CSC Financial Co., Ltd. - AGM Information 2021

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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisor.

If you have sold or transferred all your shares in CSC Financial Co., Ltd. , you should at once hand this circular together with the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker 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.

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

(Stock Code: 6066)

     - **(1) 2020 WORK REPORT OF THE BOARD OF DIRECTORS**

  - **(2) 2020 WORK REPORT OF THE SUPERVISORY COMMITTEE**

        - **(3) 2020 FINAL FINANCIAL ACCOUNTS PLAN**

     - **(4) PROFIT DISTRIBUTION OF THE COMPANY IN 2020**

           - **(5) 2020 ANNUAL REPORT**

(6) ELECTION OF MS. ZHANG WEI AS DIRECTOR OF THE COMPANY

(7) ELECTION OF MS. WANG HUA AS DIRECTOR OF THE COMPANY

 - **(8) AMENDMENTS TO THE ARTICLES OF ASSOCIATION**

(9) CAP ON INVESTMENT AMOUNT FOR PROPRIETARY BUSINESS IN 2021
(10) EXPECTED DAILY RELATED PARTY TRANSACTIONS IN 2021
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 - **(11) REAPPOINTMENT OF 2021 ACCOUNTING FIRMS**
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(12) 2020 WORK REPORT OF INDEPENDENT NON-EXECUTIVE DIRECTORS

AND

(13) NOTICE OF THE ANNUAL GENERAL MEETING

A letter from the Board is set out on pages 1 to 22 of this circular. Please refer to pages 61 to 64 of this circular for the notice convening Annual General Meeting.

Please complete and return the proxy form in accordance with the instructions printed thereon, if the Shareholders are to appoint a proxy to attend the Annual General Meeting.

For H Shareholders, the proxy form and any authorization instruments should be returned to Computershare Hong Kong Investor Services Limited (whose address is at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong) as soon as possible, but in any event not less than 24 hours before the time appointed for holding the Annual General Meeting (i.e. 2:00 p.m. on Monday, June 28, 2021). Completion and return of the form of proxy will not preclude you from attending and voting in person at Annual General Meeting or at any adjourned meetings should you so wish.

May 31, 2021

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
1. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
2. BUSINESS TO BE CONSIDERED AT THE AGM. . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3. RESPONSIBILITY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
4. ANNUAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
5. VOTING BY POLL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
6. RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
APPENDIX I – 2020 WORK REPORT OF THE BOARD OF DIRECTORS. . . . . . . . .	23
APPENDIX II – 2020 WORK REPORT OF THE SUPERVISORY COMMITTEE . . . . .	32
APPENDIX III – 2020 FINAL FINANCIAL ACCOUNTS PLAN . . . . . . . . . . . . . . . . . . . .	38
APPENDIX IV – CO MPARISON TABLE ON THE AMENDMENTS
TO THE ARTICLES OF ASSOCIATION
OF CSC FINANCIAL CO., LTD. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42
APPENDIX V – 20 20 WORK REPORT OF
INDEPENDENT NON-EXECUTIVE DIRECTORS . . . . . . . . . . . . . .	55
NOTICE OF THE ANNUAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61

Note: In the event of any discrepancy between the English and Chinese versions of this circular, the Chinese version shall prevail.

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

“A Share(s)” the ordinary shares in the share capital issued of the Company with a nominal value of RMB1.00 which are listed on the Shanghai Stock Exchange
“AGM” or the 2020 annual general meeting or any adjournment thereof of “Annual General Meeting” the Company to be held at 2:00 p.m. on Tuesday, June 29, 2021 at Multifunction Hall, B1/F, Office Building of CSC Financial Co., Ltd., No. 188 Chaonei Avenue, Dongcheng District, Beijing, PRC
“Articles of Association” the articles of association of the Company, as amended from time to time
“Board” or “Board of Directors” the board of Directors of the Company “Board Meetings” the board meetings convened on Wednesday, March 31, 2021 and Wednesday, May 26, 2021
“Company” CSC Financial Co., Ltd. (中信建投証券股份有限公司), a joint stock company incorporated in the People’s Republic of China with limited liability, the H Shares of which have been listed and traded on the main board of the Hong Kong Stock Exchange (stock code: 6066) and the A Shares of which have been listed and traded on the Shanghai Stock Exchange (stock code: 601066)
“Company Law” the Company Law of the People’s Republic of China “CSRC” China Securities Regulatory Commission “Director(s)” the director(s) of the Company “H Share(s)” overseas listed foreign invested ordinary shares of RMB1.00 each in the share capital of the Company which are listed on the Hong Kong Stock Exchange, and traded in Hong Kong dollars
“H Shareholders” holders of H Shares “HK dollars” Hong Kong dollars, the lawful currency of Hong Kong

– ii –

DEFINITIONS

“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Hong Kong Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited (as amended from time to time)
“Hong Kong Stock Exchange” or	The Stock Exchange of Hong Kong Limited
“Stock Exchange”
“Independent Non-executive	the independent non-executive director(s) of the Company
Director(s)” or “Independent
Director(s)”
“Non-executive Director(s)”	the non-executive director(s) of the Company
“PRC” or “China”	the People’s Republic of China
“RMB” or “Renminbi”	Renminbi, the lawful currency of the PRC
“Securities Law”	the Securities Law of the People’s Republic of China
“Share(s)”	ordinary share(s) in the share capital of the Company with a
	nominal value of RMB1.00 each, including A Share(s) and H
	Share(s)
“Shareholder(s)”	the shareholder(s) of the Company
“SSE”	Shanghai Stock Exchange
“%”	Percentage

– iii –

LETTER FROM THE BOARD

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

(Stock Code: 6066)

Mr. Wang Changqing (Chairman, Executive Director) Mr. Yu Zhongfu (Vice Chairman, Non-executive Director) Mr. Wang Xiaolin (Vice Chairman, Non-executive Director) Mr. Li Geping (Executive Director)

Ms. Zhang Qin (Non-executive Director)

Registered office in the PRC: Unit 4, No. 66 Anli Road Chaoyang District Beijing PRC

Ms. Zhu Jia (Non-executive Director)

Mr. Wang Hao (Non-executive Director)

Mr. Dai Deming (Independent Non-executive Director) Mr. Bai Jianjun (Independent Non-executive Director) Mr. Liu Qiao (Independent Non-executive Director) Mr. Po Wai Kwong (Independent Non-executive Director)

Principal place of business in the PRC: No. 188 Chaonei Avenue Dongcheng District Beijing PRC

Mr. Lai Guanrong (Independent Non-executive Director)

Principal place of business in Hong Kong: 18/F, Two Exchange Square, Central, Hong Kong

May 31, 2021

To the Shareholders:

Dear Sir or Madam,

(1) 2020 WORK REPORT OF THE BOARD OF DIRECTORS

(2) 2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

(3) 2020 FINAL FINANCIAL ACCOUNTS PLAN

(4) PROFIT DISTRIBUTION OF THE COMPANY IN 2020

(5) 2020 ANNUAL REPORT

(6) ELECTION OF MS. ZHANG WEI AS DIRECTOR OF THE COMPANY

(7) ELECTION OF MS. WANG HUA AS DIRECTOR OF THE COMPANY

(8) AMENDMENTS TO THE ARTICLES OF ASSOCIATION

(9) CAP ON INVESTMENT AMOUNT FOR PROPRIETARY BUSINESS IN 2021 (10) EXPECTED DAILY RELATED PARTY TRANSACTIONS IN 2021

(11) REAPPOINTMENT OF 2021 ACCOUNTING FIRMS

(12) 2020 WORK REPORT OF INDEPENDENT NON-EXECUTIVE DIRECTORS AND

(13) NOTICE OF THE ANNUAL GENERAL MEETING

– 1 –

LETTER FROM THE BOARD

1. INTRODUCTION

On behalf of the Board, I invite you to attend the AGM to be held at 2:00 p.m. on Tuesday, June 29, 2021 at Multifunction Hall, B1/F, Office Building of CSC Financial Co., Ltd., No. 188 Chaonei Avenue, Dongcheng District, Beijing, PRC.

2. BUSINESS TO BE CONSIDERED AT THE AGM

Resolutions will be proposed at the AGM to approve: (1) the 2020 work report of the Board of Directors; (2) the 2020 work report of the supervisory committee; (3) the 2020 final financial accounts plan; (4) the profit distribution of the Company in 2020; (5) the 2020 annual report; (6) the election of Ms. Zhang Wei as Director of the Company; (7) the election of Ms. Wang Hua as Director of the Company; (8) the amendments to the Articles of Association; (9) the cap on investment amount for proprietary business in 2021; (10) the expected daily related party transactions in 2021; and (11) the reappointment of 2021 accounting firms.

The above resolution (8) is subject to approval by the Shareholders at the AGM by way of special resolution. The above other resolutions are subject to approval by the Shareholders at the AGM by way of ordinary resolutions.

The purpose of this circular is to provide you with the information on the above resolutions to enable you to vote for or against the proposed resolutions at the AGM under fully informed condition.

The resolution to be proposed at the AGM for Shareholders’ consideration is: (12) the 2020 work report of Independent Non-executive Directors.

(1) 2020 Work Report of the Board of Directors

The 2020 work report of the Board of Directors of the Company was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval, details of which are set out in Appendix I to this circular.

(2) 2020 Work Report of the Supervisory Committee

The 2020 work report of the supervisory committee of the Company was considered and approved by the supervisory committee on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval, details of which are set out in Appendix II to this circular.

– 2 –

LETTER FROM THE BOARD

(3) 2020 Final Financial Accounts Plan

The 2020 final financial accounts plan prepared in accordance with the China Accounting Standards for Business Enterprises was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval, details of which are set out in Appendix III to this circular.

