its competitive competition strength and market brand strength and all of its businesses have maintained a trend of steady growth. In the future, the Company will continue to follow the robust operation style, further develop the market of Henan and surrounding regions, enhance its regional strength and increase its market share in the country. It will vigorously develop Hong Kong and overseas market. Meanwhile, it will further improve its business management and risk control capacity so as to facilitate the successful achievement of the Company’s strategic development goals.

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APPENDIX V

3. Risks facing business operation of the Company and improvement measures

(II) Increasing Daily Operating Efficiency, Reducing Operating Costs and Improving Corporate Business Performance

1. Fully developing businesses and accelerating the development of principal business, with innovation as drive

The Company will, based on the continuous facilitation of securities brokerage, investment banking, self-operated investment, asset management and futures business, vigorously develop capital intermediary business and innovative businesses with shares, futures, OTC market and market maker as representatives. Also, it will actively exploit new business and profit growth points, accelerate the building of “six in one” industry chain with Central China Equity Exchange as source, develop international finance and expand overseas business so as to accelerate the development of the principal business of the Company.

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2. Enhancing the support from middle-and back-office departments, increasing overall operating efficiency

The Company will make more efforts to build middle-and back-office departments by enhancing business research, risk control and compliance management, human resource management, IT management and planned financial management so as to improve overall operating efficiency and play a supporting role in the development of the fore-office business of the Company. Also, the Company will enhance strategic costs management research and continue to perfect whole cost management and increase cost management capability.

3. Accelerating the use of the capital raised and improving the utilization efficiency of the capital

4. Strictly implementing the dividend policy and guaranteeing the return to shareholders of the Company

In accordance with the Notice on Issues Relating to Further Implementation of Cash Dividends by Listed Companies (《關於進一步落實上市公司現金分紅有關事項的通知》), Guidelines No. 3 on the Supervision and Administration of Listed Companies – Distribution of Cash Dividends of Listed Companies (《上市公司監管指引第3號–上市公司現金分紅) and Guidelines on the Cash Dividends of the Companies Listed at Shanghai Stock Exchange (《上海證券交易所上市公司現金分紅指引》), the Company formulated and perfected relevant clauses concerning profit distribution in the Articles of Association, which specifies the requirements, percentage and forms of the Company’s profit distribution especially cash dividends as well as distribution requirements for shares and dividends, perfects the decision-making procedures and mechanisms for profit distribution and principles for adjusting profit distribution policies and enhances the interest guarantee mechanism of small-and medium-investors. Upon the issuance, the Company will, in accordance with relevant laws and regulations, strictly implement the dividend policy of the Company, practically maintain the lawful rights and interest of investors and guarantee the return to its shareholders.

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APPENDIX V

V. COMMITMENTS OF CONTROLLING SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS ON PRACTICAL FILLING OF RETURN

(I) Controlling Shareholders

Henan Investment Group, as Controlling Shareholder of the Company, commits that it will neither intervene in the business management activities of the Company nor infringe the interests of the Company without authorization.

The Controlling Shareholder shall assume relevant liabilities specified by law if it causes any loss to the Company or any shareholder due to the violation of the above commitments.

(II) Directors and Executive Officers

They will neither convey any interest to any other unit or individual based on unpaid or unfair conditions nor harm the interests of the Company by other means;
They will bind their consumption behavior by the convenience of their titles;
They will not get involved in any investment or consumption activity that has nothing to do with their responsibility fulfillment by using the assets of the Company;
The remuneration system formulated by the Board of Directors or the remuneration committee will link the implementation of the return filling measures taken by the Company;
If any equity incentive policy is promulgated by the Company, the right exercise conditions for equity incentive of the Company proposed to be issued will link the implementation of the return filling measures taken by the Company.

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DILUTION OF CURRENT RETURNS BY THE PUBLIC ISSUANCE OF THE A SHARE CONVERTIBLE CORPORATE BONDS AND THE REMEDIAL MEASURES

APPENDIX V

The Director or Executive Officer shall assume relevant liabilities specified by law if it causes any loss to the Company or any shareholder due to the violation of the above commitments.

