DFZQ - AGM Information 2020 | FinancialReports.eu

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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 advisers.

If you have sold or transferred all your shares in 東方證券股份有限公司 , you should at once hand this circular together with the accompanying form of proxy and reply slip to the purchaser(s) or the transferee(s) or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

(A joint stock company incorporated in the People’s Republic of China with limited liability under the Chinese corporate name “ 東方證券股份有限公司 ” and carrying on business in Hong Kong as “ 東方證券 ” (in Chinese) and “DFZQ” (in English))

(Stock Code: 03958)

(1) 2019 REPORT OF THE BOARD

(2) 2019 REPORT OF THE SUPERVISORY COMMITTEE

(3) 2019 FINAL ACCOUNTS REPORT (4) 2019 PROFIT DISTRIBUTION PROPOSAL

(5) 2019 ANNUAL REPORT

(6) PROPRIETARY BUSINESS SCALE OF THE COMPANY IN 2020 (7) CONDUCTION OF ASSET-BACKED SECURITIZATION BUSINESS WITH THE COMPANY’S CREDIT ASSETS FROM ITS FINANCING BUSINESSES (8) PROJECTED ROUTINE RELATED PARTY TRANSACTIONS OF THE COMPANY IN 2020

(9) EXPECTED PROVISION OF GUARANTEES BY THE COMPANY IN 2020

(10) ENGAGEMENT OF AUDITING FIRMS FOR THE YEAR 2020 (11) ELECTION OF NON-EXECUTIVE DIRECTOR OF THE COMPANY (12) SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS (2020-2022)

(13) GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS

(14) AMENDMENTS TO CERTAIN ARTICLES OF THE ARTICLES OF ASSOCIATION

(15) GENERAL MANDATE TO THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL A AND/OR H SHARES OF THE COMPANY AND

NOTICE OF ANNUAL GENERAL MEETING

A notice convening the AGM of the Company to be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the PRC on Friday, May 15, 2020 at 2:00 p.m. is set out on pages 20 to 23 of this circular.

The reply slip and the form of proxy for the AGM have been distributed on Tuesday, March 31, 2020 and have also been published on the website of the Hong Kong Stock Exchange (www.hkexnews.hk) and the Company’s website (www.dfzq.com.cn). If you are not able to attend the AGM, please complete and return the form of proxy in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for the holding of the AGM (i.e. 2:00 p.m. on Thursday, May 14, 2020), and deposit it together with the notarized power of attorney or other document of authorization with the H Share Registrar, Computershare Hong Kong Investor Services Limited (for holders of H Shares). Completion and return of the form of proxy will not preclude you from attending and voting at the AGM should you so desire.

Shareholders intending to attend the AGM in person or by their proxies should complete and return the reply slip for attending the AGM to the H Share Registrar, Computershare Hong Kong Investor Services Limited (for holders of H Shares) on or before Saturday, April 25, 2020.

April 24, 2020

TABLE OF CONTENTS

			Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			3
NOTICE OF	ANNUAL GENERAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		20
ANNEX I	–	2019 REPORT OF THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
ANNEX II	–	2019 REPORT OF THE SUPERVISORY COMMITTEE. . . . . . . . . . . . .	II-1
ANNEX III	–	2019 DUTY PERFORMANCE REPORT OF
		INDEPENDENT DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
ANNEX IV	–	2019 FINAL ACCOUNTS REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
ANNEX V	–	PROPOSAL REGARDING THE PROJECTED
		ROUTINE RELATED PARTY TRANSACTIONS
		OF THE COMPANY IN 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
ANNEX VI	–	SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS
		(2020-2022). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
ANNEX VII	–	PROPOSAL REGARDING THE GENERAL MANDATE
		TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF
		THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VII-1
ANNEX VIII	–	COMPARISON TABLE OF AMENDMENTS TO THE ARTICLES
		OF ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VIII-1

– i –

DEFINITIONS

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

“A Share(s)” the domestic share(s) of the Company with a nominal value of RMB1 each, which are listed for trading on the SSE
“AGM” or “Annual General the 2019 annual general meeting of the Company to be held Meeting” at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the PRC on Friday, May 15, 2020 at 2:00 p.m.
“Articles of Association” the articles of association of 東方證券股份有限公司 , as amended from time to time
“Board” or “Board of Directors” the board of directors of the Company “Citi Orient” Citi Orient Securities Co., Ltd. ( 東方花旗證券有限公司 ), a controlling subsidiary of the Company
“Company” 東方證券股份有限公司 , a joint stock company incorporated in the PRC with limited liability, the H Shares of which are listed on the Hong Kong Stock Exchange under the stock code of 03958 and the A Shares of which are listed on the SSE under the stock code of 600958
“Company Law” the Company Law of the People’s Republic of China “CSRC” the China Securities Regulatory Commission “Director(s)” the director(s) of the Company “Group” the Company and its subsidiaries “H Share(s)” the ordinary share(s) of the Company with a nominal value of RMB1 each, which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars
“H Share Registrar” Computershare Hong Kong Investor Services Limited “HK$” or “Hong Kong dollars” the lawful currency of Hong Kong “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
“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

– 1 –

DEFINITIONS

“Latest Practicable Date”
April 16, 2020, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication
“Orient Finance Holdings”
Orient Finance Holdings (Hong Kong) Limited ( 東方金融控股（香港）有限公司 ), a wholly-owned subsidiary of the Company
“Orient Futures”
Orient Futures Co., Ltd ( 上海東證期貨有限公司 ), a wholly-owned subsidiary of the Company
“Orient Securities Asset Management”
Shanghai Orient Securities Asset Management Co., Ltd. ( 上海東方證券資產管理有限公司 ), a wholly-owned subsidiary of the Company
“Orient Securities Capital Investment”
Shanghai Orient Securities Capital Investment Co., Ltd. ( 上海東方證券資本投資有限公司 ), a wholly-owned subsidiary of the Company
“PRC” or “China” the People’s Republic of China, but for the purposes of this circular only, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC
“Securities Law” the Securities Law of the People’s Republic of China
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholder(s)” the shareholder(s) of the Company, including holder(s) of H Shares and holder(s) of A Shares
“Shenergy Group” Shenergy (Group) Company Limited ( 申能（集團）有限公司 )
“SSE” Shanghai Stock Exchange
“Supervisor(s)” the supervisor(s) of the Company “Supervisory Committee” the supervisory committee of the Company

Unless otherwise indicated, all the financial data in this circular were presented in Renminbi.

– 2 –

LETTER FROM THE BOARD

(Stock Code: 03958)

Executive Directors: Mr. PAN Xinjun (Chairman) Mr. JIN Wenzhong (President)

Non-executive Directors:

Mr. LIU Wei Mr. WU Junhao Mr. LI Xiang Ms. XIA Jinghan Mr. XU Jianguo Mr. CHEN Xiaobo (employee representative director)

Registered office: 22/F, 23/F and 25-29/F Building 2, No. 318 South Zhongshan Road Shanghai PRC

Principal place of business in Hong Kong: 28-29/F No. 100 Queen’s Road Central Central Hong Kong

Independent Non-executive Directors: Mr. XU Guoxiang Mr. TAO Xiuming Mr. WEI Anning Mr. XU Zhiming Mr. JIN Qinglu

April 24, 2020

To the Shareholders

Dear Sir or Madam,

INTRODUCTION

The purpose of this circular is to provide you, as holders of H Shares, with the notice of the AGM (set out on pages 20 to 23 of this circular) and information reasonably necessary to enable you to make an informed decision on whether to vote for or against the proposed resolutions or abstain from voting at the AGM.

– 3 –

LETTER FROM THE BOARD

At the AGM, ordinary resolutions will be proposed to approve, among others, (i) the report of the Board of Directors of the Company for the year 2019 (the “ 2019 Report of the Board ”); (ii) the report of the Supervisory Committee of the Company for the year 2019 (the “ 2019 Report of the Supervisory Committee ”); (iii) the final accounts report of the Company for the year 2019 (the “ 2019 Final Accounts Report ”); (iv) the profit distribution proposal of the Company for the year 2019 (the “ 2019 Profit Distribution Proposal ”); (v) the annual report of the Company for the year 2019 (the “ 2019 Annual Report ”); (vi) the proposal regarding the proprietary business scale of the Company in 2020; (vii) the proposal regarding the conduction of asset-backed securitization business with the Company’s credit assets from its financing businesses; (viii) the proposal regarding the projected routine related-party transactions of the Company in 2020; (ix) the proposal regarding the expected provision of guarantees by the Company in 2020; (x) the proposal regarding the engagement of auditing firms for the year 2020; (xi) proposal in relation to the election of non-executive director of the Company; (xii) the proposal in relation to the shareholders’ returns in the next three years (2020-2022). Special resolutions will be proposed to approve, among others, (xiii) the proposal regarding the general mandate to issue onshore debt financing instruments of the Company; (xiv) the proposal regarding the amendments to certain articles of the Articles of Association of the Company; and (xv) the proposal regarding the general mandate to the Board of Directors of the Company to issue additional A and/or H shares of the Company.

ORDINARY RESOLUTIONS

1. 2019 Report of the Board

An ordinary resolution will be proposed at the AGM to consider and approve the 2019 Report of the Board. Details of the aforesaid report of the Board are set out in Annex I of this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The 2019 Report of the Board was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

2. 2019 Report of the Supervisory Committee

An ordinary resolution will be proposed at the AGM to consider and approve the 2019 Report of the Supervisory Committee. Details of the aforesaid report of the Supervisory Committee are set out in Annex II of this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The 2019 Report of the Supervisory Committee was considered and approved by the Supervisory Committee on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

3. 2019 Final Accounts Report

An ordinary resolution will be proposed at the AGM to consider and approve the 2019 Final Accounts Report. Details of the aforesaid final accounts report are set out in Annex IV of this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

– 4 –

LETTER FROM THE BOARD

The 2019 Final Accounts Report was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

4. 2019 Profit Distribution Proposal

An ordinary resolution will be proposed at the AGM to consider and approve the 2019 Profit Distribution Proposal in accordance with the Articles of Association.

In accordance with the Company Law, the Securities Law, the Financial Rules for Financial Enterprises, the Listed Companies Regulatory Guidance No.3 – Cash Dividends Distribution of Listed Companies (《上市公司監管指引第 3 號－上市公司現金分紅》) issued by the CSRC, the Guidelines of Cash Dividends Distribution of SSE (《上海證券交易所上市公司現金分紅指引》) and the Articles of Association and other relevant rules, and based on the actual needs of business development of the Company, the proposed profit distribution plan for 2019 of the Company is as follows:

As at the beginning of 2019, the undistributed profit of the Company was RMB4,054,427,381.34. Together with the net profit of the Company realized in 2019 of RMB2,402,072,996.16 and deducting the cash dividends of 2018 distributed of RMB699,365,580.30 and the disposal of non-tradable equity instruments designated in 2019 to transfer undistributed profits of RMB5,725,885.86, the distributable profit of the Company for 2019 was RMB5,751,408,911.34.

In accordance with the relevant requirements of the aforesaid laws and regulations, the net profits of the Company for 2019 shall be distributed according to the following sequence:

The Company appropriates RMB264,228,029.58 to the general risk reserve calculated on the basis of 11% of the net profit of the parent company realized in 2019;
The Company appropriates RMB240,207,299.62 to the statutory surplus reserve calculated on the basis of 10% of the net profit of the parent company realized in 2019;
The Company appropriates RMB360,310,949.42 to the transaction risk reserve calculated on the basis of 15% of the net profit of the parent company realized in 2019;
The Company appropriates RMB120,103,649.81 to the discretionary surplus reserve calculated on the basis of 5% of the net profit of the parent company realized in 2019;

The aggregate of the above amounted to RMB984,849,928.43.

Net of the above items, the Company’s distributable profits attributable to the investors in 2019 was RMB4,766,558,982.91.