(4) Profit Distribution of the Company in 2020

Confirmed by the external auditors, the Company (referred to the “Parent Company”, the same thereafter) achieved a net profit of RMB8,675,945,259.99 in 2020.

According to the relevant provisions of the Company Law, the Securities Law, the Financial Regulations of Financial Enterprises (《金融企業財務規則》), the Interim Measures for the Supervision and Administration of the Risk Reserves of Public Securities Investment Funds 《公開募集證券投資基金風險準備金監督管理暫行辦法》( ) and the Articles of Association of CSC Financial Co., Ltd, the Company intended to distribute its net profit for 2020 according to the following orders:

According to 10% of net profit, a statutory reserve of RMB867,594,526.00 was drawn;

According to 10% of net profit, a general risk reserve of RMB867,594,526.00 was drawn;

According to 10% of net profit, a trading risk reserve of RMB867,594,526.00 was drawn;

RMB582,349.25 of risk reserve for mutual funds custodian business was drawn;

RMB58,546,703.93 of risk reserve for large-scale collective product asset management business was drawn.

The above items totaled RMB2,661,912,631.18, subtracting the Company’s interest on perpetual bonds of RMB370,486,301.37 and subtracting the dividends for 2019 distributed in the year 2020 of RMB1,796,900,530.93 and adding undistributed profit at the beginning of the year of RMB16,415,271,513.73, and the Company’s undistributed profit at the end of 2020 was RMB20,261,917,310.24.

– 3 –

LETTER FROM THE BOARD

Based on an overall consideration of the long-term development of the Company and the interests of Shareholders, 2020 profit distribution budget is as follows:

The Company proposes to distribute in the form of cash dividends, on the basis of 7,756,694,797 Shares in the total issued share capital as of December 31, 2020, RMB3.75 (tax inclusive) for every 10 Shares to all Shareholders, amounting to RMB2,908,760,548.88 (tax inclusive) in aggregate, representing 31.83% of net profit attributable to ordinary equity holders of the Company in the consolidated financial statements for 2020. The remaining undistributed profit will be carried forward to the subsequent year. If the total share capital of the Company changes before the share registration date for conducting profit distribution, then the distribution percentage per share remains unchanged while the total distribution amount will be adjusted accordingly, particulars of which will be further announced.

Cash dividend is denominated and declared in RMB and payable in RMB to the A Shareholders and in Hong Kong dollars to the H Shareholders. The actual amount declared in Hong Kong dollars will be calculated based on the average of the intermediate exchange rate for conversion of Hong Kong dollars to RMB as announced by the People’s Bank of China one calendar week prior to the date of convening the Shareholders’ general meeting for considering the resolution on profit distribution.

The above resolution was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval.

Cash dividend is expected to be distributed to the H Shareholders listed on the H Share register on Sunday, July 11, 2021. For the purpose of determining the entitlement of H Shareholders to receive the cash dividend to be distributed, the register of members of the Company will be closed from Tuesday, July 6, 2021 to Sunday, July 11, 2021 (both days inclusive), during which period no transfer of Shares will be registered. In order to be entitled to the receipt of cash dividend to be distributed which will be approved at the AGM, the H Shareholders should ensure that all transfer documents together with relevant share certificates, are lodged with the Company’s registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Monday, July 5, 2021. Cash dividends for 2020 (if approved by the Shareholders of the Company at the AGM) is expected to be distributed on or about Thursday, August 19, 2021 to the H Shareholders listed on the H Share register of the Company on Sunday, July 11, 2021.

– 4 –

LETTER FROM THE BOARD

(5) 2020 Annual Report

The 2020 annual report of the Company was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for the Shareholders’ consideration and approval. The annual report has been published on the HKEXnews website of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the website of the Company (www.csc108.com) on Wednesday, April 21, 2021, and has been despatched to the Shareholders.

(6) Election of Ms. Zhang Wei as a Director of the Company

According to the relevant provisions of the Articles of Association, Central Huijin Investment Co., Ltd., a Shareholder of the Company, nominated Ms. Zhang Wei as a candidate to be Non-executive Director of the second session of the Board of the Company. Ms. Zhang Wei is qualified to serve as a director of a listed securities company under the listing rules of the CSRC and the place where the shares of the Company are listed. Ms. Zhang Wei will officially assume office when the resolution on her appointment is approved at the AGM of the Company, with a term of office ending when the term of the second session of the Board of the Company expires.

Biographical details of Ms. Zhang Wei are as follows:

Ms. Zhang Wei, born in October 1981. Ms. Zhang Wei has worked at Central Huijin Investment Co., Ltd. since June 2006. She served as manager of the Capital Market Department, manager of the Non-bank Department, senior deputy manager of the Securities Institution Management Department/Insurance Institution Management Department of Central Huijin Investment Co., Ltd.. Ms. Zhang currently serves as director of the Office of Direct-managed Corporation Leading Group/the Second Department of Equity Management of Central Huijin Investment Co., Ltd..

Ms. Zhang Wei obtained a bachelor’s degree in law from China University of Political Science and Law in June 2003, a master’s degree in international law from China University of Political Science and Law in June 2006 and a doctoral degree in international law from China University of Political Science and Law in December 2017.

– 5 –

LETTER FROM THE BOARD

(7) Election of Ms. Wang Hua as a Director of the Company

According to the relevant provisions of the Articles of Association, Glasslake Holdings Limited, a Shareholder of the Company, nominated Ms. Wang Hua as a candidate to be Non-executive Director of the second session of the Board of the Company. Ms. Wang Hua is qualified to serve as a director of a listed securities company under the listing rules of the CSRC and the place where the shares of the Company are listed. Ms. Wang Hua will officially assume office when the resolution on her appointment is approved at the AGM of the Company, with a term of office ending when the term of the second session of the Board of the Company expires.

Biographical details of Ms. Wang Hua are as follows:

Ms. Wang Hua, born in August 1976. Ms. Wang Hua has worked at CITIC Group Corporation since July 2001. She served as director of the Tax Department of the Finance Department, assistant to the general manager of the Finance Department and director of the Tax Department, deputy general manager of the Finance Department and director of the Tax Department of CITIC Group Corporation. Ms. Wang currently serves as deputy general manager of the Finance Department of CITIC Group Corporation, and since August 2019, she has been serving as a director of CITIC Heavy Industries Co., Ltd., a company listed on the Shanghai Stock Exchange (Stock Code: 601608).

Ms. Wang Hua obtained a bachelor’s degree in accounting from Dongbei University of Finance and Economics in July 1998 and a master’s degree in accounting from Dongbei University of Finance and Economics in July 2001.

Save as disclosed above, each of Ms. Zhang Wei and Ms. Wang Hua has confirmed that: (i) she does not hold directorship in other listed companies, nor any position in the Company or its subsidiary for the last three years; (ii) she does not have any relationship with any Directors, supervisors, senior management or substantial or controlling Shareholders of the Company; and (iii) she does not have any interest in the shares of the Company within the meaning of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

Save as disclosed above, each of Ms. Zhang Wei and Ms. Wang Hua has confirmed that there are no other matters related to her appointment that need to be brought to the attention of the Shareholders of the Company, and there is no other information required to be disclosed pursuant to Rules 13.51(2) (h) to (v) of the Hong Kong Listing Rules.

The above resolution is hereby submitted to the AGM for approval. Upon approval of the appointment of Ms. Zhang Wei and Ms. Wang Hua at the AGM, the Company will enter into an appointment letter with Ms. Zhang Wei and Ms. Wang Hua. Ms. Zhang Wei and Ms. Wang Hua will not receive any director’s emolument from the Company as a Non-executive Director of the Company.

– 6 –

LETTER FROM THE BOARD

(8) Amendments to the Articles of Association

At the end of 2019, the CSRC issued “Work Outline for Culture Development in Securities Fund Industry and Prevention of Moral Hazard” (《建設證券基金行業文化、防範道德風險工作綱要》), which clarifies the overall goals, working ideas, key tasks and mechanism protection of the cultural development of the securities industry, and requires the securities institutions to speed up the industry cultural development of “compliance, honesty, professionalism and robustness”. Recently, the Securities Association of China in turn, issued the Ten Element of Cultural Development in the Securities Industry (《證券行業文化建設十要素》), Practical Evaluation Plan for the Cultural Development of Securities Companies (trial) (draft for soliciting opinions) (《證券公司文化建設實踐評估方案（試行）（徵求意見稿）》), which intend to guide securities companies to continuously improve the effectiveness of the industry’s cultural development work by means of evaluation, including whether the cultural development is incorporated into the Articles of Association. Since its establishment, the Company has attached great importance to the corporate cultural development and has gradually formed a corporate cultural system with the characteristics of CSC Financial Co., Ltd.. The Company intends to refine the relevant provisions of the Articles of Association in accordance with the requirements of the regulatory authorities and self-regulatory organizations, together with the actual situation of the Company, to clarify the objectives, principal responsibilities and relevant requirements of the Company’s cultural development. In addition, according to the requirements of the party construction work, the Company intends to further refine the terms of the Articles of Association in respect of party construction work.

In this regard, the Company proposed to amend the Articles of Association accordingly. Please refer to Appendix IV to this circular for a comparison table on the Articles of Association.

The above resolution has been approved by the Directors at the Board Meeting on May 26, 2021, and the Shareholders are requested to approve the amendments to the Articles of Association at the AGM, authorize the Board itself to, and authorize the Board to adjust the format or text of the amendments to the Articles of Association of the Company (if necessary), and to handle the relevant approval, filing, information disclosure and other matters in accordance with the requirements of regulatory authorities and business registration authorities. The amended Articles of Association shall become effective from the date of being approved at the AGM.

The Articles of Association was prepared in Chinese with no official English version. Any English translation is for reference only. In the event of any inconsistency, the Chinese version shall prevail.