This Announcement is hereby issued.

Board of Directors of Central China Securities Co., Ltd

7 April 2017

– 128 –

AI assistant

Central China Securities Co., Ltd. — Proxy Solicitation & Information Statement 2017

49885_rns_2017-05-05_e545e0a9-ac24-4de4-9699-1c694c8e500c.pdf

Central China Securities Co., Ltd.

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES; AND PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Central China Securities Co., Ltd.

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES; AND PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

INTRODUCTION

PROPOSED GRANT OF MANDATE TO REPURCHASE H SHARES

(I) Proposed Grant of Repurchase Mandate

General Mandate to Repurchase H Shares

Conditions to repurchase of H Shares

PROPOSAL AND SPECIFIC MANDATE FOR PROPOSED ISSUANCE OF A SHARE CONVERTIBLE CORPORATE BONDS

(II) Satisfaction of the Conditions for the Public Issue of the A Share Convertible Corporate Bonds by the Company

(III) Proposal for the Public Issue of A Share Convertible Corporate Bonds by the Company

(1) Principal Terms

1. Type of securities to be issued

2. Issue size

3. Par value and issue price

4. Term of bond

5. Interest rate of bond

LETTER FROM THE BOARD

(2) Adjustments to the Conversion Price and calculation formula

9. Downward adjustment to the Conversion Price

(1) Adjustment authorization and permitted adjustment magnitude

(2) Procedure of adjustment

11. Terms of redemption

(1) Terms of redemption at maturity

(2) Terms of conditional redemption

12. Terms of sale back

13. Dividend rights of the year of conversion

14. Method of issuance and target investors

15. Subscription arrangement for the existing A Shareholders

16. Relevant matters on meetings of A Share Convertible Corporate Bonds Holders

(1) The rights and obligations of A Share Convertible Corporate Bonds Holders

(2) Meetings of the A Share Convertible Corporate Bonds Holders

17. Use of proceeds

LETTER FROM THE BOARD

18. Changes in shareholding structure

LETTER FROM THE BOARD

19. Guarantee and securities

20. Deposit of proceeds

21. The validity period of the resolution

(IV) Preliminary proposal for the Public Issuance of A Share Convertible Corporate Bonds

(VI) Report of Use of Proceeds Previously Raised

(VII) Authorization granted to the Board to handle matters in relation to the public issue of the A Share Convertible Corporate Bonds

(VIII) Authorization granted to Relevant Persons to handle matters in relation to the public issuance of the A Share Convertible Corporate Bonds

(IX) Dilution of current returns by the public issuance of A Share Convertible Corporate Bonds and the remedial measures

Recent Equity Fund Raising Activities in the Past Twelve Months

Reasons for and Benefits of the Issuance of A Share Convertible Corporate Bonds

Listing Rules Implications

AGM and Class Meetings

LETTER FROM THE BOARD

VOTING

RECOMMENDATION

RESPONSIBILITY STATEMENT

ADDITIONAL INFORMATION

LISTING RULES RELATING TO THE REPURCHASES OF SECURITIES

SHARE CAPITAL

FUNDING OF REPURCHASES

STATUS OF REPURCHASED H SHARE

H SHARE PRICES

DIRECTORS’ UNDERTAKING

DISCLOSURE OF INTERESTS

IMPLICATIONS UNDER THE TAKEOVERS CODE

SECURITIES REPURCHASE MADE BY THE COMPANY

Central China Securities Co., Ltd.

Preliminary Proposal for the Public Issuance of A Share Convertible Corporate Bonds

Important Tips:

I. THE ISSUANCE SATISFIES THE REQUIREMENTS IN RELATION TO THE ISSUANCE OF THE SECURITIES SPECIFIED IN THE ADMINISTRATIVE MEASURES FOR THE ISSUANCE OF SECURITIES BY LISTED COMPANIES

II. OVERVIEW OF THE ISSUANCE

(I) Type of Securities to be Issued

(II) Issue Size

(III) Par Value and Issue Price

(IV) Term of Bond

Central China Securities Co., Ltd. Proxy Solicitation & Information Statement 2017