– 5 –

LETTER FROM THE BOARD

The Company has considered factors such as long-term development and the interest of investors comprehensively, and proposed the profit distribution scheme for 2019 as follows:

Ways of cash dividend distribution for 2019 profit of the Company: based on the total share capital of 6,993,655,803 Shares as at 31 December 2019, a cash dividend of RMB1.50 (inclusive of tax) for every 10 Shares will be distributed to A Shareholders and H Shareholders who are registered on the date of cash distribution in 2019, with a total cash dividend of RMB1,049,048,370.45, accounting for 43.08% of the net profit attributable to the owners of the parent company in 2019 consolidated statements.
Cash dividend will be denominated and distributed in RMB and paid in RMB to A Shareholders but paid in HK dollar to H Shareholders. The actual amount of distribution in HK dollar will be converted into HK dollar based on the average benchmark exchange rate published by the People’s Bank of China five working days prior to the date of 2019 AGM.

The 2019 Profit Distribution Proposal was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval. The Company will conduct the cash dividend distribution within two months from the date of convening the AGM, subject to the approval of the aforesaid profit distribution proposal at the AGM. The Company will give further announcement regarding the record date and the book closure period for the dividend of H Shares.

5. 2019 Annual Report

An ordinary resolution will be proposed at the AGM to consider and approve the 2019 Annual Report. The 2019 Annual Report has been despatched and also published on the website of the Hong Kong Stock Exchange (http://www.hkexnews.hk) and the website of the Company (www.dfzq.com.cn).

The 2019 Annual Report was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

6. The proposal regarding the proprietary business scale of the Company in 2020

An ordinary resolution will be proposed at the AGM to consider and approve the proposal regarding the proprietary business scale of the Company in 2020. Details are as follows:

The proprietary securities business is the principle business of the Company. In order to keep in line with regulatory requirements over listed securities companies and further strengthen risk management, the proprietary business scale of the Company in 2020 is set out as follows in accordance with the Administrative Measures for Risk Control Indicators of Securities Companies and relevant laws and regulations and relevant rules of the Company:

– 6 –

LETTER FROM THE BOARD

In accordance with various regulatory requirements of the CSRC, the maximum amount of investment in proprietary equity securities and securities derivatives shall not exceed 80% of net capital of the Company, and the maximum amount of investment in proprietary non-equity securities and securities derivatives shall not exceed 400% of net capital of the Company. The Board will be authorized to determine the detailed investment scale within the aforesaid limit based on the market changes and business development and keep in line with various regulatory requirements in relation to proprietary business management and risk monitoring.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

7. The proposal regarding the conduction of asset-backed securitization business with the Company’s credit assets from its financing businesses

An ordinary resolution will be proposed at the AGM to consider and approve the proposal regarding the conduction of asset-backed securitization business with the Company’s credit assets from its financing businesses of the Company. Details are as follows:

In order to meet the capital requirements of the Company’s business activity and improve asset liquidity, the Proposal Regarding the Conduction of Asset-backed Securitization Business with the Company’s Credit Assets from its Financing Businesses was considered and approved at the Company’s 2017 annual general meeting. The related matters contemplated under the proposal will expire in May this year.

In comparison with current external financing channels of the Company’s securities financing business, the asset securitization financing method has the following advantages: First, as compared with the banking revenue right financing model featured with policy uncertainties, the model of asset securitization of credit assets of financing business has more clear legal norms and hence less policy risks. Second, along with more stringent supervision over the non-standard banking business, the demand for bank funds to invest in asset-backed securities standard products has increased significantly, and the pricing of asset-backed securities has become more market-oriented. Third, compared with income certificates and refinancing with strict upper limit imposed by laws and regulatory authorities, the asset securitization financing is mainly subject to market rules.

Therefore, the Company proposes at the general meeting once again to authorize the Board of the Company within the scope allowed by laws and regulations and the Articles of Association and the Board to delegate the Company’s operating management to carry out asset securitization businesses under the securities financing business, including margin accounts receivables under the margin financing and securities lending business and stock-collateralized debt. The scale of such business shall not exceed RMB10 billion in total and the business can be carried out in one or more phases within two years from the date of consideration and approval at the AGM. The specific authorizations include but are not limited to:

(1) determine the assets disposal size of asset securitization business, the product plan, issuance period, issuance size, issuance interest rate, way of issuance and other matters related to asset securitization business according to the specific conditions of the Company and the market;

– 7 –

LETTER FROM THE BOARD

(2) decide and engage intermediaries (including but not limited to managers, custodians, regulatory banks, accountants, rating agencies, assessment agencies and law firms, etc.);
(3) handle issues such as reporting, issuance, establishment, filing and listing transactions of asset securitization business;
(4) sign, execute, modify and complete all agreements and documents related to asset securitization business;
(5) if the relevant policies or the market conditions change, authorize the Company’s operating management to make corresponding adjustments to the specific plans of asset securitization and other related matters according to the opinions of the regulatory authorities, except for matters that shall be re-voted by the Board of the Company or the general meetings as required by relevant laws and regulations and the Articles of Association; and
(6) handle and carry out other matters related to the asset securitization business.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

8. The proposal regarding the projected routine related party transactions in 2020

An ordinary resolution will be proposed at the AGM to consider and approve the proposal regarding the projected routine related party transactions of the Company for the year 2020, details of which are set out in Annex V of this circular.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

9. The proposal regarding the expected provision of guarantees by the Company in 2020

Reference is made to the announcement of the Company dated March 27, 2020 in relation to the projected intragroup guarantees for the year 2020.

– 8 –

LETTER FROM THE BOARD

An ordinary resolution will be proposed at the AGM to consider and approve the guarantees provided by the Company for its subsidiaries or among its subsidiaries for the year 2020. Details are as follows:

In accordance with the operation plan of the Company, the Company and its subsidiaries propose to raise funds by issuing bonds, bank loans, and other channels. In order to reduce financing costs, the Company or its subsidiaries may provide financing guarantees for its wholly-owned subsidiaries. Meanwhile, in order to enhance the external operation capability of the Company’s subsidiaries in Hong Kong, Orient Finance Holdings, a wholly-owned subsidiary of the Company, proposes to provide non-financing guarantees for its wholly-owned subsidiaries. In accordance with the relevant laws and regulations, the Articles of Association and the Measures to Manage External Guarantees of the Company, expected provision of guarantees during the period from the date when this proposal is considered and approved at the AGM to the date of the 2020 annual general meeting of the Company is projected and the following matters are proposed for consideration and approval at the AGM:

(i) Financing guarantees

Limitation of the guarantees: the total amount of additional Guarantees provided by the Company and its subsidiaries within the validity period of authorization shall not exceed 20% of the latest audited net assets of the Company, and the amount of each separate guarantee shall not exceed 10% of the latest audited net assets of the Company.
Types of the guarantees: including but not limited to providing guarantees for onshore or offshore debt financing instrument(s) issued through public or non-public issuances (including but not limited to ordinary bonds, subordinated bonds, ultra short-term financing bills, short-term financing bills, medium-term notes), or loans granted from onshore or offshore financial institutions (including but not limited to bank credit, bank loans and syndicated loans).
Models of the guarantees: collateralization include guarantees, security, pledges, and other models as stipulated under the provisions of the relevant laws and regulations.
Targets of the guarantees: directly and indirectly holding wholly-owned subsidiaries of the Company (including those with the gearing ratio over 70%).
Validity period of authorization: the aforementioned guarantees shall be valid from the date of consideration and approval of the guarantees by the AGM to the date of the 2020 annual general meeting.

– 9 –

LETTER FROM THE BOARD

Authorization: it is proposed to the AGM for the shareholders to authorize the Board and agree the Board in turn to further authorize the management to, at its/their sole discretion, execute all documents in connection with the aforementioned guarantees, obtain approvals from and handle filing with the relevant regulatory authorities and all other relevant matters, and to fulfill the obligation of information disclosure in a timely manner in accordance with the relevant laws and regulations upon the provision of letters of guarantees or issuance of guarantee documents for the Company’s wholly-owned subsidiaries.

(ii) Non-financing guarantees

Limitation of the guarantees: the total amount of additional guarantees provided by Orient Finance Holdings within the validity period of authorization shall not exceed US$2.15 billion and the amount guaranteed shall be calculated subject to the agreed amount as set out in the guarantee agreement or the limit of risk monitoring indicators.
Types of the guarantees: including but not limited to providing guarantees for non-financing transactions such as International Swaps and Derivatives Association (ISDA), Master Clearing Agreement, Bond Market Association/International Securities Market Association Global Master Repurchase Agreement (TBMA/ISMA GMRA), Master Brokerage Service Agreement, physical trading of precious metals, brokerage business, and issuance of structured notes.
Models of the guarantees: collateralization include guarantees, security, pledges, and other models as stipulated under the provisions of the relevant laws and regulations.
Targets of the guarantees: wholly-owned subsidiaries directly or indirectly held by Orient Finance Holdings (including those with the gearing ratio over 70%).
Validity period of authorization: the aforementioned guarantees shall be valid from the date of consideration and approval of the guarantees by the AGM to the date of the 2020 annual general meeting.
Authorization: it is proposed to the AGM to authorize the Board and agree the Board in turn to further authorize the management to, at its/their sole discretion, execute all documents in connection with the aforementioned guarantees, obtain approvals from and handle filing with the relevant regulatory authorities and all other relevant matters, and to fulfill the obligation of information disclosure in a timely manner in accordance with the relevant laws and regulations upon the provision of letters of guarantees or issuance of guarantee documents for the Company’s wholly-owned subsidiaries.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

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LETTER FROM THE BOARD

10. The proposal regarding the engagement of auditing firms for the year 2020

An ordinary resolution will be proposed at the AGM to consider and approve the proposal regarding the engagement of accounting firms for the year 2020. Details are as follows:

According to the supervisory regulations of the places where the Company’s securities are listed, the Company appoints accounting firms as the domestic and overseas auditors of the Company which were responsible for provision of relevant audit services in accordance with the PRC Accounting Standards for Business Enterprises and the International Financial Reporting Standards. Pursuant to the resolution approved on the 2018 annual general meeting of the Company, the Company appointed Deloitte Touche Tohmatsu Certified Public Accountants LLP as the domestic auditor for the year of 2019 and Deloitte Touche Tohmatsu as the overseas auditor for the year of 2019. During serving for the Company as auditors for the year of 2019, Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu followed auditing standards and other laws and regulations, adhered to professional ethics, showed strong professional competence and good abilities to perform their duties diligently, fulfilled effectively the responsibilities that the auditors should perform, and completed their audits independently, objectively and impartially.

It is therefore proposed to the AGM to consider the following matters:

The Board proposes that Deloitte Touche Tohmatsu Certified Public Accountants LLP be reappointed as the domestic auditor of the Company for the year of 2020 and as the internal control auditor of the Company for the year of 2020, and will be responsible for provision of relevant audit services in accordance with the PRC Accounting Standards for Business Enterprises for a period of one year. In 2020, the financial and special regulatory reporting auditing fees amount to RMB1.19 million, and the internal control auditing fees amount to RMB420,000.
The Board proposes that Deloitte Touche Tohmatsu be reappointed as the overseas auditor of the Company for the year of 2020, and will be responsible for provision of relevant audit and review services in accordance with the International Financial Reporting Standards for a period of one year. In 2020, the financial reporting auditing fees amount to RMB1.19 million, and the semi-annual reviewing fees amount to RMB600,000.
If there is any increase to the auditing fees due to the change in auditing content, it is proposed that the AGM authorizes the Company’s management to determine the auditing fees in accordance with market principles and sign relevant contracts.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

– 11 –

LETTER FROM THE BOARD

11. The proposal in relation to the election of non-executive director of the Company

Reference is made to the announcement of the Company dated March 27, 2020 in relation to the proposed appointment of non-executive Director. An ordinary resolution will be proposed at the AGM to consider and approve the election of Mr. ZHOU Donghui (“ Mr. ZHOU ”) as a non-executive Director.