– 7 –

LETTER FROM THE BOARD

(9) Cap on Investment Amount for Proprietary Business in 2021

According to the Provisions on Strengthening the Supervision and Administration of Listed Securities Companies (《關於加強上市證券公司監管的規定》) promulgated by the CSRC, “pursuant to the requirements of the listing rules of Shanghai Stock Exchange and Shenzhen Stock Exchange with respect to discloseable transactions, where the amounts of material foreign investment including proprietary investment in securities by listed securities companies exceed certain thresholds such that they have to be disclosed in a timely manner and submitted to the shareholders’ general meeting for approval, such companies may submit the aggregate amount of proprietary investments for consideration and disclosure at shareholders’ general meeting each year, and in the event that any changes occur in the implementation process of these proprietary investments, subject to the provisions of the articles of association, the shareholders’ general meeting may authorize the board to vote on such changes and publish announcements regarding the same.”

According to the above requirements, the Company proposes that the AGM determine the cap on investment amount for proprietary investment in 2021, and to authorize and allow the Board to authorize the management on proprietary investment in relation to relevant matters to a certain extent in order to enable flexible allocation of capital and investment direction by the Company according to the market condition and enhance efficiency in decision-making on the proprietary investment.

In this regard, the following matters were submitted to the AGM for consideration:

To approve the 2021 investment limit for proprietary investment to be no more than the limit prescribed in the administrative regulations and regulatory documents of the CSRC, of which the aggregate amount for proprietary equity securities and the investment of the security derivatives for the year of 2021 shall be within 100% of the audited net capital at the end of last year; the aggregate amount for non-proprietary equity securities and the investment of the security derivatives for the year of 2021 shall be within 500% of the audited net capital at the end of last year. The above limit excludes long term equity investment of the Company, which shall still be determined and executed according to the relevant decision making process. The use of the above limit must comply with other relevant requirements under the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange and the Hong Kong Listing Rules.
To approve to authorize the Board, subject to its compliance with the relevant requirements of proprietary investment management and risk control indicators issued by the CSRC, to determine and adjust the specific amount of the proprietary investment of the Company within the above limit according to the market condition, and to authorize the Board to authorize the management on proprietary investment in relation to relevant matters to a certain extent.

– 8 –

LETTER FROM THE BOARD

The above resolutions were considered and approved at the Board meeting on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval.

(10) Expected Daily Related Party Transactions in 2021

To further standardize the management on daily related party transactions, the Company made a reasonable forecast on the daily related party transactions that may be entered into by the Company in 2021, details of which are as follows:

I. General information of daily related party transactions

(I) Overview of daily related party transactions

Pursuant to the Rules Governing the Listing of Stocks on the Shanghai Stock Exchange (《上海證券交易所股票上市規則》) (the “ Listing Rules ”) and the Guidelines for the Implementation of Related Party Transactions of Listed Companies on Shanghai Stock Exchange (《上海證券交易所上市公司關聯交易實施指引》) (the “ Implementation Guidelines for Related Transactions ”) and other regulations, the Articles of Association of CSC Financial Co., Ltd., the Requirements of the Management Systems on Related Party Transactions of CSC Financial Co., Ltd. (《中信建投証券股份有限公司關聯交易管理制度》), and other internal systems, the Company made a reasonable forecast on its daily related party transactions for 2021 and submitted to the Board and the Shareholders’ general meeting for consideration and approval. The daily related party transactions of the Company falling within the scope of forecast will not be separately proposed to the Board and Shareholders’ general meetings for consideration and disclosure.

(II) Overview of the expected related parties and related party relationship
Beijing Financial Holdings Group Limited (“ Beijing Financial Holding Group ”): as of December 31, 2020, Beijing Financial Holding Group directly held 34.61%[1] of the shares of the Company.

Beijing Financial Holdings Group was established on October 19, 2018. Its legal representative is Fan Wenzhong. The scope of business includes: financial equity investment and guarantee; capital operation and asset management; entrusted management of specialty funds; credit guarantees and re-guarantees; project investment; investment management; reorganization, merger and acquisition consulting and financial research, business data and credit and other financial information collection and management; industrial investment and other businesses related to the operation.

– 9 –

LETTER FROM THE BOARD

CITIC Securities Co., Ltd. (“ CITIC Securities ”): as of December 28, 2020, the proportion of shares held by CITIC Securities in the total share capital of the Company decreased from 5.01% to 4.94%[2] . CITIC Securities is a legal person holding more than 5% shares of the Company in the past 12 months. CITIC Securities is a listed company on the Shanghai Stock Exchange. For basic information of CITIC Securities, please refer to its announcements.
China Everbright Group Limited (“ Everbright Group ”): Mr. Wang Xiaolin, director of the Company, also serves as a director of Everbright Group[3] .

Everbright Group was established on November 12, 1990, with the legal representative Li Xiaopeng and the registered capital of RMB78,134,503,680. Its business scope includes bank, securities, insurance, funds, trust, futures, leasing, gold and silver transactions and asset management as well as investment and management of non-financial business.

Evergrowing Bank Co., Ltd. (“ Evergrowing Bank ”): Mr. Wang Hao, director of the Company, also serves as a director of Hengfeng Bank[4] .

Evergrowing Bank was established on November 23, 1987 with the legal representative Chen Ying and the registered capital of RMB111,209,629,836. Evergrowing Bank is a national joint-stock commercial bank, formerly known as Yantai Housing Savings Bank. It was restructured into Evergrowing Bank Co., Ltd. in 2003 with the approval of the People’s Bank of China.

Xi’an Shaangu Power Co., Ltd. (“ Shaangu Power ”): Mr. Feng Genfu, former Independent Director of the Company, serves as an Independent Director of Shaangu Power. Shaangu Power is a listed company on the Shanghai Stock Exchange. For basic information of Shaangu Power, please refer to its announcements.
Datang International Power Generation Co., Ltd. (“ Datang Power ”): Mr. Feng Genfu, former Independent Director of the Company, also served as an Independent Director of Datang Power[5] . Datang Power is a listed company on the Shanghai Stock Exchange. For basic information of Datang Power, please refer to its announcements.

– 10 –

LETTER FROM THE BOARD

Industrial Futures Co.,Ltd. (“ Industrial Futures ”): Mr. Feng Genfu, former Independent Director of the Company, also served as an Independent Director of Industrial Futures[6] .

The restructuring of Industrial Futures was established in 2014 with Chairman Wu Ruoman and registered capital of RMB500 million. Its business scope includes brokerage business, investment consulting business, asset management business and risk management subsidiary business.

Zheshang Bank Co., Ltd. (“ CZBANK ”): Mr. Dai Deming, Independent Director of the Company, also serves as an Independent Director of CZBANK. CZBANK is a listed company on the Shanghai Stock Exchange. For basic information of CZBANK, please refer to its announcements.
Power Construction Corporation of China, Ltd. (“ Power China ”): Mr. Dai Deming, Independent Director of the Company, also serves as an Independent Director of Power China. Power China is a listed company on the Shanghai Stock Exchange. For basic information of Power China, please refer to its announcements.
Poly Developments and Holdings Group Co. Ltd. (“ Poly Real Estate ”): Mr. Dai Deming, Independent Director of the Company, also serves as an Independent Director of Poly Real Estate. Poly Real Estate is a listed company on the Shanghai Stock Exchange. For basic information of Poly Real Estate, please refer to its announcements.
China Merchants Bank Co., Ltd. (“ China Merchants Bank ”): Mr. Liu Qiao, Independent Director of the Company, also serves as an Independent Director of China Merchants Bank. China Merchants Bank is a listed company on the Shanghai Stock Exchange. For basic information of China Merchants Bank, please refer to its announcements.
Beijing Capital Corporation Limited (“ Beijing Capital ”): Mr. Liu Qiao, Independent Director of the Company, also serves as an Independent Director of Beijing Capital. Beijing Capital is a listed company on the Shanghai Stock Exchange. For basic information of Beijing Capital, please refer to its announcements.

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LETTER FROM THE BOARD

Notes:

On November 30, 2020, registration of share change was completed for the gratuitous transfer of 35.11% of the Company from Beijing SCOM Center, the former largest shareholder of the Company to Beijing Financial Holding Group. On December 28, 2020, as the Company completed the non-public offering of A shares, the shareholding ratio of Beijing Financial Holding Group decreased to 34.61%.
The shares of the Company held by CITIC Securities are outstanding shares. As the Company completed the non-public offering, the shareholding ratio of CITIC Securities changed on December 28, 2020, decreased to 4.94%.
Mr. Wang Xiaolin has served as a director of the Company since July 2020.
Mr. Wang Hao has served as a director of Evergrowing Bank since September 2020.
Mr. Feng Genfu resigned as an Independent Director of Datang Power in January 2020 and resigned as an Independent Director of the Company in May 2021.
Mr. Feng Genfu resigned as an Independent Director of Industrial Futures in December 2020 and resigned as an Independent Director of the Company in May 2021.

(III) Approval procedures for daily related party transactions

Pursuant to the Listing Rules and the Implementation Guidelines for Related Transactions and other relevant regulations, the expected daily related party transactions of the Company are required to perform the review procedure for the Board meetings and Shareholders’ general meetings.

The Company convened the 26th meeting of the second session of Board on September 25, 2020, considered and approved the Resolution on the Daily Related Party Transaction Agreement entered into between the Company and Everbright Group, and entered into the Daily Related Party Transaction Agreement with Everbright Group (the “ Agreement ”), which is valid until September 25, 2021. In order to ensure the continuity and operability of the daily related party transaction management, the Company included the daily related party transaction with Everbright Group into the annual estimated total amount of daily related party transaction management from January 1, 2021.