The biography of Mr. ZHOU is as follows:

Mr. ZHOU Donghui ( 周東輝 ), a Chinese national, born in April 1969, a member of the Communist Party of China, holds a bachelor’s degree in accounting and is a senior accountant. He is currently a director and general manager of Shanghai Haiyan Investment Management Company Limited ( 上海海煙投資管理有限公司 ). From July 1991 to September 2000, he served as clerk and deputy chief of the financial department of Shanghai Tobacco (Group) Company ( 上海煙草（集團）公司 ), from September 2000 to September 2008, he served as deputy manager and manager of the financial department of China Tobacco Shanghai Import and Export Co., Ltd. ( 中國煙草上海進出口有限責任公司 ), from September 2008 to April 2011, he served as deputy director of the investment management department of Shanghai Tobacco (Group) Company (now renamed as Shanghai Tobacco Group Co., Ltd. ( 上海煙草集團有限責任公司 )), from August 2010 to April 2011, he served as deputy general manager of Shanghai Haiyan Investment Management Company Limited, from April 2011 to February 2015, he served as deputy director of financial department and deputy director of fund management center of Shanghai Tobacco Group Co., Ltd., from February 2015 to July 2015, he served as standing deputy director of investment department of Shanghai Tobacco Group Co., Ltd. and standing deputy general manager (department-level) of Shanghai Haiyan Investment Management Company Limited, from July 2015 to September 2016, he served as director of investment department of Shanghai Tobacco Group Co., Ltd. and general manager of Shanghai Haiyan Investment Management Company Limited and has served as general manager of Shanghai Haiyan Investment Management Company Limited since September 2016.

As at the Latest Practicable Date and to the best of the Board’s knowledge, during the past three years, Mr. ZHOU has not held any directorship in any public company whose securities are listed on any securities market in Hong Kong or overseas. As at the Latest Practicable Date, Mr. ZHOU is not connected with any other directors, supervisors, senior management or substantial Shareholders of the Company. Mr. ZHOU has no interest in the shares of the Company or any of its associated corporations within the meaning of Part XV of the SFO.

Save as disclosed in this circular, there is no information that needs to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Hong Kong Listing Rules, nor is there anything that needs to be brought to the attention of Shareholders in relation to the appointment of Mr. ZHOU. Mr. ZHOU has never been subject to any punishment by the CSRC or other related authorities or any sanction by stock exchanges.

As at the Latest Practicable Date, the Company has not entered into any service contract with Mr. ZHOU in relation to his position as a non-executive director of the Company. Mr. ZHOU will not receive remunerations from the Company during his tenure as a non-executive Director.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

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LETTER FROM THE BOARD

12. The proposal in relation to the Shareholders’ returns in the next three years (2020-2022)

An ordinary resolution will be proposed at the AGM to consider and approve the proposal in relation to the Shareholders’ returns in the next three years (2020-2022). Details are as follows:

Pursuant to the Company Law, the Notice Regarding Further Implementation of Cash Dividend Distribution of Listed Companies (《關於進一步落實上市公司現金分紅有關事項的通知》) and Listed Companies Regulatory Guidance No. 3 – Cash Dividends Distribution of Listed Companies (《上市公司監管指引第 3 號 – 上市公司現金分紅》), both issued by the CSRC, the Guideline on the Distribution of Cash Dividends by Listed Companies of the Shanghai Stock Exchange (《上海證券交易所上市公司現金分紅指引》) issued by the Shanghai Stock Exchange and the Articles of Association, the Board has formulated and proposes to adopt the Shareholders’ Return Plan for the Next Three Years (2020-2022), which was prepared in the Chinese language.

The Shareholders’ Return Plan for the Next Three Years (2020-2022), which was prepared in the Chinese language, is set out in Annex VI of this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

SPECIAL RESOLUTIONS

13. The proposal regarding the general mandate to issue onshore debt financing instruments of the Company

Reference is made to the announcement of the Company dated March 27, 2020 in relation to the proposed general mandate to issue onshore debt financing instruments. A special resolution will be proposed at the AGM to consider and approve the proposal regarding the general mandate to issue onshore debt financing instruments of the Company, details of which are set out in Annex VII of this circular.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

– 13 –

LETTER FROM THE BOARD

14. The proposal regarding the amendments to certain articles of the Articles of Association

Reference is made to the announcement of the Company dated March 27, 2020 in relation to the proposed amendments to certain articles of the Articles of Association. A special resolution will be proposed at the AGM to consider and approve the proposal regarding the amendments to certain articles of the Articles of Association. Details are as follows:

In order to further improve the corporate governance of the Company, in accordance with the Regulations on Equity Management of Securities Companies newly promulgated by the CSRC in 2019, the newly amended Guidelines on Articles of Association of Listed Companies and the Official Reply of the State Council on the Adjustment of the Notice Period for the General Meeting and Other Matters Applicable to the Overseas Listed Companies and other regulations, and based on the actual conditions of the Company and the requirements of the regulatory authorities, it is proposed to amend certain articles of the Articles of Association. The primary considerations, together with the specific content for such amendments are set out below:

to amend and supplement relevant provisions regarding equity management in the Articles of Association. The Regulations on Equity Management of Securities Companies promulgated by the CSRC in July 2019 imposed new requirements on equity management of securities companies. To implement such regulatory stipulations, it is proposed to amend and supplement relevant articles in relation to equity management in the Articles of Association.
to amend and refine other articles regarding standardized operation in the Articles of Association. To meet the new requirements put forward in the Guidelines on Articles of Association of Listed Companies amended by the CSRC in April 2019, it is proposed to amend and refine corresponding articles in the Articles of Association.
to streamline and optimize articles regarding business scope in the Articles of Association. Pursuant to the administrative approval feedback requirements of the CSRC bureau and regulatory stipulations of the Regulations on Management of Private Equity Fund Subsidiaries of Securities Companies, the Regulations on Management of Alternative Investment Subsidiaries of Securities Companies and the Letter Concerning the Opinions of Subsidiaries of Securities Fund Business Institutions on Regulating the Work in Relation to Rectification, it is proposed to further streamline and optimize the articles in relation to business scope in the Articles of Association.
to amend and optimize articles regarding the notice period and convening procedures of shareholders’ general meetings. Pursuant to the Official Reply of the State Council on the Adjustment of the Notice Period for the General Meeting and Other Matters Applicable to the Overseas Listed Companies issued by the State Council to the CSRC in October 2019, it is proposed to make corresponding amendments to articles in relation to the notice period and convening procedures of shareholders’ general meetings in the Articles of Association.

Please see Annex VIII of this circular for the details of the amendments.

– 14 –

LETTER FROM THE BOARD

The above amendments to the Articles of Association are subject to approval of the Shareholders at the AGM. It is also proposed at the AGM to authorize and approve the Board to delegate to the management to make textual amendments to the Articles of Association in accordance with the opinions of regulatory authorities. The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

15. The proposal in relation to the granting of general mandate to the Board to issue additional A and/or H Shares

Reference is made to the announcement of the Company published on March 27, 2020 in relation to proposed grant of general mandate to the Board to issue additional A Shares and/or H Shares of the Company. A special resolution will be proposed at the AGM to consider and approve the proposal in relation to the granting of general mandate to the Board to issue additional A Shares and/or H Shares. Details are as follows:

According to the Hong Kong Listing Rules and the Articles of Association, in order to seize the market opportunity, ensure flexibility in issuing new shares, and following the practice of A+H listed companies, it is proposed at the AGM to approve the granting of general mandate to the Board via special resolution, authorizing the Board to determine the issuance, allotment and deal with new shares individually or simultaneously not exceeding 20% of the respective issued domestic shares (A shares) and/ or overseas listed foreign shares (H shares) at the time of approval of the proposals at the AGM.

1. Subject of General Mandate

Particulars of the mandate include but is not limited to:

(i) grant the Board general mandate within the validity period of the authorization (as defined below) to decide to issue, allot and deal with additional shares in the Company’s A Share and/or H Share capital individually or simultaneously according to market conditions and the needs of the Company, and to sign necessary documents, go through necessary procedures and take other necessary actions to complete such matters.
(ii) the number of A Shares and/or H Shares to be issued, allotted and dealt with by the Board, or to be issued, allotted and dealt with or without conditions, shall not exceed:
20% of the number of the A Shares issued by the Company on the date when such proposal is approved at the AGM; and/or
20% of the number of the H Shares issued by the Company on the date when such proposal is approved at the AGM.

– 15 –

LETTER FROM THE BOARD

(iii) authorize the Board to formulate and implement specific issuance plans when exercising the above general mandate, including but not limited to the type of new shares to be issued, pricing method and/or issuance price (including price range), issuance quantity, issuance target and investment target of proceeds, etc., determine the time of issuance and period, and determine whether to place to existing Shareholders.
(iv) authorize the Board to engage intermediary agency(ies) for the purpose of the issuance, approve and sign all acts, deeds, documents and other related matters necessary, appropriate, desirable or related to the issuance; to consider, approve and sign agreements related to the issuance on behalf of the Company, including but not limited to placing and underwriting agreements, engagement agreements for intermediary agency(ies), etc..
(v) authorize the Board to consider and approve and sign legal documents related to issuance to be submitted to relevant regulatory authorities on behalf of the Company. Perform relevant approval procedures, and handle all necessary archiving, registration and filing procedures with relevant government departments in Hong Kong and/or any other regions and jurisdictions (if applicable) according to the requirements of the regulatory authority, the stock exchanges where the Company’s shares are listed and the regulatory authority.
(vi) authorize the Board to amend the relevant agreements and legal documents in items (iv) and (v) above according to the requirements of domestic and overseas regulatory agencies.
(vii) authorize the Board to approve the Company to increase its registered capital after issuing new Shares and to amend the Articles of Association in relation to the total amount of share capital, equity structure and other relevant contents, and authorize the Company’s management to handle relevant procedures.

– 16 –

LETTER FROM THE BOARD

2. Validity Period of Authorization

The above authorization shall not exceed the validity period of the authorization unless the Board enters into or grants an offer proposal, agreement or purchase right for the issuance of A Shares and/or H Shares within the validity period of the authorization, and the offer proposal, agreement or purchase right may need to be further promoted or implemented after the expiration of the validity period of the authorization.

The “validity period of authorization” shall commence from the date of approval by special resolution at the AGM and terminate on the earliest of the followings:

(i) conclusion of the 2020 annual general meeting of the Company;
(ii) 12 months from approval of the proposal at the AGM via special resolution;
(iii) the date on which any general meeting adopts a special resolution to revoke or change the authorization mentioned in the proposal.

If the Board has signed necessary documents, gone through necessary procedures or taken relevant actions within the validity period of the authorization, and such documents, procedures or actions may need to be performed at or after the end of the validity period of the authorization, or carried out or continued to be completed after the end of the validity period of the authorization, the validity period of the authorization will be extended accordingly.

The Board may exercise the power under the above general mandate only if it complies with the Company Law, the Securities Law and the Hong Kong Listing Rules (as amended from time to time) and has obtained all necessary approvals from the CSRC and/or other relevant Chinese government agencies.

Meanwhile, it will be proposed at the AGM to approve the Board to delegate the above authorization to the chairman of the Board and the president of the Company, jointly or separately sign, execute, modify, complete and submit all agreements, contracts and documents related to the issuance, allotment and dealing with shares under the general mandate, unless otherwise provided by laws and regulations.

The aforesaid resolution was considered and approved by the Board on March 27, 2020 and is hereby proposed at the AGM for consideration and approval.

– 17 –

LETTER FROM THE BOARD

READING MATERIALS – 2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

Pursuant to the requirements of the Rules of General Meeting of Listed Companies (《上市公司股東大會規則》) issued by the CSRC, independent Directors shall present a duty performance report at the AGM. Such report will be presented at the AGM, but no Shareholder’s resolution is required. The duty performance report of the independent Directors of the Company is made available to the Shareholders in Annex III of this circular. In the event of any discrepancy between the English translation and the Chinese version of the document, the Chinese version shall prevail.

ANNUAL GENERAL MEETING

The AGM of the Company will be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the PRC on Friday, May 15, 2020 at 2:00 p.m. The notice of the AGM is set out on pages 20 to 23 of this circular.

The register of members of H Shares of the Company will be closed from Wednesday, April 15, 2020 to Friday, May 15, 2020 (both days inclusive), during which time no share transfers of H Shares will be effected. Purchasers of H Shares who have submitted their instruments of share transfer to the H Share Registrar of the Company and registered as Shareholders on the register of members of H Shares of the Company before 4:30 p.m. on Tuesday, April 14, 2020 are entitled to attend and vote in respect of all resolutions to be proposed at the AGM. In order to attend the AGM, holders of H Shares should ensure that all transfer documents, accompanied by the relevant H Share certificates, are lodged with the H Share Registrar at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, before 4:30 p.m. on Tuesday, April 14, 2020.

Reply slip and the form of proxy for the AGM have been distributed on Tuesday, March 31, 2020 and have also been published on the website of Hong Kong Stock Exchange (www.hkexnews.hk) and the Company’s website (www.dfzq.com.cn). Shareholders intending to attend the AGM in person or by their proxies should complete and return the reply slip for attending the AGM to the H Share Registrar (for holders of H Shares) on or before Saturday, April 25, 2020.

To be valid, for holders of H Shares, the form of proxy and notarized power of attorney or other document of authorization must be delivered to the H Share Registrar not less than 24 hours before the time appointed for the AGM (i.e. 2:00 p.m. on Thursday, May 14, 2020). Completion and return of the form of proxy will not preclude you from attending and voting at the AGM in person if you so wish.

In accordance with the provisions of the relevant PRC laws and regulations, in relation to resolution No. 8 at the AGM, the relevant related Shareholders shall abstain from voting on the related proposals, respectively.

– 18 –

LETTER FROM THE BOARD

HONG KONG LISTING RULES REQUIREMENT

According to Rule 13.39(4) of the Hong Kong Listing Rules, any vote of shareholders at a general meeting must be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. Therefore, all resolutions at the AGM will be taken by way of a poll.

Save as mentioned above, to the best knowledge of the Directors, as at the Latest Practicable Date, no Shareholder has a material interest in any of the above resolutions and therefore no Shareholder is required to abstain from voting in respect of the above resolutions at the AGM.

RESPONSIBILITY STATEMENT

This circular, for which the Directors 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 other matters the omission of which would make any statement herein or this circular misleading.

RECOMMENDATION

The Board believes that all the resolutions mentioned above are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that all Shareholders to vote in favor of the relevant resolutions to be proposed at the AGM as set out in the notice of the AGM set out in this circular.

Yours faithfully, By order of the Board PAN Xinjun Chairman

– 19 –

NOTICE OF ANNUAL GENERAL MEETING

(Stock Code: 03958)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual General Meeting (the “ Annual General Meeting ”) of 東方證券股份有限公司 (the “ Company ”) will be held at Meeting Room, 15/F, No. 119 South Zhongshan Road, Shanghai, the People’s Republic of China (the “ PRC ”) on Friday, May 15, 2020 at 2:00 p.m., for the following purposes:

ORDINARY RESOLUTIONS

To consider and approve the report of the Board of Directors of the Company for the year 2019.
To consider and approve the report of the Supervisory Committee of the Company for the year 2019.
To consider and approve the final accounts report of the Company for the year 2019.
To consider and approve the profit distribution proposal of the Company for the year 2019.
To consider and approve the annual report of the Company for the year 2019.
To consider and approve the proposal regarding the proprietary business scale of the Company in 2020.
To consider and approve the proposal regarding the conduction of asset-backed securitization business with the Company’s credit assets from its financing businesses.
To consider and approve the proposal regarding the projected routine related-party transactions of the Company in 2020, including:
8.01 Routine related-party transactions with Shenergy (Group) Company Limited and its related companies;
8.02 Routine related-party transactions with other related parties.

– 20 –

NOTICE OF ANNUAL GENERAL MEETING

To consider and approve the proposal regarding the expected provision of guarantees by the Company in 2020.
To consider and approve the proposal regarding the engagement of auditing firms for the year 2020.
To consider and approve the proposal in relation to the election of non-executive director of the Company.
To consider and approve the proposal in relation to the shareholders’ returns in the next three years (2020-2022).

SPECIAL RESOLUTIONS

To consider and approve the proposal regarding the general mandate to issue onshore debt financing instruments of the Company, including:
13.01 Issue size of the debt financing instruments;
13.02 Issue type of the debt financing instruments;
13.03 Issue term of the debt financing instruments;
13.04 Interest rate and basis of determination of the debt financing instruments;
13.05 Issue method and issue target;
13.06 Use of proceeds;
13.07 Authorisation matters;
13.08 Validity period of resolution.
To consider and approve the proposal regarding the amendments to certain articles of the articles of association of the Company.
To consider and approve the proposal regarding the general mandate to the Board of Directors of the Company to issue additional A and/or H shares of the Company.

By order of the Board of Directors PAN Xinjun

Chairman

Shanghai, the PRC March 31, 2020

– 21 –

NOTICE OF ANNUAL GENERAL MEETING

Notes:

1. Eligibility for attending the Annual General Meeting and date of registration of holders for H Shares

In order to attend this Annual General Meeting, holders of H Shares should ensure that all transfer documents, accompanied by the relevant share certificates, are lodged with the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, before 4:30 p.m. on Tuesday, April 14, 2020.

2. Proxy

(1) Each shareholder entitled to attend and vote at the Annual General Meeting may appoint one or more proxies in writing to attend and vote on his behalf. A proxy need not be a shareholder of the Company.
(2) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorized in writing, or if the appointor is a legal entity, either under seal or signed by a director or a duly authorized attorney. If that instrument is signed by an attorney of the appointor, the power of attorney authorizing that attorney to sign or other document of authorization must be notarized.

To be valid, for holders of H Shares, the form of proxy and notarized power of attorney or other document of authorization must be delivered to the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 24 hours before the time appointed for the Annual General Meeting (i.e. before 2:00 p.m. on Thursday, May 14, 2020).

3. Registration procedures for attending the Annual General Meeting

(1) A shareholder or his proxy should present proof of identity when attending the Annual General Meeting. If a shareholder is a legal person, its legal representative or other person authorized by the board of directors or other governing body of such shareholder may attend the Annual General Meeting by providing a copy of the resolution of the board of directors or other governing body of such shareholder appointing such person to attend the meeting.
(2) Shareholders intending to attend the Annual General Meeting in person or by their proxies should complete and return the reply slip for attending the Annual General Meeting to the Company’s H Share Registrar, Computershare Hong Kong Investor Services Limited (for holders of H Shares), at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong on or before Saturday, April 25, 2020.

4. Voting by poll

According to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, any vote of shareholders at a shareholders’ general meeting must be taken by poll.

– 22 –

NOTICE OF ANNUAL GENERAL MEETING

5. Miscellaneous

(1) The Annual General Meeting is expected to be held for no more than half a day. Shareholders who attend the meeting in person or by proxy shall bear their own travelling and accommodation expenses. In addition, in order to get well prepared for the containment of COVID-19 pneumonia epidemic and protect people who will attend the meeting, shareholders who wish to attend the Annual General Meeting on-site must pay attention in advance and strictly abide by the regulations and requirements of Shanghai on health status declaration, quarantine and observation during the epidemic containment period. The Company will strictly follow the epidemic containment requirements of relevant government departments and take appropriate epidemic prevention and control measures for the on-site Shareholders under the guidance and supervision of relevant government departments. Shareholders who have fever and other symptoms or do not comply with the epidemic prevention and control requirements may not be admitted to the venue of the Annual General Meeting.
(2) The address of Computershare Hong Kong Investor Services Limited is:

17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

(3) The registered office of the Company:

22/F, 23/F and 25-29/F Building 2, No. 318 South Zhongshan Road Shanghai The People’s Republic of China

Contact office: Office of the Board Telephone No.: 86 (21) 6332 6373 Facsimile No.: 86 (21) 6332 6010 Contact Person: Mr. DENG Haipeng

(4) Please refer to the circular of the Company in relation to the Annual General Meeting to be published on or before Friday, April 24, 2020 for details of the resolutions to be proposed at the Annual General Meeting for consideration and approval.

As at the date of this notice, the Board of Directors comprises Mr. PAN Xinjun and Mr. JIN Wenzhong as executive Directors; Mr. LIU Wei, Mr. WU Junhao, Mr. LI Xiang, Ms. XIA Jinghan, Mr. XU Jianguo and Mr. CHEN Xiaobo as non-executive Directors; and Mr. XU Guoxiang, Mr. TAO Xiuming, Mr. WEI Anning, Mr. XU Zhiming and Mr. JIN Qinglu as independent non-executive Directors.

– 23 –

2019 REPORT OF THE BOARD

ANNEX I

Dear Shareholders,

The 2019 annual work report and 2020 annual work plan of the Board is set out below according to relevant requirements of laws and regulations and the Articles of Association:

In 2019, China’s economy has been facing downward pressure, complicated international situation and severe challenges. Multiple policies on the opening-up of the financial sector were released, while the reform of the capital market was accelerating. The overall keynote of “risk prevention” of financial regulation remained unchanged. The stock market and bond market picked up. Throughout the year, the SSE Composite Index, the Shenzhen Component Index and the GEM Index rose by 22.30%, 44.08% and 43.79%, respectively, and the ChinaBond Total Net Price (Total Value) Index rose by 0.65%; the daily average trading volume of stocks transactions in SSE and Shenzhen Stock Exchange amounted to RMB519.981 billion, representing a year-on-year increase of 40.94%; and the balances of margin financing and securities lending business as of the end of 2019 was RMB1,019.285 billion, representing a rise of 34.88% as compared to the end of the previous year. In 2019, the securities industry recorded a significant improvement in performance with operating revenue and net profit increasing by 35.37% and 84.77% year-on-year, respectively.

In face of the complicated market condition, the Board of the Company formulated scientific decisions based on well-grounded judgments of the situation. In accordance with the requirements of the three-year strategic planning and by adhering to the keynote of “risk prevention and steady growth”, the Board considered both the long-term strategies and key tasks of the year, consolidated advantageous businesses, reinforced basic businesses, further optimized business structure, strengthened the application of financial technology, deepened the integration of industry and finance, boosted the synergy within the Group, intensified the management of compliance risk control and fully grasped market opportunities. As a result, the Company achieved rapid improvement in operating performance and increasing strength, and maintained a relatively stable position in the industry.

I. PRINCIPAL OPERATION OF THE COMPANY IN 2019

(i) Key Financial Indicators

In 2019, the Company realized consolidated operating income of RMB19.052 billion, representing a year-on-year increase of 84.91%, and a net profit attributable to the parent company of RMB2.435 billion, representing a year-on-year increase of 97.81%. As of the end of the year, the total assets of the Company amounted to RMB262.971 billion, representing an increase of 15.91% over the end of the previous year, and the net assets attributable to the parent company amounted to RMB53.966 billion, representing an increase of 4.30% over the end of the previous year.

(ii) Principal Operation

In 2019, the Company actively grasped the market opportunity, achieved substantial growth in operating performance, steadily improved asset scale and comprehensive strength, and maintained a stable position in the industry. At the same time, the Company took measures to prevent and control risks, and was rated as a “Grade A of Class A” company among securities companies.

– I-1 –

2019 REPORT OF THE BOARD

ANNEX I

1. Steady return of investment business

In terms of equity investment business, by upholding the value investment philosophy, the Company capitalized on the advantages of conventional investment research to deepen industry research and explore the investment value of individual stocks, and achieved a substantial increase in performance on a year-on-year basis. In terms of bond investment, the Company implemented strict control on credit risk, actively optimized the position structure and effectively kept align with the market rhythm, thus maintaining excellent investment performance. In addition, it obtained the operation qualification of settlement and sale of foreign exchange business. The Company’s derivatives business represented by quantitative trade and OTC derivatives achieved healthy operation.

2. Positive progress in the transformation of wealth management business

The Company pushed forward the transformation from the brokerage business to wealth management business, grasped market opportunities and consolidated basic business. As a result, the product design and allocation ability of the Company has been effectively enhanced, the wealth management influence and channel competitiveness was greatly enhanced, and remarkable results were achieved in institutional client development. In terms of securities financing business, the Company’s balance of margin financing and securities lending amounted to RMB12.853 billion, representing a year-on-year increase of over 30%. The Company strengthened the management of existing projects of collateralized stock by continuously focusing on “risk control and scale reduction”, and the scale of the collateralized stock business decreased by nearly RMB5 billion during the year.