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LETTER FROM THE BOARD

In addition, on October 30, 2018, Information Disclosure Delay and Waiver Management System of CSC Financial Co., Ltd. (《中信建投証券股份有限公司信息披露暫緩與豁免管理制度》) was considered and approved at the eighth meeting of the second session of the Board of the Company, and was disclosed on the websites of Shanghai Stock Exchange and Hong Kong Stock Exchange. According to such system, “where a natural person concurrently serves as an Independent Director of the Company and other legal person in the absence of any other circumstances constituting a connected related person relationship, and a transaction conducted by the legal person or entity with the Company may be waived from review and disclosure as required for the related party transaction.” Since Mr. Feng Genfu, Independent Director of the Company, also serves as an Independent Director of Shaangu Power, Datang Power and Industrial Futures, Mr. Dai Deming, Independent Director of the Company, also serves as an Independent Director of CZBANK, Power China and Poly Real Estate, and Mr. Liu Qiao, Independent Director of the Company, also serves as an Independent Director of China Merchants Bank and Beijing Capital, the transactions conducted by the Company with Shaangu Power, Datang Power, Industrial Futures, CZBANK, Power China, Poly Real Estate, China Merchants Bank and Beijing Capital were waived from review and disclosure as required for the related party transaction.

The audit committee of the Board of the Company has reviewed the expected daily related party transactions considered in this resolution without objection. The expected related party transactions were considered and approved by the Board of the Company. Independent opinions has been endorsed and issued by the Independent Directors of the Company approving the same. When the resolution is considered at the Shareholders’ general meeting, related Shareholders shall abstain from voting on the related matters.

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LETTER FROM THE BOARD

(IV) Expected amount and type of daily related party transactions for 2021
Expected daily related party transactions to be conducted with Beijing Financial Holding Group

Type of related party Expected transactions Description of related party transactions amount for 2021 (RMB’0,000) Securities and financial Transactions: Over-the-counter Subject to actual products transactions interchangeable financial amount (note) and services derivatives business, distribution trading, spot trading, repurchase transactions, subscription of private bonds or income certificates, establishment of asset management products and private equity fund, etc.

Services: provide securities and futures brokerage services; provide asset management services; provide underwriting, sponsorship and financial consultation services; provide stock pledge and margin financing services; provide investment consulting services, etc. Income Fees and commission income 100.00

Note: As the securities market conditions are unpredictable, the trading volume is difficult to estimate. By referring to the market practice, the trading volume of securities and financial products is calculated by the actual amount, the same shall apply below.

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LETTER FROM THE BOARD

Expected daily related party transactions to be conducted with CITIC Securities

Type of related	Description of related	Expected amount
party transactions	party transactions	for 2021
		(RMB’0,000)
Securities and financial	Transactions: Over-the-counter	Subject to
products transactions	interchangeable financial	actual amount
and services	derivatives business, distribution
	trading, spot trading, repurchase
	transactions, subscription
	of private bonds or income
	certificates, establishment of
	asset management products and
	private equity fund, etc.
	Services: provide securities and futures
	brokerage services; provide asset
	management services, custody and
	outsourcing service and operation
	outsourcing service; provide
	underwriting, sponsorship and
	financial consultation services;
	provide stock pledge and margin
	financing services; provide
	investment consulting services, etc.
Income	Fees, interest and commission income	360.00
Expenditure	Fees, interest and commission expenditure	3,592.00

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LETTER FROM THE BOARD

Expected daily related party transactions to be conducted with Everbright Group

Type of related	Description of related	Expected amount
party transactions	party transactions	for 2021
		(RMB’0,000)
Securities and financial	Transactions: Over-the-counter	Subject to
products transactions	interchangeable financial	actual amount
and services	derivatives business, distribution
	trading, spot trading, repurchase
	transactions, subscription
	of private bonds or income
	certificates, establishment of
	asset management products and
	private equity fund, etc.
	Services: provide securities and futures
	brokerage services; provide asset
	management services; provide
	underwriting, sponsorship and
	financial consultation services;
	provide stock pledge and margin
	financing services; provide
	investment consulting services, etc.
Income	Fees and commission income	100.00

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LETTER FROM THE BOARD

Estimated daily connected transactions with Evergrowing Bank

Type of related	Description of related	Expected amount
party transactions	party transactions	for 2021
		(RMB’0,000)
Securities and financial	Transactions: Over-the-counter	Subject to actual
products transactions	interchangeable financial	amount
and services	derivatives business, distribution
	trading, spot trading, repurchase
	transactions, subscription of
	private placement bonds or
	receipts, establishment of asset
	management products and
	private equity fund, Foreign
	exchange transactions in the
	interbank foreign exchange
	market and s inter-bank lending
	etc.
	Services: Provide securities and futures
	brokerage services; provide asset
	management services; provide
	underwriting, sponsorship and
	financial consultation services;
	provide stock pledge and margin
	financing services; provide
	investment consulting services, etc.
Income	Fees and commission income	100.00
Expenditure	Fees, interest and commission expenditure	4,316.00

II. Summary and pricing principle of daily related party transactions

Daily related party transactions of the Company are ordinary business and priced based on market price level and industry practice. The pricing is fair and there is no detriment to the interests of the Company and its shareholders.

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LETTER FROM THE BOARD

III. Purpose of daily related party transactions and the effect on the Company

(I) The above daily related party transactions happen in the normal course of business operation of the Company, which facilitate the business development of the Company and the improvement of its overall competitiveness.
(II) The above daily related party transactions are priced based on market prices. The pricing principle is reasonable and fair and there is no detriment to the interests of the non-related party shareholders of the Company. The relations between the Company and related parties are equal and mutually beneficial and there is no detriment to the rights and interests of the Company.
(III) The above daily related party transactions have no effect on the independence of the Company. The primary businesses of the Company does not rely on related parties by virtue of the above related party transactions.

Thus, the daily expected related party transactions of the Company with Beijing Financial Holdings Group, CITIC Securities, Everbright Group and Evergrowing Bank in 2021 are hereby proposed at the AGM for Shareholders’ consideration and approval. This resolution was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval. When the proposals are considered at the AGM, Shareholders who have conflicts of interests in relation to the above related party transactions shall abstain from voting on the related party transaction.

(11) Reappointment of 2021 Accounting Firms

According to the regulatory requirements, the Company shall engage an accounting firm to audit the Company’s annual financial reports and special reports in accordance with the PRC Accounting Standards for Business Enterprises and IFRS, and review the interim financial reports.

The 2019 AGM of the Company agreed to appoint PricewaterhouseCoopers Zhong Tian LLP and its overseas member firm, PricewaterhouseCoopers, as external auditor of the Company for 2020, to provide relevant audit review services in accordance with Chinese enterprise accounting standards and international financial reporting standards.

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LETTER FROM THE BOARD

PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers discharged their duties in accordance with the independent, objective and impartial professional standards and worked diligently and carefully during the audit/review work to ensure the smooth running of the work, better fulfilled the responsibilities and obligations of audit institutions with experience and ability to provide audit services to the Company for a successful completion of the relevant audit/review work.

As PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers have the qualifications for acting as an accounting firm for financial enterprises under the “Administrative Measures for State-owned Financial Enterprises to Select and Appoint Accounting Firms” prescribed by the Ministry of Finance, and have provided good audit review services to the Company in the early stage, and have not been subject to administrative penalties such administrative penalties imposed by the financial regulatory authorities in the last three years. It is proposed to re-appoint PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as the Company’s external audit agencies in 2021 (this is the seventh year of service for the Company by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers)

The general meeting is proposed to consider the following matters:

Approval for the reappointment of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers as the external auditors of the Company for 2021, which shall be responsible for the provision of the relevant annual audit and interim review services in accordance with the Accounting Standards for Enterprises of China and the International Financial Reporting Standards, respectively;
Approval for the reappointment of PricewaterhouseCoopers Zhong Tian LLP as the auditor for audit of internal control over financial reporting of the Company for 2021;
Approval for aforesaid domestic and overseas audit and review shall not exceed RMB4.45 million (excluding the audit fee of the first-tier holding subsidiaries). If the change in the scope and content of the audit or review leads to an increase in fees, authorize the Board to determine the specific fees based on the scope and content of the actual audit and review.

The above resolution was considered and approved by the Board on March 31, 2021 and is hereby proposed at the AGM for Shareholders’ consideration and approval.

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LETTER FROM THE BOARD

To receive the relevant report:

(12) 2020 Work Report of Independent Non-executive Directors

The 2020 work report of the Independent Non-executive Directors of the Company will be submitted to the AGM for consideration but no resolution is required to be made thereat. Details of the report are set out in Appendix V to this circular for Shareholders’ reference.

3. RESPONSIBILITY STATEMENT

This circular, for which the directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong 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 facts the omission of which would make any content or other matter contained in this circular misleading.

4. ANNUAL GENERAL MEETING

The 2020 Annual General Meeting will be held at 2:00 p.m. on Tuesday, June 29, 2021 at Multi-function Hall, B1/F, Office Building of CSC Financial Co., Ltd., No. 188 Chaonei Avenue, Dongcheng District, Beijing, PRC. The notice of this meeting are set out on pages 61 to 64 of this circular.

A form of proxy to be used at the Annual General Meeting, is enclosed. If you intend to appoint a proxy to attend the Annual General Meeting, please complete and return the enclosed proxy form in accordance with the instructions printed thereon. For H Shareholders, the proxy form or any other authorization documents should be returned to the Company’s H Share registrar, Computershare Hong Kong Investor Services Limited, which is at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the proxy form will not preclude you from attending and voting at the AGM or at any adjourned meeting if you so wish.