3. Building investment banking business throughout the industrial chain

Fruitful results in underwriting of stocks and bonds were achieved due to the Company’s flexible response to market changes. In 2019, the Company recorded an underwriting amount of RMB87.578 billion as lead underwriter in bond underwriting business. The sales of interest rate bonds of the Company remained in the forefront of the industry, with the underwriting amount of book-entry bonds, CDB financial bonds and Agricultural Development Bank financial bonds all ranking in the top two in the industry and the underwriting amount of local government bonds ranking among top three in the industry. On basis of conventional underwriting, the Company actively prepared for the Sci-Tech Innovation Board through increasing the synergy within the Group in the terms of business and resources. Citi Orient, in collaboration with subsidiaries of the Company in Hong Kong, issued several US dollar bonds, successfully opening up the process of contracting and issuing US dollar bonds in Mainland China and Hong Kong.

– I-2 –

2019 REPORT OF THE BOARD

ANNEX I

4. Sound collectivized development

Orient Futures recorded a year-on-year increase of 73% in newly opened accounts, in which, the number of newly opened accounts from institutional clients recorded a year-on-year increase of 104%, with the market share in terms of trading volume ranking first in the industry. Furthermore, Orient Futures set up Orient Futures International (Singapore) ( 東證期貨國際（新加坡）公司 ).
Orient Securities Asset Management ranked second in the industry in terms of operating income, and its management scale steadily increased with discretionary management assets accounting for up to 99.26%. By practicing to the concept of value investment, Orient Securities Asset Management was well recognized for its investment and research strength, evidenced by its absolute yields of the equity funds in recent three years and five years both ranking first in the industry.
Citi Orient completed 11 equity financing projects with the underwriting amount as lead underwriter of RMB10.878 billion, reaching a year-on-year increase of 52.7%; completed 73 bond financing projects with a total financing amount of RMB60.297 billion; and completed 1 listing and 1 application for listing on the Sci-Tech Innovation Board.
Orient Finance Holdings completed the adjustment of organizational structure, and set up a new platform for international development of “management platform + business platform + professional subsidiaries”. Orient Securities International effectively improved its operating performance through consolidating the advantages of proprietary bonds business and optimizing its business structure with significantly enhanced market competitiveness.
Orient Securities Capital Investment has a diversified investment portfolio with 43 funds under management and a total scale of RMB11.861 billion. A number of its investment projects successfully underwent IPO. In particular, it participated in 8 projects applying for listing on the Sci-Tech Innovation Board, 5 of which completed listing.
Orient Securities Innovation Investment steadily promoted the acquisition and disposal of special assets to consolidate business strength. In 2019, it invested in 12 new special asset projects with a total investment of RMB2.25 billion. It continued to strengthen the analysis of investment targets on the Sci-Tech Innovation Board to implement the co-investment system of the Sci-Tech Innovation Board.
The management scale of China Universal exceeded RMB700 billion, and its management scale of domestic active stock funds and the scale of new public offering funds in 2019 both ranked first among peers. China Universal’s stock funds ranked top in terms of the past 5-year and 10-year yield.

– I-3 –

2019 REPORT OF THE BOARD

ANNEX I

II. MAJOR WORK OF THE BOARD IN 2019

(i) Due diligence, scientific decision-making

In 2019, the Board focused on the consideration and decision on the Company’s major issues. Throughout the year, the Company held a total of 9 Board meetings, in which, 3 meetings were held on site and 6 meetings were via correspondence. Firstly, matters relating to daily operation including the Company’s annual business plan, allocation of assets and liabilities, acquisition of partial equity interests in Citi Orient, allowance of asset impairment and related transactions were determined and followed up. Secondly, major decisions on organization and systems were considered and approved. The Board considered and passed the matters related to adjustment of the Company’s equity investment and the establishment of trading headquarters according to its actual needs.

In strict compliance with relevant requirements of laws and regulations and the Articles of Association, the Board of the Company performed its duty as a convener of the Shareholders’ general meeting diligently. The 2018 annual general meeting was convened, at which the Board considered or listened to a total of 12 proposals or reports, which practically protected the rights of Shareholders.

(ii) Continuously improving corporate governance

In order to continuously meet the requirements for a listed company of both A Shares and H Shares, the Board actively improved the corporate governance. The first was to make amendment and improvement to the Articles of Association and other systems according to the requirements of domestic and foreign laws and regulations. The second was to optimize and improve the performance assessment and compensation market-oriented mechanism of the Company’s management. The third was to constantly enhance management over related-party/connected transactions and external guarantees. The fourth was to attach great importance to self-building including services of Directors and trainings for members of the Board through organizing and participating in relevant trainings and preparing the Board Brief to improve their ability to perform duties. The fifth was to establish good relations with stakeholders, to build the “people-oriented home culture”, and to continuously carry out various types of public welfare and poverty alleviation undertakings to proactively perform the corporate social responsibility.

(iii) Strictly performing information disclosure responsibility

As a listed company of both A Shares and H Shares, the requirements for the authenticity, accuracy, completeness, timeliness and fairness of information disclosure have been further enhanced, so the Company has shouldered more responsibilities. The compliance and effectiveness of information disclosure will have an important impact on the Company’s sustainable development. In strict accordance with the requirements of the rules governing the listing of securities on the SSE and the Hong Kong Stock Exchange, the Board studied and implemented new rules and regulations of both the SSE and the Hong Kong Stock Exchange, and strictly regulated review processes and procedures to ensure that the Company performed its information disclosure obligations more accurately, completely and efficiently. In 2019, the Company prepared and disclosed in aggregate 4 periodic reports, issued 82 temporary announcements, 12 monthly financial data briefings and 12 monthly returns on movements in securities. Furthermore, the Company continuously optimized information disclosure operating system and improved tis functioning effectiveness.

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2019 REPORT OF THE BOARD

ANNEX I

(iv) Carrying out sound management on investor relations

The Board of the Company attached great importance to management on investor relations. Standardized and professional management on investor relations is not only a listed company’s obligation, but also an effective means to build a brand image and reflect corporate values. Under the guidance of the Board, the Company has continuously enriched investor relations management channels and strengthened communication with investors through a special investor hotline and mails, SSE E-Interaction ( 上證 E 互動 ), performance roadshows and other forms. In 2019, the Company organized and participated in 59 investor exchange activities of various types, covering more than 50 institutional investors, more than 100 domestic and foreign analysts, and more than 300 investors of various types. Meanwhile, the Company answered a total of 137 questions from various investors through “SSE E-Interaction” platform and online investor reception conference.

(v) Strengthening coordination within the Group

In 2019, the Company vigorously promoted the collaboration within the Group from top to bottom, and made a series of progress in terms of guiding principles, system and mechanism, business development, and system construction. Firstly, it defined the responsibility of the leadership of the Company and specified the responsible departments for the front-end and back-end work so as to push forward the collaboration within the Group through efforts of the whole Company. Secondly, the “Guiding Opinions on Further Promoting the Group’s Collaborative Work”(《關於進一步推進集團協同工作的指導意見》) was released, which further clarifies the work goals, major contents, mechanisms and systems to establish specific work direction. Thirdly, with the effective development of strategic customer services and year-on-year increase in coordinative revenue, the collaborative business model of the Company has initially taken shape through focusing on investment banking business to link with wealth management and cross-border cooperation. Fourthly, the first phase of the Group’s collaborative IT system for institutional customer information management platform and institutional customer integrated service collaboration platform has been completed, which effectively facilitates the collaborative work.

(vi) Continuously improving comprehensive risk management and compliance management system

In 2019, the Board of the Company continued to comply with the regulatory requirements, stick to the compliance bottom line, strengthen the concept of compliance by all staff and risk management and further optimize compliance and risk control management system, so as to enhance the compliance management and risk control. The Company established special disposal working group which is responsible for the disposal of default under the collateralized stock transaction, aiming to facilitate the effective resolving of related business risks.

In 2019, the Company was selected as the most popular listed companies by the Hong Kong-listed Companies Summit ( 港股上市公司峰會 ), won the “Best Corporate Governance Listed Company ( 最佳公司治理上市公司 )” award for China’s listed companies in 2019 sponsored by the Interface Financial Association, and was honored the title of “2019 Listed Companies with Greatest Value” by the Forbes, which further enhanced the reputation and influence of the Company.

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2019 REPORT OF THE BOARD

ANNEX I

We take this opportunity to express our heartfelt gratitude to the Shareholders, Directors, Supervisors and customers of the Company for their great support for the development of the Company. In the future development of the Company, given the gap between the development of the Company and the leading brokers, we need to further replenish capital, improve the Company’s market-oriented mechanism, and strengthen compliance and risk management, so as to effectively enhance the Company’s core competitiveness.

III. S P E C I F I C E X P L A N A T I O N O N D U T Y P E R F O R M A N C E , A P P R A I S A L A N D REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT IN 2019

(i) Duty performance, appraisal and remuneration of Directors

In 2019, all Directors of the Company lawfully, honestly and diligently fulfilled their statutory duties in compliance with relevant requirements of laws and regulations, the Listing Rules and the Articles of Association. The Directors actively attended the meetings of special committees and the Board meetings, carefully considered various issues, made recommendations and suggestions and provided professional opinions on important aspects including improvement of corporate governance, major operational decision-making, expansion of investment and financing channels, and enhancement of compliance and risk management, which ensured the scientific and standardized decision-making of the Board, pointed out an exact direction and laid down a solid foundation for seizing the opportunity of in-depth reform of the capital market, innovation and development in a timely and effectively manner to achieve a leaping development.

The Board of the Company held in aggregate 9 meetings during the year. Except for one Director who failed to attend one meeting for the reason of illness, all other Directors have attended the meetings in person or by entrusting other Directors, and the particulars of attendance of meetings are as follows:

	Required
	attendance
	during
	the reporting	Attendance
	period	in person	Attendance by	Absence
Directors	(times)	(times)	proxy (times)	(times)	Voting result
Pan Xinjun	9	9	0	0	Voting in favour of
					all proposals
					submitted for voting
Jin Wenzhong	9	9	0	0	Voting in favour of
					all proposals
					submitted for voting
Liu Wei	9	9	0	0	Voting in favour of
					all proposals
					submitted for voting

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2019 REPORT OF THE BOARD

ANNEX I

	Required
	attendance
	during
	the reporting	Attendance
	period	in person	Attendance by		Absence
Directors	(times)	(times)	proxy (times)		(times)	Voting result
Wu Junhao	9	8		1	0	Voting in favour of
			(Entrusted Liu Wei,			all proposals
			a Director, to vote			submitted for voting
			on his behalf at the
			fifteenth	meeting of
			the fourth session
			of	the Board)
Chen Bin	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Li Xiang	9	8		1	0	Voting in favour of
			(Entrusted Pan			all proposals
				Xinjun, the		submitted for voting
			chairman, to vote
			on his behalf at the
			fifteenth meeting
			of the fourth
			session of the
				Board)
Xia Jinghan	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Xu Jianguo	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Xu Guoxiang	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Tao Xiuming	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Wei Anning	9	9		0	0	Voting in favour of
						all proposals
						submitted for voting
Xu Zhiming	9	8		0	1	Voting in favour of
					(Failed to attend	all proposals
					the thirteenth	submitted for voting
					meeting of the
					fourth session of
					the Board for the
					reason of illness)

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2019 REPORT OF THE BOARD

ANNEX I

Required attendance during the reporting Attendance period in person Attendance by Absence Directors (times) (times) proxy (times) (times) Voting result Jin Qinglu 9 9 0 0 Voting in favour of all proposals submitted for voting Du Weihua 9 8 1 0 Voting in favour of (Entrusted all proposals Pan Xinjun, submitted for voting the chairman, to vote on his behalf at the fourteenth meeting of the fourth session of the Board)

In 2019, the Compliance and Risk Management Committee of the Board held four meetings, the Remuneration and Nomination Committee held three meetings and the Audit Committee held eight meetings. Each special committee, with well-defined terms of reference, conducted prior consideration on the proposals respectively, and put forward professional review opinions as reference for consideration of proposals to the Board, providing strong support to improve the scientific and forward-looking decision-making of the Board. Independent Directors were capable of diligently performing their duties to express their independent opinions and recommendations on the proposals, practically maintaining the interests of Shareholders, especially minority Shareholders, and promoting the standardized operation of the Company.

In 2019, except that the independent Directors received the allowance for independent Directors in accordance with the resolution of the Shareholders’ general meeting each year, and the chairman, president and vice presidents who is also employee representative Director received the remuneration which was included into the personnel appraisal in accordance with the relevant provisions, the remaining Directors did not receive any remuneration from the Company.

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2019 REPORT OF THE BOARD

ANNEX I

(ii) Duty performance, appraisal and remuneration of senior management

In 2019, all senior management of the Company lawfully, honestly, diligently and effectively fulfilled their duties of operation and management in compliance with relevant requirements of laws and regulations, relevant systems of the Company including the Articles of Association and resolutions of the Board and president’s office meeting. Under the guidance and support of the Board, the asset management, fixed income and proprietary trading businesses of the Company achieved desirable growth momentum, the collaborative and international development of the Group secured sound results, significant progress was made in innovation-driven transformation, and the sustained effectiveness was achieved for compliance and risk control efforts. As a result, the Company gained the A Grade of A Class rating, which laid a solid foundation for the three-year strategic planning and the new round of leapfrog development of the Company.

According to requirements of relevant systems of the Company, the Remuneration Committee and Nomination Committee of the Board are responsible for annual performance evaluation of operational management team after the end of each year.

In 2019, the legal representative (chairman), president, vice president and other management members of the Company received basic salary, performance related bonus and term incentive according to requirements of relevant systems, where the basic salary was determined according to remuneration coefficient, while performance related bonus was determined according to annual assessment results and annual assessment coefficient. For term incentive, it was subject to the cap of 40% of total remuneration during the tenure and was determined according to the assessment during the period of terms. The salary and performance related bonus management of other senior management personnel shall be implemented according to the relevant regulations of the Company.

For the remuneration of senior management of the Company, please refer to “Remunerations of Directors, Supervisors and Senior Management” in 2019 annual report of the Company.

IV. WORK PLAN FOR THE BOARD IN 2020

Year 2020 marks the crucial year to attain the decisive victory in building a well-off society in an all-round way and also the last year of the Company’s three-year strategic planning. In the context of the shift from high-speed growth to high-quality development of China’s economy, the core functions of the capital market serving the economic development were further strengthened. Major fundamental institutional reforms, such as the implementation of the amendments to the Securities Law, the Sci-Tech Innovation Board, and the registration mechanism, will bring both opportunities and challenges for the development of the industry. The securities industry will show a trend of market-oriented, standardization, internationalization, dominance by leading players, and technology-based development, and the ability of the securities industry to serve the development of the real economy and society will be further enhanced.

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ANNEX I

2019 REPORT OF THE BOARD

As an important intermediary institution in the capital market, the Company will continue to fulfill its duty of serving the development of the real economy and the management of social wealth around the strategic goal of “building up a modern investment bank which has the domestic first-class core competitiveness and provides comprehensive financial services for clients”. In 2020, the Company will firmly grasp the overall keynote of seeking progress while maintaining stability and maintain strategic concentration, so as to strive to improve the Company’s operating performance, and return investors with good performance through addressing weaknesses, strengthening the foundation, consolidating advantages, improving management, and continuously boosting compliance and risk management.

The Board of the Company will give a full play to its leading and decision-making role, diligently perform their duties, collectively make progress, oversee the overall situation, promote innovation, strictly control the risk and lead the development. In particular, the Board will focus on the following work:

(i) Further improving corporate governance and effectively performing the responsibility of information disclosure

Since the listing of A Shares and H Shares, the Company has established and continuously adapted to the regulatory requirements of the A Shares and H Shares on the standardized operation of listed companies and the construction of information disclosure system. In 2020, the Board of the Company will further improve the corporate governance system and raise the level of corporate governance in accordance with the regulatory requirements of the A Shares and H Shares. The Company shall strictly fulfill the information disclosure obligations, ensure the authenticity, accuracy, completeness, timeliness and fairness of information disclosure, and further improve the effectiveness of information disclosure, strengthen the management of investor relations, further establish and maintain a smooth channel for communication with domestic and foreign investors, and establish a good market image of the Company.

(ii) Strengthening the execution of the three-year strategic planning of the Company

The year 2020 will draw an end to the Company’s new three-year strategic planning. The Board will continue to closely focus on the three-year strategic planning through seizing opportunities, embracing challenges and strengthening implementation, to continue to give play to the leading and guiding role of the strategic planning, especially to strengthen and advance the implementation of the six strategic tasks, consolidate advantageous businesses and address weak businesses. We will further reinforce the management of domestic and overseas subsidiaries and branches, and facilitate the coordination throughout the Group and resource integration to increase the revenue contribution from coordination. Furthermore, according to the needs of the Company’s development, we will research, organize and carry out the capital operation related to the Company’s future development.

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2019 REPORT OF THE BOARD

ANNEX I

(iii) Deepening the innovation, transformation and development of the Company

The Board of the Company will create favorable conditions for the management to achieve the full-year operation target and continue to promote the innovation, transformation and development of the Company. The first is to take concerted efforts and resolutely win the battle against epidemic prevention and control. The second is to improve the comprehensive financial services provided to customers and continuously optimize the business structure. The third is to promote the development of innovative business and increase its revenue contribution. The fourth is to increase the integration and application of financial technology in key areas such as wealth management, investment business, and risk management.

(iv) Adhering to the bottom line of compliance and strengthening the overall risk management

In 2020, the industry regulation continues to stress that the risk prevention shall be attached paramount importance, and the bottom line of non-occurring of major systemic risk shall be firmly held, while the strict overall supervision shall be further deepened to maintain the capital market order. The Board will continuously urge the Company to strengthen compliance and the risk control management to ensure non-occurring of risk of material violations of regulations. The first is to strictly implement various regulatory requirements to ensure that every business of the Company is in line with regulatory indicators, and further enhance the quality and efficiency of operations. The second is to further rationalize and improve the compliance and risk management system of the Group to achieve full coverage, and pay close attention to such fields as the compliance and risk management, market risk, credit risk and liquidity risk of subsidiaries. The third is to further promote the disposal of risk assets and comprehensively intensify the audit and monitoring of business risks. The fourth is to adhere to carry out risk-oriented audit, and strictly control the quality of audit.

(v) Strengthening the construction of talent team and promoting the reform of system and mechanism

The enhancement of comprehensive capabilities of the Company requires support and safeguard of cadre team and professional talents. In 2020, based on the requirements of the three-year strategic planning of the Company, the Board will continuously guide the Company in construction of talent echelon and training of key talents, and take the training of talents as a key task. The Company shall make greater efforts to promote the reform, innovation and trial of the human resources system and mechanism, promote the professionalization, younger generation and internationalization of cadre team, and further improve the incentive and restraint mechanisms to fully mobilize and stimulate the vitality and enthusiasm of the talent team, so as to provide strong support in terms of talents and mechanism for realizing strategic objectives of the Company.

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2019 REPORT OF THE BOARD

ANNEX I

(vi) Improving self-construction of the Board and enhancing the Directors’ capability to perform duties

With the development and improvement of the regulatory requirements imposed by both the PRC and Hong Kong after the listing of its A Shares and H Shares, the Company shall continuously bring the functions of the special committees of the Board and the independent Directors into full play and improve self-construction of the Board to ensure that major decisions will be made scientifically and in compliance with laws and regulations. The Company shall also arrange for the Directors to participate in regular and occasional targeted trainings held by relevant regulatory authorities and stock exchanges, and assist the Directors to keep abreast of the latest policies and regulations of both the PRC and Hong Kong as well as the dynamics of the industry and the Company’s operation and to get familiar with the requirements of standardized operation and information disclosure by listed securities companies, so as to further improve their capability to perform duties.

In the face of new opportunities and challenges, in 2020, by remaining true to its original aspiration and with the strong support of all parties concerned, the Board will continue to perform its duties diligently and seek progress in stability through uniting all cadres and employees of the Company, closely focusing on the strategic goal of building a first-class modern investment bank, sticking to the bottom line of compliance and risk management, strengthening internal capabilities and making up the weaknesses, with the aim to enhance the core competitiveness of the Company and advance the development of the Company.

The above proposal is hereby put forth to Shareholders for consideration.

– I-12 –

ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

Dear Shareholders,

The Report of the Supervisory Committee of the Company for the Year 2019 is submitted to the shareholders’ general meeting for consideration as follows.

I. REVIEW OF THE WORK IN 2019

In 2019, in compliance with the Company Law, the Securities Law and relevant national laws and regulations, under the whole year’s guiding ideology of “keeping up with the industry situation, carrying out prior supervision, strengthening the Company’s compliance and risk control defense line, and promoting the steady and healthy development of the Company”, the Supervisory Committee paid close attention to changes in the external situation and industry regulatory dynamics, strengthened the study and implementation of relevant laws and regulations, actively explored effective models for prior supervision, and continued to raise the standardized level of supervision based on the Company’s transformation and development, contributing to the Company’s steady development.

(i) Performing its duties to standardize and optimize corporate governance

1. Convening meetings of the Supervisory Committee and attending the general meetings of the Company in accordance with relevant laws

In 2019, the Supervisory Committee held six meetings in total, at which the proposals such as the periodic reports of the Company were fully discussed and duly considered. In full compliance with the regulatory requirements, the Supervisory Committee strictly implemented the information disclosure system, and made announcements in relation to the meeting and resolutions in a timely manner to ensure that the disclosed information is true, accurate and complete. In addition, the Supervisors of the Company actively attended the annual general meeting of the Company, at which the chairman of the Supervisory Committee reported to Shareholders the work and plans of the Supervisory Committee, thus fulfilled the duties as Supervisors in accordance with relevant laws.

2. Further pushing forward the assessment on performance of duties by the Supervisory Committee

The Supervisory Committee continued to conduct the assessment on performance of duties in 2019 in accordance with the “Rules of the Supervisory Committee of the Company on Assessment of the Performance of Duties by Directors, Supervisors and Senior Management (《公司監事會對董事、監事、高管人員履職評價辦法》). With regard to the performance of duties by Directors, Supervisors and Senior Management in 2018, the Supervisory Committee prepared the respective reports on performance of duties by Directors, Supervisors and Senior Management, which were considered and approved at the sixth meeting of the fourth session of the Supervisory Committee. In 2019, the Supervisory Committee members attended a total of three on-site meetings of the Board and a total of ten on-site meetings of the special committees of the Board. Supervisors attending the meetings performed due supervision over the decision-making procedures and performance of duties by Directors at the meetings in accordance with relevant laws through studying the proposals to be put forth to relevant meetings in advance and recording the attendance and opinions of Directors and the voting at the meetings. In addition, the Supervisors’ representative opined at the meetings of the Board, which effectively strengthened the exchange and communication with Shareholders, Directors and managers of the Company.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

3. Making targeted supervision proposals to key departments

In accordance with the requirements made at the sixth meeting of the fourth session of the Supervisory Committee on finance, compliance and risk management of the Company, the Supervisory Committee gave Supervision Proposals in written (《監督建議書》) to the Planned Financial Management Department, the Fund Management Department, the Compliance and Legal Administration Department and the Risk Management Department, respectively, in which it made the suggestions such as “optimizing and adjusting the allocation of asset and liability and comprehensively coordinating the financial activities of the Group”, “paying close attention to the compliance management of subsidiaries and advancing the Group’s collaborative strategy”, and “continuously enhancing overall management as well as optimizing and refining the risk control system”. The relevant departments have formulated and submitted their written work plans and improvement measures to the Supervisory Committee. During its work throughout the year, the Supervisory Committee kept paying attention to the implementation of related supervision proposals by analyzing relevant departments’ regular submissions, listening to interim financial work report, compliance report, and risk management work report, thus promoting the Company’s overall improvement in financial management and compliance and risk management capabilities.