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LETTER FROM THE BOARD

In order to determine the list of Shareholders who are entitled to attend the Annual General Meeting, the Company will close the register of members of H Shares during the period from Thursday, June 24, 2021 to Tuesday, June 29, 2021 (both days inclusive), during which no registration of Shares will be made. H Shareholders who wish to attend the Annual General Meeting are required to send all the transfer documents together with the relevant Shares to Computershare Hong Kong Investor Services Limited which is at Shops 1712–1716, 17 Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong to register before 4:30 p.m. on Wednesday, June 23, 2021. At the close of business of the aforementioned date, H Shareholders registered in Computershare Hong Kong Investor Services Limited or the office of the Board of Directors of the Company (if applicable) are entitled to attend the Annual General Meeting.

5. VOTING BY POLL

In accordance with rule 13.39(4) of the Hong Kong Listing Rules, any vote made by the Shareholders at a Shareholders’ general meeting shall be conducted by way of poll, except where the chairman of the meeting, in good faith, decides to allow a resolution which only relates to a procedural or administrative matter to be voted. Accordingly, the resolutions proposed at the Annual General Meeting will be voted by way of poll.

In considering and approving the resolution on the Company’s expected ordinary related party transactions in 2021 (ordinary resolution number 10), Beijing Financial Holdings Group (which holds 2,684,309,017 Shares, representing approximately 34.61% of the total Shares of the Company) is interested in the expected daily related party transactions with the Company in 2021. Therefore, the company will abstain from voting on the relevant sub-proposals of the resolution at the AGM. CITIC Securities (which holds 382,849,268 Shares in the Company, representing approximately 4.94% of the total Shares of the Company) is interested in the Company’s expected daily related party transactions with the Company in 2021. Therefore, the company will abstain from voting on the relevant sub-proposals of the resolution at the AGM. Central Huijin Investment Co., Ltd. (which holds 2,386,052,459 Shares in the Company, representing approximately 30.76% of the total Shares of the Company) is interested in the expected daily related party transactions between the Company and Everbright Group, the Company and Evergrowing Bank in 2021. Therefore, the company will abstain from voting on the relevant sub-proposals of the resolution at the AGM.

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LETTER FROM THE BOARD

6. RECOMMENDATIONS

The Directors consider that all resolutions proposed above are in the interests of the Company and the Shareholders as a whole. The Directors therefore recommend the Shareholders to vote in favour of all the resolutions to be submitted at the Annual General Meeting.

By order of the Board CSC Financial Co., Ltd. Wang Changqing Chairman

Beijing, the PRC May 31, 2021

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

I. COMPOSITION OF BOARD MEMBERS AND CONVENING OF BOARD MEETINGS IN 2020

Pursuant to the requirements of the Articles of Association, the Company shall comprise 14 Directors. Since the term of office of the currently session of the Board, Mr. Dong Shi, Mr. Wang Bo and Mr. Xu Gang, the former Non-executive Directors of the Company resigned due to work rearrangement, Mr. Wang Xiaolin was appointed to replace as the Non-executive Director and vice chairman. As of the end of 2020, the Board of the Company comprised 12 Directors, including: Mr. Wang Changqing, Mr. Yu Zhongfu, Mr. Wang Xiaolin, Mr. Li Geping, Ms. Zhang Qin, Ms. Zhu Jia, Mr. Wang Hao, Mr. Feng Genfu, Ms. Zhu Shengqin, Mr. Dai Deming, Mr. Bai Jianjun and Mr. Liu Qiao. Of which, Mr. Wang Changqing served as the chairman, Mr. Yu Zhongfu and Mr. Wang Xiaolin served as the vice chairmen; Mr. Feng Genfu, Ms. Zhu Shengqin, Mr. Dai Deming, Mr. Bai Jianjun and Mr. Liu Qiao served as Independent Directors. Among the above Directors, Mr. Wang Changqing and Mr. Li Geping were Executive Directors while other Directors were Non-executive Directors.

In 2020, the Company convened a total of 12 Board meetings for the consideration and adoption of 55 resolutions; and convened a total of 7 general meetings for the consideration/review of 23 resolutions and reports. Except for the supplement of Directors, final financial accounts plan, profit distribution plan, non-public issuance of shares, issuance of debt financing instruments and renewal of accounting firm, and other resolutions which have been submitted to the general meeting for the continuation of consideration, the Board also considered resolutions on matters such as business qualifications, external investment, basic management system, appointment of senior management personnel, risk management policies, human resources management policies, periodic reports, compliance reports, risk reports, anti-money laundering reports, internal control evaluation report and external donations, and facilitated the effective implementation of various resolutions upon consideration and adoption, promoting the sustainable and healthy development of the Company.

II. IMPLEMENTATION OF MAJOR TASKS OF THE BOARD OF DIRECTORS FOR 2020

(I) Accurately leverage the strategic development direction and drive the outstanding performance of operations

2020 was the year when China completed the building of a moderately prosperous society in all respects and the end of the 13th Five-Year Plan. The Board of Directors closely focused on the national strategies of financial supply-side structural reform and serving the real economy, steadily promoted the operation and management, led the Company to achieve the best operating results since its establishment, and continuously received the highest rating – Class A – AA rating for the 11th consecutive year in the regulatory evaluation of securities companies organized by the CSRC.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

1. Completion of key financial indicators. According to China Accounting Standards for Business Enterprises, in 2020, the Company achieved consolidated operating revenue of RMB23.351 billion, representing a year-on-year increase of 71%; a net profit attributable to equity holders of the parent company of RMB9.509 billion, representing a year-on-year increase of 73%. As of the end of 2020, the total consolidated assets of the Company amounted to RMB371.228 billion, the equity attributable to equity holders of the parent company amounted to RMB67.735 billion, and the return on weighted average equity was 18.18%, which continued to be at the forefront of the industry.

2. Development of core businesses and the situation of serving the real economy. In 2020, the investment banking business, wealth management business, trading and institutional customer service business and asset management business of the Company have achieved long-term development, the capability and effect of serving the real economy have further enhanced, of which, the number and amount of equity and bond underwriters ranked second in the industry, and remained the top 3 in the industry for 8 consecutive years; the market share of the net income from the securities brokerage business, the market share of the net income from the distribution of financial products, the market share of interest income from margin financing and securities lending and interest income arising from collateralized stock repurchase business continued to rank the top 10 in the industry; equity and bond proprietary businesses have obtained better absolute income and the bond sales business continued to be at the forefront of the industry; the asset management business achieved structural optimization, the assets under management of entrusted assets and actively managed entrusted assets ranked No. 7 in the industry. In addition, the Board of Directors also supported the Company to successively obtain qualifications such as consolidating regulatory pilot, settlement and sale of foreign exchange, fund investment consultants and independent lead underwriters in the interbank market, laying a good foundation for further enhancement of the Company’s core competitiveness.

3. Pandemic control and rescue situation. In 2020, the Board guided the operating management to insist “the simultaneous highlight and promotion” of pandemic prevention and control, and securities services. The first is to organize emergency response and risk investigation in order to prevent operational risk, ensure transaction security and the stable operation of information systems. The second is to assist the key pandemic prevention and control enterprises to resume work and production by assisting the pandemic prevention and control of upstream and downstream industries to carry out equity financing and bond financing. By the end of 2020, the Company has underwritten a total of 55 pandemic prevention and control bonds with a financing scale of RMB46.6 billion, undertook three equity financing projects for the production

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

and research and development of anti-pandemic materials, with a financing scale of RMB5 billion and underwrote RMB3.1 billion of anti-pandemic government bonds. Thirdly, a total of RMB11.5 million was donated to the severely affected area in Wuhan.

(II) Attach great importance on risk compliance management to ensure scientific and effective internal control

1. Internal control system and effects. In 2020, the Board considered and adopted the Resolution on 2020 Risk Management Policies of the Company, which defined the overall risk appetite and tolerance of the Company in 2020; considered and adopted the internal control system, risk report, compliance report, compliance management effectiveness evaluation report, anti-money laundering report, internal control evaluation report and other resolutions, regularly reviewed the risk management, compliance management and internal control effects of the Company to ensure that the Company has established an internal control system for each of the business and management matters that are included in the scope of assessment, and the system has been effectively implemented.

2. Progress on pilot enterprise with consolidated supervision . The Board supported the Company to actively commence the relevant work on consolidated supervision pilots, providing strong support in the spending of resources, optimization of aid system and other areas. Since March 2020, it was officially included in the consolidated supervision pilot by CSRC. The Company further strengthened the comprehensiveness and timeliness of risk management, broke down the requirement of credit risk management, timely revealed and assessed the risk situation and continuously enhanced the risk management capabilities.

3. Integration of domestic and foreign risk management. The Board supervised the operational management to steadily implement risk management, compliance management, and the integrated management of domestic and overseas businesses of fixed income business, derivatives business and research business. In 2020, the Company’s integrated management proposal for business lines and management lines was successfully implemented and achieved good results, and the Group’s risk management capability was further enhanced.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

(III) Comprehensively promote capital replenishment and asset and liability management to enhance market competitiveness of the Company

1. Equity financing. In 2020, pursuant to the relevant resolutions on the Company’s non-public issuance of A shares by the Board of Directors and the general meeting, the Company completed its initial non-public issuance of A shares in December 2020. The issue price was RMB35.21 per share with a total of 110,309,559 shares. A total of RMB3,884 million was raised from 31 specific investors with net proceeds of RMB3,848 million, after deducting issuance expenses, which effectively realized the external capital replenishment and optimized capital structure. With the continual use of proceeds, the Company will have more room for development in various businesses, and further strengthen and enhance its competitive advantages and market position.