(ii) Prior supervision through targeted survey and research

1. Focus on the survey and research of overseas business development of subsidiaries

In order to continuously pay attention to the collectivized development and internationalization of the Company, and to supervise and promote the steady operation of overseas business, the Supervisory Committee visited Orient Securities International Financial Group Co., Ltd. ( 東證國際金融集團有限公司 ) and China Universal Asset Management (Hong Kong) Company Limited ( 匯添富資產管理（香港）有限公司 ) to conduct survey and research, and listened to the evaluation and rectification after the overseas investment, the progress on the adjustment of the organizational structure of the subsidiaries in Hong Kong and the operation and management of China Universal’s subsidiaries in Hong Kong. The Supervisors present at the meeting made suggestions such as “make further research on the layout of overseas business of Chinese securities firms, place compliance and risk control as priority, strengthen collaboration with the parent company, and exert the business advantages of the Group” to enhance the standardized operation of the Company’s overseas business.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

2. Attach paramount importance to risk disposal

In 2019, the risks exposure of the collateralized stock business in Shanghai and Shenzhen stock market remained at a high level. In order to strengthen the pre-warning on the industry’s risk hotspots, the Supervisory Committee conducted inspection and survey on the Company’s securities financing business. Before the survey, the Supervisory Committee collected and analyzed information such as regulatory requirements, current market conditions and the Company’s business situations, and formulated relevant instructions and survey outlines. During the survey, the Supervisory Committee selectively listened to the briefing on the history of the Company’s collateralized stock business, relevant compliance and risk control measures, progress of risk disposal and the follow-up deployment, and obtained a complete knowledge of the priorities and difficulties in current work. After the survey, the Supervisory Committee carried out research based on the supervision orientation and current business situation, and gave a special supervision proposal for collateralized stock repurchase business to the Company, in which it made the suggestions such as “vigorously put forward the disposal of risk assets, make provision for credit impairment reasonably, explore for optimization of business development models, comprehensively improve compliance and risk control capabilities, and steadily enhance the overall strength of the Group”. Furthermore, it continuously followed up on the implementation of rectification measures by relevant departments, thus establishing a complete closed-loop of supervision work, which assisted the Company to timely detect and effectively respond to risks.

(iii) Pursuing innovation in practice, and enhancing communication to build synergy

1. Multiple channels to protect the Supervisors’ right to be informed

In order to further improve the timeliness, comprehensiveness and effectiveness of information obtained by Supervisors, and to fully protect the Supervisors’ right to be informed, the Supervisory Committee actively built an information platform and established a multi-dimensional information reporting mechanism. The Work Briefing of the Supervisory Committee was used to inform the Directors and the Supervisors in a timely manner about the progress of work including the meetings of the Supervisory Committee, the inspections and surveys conducted and the supervision proposals made to key departments, so as to promote information communication between the Supervisory Committee and the Board of Directors and senior management. The Work Brief News of the Supervisory Committee was used to keep Supervisors updated on market regulatory dynamics, industry development hotspots and the Company’s operations, so as to provide support and guarantee for the Supervisors to fully perform their duties. In addition, the Company dispatched important announcements and regulatory information to Supervisors in a timely manner through E-mail and WeChat group to improve communication efficiency and effectiveness as well as provide Supervisors professional assistance in performing their duties.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

2. Foster internal collaboration with respect to supervision

In accordance with the requirements of the “Measures for the Compliance Management of Securities Companies and Securities Investment Fund Management Companies”, the Supervisory Committee delegated the office of the Supervisory Committee to join the working group for evaluation of Company ’s compliance management effectiveness, coordinated with relevant departments to advance the evaluation of the Company’s compliance effectiveness, participated in the research and establishment of relevant systems and procedures, followed up the implementation results of the evaluation carried out for the first time by an intermediary agency engaged by the Company, and urged the Company to further improve its compliance and risk management capabilities.

Meanwhile, according to the Guidelines for Management of Money Laundering and Terrorism financing risk of Corporate Financial Institutions (Trial) (《法人金融機構洗錢和恐怖融資風險管理指引（試行）》) “, the Supervisory Committee defined its supervision responsibilities in money laundering risk management of the Company. The Supervisory Committee strengthened research in coordination with the Compliance and Legal Administration Department to promote the establishment of the Anti-money Laundering Work System of the Company, and reviewed and approved the Anti-Money Laundering Work Report of the Company. It also urged the Company to fully implement the requirements of the policy establishment, system construction and staffing in relation to anti-money laundering to ensure that the Company operates in compliance with relevant requirements of laws and regulations.

(iv) Consolidating the fundamentals and continuously improving the quality and efficiency of supervision

1. Further improving system building

According to the Guidelines on the Work of Supervisory Committees of Listed Companies, the Supervisory Committee has amended the Measures for the Performance Evaluation of Directors, Supervisors and Senior Management by the Supervisor Committee of the Company (Trial) through summarizing and refining the useful experience of peers in performance evaluation and based on the actual situation of the Company, further improving the evaluation indicator system, standardizing the content of performance evaluation archives, rationalizing the sending process of evaluation results with a view to set up evaluation indicators using both qualitative and quantitative approaches, make the evaluation process more scientific and rigorous, and promote the continuous improvement of the efficiency and capability of performing the duties.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

2. Carrying out peer exchanges and visits

In order to explore work ideas and improve the supervision practice, the Supervisor Committee actively strengthened communication and exchange with listed securities firms, commercial banks and world-class financial institutions. During the year, it visited or received the visits by the supervisory committees and related functional departments of Industrial and Commercial Bank of China, Agricultural Bank of China, China Everbright Bank, Nomura Securities, Daiwa Securities and Nomura Orient International Securities Co.,Ltd. to discuss the governance difficulties of the supervisory committee as to system building, financial and compliance risk control supervision, duty performance supervision and evaluation results application. Based on the actual situation of the Company, the Supervisory Committee has prepared the Peer Survey Report of the Supervisory Committee by summarizing and refining the useful experience of peers in innovation of supervision methods and integration of supervisory forces, and developed the near-term work plan and long-term improvement plan of the Supervisory Committee, aiming to continuously facilitate and improve the effectiveness of supervision.

3. Constantly strengthening the self-construction

The Supervisory Committee actively organized the Company’s Supervisors to participate in duty performance and professional course trainings organized by the CSRC, SSE, the Association for Public Companies and internal organizations of the Company, and strengthened the study and discussion on the domestic macroeconomic situation, industry innovation and development, business risk control and other aspects to lay the foundation for the continuous and effective performance of supervision duties. At the same time, committed to improving the professional level of the office of the Supervisory Committee, it continuously strengthened the learning and training of its members through methods including daily morning meeting and learning salon, and improved the construction of the talent team, so as to assist the Supervisory Committee to carry out effective supervision with a more professional and efficient working team.

(v) Specific explanation on the performance of duties and remuneration of Supervisors in 2019

In 2019, all the Supervisors of the Company discharged their duties lawfully, honestly and diligently in accordance with laws and regulations and the requirements of the Articles of Association. The Supervisors actively attended the meetings and activities of the Supervisory Committee, conducted effective supervision over the finance, compliance and risk management and key business operations of the Company and gave prompt opinions and suggestions thereon, which promoted the sustainable and healthy development of the Company.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

During the year, the Supervisory Committee held a total of six meetings and all Supervisors attended such meetings either in person or by way of proxy. Set out below are the details of their attendances:

	Required	Attendance	Attendance
Name of	attendances	in person	by proxy
Supervisor	(Times)	(Times)	(Times)	Absence	Voting results
Zhang Qian	6	6	0	0	Voting in favour
					of all proposals
Li Bin	6	6	0	0	Voting in favour
					of all proposals
Huang Laifang	6	5	1	0	Voting in favour
					of all proposals
Tong Jie	6	5	1	0	Voting in favour
					of all proposals
Liu Wenbin	6	5	1	0	Voting in favour
					of all proposals
Yin Keding	6	5	1	0	Voting in favour
					of all proposals
Wu Zhengkui	6	5	1	0	Voting in favour
					of all proposals
Zhou Wenwu	6	6	0	0	Voting in favour
					of all proposals
Yao Yuan	6	6	0	0	Voting in favour
					of all proposals

In 2019, Apart from Li Bin, the vice chairman of the Supervisory Committee, who received his remuneration based on assessment of performance for the management team in accordance with relevant requirements, and Zhou Wenwu and Yao Yuan, both being employee representative Supervisors, who received their remunerations based on the assessment of performance for their specific posts, other Supervisors did not receive remunerations from the Company.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

II. SUPERVISORY OPINIONS AND SUGGESTIONS

(i) Supervision opinions

1. Opinions on the duty performance of the Directors and senior management

In 2019, following the guiding ideology of the annual work determined by the general meeting and the Board at the beginning of the year and adopting the work keynote of “risk prevention, steady growth”, the Directors and senior management of the Company strictly adhered to the risk bottom line, seized market opportunities and firmly implemented all key tasks. Therefore, the Company achieved satisfactory operating results with asset scale steadily increased, and maintained a solid position in the industry.

In 2019, the Company was able to operate in accordance with the Company Law, the Securities Law, the Articles of Association and relevant national regulations, and the decision-making procedures of the Company were in compliance with relevant laws. We are not aware of any breach of laws, regulations or the Articles of Association in the discharge of their duties of Directors and senior management of the Company, nor are we aware of any behavior detrimental to the interests of Shareholders, the Company or the employees.

2. Opinions on the financial activities of the Company in 2019

The Supervisory Committee is of the opinion that, in 2019, the Company was able to conduct its financial activities in earnest observance of the national financial and tax laws and regulations and the financial rules of the Company, and in strict accordance with the disclosure requirements on financial information of listed securities firms in Shanghai and Hong Kong. The Company timely made follow-up actions in respect of the regulatory requirements of the industry, adapted to the changing needs of the market, continued to optimize the construction of the system process, continuously strengthened the construction of the financial system, intensified the tracking and research on risk assets, and scientifically improved the level of liquidity management, which guaranteed the Company’s sustained financial stability.

3. Opinion on the compliance and risk management of the Company

The Supervisory Committee is of the opinion that, in 2019, the Company carried out compliance and risk management work in line with the development progress of the industry and the Company, continuously improved the Company’s compliance and risk management system, improved the level of refined management, provided strong support for business related to the Sci-Tech Innovation Board, deepened the compliance and risk control management of subsidiaries, strengthened the risk disposal of business lines, continuously strengthened compliance publicity, and standardized anti-money laundering. No major compliance and risk incidents were found throughout the year, and the Company was rated as a Grade A of Class A company among securities firms.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

(ii) Supervision suggestions

In 2020, the Company should continue to implement the development concept of stable operation, conduct forward-looking analysis of the development situation of the industry and the Company, actively grasp market opportunities, rationally plan strategic layout, effectively identify and resolve risks, enhance the integration of resources and business cooperation, and facilitate the implementation of the concept of “compliance by all staff” to realize the goal of high quality development.

1. Strive for stable development through scientific planning and strategic layout as well as comprehensive collaboration

(1) Strengthen forward-looking and trend research on the industry environment, maintain a clear mind and strategic judgment, analyze and grasp market opportunities, and properly complete this round of strategic planning, and also dynamically adjust the development direction according to market changes, and rationally plan the Company’s new three-year strategic layout. (2) Adhere to the strategic keynote of risk prevention and steady growth, pay close attention to market risk, and ensure proper prevention and disposal of risk assets with great efforts and determination. (3) Actively improve the business structure layout, empower innovation and development with financial technology, optimize the Company’s customer portfolio, vigorously promote collaboration within the Group, strive to explore for new growth space of businesses, and continuously enhance the Group’s overall strength. (4) Deepen the integration of industry and finance, dock the needs of customers’ industrial development, study the service model of “whole industrial chain”, provide targeted integrated financial solutions, and fulfill the functions of securities companies serving the real economy. (5) Actively implement the requirements for the cultural building of the securities and fund industry, earnestly promote cultural building based on actual operation, uphold the Company’s philosophy of value, risk and development in practice, and boost the high quality development of the Company.