2. Debt financing. In 2020, the Board supervised the operational management to ensure that in the prerequisite of the risk control indicators satisfying external regulatory and internal control requirements, they timely adjusted the asset and liability plans, scientifically and reasonably guided the scale, structure and rhythm of business growth, and promoted the balance and structural matching of assets and liabilities; actively and practically consolidated the basic work of financing at home and abroad, such as interbank credit grant, credit rating, etc., the company’s first international credit rating was Baa1 and BBB+ by Moody’s Investor Service and Fitch International Credit rating Co., Ltd. (both are the highest credit ratings received by Chinese securities companies in the above rating agencies, and the rating outlook is stable); strengthened the forward-looking and flexibility of domestic and foreign debt financing, continuously enriching the financing toolbox, and issuing 615 tranches of debt financing instruments in the inter-bank, exchange, over-the-counter and foreign bond markets, with a total issuance size of RMB174.2 billion, realizing the continuous optimization of the liability structure and efficient control of the financing cost. In addition, the Company also maintained liquidity reserve assets of appropriate size and reasonable structure, taking into consideration the safety and profitability, continuously improved liquidity risk management system, improved liquidity contingency plans, and enhanced the Company’s ability to prevent and resolve liquidity risks.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

(IV) Fulfill the obligation of information disclosure in compliance and strengthen the maintenance of investor relations

1. Information disclosure. In 2020, the Company performed the obligation of information disclosure in strict compliance with the laws and regulations, and listing rules of the places where the Shares are listed. The Company prepared a total of 8 sets of periodic reports and more than 300 other public disclosure documents in relation to the A share and H share markets, involving the Company’s performance, dividend distribution, resolutions of the Board and the Supervisory Committee, notices and resolutions of general meetings, listing of restricted shares and abnormal stock trading volatility, clarification matters, bond issues and other voluntary announcements and overseas regulatory announcements, and the information disclosure was true, accurate, complete, timely and fair. The Company was rated grade A, the highest grade in the “Evaluation of Information Disclosure of Listed Companies in 2019–2020” on the Shanghai Stock Exchange. In addition, the Company further strengthened the management of insider information registration and management of related party/ connected transactions, and continued to specialize information disclosure.

2. Investor communications. In 2020, the Company carried out the management of investor relations by adhering to the principles of legal compliance, openness and fairness. The Company regularly introduced the Company’s development status and addressed the concerns of shareholders; through convening general meetings and organizing performance briefings, and through daily maintenance of investor hotline, investor email address and “SSE E Interactive” network platform, the Company provided more convenient and efficient services for the investors’ understanding on the Company; to explore the breadth and depth of communication with investors through interviews with buyers and analysts. In 2020, the Company distributed dividends for 2019 of RMB2.35 per 10 shares (tax inclusive) to shareholders in the aggregate amount of RMB1,797 million (tax inclusive), with a cumulative dividend of RMB5,854 million (tax inclusive, excluding the 2020 annual dividend) since the listing of the H Shares in December 2016. The Company created value for investors through a stable cash dividend policy.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

(V) Actively fulfill the corporate social responsibility and establish a good market image

1. Poverty alleviation and public welfare. In 2020, the Board of Directors considered and approved the Proposal on Amendments to the Articles of Association, Proposal on the Adjustment of the Approval of Authorization of External Donations by Operational Management, and proposed at the general meeting to increase the authorized limit of external donations by the Board, and to adjust the authorized limit on the operational management by the Board so as to timely and effectively satisfy the demands of the Company for the support on social welfare and giving back to the society. In 2020, the Board of Directors continued to promote the Company to carry out precise poverty alleviation and completed a total of 20 poverty alleviation projects for 6 pairs of assisted counties and 4 designated assisted counties, and issued 5 poverty alleviation bonds with an issue size of RMB4.7 billion; China Securities Futures Co., Ltd., a wholly-owned subsidiary, has accumulated 13 “insurance + futures” projects in poverty-stricken areas through “insurance + futures”, with a total notional amount of approximately RMB479.43 million covering various provinces and cities such as Sichuan, Chongqing, Gansu, Guizhou, Yunnan and Hainan. The Company and its subsidiaries have conducted nearly 30 training sessions on capital markets in poverty-stricken areas, with the number of trainees reaching 380. The Company also provided direct assistance in the form of donations of financial aid and infrastructure construction in poverty-stricken areas, with a total annual public welfare expenditure of RMB29.9657 million. In 2020, the Company obtained the “Securities Corporate Social Responsibility Award” from the China Securities Journal.

2. Practicing ESG concept. CSC is committed to its mission of “bringing together talents, serving customers, creating value and contributing to the society.” While maintaining robust operations and creating economic value for shareholders and investors, the Company also attaches great importance to managing ESG risks and opportunities of environmental, social and corporate governance (hereinafter referred to as “ ESG ”) and fulfills its social responsibility in all aspects. In terms of financing business, the Company actively underwrote special bonds such as green environmental protection, innovation and entrepreneurship, micro and small economy, pandemic prevention and control, poverty relief and poverty alleviation, focusing on the national industrial policy, and underwrote 31 green bonds annually with a financing scale of RMB47 billion. The use of proceeds involved areas such as green travel, water rehabilitation, renewable energy power generation, etc.; in respect of its investment business, its wholly-owned subsidiaries, China Capital Management Limited and China Securities Investment Limited focused on strategic emerging industries and infrastructure sectors, with the development of influential projects under the industry layout closely-related to social and residential developments in the areas of pan-TMT, biomedical, high-end manufacturing, and large consumption, and ESG factors were included in the investment analysis.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

(VI) Strengthen the self-improvement and enhance capability of performance of duties

The Directors of the Company are diversified and complementary to each other in terms of their professional background and experience, which facilitated the scientific decision-making of the Board. In 2020, the Board continued to strengthen its training and, based on the needs of pandemic prevention and control, fully utilized the training platform of the regulatory authorities, self-disciplinary organizations and exchanges to keep abreast of the new requirements of the relevant laws, regulations and regulatory rules, including but not limited to laws, regulations and policy interpretation, directors’ rights, obligations and responsibilities, analysis of operating experience of the Board of Directors of outstanding listed companies and analysis of illegal and non-compliance of listed companies, etc. The Directors of the Company shall also continue to receive training on the responsibilities and obligations of Directors and the rules of disclosable transaction in relation to the compliance operation of H-share listed companies.

In 2020, the Board focused on business development and risk management. The research topics include the new requirements for the securities company’s operation and development as a result of the amendments to the Securities Law, the business opportunities and network layout of the Guangdong-Hong Kong-Macao Greater Bay Area, and the development and planning of the Company’s derivatives business. The Directors of the Company took the lead in the commencement of the research on the theme of the effectiveness of risk control integration of securities companies, and further enhanced the focus and effectiveness of the research.

III. IMPLEMENTATION OF TASKS OF THE SPECIAL COMMITTEES UNDER THE BOARD OF DIRECTORS FOR 2020

In 2020, the Development Strategy Committee, the Risk Management Committee, the Audit Committee and the Remuneration and Nomination Committee under the Board conducted in-depth research on specific issues and actively expressed opinions in accordance with the working responsibilities and rules of procedure to facilitate scientific and efficient decision making by the Board.

The Development Strategy Committee of the Board convened two meetings for the consideration and discussion of eight resolutions and hearing of one report, topics of which mainly include final financial accounts plan, work plan, financial plan, non-public issuance of shares, external investment and business development strategies and other issues.

The Risk Management Committee of the Board convened two meetings for the consideration and discussion of nine resolutions, topics of which mainly include risk report, compliance report, internal control report, anti-money laundering report, risk management policy, risk management system, cap of investment amount for proprietary investment business and other issues.

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

The Audit Committee of the Board convened five meetings for the consideration and discussion of 13 resolutions/reports, topics of which mainly include internal audit work report, external audit plan and report, periodic report, internal control assessment report, daily related party transactions, re-appointment of accounting firm and other issues.

The Remuneration and Nomination Committee convened four meetings for the consideration and discussion of five resolutions and hearing of one report, topics of which mainly include the appointment of senior management personnel, assessment on compliance responsible person, remuneration to the operation and management team, human resources management policies and other issues.

For the composition and specific work of the special committees of the Board, please refer to the 2020 annual report of the Company.

IV. PERFORMANCE OF DUTIES OF DIRECTORS IN 2020

In 2020, Directors strictly fulfilled their duties with due diligence in accordance with relevant laws and regulations, listing rules and regulatory requirements of places where the Shares of the Company are listed and the provisions of the Articles of Association. The Directors of the Company attended meetings of the Board of Directors and special committees of the Board of Directors in accordance with the provisions, fully implemented the resolutions of the general meeting and the resolutions of the Board of Directors, promote scientific decision-making and efficient operation of the Board of Directors, and realized the sustainable and healthy development of the company. The Directors of the Company actively participated in the training and research, accurately understood the changes of laws and regulations and regulatory rules, kept abreast of the status quo of the Company’s operation and development, and continued to improve their ability to perform their duties.

In particular, the Executive Directors of the Company conscientiously performed the dual duties of decision-making and implementation, and carefully studied the development of the domestic and international business environment and the development of the securities industry, conducted in-depth analysis on the strengths and weaknesses of the Company’s competition, and adopted effective business strategies. The Company continued to achieve good operating results and kept its core business at the forefront of the industry. The Company’s Non-executive Directors attended the meeting of the Board of Directors and the special committees of the Board of Directors, carefully reviewed the documents of the meeting and make scientific and prudent decision-making. During the non-conference period, they reviewed the operation report and participated in the research and training to keep abreast of the operation of the Company and feedback on the development of the Company, and proposed to supervise the continuous improvement of corporate governance and risk management capabilities. The independent non-executive Directors of the Company devoted sufficient time and energy to the Company’s corporate governance, and through attending meetings,

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2020 WORK REPORT OF THE BOARD OF DIRECTORS

APPENDIX I

inspected materials and communicated with external auditors, leveraged the professional advantage in the decision-making of the Board of Directors, expressed their opinions independently and objectively, and actively safeguarded the interests of the shareholders, especially the legal interests of minority shareholders.

For details of the attendance of Directors at Board meetings and the special committees of the Board, please refer to the 2020 annual report of the Company.

V. WORKING PLAN FOR 2021

2021 is the beginning of the 14th Five-Year Plan of the PRC. The Board of Directors will lead the Company to unswervingly adhere to the high-quality development, adhere to the rationalized layout, adhere to the integrated operation, adhere to the refined management, actively adapt to the trend of increasing concentration of the securities industry, continuously improve the compliance management and risk management capabilities, and accelerate the digital transformation and strengthening the asset-liability management capability, consolidating and enhancing the purchasing power of the purchasers, promoting cross-border integration, and entering into a new stage of high-quality development in both the PRC economy and the securities industry, which will drive the Company into a new era of balanced and comprehensive development.

At the same time, the Board of Directors will strengthen its own establishment to further improve the scientific, normative and professional nature of corporate governance. First, to continuously enhance the core decision-making role of the Board of Directors, to ensure the Company’s major decision-making and timely implementation of corporate governance procedures, to optimize the pre-meeting communication mechanism, to continuously enhance the quality of communication, and to strengthen the supervision and implementation of Board resolutions and recommendations of the Directors’ important opinions in accordance with laws and regulations; continue to enhance the supportive role of the special committees of the Board, submit relevant issues to the special committees for further study, give full play to the professional value of the special committees, and deepen and refine each specialized field; thirdly, to continuously improve the management level of the Board of Directors, strengthen the building of the work force of the Board and improve the service capability and standard, scientific arrangement of special research, and safeguard the performance of Directors.

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

I. IMPLEMENTATION OF MAJOR TASKS OF THE SUPERVISORY COMMITTEE FOR 2020

In 2020, the Supervisory Committee participated in the review of the material decisions of the Company with strict compliance with relevant provisions of the Company Law, Securities Law and the Articles of Association. It regularly inspected the financial condition and operations of the Company as well as its business operation and risk management and compliance management, supervised the performance of the Board of the Company, senior management personnel and their respective members, actively safeguarding the legitimate interests of the Company and the Shareholders.

In 2020, the Supervisory Committee held five Supervisory Committee meetings in total, during which 18 resolutions were considered and passed. The Supervisors of the Company observed all Board meetings for 2020 and considered resolutions proposed at the meetings. The Supervisors of the Company observed all Shareholders’ Meetings for 2020.

In 2020, the Supervisory Committee of the Company focused on the following tasks:

(I) Standardize the efficient operation and earnestly perform the duty of supervision

In 2020, Supervisors of the Company attended meetings of the Supervisory Committee, attended Shareholders’ Meetings and attended Board meetings in strict compliance with the requirements. The chairman of the Supervisory Committee also attended regular meetings of the Executive Committee of the Company. The Supervisory Committee carefully supervised the implementation of the resolutions of the Shareholders’ Meeting by the Board, supervised the implementation of the annual work objectives and tasks by the management team, and continuously monitored the effectiveness of the Company’s internal control.

The members of the Supervisory Committee made full use of the right to information, the right to propose, the right to inquire, the right to examine and the right to investigate, effectively supervised the content and decision-making process on major matters such as periodic reports, profit distribution, deposit and use of proceeds raised and management of related party/connected transactions, and gave special opinions objectively and fairly.

The Supervisory Committee actively cooperated with regulatory institutions and stock exchanges in daily supervision. The Supervisory Committee actively assisted the Company in enhancing communication with industry associations, which comprehensively demonstrated the role performed by the Supervisory Committee.

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

(2) Improve internal audit function and play a supporting role

The Supervisory Committee organized and led the internal audit department to focus on the Company’s annual work objectives and sought to identify problems, with the principle of “grasping, deepening and seeing comprehensively” as the direction and “system, technology and personnel” as the major tool, comprehensively improved the effect of internal audit. The internal audit department of the Company was independent, and strived to make use of risk management and compliance management to comment on the effect of supervision, gave full play to the advice on the Company’s operation and management, improved the Company’s internal control and protected the Company’s sustainable and healthy development.

In 2020, the Company carried out a total of 196 internal audit projects, including 13 audit projects at headquarters, 3 audit projects at subsidiaries and 180 audit projects at branch offices.

(3) Organize internal control assessment to promote the standard operation of the Company

The Supervisory Committee directed the internal audit department to strengthen the audit and supervision of internal control, conducted annual compliance management effectiveness evaluation, and conducted special evaluation on investment banking business, custody and operation service business and public fund sales business in combination with regulatory requirements.

In assessing the effectiveness of the compliance management, the Supervisory Committee focused on the compliance culture construction, compliance management system and compliance performance, assessed whether the implementation of compliance consultation, compliance audit, compliance monitoring, compliance reporting, regulatory communication and cooperation, anti-money laundering and information wall management is effective.

In assessing the effectiveness of internal control, the Supervisory Committee focused on assessing whether the scope of assessment covered all the key control points of the Company’s business and management, and comprehensively evaluated the Company’s internal control based on internal environment, risk assessment, control activities, information and communication and internal supervision.

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

After a thorough evaluation, the Supervisory Committee is of the view that the Company has established a management system and effective implementation of the businesses and matters that have been included in the scope of compliance assessment, and there is no significant compliance risk. The Company has established an internal control system in respect of each business and management matter included in the scope of internal control assessment and has been effectively implemented without material defects and major defects, and the internal control of the Company’s various businesses was generally effective, achieving the objectives of the Company’s internal control.

(4) Adhere to investigation and research and play the role of supporting services

Investigation and research was an effective means and work tradition of the Supervisory Committee. In 2020, the Supervisory Committee carried out investigations on its core businesses: first, combined the Securities Law to comprehensively promote the securities issuance and registration system, improve the requirements for information disclosure and improve the regulations in respect of aspects such as investor protection system, conducted special investigations on the impact of the amendments of the Securities Law to the Company’s operations to better understand the business development needs; second, combined the strategic implementation of network layout adjustment, business synergy and domestic and overseas integration of the Company in recent years, conducted special investigations on the operating conditions, competitiveness and development plans of the branches and subsidiaries in the Guangdong, Shenzhen and Hong Kong regions and thoroughly understood the implementation of the Company’s business objectives.

II. MEETINGS OF SUPERVISORY COMMITTEE AND PERFORMANCE OF DUTIES OF THE SUPERVISORS

In 2020, the Supervisory Committee of the Company held five meetings in total and the details of which are as follows:

On March 26, 2020, the 8th meeting of the second session of the Supervisory Committee of the Company was convened, which considered and approved the Resolution on the 2019 Work Report of the Supervisory Committee of the Company, the Resolution on the 2019 Work Report and 2020 Working Plans of Internal Auditing of the Company, the Resolution on the Profit Distribution of the Company in 2019, the Resolution on the 2019 Annual Report and Results Announcement of the Company, the Resolution on the 2019 Risk Report of the Company, the Resolution the 2019 Compliance Report of the Company, the Resolution on the 2019 Special Valuation Report on the Effectiveness of Compliance Management, the Resolution on the 2019 Internal Control Evaluation Report of the Company, the Resolution on the 2019 Social Responsibility cum the Environmental, Social and Governance Report of the Company, the Resolution on the Special Report on the Deposit and Actual Use of Raised Funds of the Company for 2019 and the Resolution on the Expected Related Party Transactions of the Company in 2020.

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

On April 24, 2020, the 9th meeting of the second session of the Supervisory Committee of the Company was convened, which considered and approved the Resolution on the 2020 First Quarterly Report of the Company.

On August 25, 2020, the 10th meeting of the second session of the Supervisory Committee of the Company was convened, which considered and approved the Resolution on the 2020 Interim Report (A Shares) of the Company, the Resolution on the 2020 Interim Results Announcement and Interim Report (H Shares) of the Company, and the Resolution on the Risk Report of the Company for the First Half of 2020.

On October 23, 2020, the 11th meeting of the second session of the Supervisory Committee of the Company was convened, which considered and approved the Resolution on the 2020 Third Quarterly Report of the Company.

On December 4, 2020, the 12th meeting of the second session of the Supervisory Committee of the Company was convened, which considered and approved the Resolution on the Resignation of Mr. Li Shihua as the Chairman of the Supervisory Committee of the Company, and the Resolution on the Election of Convener of the Supervisory Committee of the Company.

The attendance of Supervisors of the Company to the meetings of the Supervisory Committee is as follows:

		Number of
		meetings of
		Supervisory	Attendance	Attendance
Name	Position	Committee	in person	by proxy	Absence
AI Bo	Supervisor	5	5	0	0
ZHAO Lijun	Supervisor	5	5	0	0
LIN Xuan	Employee Supervisors	5	5	0	0
ZHAO Ming	Employee Supervisors	5	5	0	0
LI Shihua (resigned)	Former Chairman of the	5	5	0	0
	supervisory committee

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

III. SPECIAL OPINION OF THE SUPERVISORY COMMITTEE

In 2020, Supervisors of the Company supervised major decisions of the Company by participating in meetings of the Supervisory Committee, attending Board meetings, attending Shareholders’ Meetings and organized internal audits, and issued the following opinions:

(1) Performance of directors and senior management personnel. The Supervisory Committee is of the view that in 2020, the Board and the management of the Company can strictly follow the laws and regulations, the Articles of Association and the regulatory requirements, fully implement the resolutions of the Shareholders’ Meeting and the Board, and the decision-making process was lawful, the internal control system was sound, and there is no objection of the supervision matters during the reporting period. The directors and senior management personnel of the Company performed their duties diligently, and did not find violation of laws, regulations or damage to the interests of the Company.
(2) Periodic reports and information disclosure. The Supervisory Committee is of the view that the preparation, audit procedures, content and format of the Company’s periodic reports were legal and compliant and could truly, accurately, completely and objectively reflect the operational management and financial conditions during the reporting period. The information disclosure system of the Company has been effectively implemented, the quality of information disclosure has been improved steadily, and the reporting, transmission, audit and disclosure of major incidents were in compliance with the requirements of the system and were in good condition.
(3) Profit distribution. The Supervisory Committee is of the view that the Company’s profit distribution plan complies with the relevant requirements of internal systems such as laws and regulations, regulatory documents and the Articles of Association, was in line with the actual situation of the Company, was in line with the interests of the Shareholders as general and long-term interests, and was in line with the needs of the Company’s sustainable and healthy development.
(4) Deposit and use of proceeds raised. The Supervisory Committee is of the view that the deposit and use of proceeds raised by the Company are in compliance with the relevant provisions of the CSRC and the Shanghai Stock Exchange regarding the deposit and use of proceeds raised from listed companies, without any changes in the use of the proceeds and any prejudice to the interests of the Shareholders as well as violations in the use of proceeds.

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2020 WORK REPORT OF THE SUPERVISORY COMMITTEE

APPENDIX II

(5) Related party transactions. The Supervisory Committee is of the view that the consideration, voting, disclosure and performance of the Company’s ordinary related party transactions were in compliance with the relevant provisions of the laws and regulations and the Articles of Association. The related party transactions of the Company were priced with reference to the market price level and industry practice, and the pricing were fair. There was no damage found to the detriment of the Company and the shareholders.

In addition, the Supervisory Committee also conducted audits on the Company’s risk reports, compliance reports, compliance assessment reports, internal control assessment reports, social responsibility and environmental and social governance reports, etc.. No objection to the aforesaid report.

IV. WORK PLAN OF THE SUPERVISORY COMMITTEE IN 2021

In 2021, the Supervisory Committee will focus on the promotion and implementation of the following tasks:

(1) Members of the Supervisory Committee will supervise the major decision-making matters of the Company’s operational management by attending Board meetings and meetings of the Executive Committee, supervise the implementation of the resolutions of the Shareholders’ Meetings by the Board, supervise the implementation of the Board’s resolutions by the management, and urge the Company to comply with the rules of the regulatory authorities, industry associations and the Company rules and regulations.
(2) Members of the Supervisory Committee will convene meetings of the Supervisory Committee on a regular basis to review material issues, internal control, compliance management, risk management and matters of the Supervisory Committee prioritizes during the development of the Company. Members of the Supervisory Committee will carry out special seminars, conduct grassroots research, identify problems, make recommendations, and continuously improve the supervision and performance of the Supervisory Committee.
(3) Members of the Supervisory Committee lead the internal audit work, guide the internal audit department to supervise and inspect the business management of the Company, and carry out internal control and compliance effectiveness assessment. In 2021, the internal audit work of the Company will adhere to the problem-oriented and value orientation, through comprehensive coverage of auditing and deepening, and playing a comprehensive role of supervision and protection, strictly guard against the occurrence of material risks, material non-compliance and material fraud, strengthen risk management from different dimensions of governance, decision-making, operation and monitoring and control, improve the Company’s ability to resist risks, and support the Company’s steady development.

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2020 FINAL FINANCIAL ACCOUNTS PLAN

APPENDIX III

The external accounting firms have confirmed and approved the Annual Financial Statement of the Company for 2020, and issued an audit report with standard unqualified opinion. According to their opinion, the Company’s financial report has been prepared in accordance with the provisions of the Chinese Accounting Standards for Business Enterprises and has fairly reflected its financial position as of December 31, 2020 and its operating results and cash flows in 2020 in each major aspect. The report of financial position, operating results and other related matters of the Company (unless otherwise stated, the financial data in this resolution are based on the data from the audited consolidated statements (A Shares), involving shareholders’ equity, net profit, and total comprehensive income based on those attributable to the shareholders of the parent company) are presented below for your consideration.

Financial position and operating results of the Company for 2020

Unit: RMB’00 million

		A Share(s)			H Share(s)
			Increase/			Increase/
Item	End of 2020	End of 2019	Decrease	End of 2020	End of 2019	Decrease
Total assets	3,712.28	2,856.70	29.95%	3,712.28	2,856.70	29.95%
Total liabilities	3,031.57	2,287.75	32.51%	3,031.57	2,287.75	32.51%
Shareholders’ equity	677.35	565.82	19.71%	677.35	565.82	19.71%
Net capital	650.35	539.56	20.53%	650.35	539.56	20.53%
		A Share(s)			H Share(s)
			Increase/			Increase/
Item	2020	2019	Decrease	2020	2019	Decrease
Operating revenue/total
revenue and other
income	233.51	136.93	70.53%	307.20	194.07	58.29%
Operating expenses/total
expenses	111.86	65.28	71.35%	186.06	122.46	51.94%
Net profit	95.09	55.02	72.85%	95.09	55.02	72.85%
Total comprehensive
income	94.92	57.72	64.46%	94.92	57.72	64.46%

Note: In the financial report of A Shares and H Shares, the difference between operating revenue and operating expenses mainly represents revenue and expenses of fees and interests. A Shares are reflected on net basis and H Shares are reflected on separate basis.

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2020 FINAL FINANCIAL ACCOUNTS PLAN

APPENDIX III

I. FINANCIAL POSITION OF THE COMPANY IN 2020

(I) Asset Position

As of the end of 2020, total assets of the Company on consolidated basis amounted to RMB371,228 million, representing a year-on-year (“ YoY ”) increase of RMB85,558 million, or 29.95% (after deducting accounts payable to brokerage clients, total assets of the Company on consolidated basis amounted to RMB296,518 million, representing a YoY increase of 28.34%). The main changes are as follows: assets in investments (mainly including investments in associates and investments in financial assets) showed a YoY increase of RMB59,989 million; margin accounts and financial assets held under resale agreements showed a YoY increase of RMB13,707 million.

(II) Liability Position

As of the end of 2020, total liabilities of the Company on consolidated basis amounted to RMB303,157 million, representing a YoY increase of RMB74,382 million, or 32.51% (after deducting accounts payable to brokerage clients, total liabilities of the Company on consolidated basis amounted to RMB228,446 million, representing a YoY increase of 31.18%). The main changes are as follows: short-term borrowings, placements from banks and other financial institutions, short-term financing instruments payable and bonds payable showed a YoY increase of RMB32,744 million; financial assets sold under repurchase agreements recorded a YoY increase of RMB28,979 million; accounts payable to brokerage clients showed a YoY increase of RMB20,085 million; and accounts payable to underwriting clients showed a YoY decrease of RMB14,993 million.

(III) Shareholders’ Equity and Net Capital

As of the end of 2020, shareholders’ equity of the Company on consolidated basis amounted to RMB67,735 million, representing a YoY increase of RMB11,153 million, or 19.71%. The main changes are as follows: on December 28, 2020, the Company completed the non-public issuance of A Shares, with an additional capital of RMB110 million, an additional capital reserve of RMB3,737 million, a net profit of RMB9,509 million, distributed cash dividend for 2019 of RMB1,797 million for 2019 and accrued interest on perpetual bonds of RMB370 million.

As of the end of 2020, net capital of the Company (parent company) amounted to RMB65,035 million, representing a YoY increase of RMB11,079 million or 20.53%. The Company strictly controlled the risks, with a risk coverage ratio of 309.29% as of the end of 2020, a liquidity coverage ratio of 215.93% and a net stable funding ratio of 156.82%. The above risk control indicators of business complied with regulatory requirements.

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2020 FINAL FINANCIAL ACCOUNTS PLAN

APPENDIX III

II. OPERATING RESULTS IN 2020

(I) Operating revenue

In 2020, the consolidated operating revenue of the Company amounted to RMB23,351 million, representing a YoY increase of RMB9,658 million, or 70.53%, among which:

Net fee income from brokerage business amounted to RMB4,836 million, representing a YoY increase of RMB1,990 million, mainly attributable to a YoY increase in the trading volume of stocks and funds of the Company;
Net fee income from investment banking business amounted to RMB5,857 million, representing a YoY increase of RMB2,172 million, mainly attributable to a YoY increase in the size of equity financing of projects sponsored by the market and the Company;
Net fee income from asset management business amounted to RMB887 million, representing a YoY increase of RMB94 million, mainly attributable to an increase in size of and income from active management business;
Investment gains (inclusive of the gains and losses arising from changes in fair value) amounted to RMB8,685 million, representing a YoY increase of RMB4,286 million, mainly attributable to the precise estimation of the pace of market in terms of the Company’s securities proprietary business, and a YoY increase of the income of both the self-operated stock and self-operated bonds;
Net interest income amounted to RMB1,331 million, representing a YoY decrease of RMB228 million, primarily attributable to an increase in the size of debt financing business of the Company, with increased interest income;
Other business income was RMB1,244 million, representing a YoY increase of RMB1,183 million, mainly attributable to the increase in revenue from bulk commodity trading income of the futures subsidiary.

(II) Operating expenses

In 2020, the consolidated operating expenses of the Company amounted to RMB11,186 million, representing a YoY increase of RMB4,658 million or 71.35%, mainly attributable to increases in business and administrative expenses and provision for impairment.

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2020 FINAL FINANCIAL ACCOUNTS PLAN

APPENDIX III

(III) Profit

In 2020, the Company realized net profit on consolidated basis of RMB9,509 million, representing a YoY increase of RMB4,008 million or 72.85%; return on weighted average equity of 18.18%, representing a YoY increase of 6.67 percentage points. Upon incorporating other comprehensive income, the Company realized RMB9,492 million of total comprehensive income on consolidated basis, representing a YoY increase of RMB3,720 million or 64.46%.

In 2020, taking advantage of the favorable market environment, the Company seized the opportunity, strived for development and achieved good operating results, which laid a solid foundation for the Company’s sustainable and healthy development.

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