2. Strengthen financial planning and forecast and improve refined management

(1) Pay close attention to the industry’s regulatory development, market changes and the Company’s development progress, and take into account of both safety and yield to dynamically optimize the Company’s allocation of asset and liability. (2) Strengthen financial planning and forecast, scientifically construct the Company’s financial analysis system, and optimize the linkage and communication among the business, finance and operation management departments, so as to provide reference for the Company’s operational decision-making. (3) Continuously enhance liquidity management through optimizing the dynamic monitoring of indicators and stress testing of liquidity risks to ensure the margin of safety of the Company’s operation. (4) Reinforce the monitoring and research on the scale and leverage of the Company and the industry’s liabilities, effectively reduce the cost of funds, establish a central management mechanism of the Company’s liability, and optimize the debt structure. (5) Strengthen the financial supervision and guidance on branches and subsidiaries, and improve the overall financial management level of the Group.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

3. Strengthen vertical risk management and control, and implement the concept of compliance by all staff

(1) Strengthen the research and judgment on the market situation, intensify the risk monitoring on key businesses, prevent potential risks in a timely manner, improve the capability of risk identification and assessment, monitoring and measurement, reporting and response, and dispose risks properly to ensure that the requirements of the regulatory risk control indicator system are met. (2) Deepen the vertical management of compliance and risk control of subsidiaries, strengthen risk warning and compliance supervision, continue to urge subsidiaries to improve the staffing, policy establishment and system construction for compliance and risk control, aiming to achieve risk management with risks being observable, measurable and controllable. (3) Follow up the laws and regulations and regulatory requirements applicable to the industry to timely implement such requirements, and continuously improve the Company’s compliance and risk control system. (4) Consolidate the compliance culture building of the Group, further strengthen the management of anti-money laundering and employee practice, and advocate the awareness of compliance and risk control to employees and require them to practice the concept to ensure the further implementation of the concept of “compliance by all staff” and guarantee the steady and healthy development of the Company.

III. WORK PLAN FOR 2020

Looking into 2020, the Supervisory Committee will follow the Company Law, the Securities Law and relevant laws and regulations of the PRC, and take “keeping up with regulatory development, push forward supervision vertically and deeply, and unite joint forces to promote the stable and sustainable development of the Company” as the guiding ideology of the whole year’s work. Focusing on the Company’s transformation and development process, the Supervisory Committee will pay close attention to changes in the external situation and the industry supervision dynamics, strengthen the study and implementation of relevant laws and regulations, earnestly fulfill its supervision responsibility, further give play to the joint forces of internal and external supervision, and continuously improve the regulatory level of supervision work to contribute to the steady and healthy development of the Company.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

(1) Deepening supervision vertically and utilizing the effectiveness of supervision on key areas

1. Overseeing the overall situation and optimizing the supervision model of compliance and risk control

Recognizing the importance of preventing and mitigating financial risks, the Supervisory Committee will explore to optimize the model of “prior, on-going, and post” supervision along the whole process. In terms of prior supervision, it will closely track changes in the external situation and industry regulatory dynamics, and pay close attention to the risks that the Company may be exposed to in the process of innovation and development through inspections and survey, listening to special reports and other forms, and urge the Company to make proper forward-looking forecast on the risks of innovative business. In terms of on-going supervision, it will follow up the progress of the Group’s integrated and comprehensive compliance and risk management system construction, and urge the Company to promote risk detection in key areas to promptly identify potential risks and problems. It will also continuously pay attention to the Company’s disposal of existing risk assets, and urge the Company to carefully grasp the risk disposal opportunities to steadily resolve risk issues through utilizing the Group’s comprehensive advantages. In terms of post-supervision, the Supervisory Committee will follow up the implementation of the supervision proposals made by it and the rectification of problems found in external and internal audits, and facilitate the Company to raise risk awareness, further strengthen the breadth and depth of compliance risk control, and build a solid defense line for risk management.

2. Improving efficiency of financial supervision from one point to the whole area

Through continuously focusing on financial indicators, it will monitor the Company’s overall financial position from one point to the whole area with important financial matters including asset and liability allocation, financial report preparation, and asset impairment as key points for supervision, so as to urge the Company to make reasonable and balanced allocation of asset and liability. It will also strengthen the tracking and research of risk assets, and especially the attainment of the various financial indicators by Company under the new rules for calculating risk control indicators, so as to ensure a smooth transition of indicators. In addition, the Supervisory Committee should further learn from the advanced financial supervision experience of the supervisory committees of listed securities firms and commercial banks, and explore effective models of financial supervision based on the actual situation of the Company to further enhance the coverage and efficiency of supervision.

3. Keeping up with the policy and conducting research to promote special supervision work

The Supervisory Committee will carry out real-time tracking on new rules and regulatory requirements related to the industry, and define its duties and responsibilities in a timely manner. It will research effective ways to supervise the Company’s anti-money laundering, credit risk, and liquidity risk management work based on the Company’s actual situation and experiences of peers. In the meantime, based on the scope of duties of the Supervisory Committee, it will select appropriate topics to carry out in-depth research by paying attention to risk hotspots of the industry with a focus on the Company’s strategic objectives and development status, further exerting the suggestion right of the Supervisory Committee to make advice and recommendations for the Company’s high quality development.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

4. Continuing to consolidate inspection and survey in a problem-oriented approach

The Supervisory Committee will further develop the inspection and survey mechanism through conducting off-site monitoring and analysis of financial data, risk control indicators, audit reports, etc., to find common problems or signs of problems, and selecting key departments, branches or subsidiaries to carry out on-site investigation. After the investigation, it will formulate supervision proposal from a strategic and overall point of view and submit it to the Company’s Board of Directors and management. In addition, it will emphasize on strengthening inspection and survey of subsidiaries to gain in-depth understanding of subsidiaries’ business development, finance, compliance and risk management, and urge the parent company to reinforce the vertical control of subsidiaries’ compliance and risk control to contribute to the Group’s sustainable and stable operation.

(2) Exploring the establishment of a check-and-balance system of supervision through horizontal linkage

1. Strengthening the linkage communication among Directors, Supervisors and senior management and seeking opportunities for integration of industry and finance

The Supervisory Committee will deepen its communication with directors and senior management through exploring the joint seminar between the Supervisory Committee and independent directors, inviting representative directors and senior management to attend the meetings of the Supervisory Committee or special survey and research, listening to their opinions and suggestions on the work of the Supervisory Committee, and discussing the suggestions on issues such as strategic development, business philosophy and risk management of the Company. At the same time, it will promote the implementation of the two major strategic tasks of “deepening the integration of industry and finance” and “enhancing the level of synergy within the Group “ by strengthening liaison and communication with the supervisory committees of peers, cooperating with relevant departments and subsidiaries to conduct communication with and provide service to the shareholder entities, and actively matching business cooperation needs, and exploring the opportunities of the integration of industry and finance, so as to achieve mutual benefit with shareholders and serve the needs of overall development of the Company.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

2. Building a check-and-balance system of supervision through exerting joint efforts of collaborated resources

The Supervisory Committee should further coordinate the supervisory forces, effectively play the role of the Supervisory Committee, discipline inspection, compliance and risk control and auditing departments in the checks and balances of supervision, and enhance the coordination and pertinence of supervision. The first is to thoroughly implement the two “consistence” ( 一以貫之 ) to promote the organic integration of the Party leadership and standardized governance, and to realize the information sharing and supervision linkage between the work of the Supervisory Committee and the construction of the Party’s style and clean government through integrity risk prevention and control. The second is to explore to establish working mechanisms such as joint supervision meetings and inspection to strengthen daily communication and project cooperation with the Company’s compliance, risk control and audit departments, share work results under the premise of compliance with laws and regulations, thus realizing the integrated utilization of supervision resources. The third is to explore the establishment of a parent-subsidiary supervisor/supervisory committee communication system to exchange supervision priorities and work experience and strengthen the guidance on duty performance of supervisors of subsidiaries, with a view to improve the overall governance level of the Group.

3. Establishing intermediary communication mechanism and extending the reach of professional supervision

The Supervisory Committee will establish a long-term linkage mechanism with external audit and law firms, and further extend its reach of supervision through strengthening the frequency and depth of communication to improve the effective supervision of the periodic report preparation process of the Company, so as to effectively utilize the findings of external audits to obtain objective and comprehensive understanding of the Company’s overall operation and management, and to identify any possible risk point.

(3) Keeping pace with the times to continuously improve the professional level of supervision

1. Deepening system construction and improving work flow

According to the provisions of the laws and regulations and regulatory requirements in relation to supervisory committee’s responsibilities, the Supervisory Committee will formulate a list of supervisors’ duties, and define the contents, standards and procedures of supervision, so as to conduct supervision work based on laws and regulations and in a more standardized and scientific way. At the same time, it will closely follow up the process of amendment to the Guidelines on the Work of Supervisory Committees of Listed Companies to optimize the contents of the Regulations on the Work of the Supervisory Committee of the Company based on the actual work situation, and further refine the performance evaluation method to improve the quality and efficiency of the performance evaluation, aiming to set up rules and regulations for efficient and standardized supervision work and full performance of supervision functions.

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ANNEX II 2019 REPORT OF THE SUPERVISORY COMMITTEE

2. Further protecting the right to be informed with proactive vision

In order to fully guarantee the Supervisory Committee’s right to be informed of the Company’s major issues, important business update and industry regulatory development, the Supervisory Committee will optimize and improve the information platform of the Supervisory Committee, adjust the type and frequency of information submitted, strengthen the systematic analysis of various important data and reports in respect of corporate compliance, risk management, auditing and finance, as well as industry news and regulatory dynamic information, and make regular report to the supervisors for reference.

3. Strengthening the professional training of supervisors through on-going communication and exchange

The Supervisory Committee will grasp the regulatory spirit and work priorities in a timely manner, and make full use of platforms such as the Association for Public Company to strengthen communication and interaction with the supervisory committees of peers. It will actively organize supervisors to participate in professional training, increase the exchange with first-class enterprises to draw on the advanced experience of corporate governance, so as to facilitate the Supervisory Committee to enrich working ideas, optimize working methods, and continuously improve the professional level of duty performance.

The above proposal is hereby put forth to Shareholders for consideration.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

Dear Shareholders,

We, as the independent directors of Orient Securities Company Limited, hereby report our work for 2019 below pursuant to the Guidance on the Establishment of Independent Director System in Listed Companies, the Code of Corporate Governance for Listed Companies, the Rules for Governance of Securities Companies, the Listing Rules of Shanghai Stock Exchange as well as the relevant rules under the Guidelines for the Format of the Annual Work Report of Independent Directors promulgated by the Shanghai Stock Exchange:

I. BASIC INFORMATION OF INDEPENDENT DIRECTORS

At the beginning of the reporting period, the fourth session of the Board of the Company consisted of 14 Directors, including 5 independent Directors. As of the end of the reporting period, the fourth session of the Board of the Company consisted of 14 Directors, including 5 independent Directors. The independent Directors remained unchanged. The basic information of each of the independent Directors is as follows:

(i) Biographical details of independent Directors

Mr. Xu Guoxiang , born in 1960, is a member of CPC, a doctorate in economics and a professor. Currently, he is an independent non-executive Director of the Company, a director of the Research Center for Applied Statistics of Shanghai University of Finance and Economics, a chair professor of the School of Statistics and Management of Shanghai University of Finance and Economics, an independent director of Luzhou Laojiao Co., Ltd., a supervisor of Dazhong Transportation (Group) Co., Ltd., and a supervisor of Shanghai Xintonglian Packaging Co., Ltd. Mr. Xu served as a lecturer of the Department of Management of Shanghai Maritime University, and a lecturer, associate professor, professor and the department head of the Department of Statistics of Shanghai University of Finance and Economics from January 1986 to May 2003. Mr. Xu has been the director of the Research Center for Applied Statistics of Shanghai University of Finance and Economics since June 2003.

Mr. Tao Xiuming , born in 1964, is a member of CPC, holds a master’s doctorate degree in law. Currently, he is an independent non-executive Director of the Company, a founding partner and the management committee director of Beijing JunZeJun Law Offices, an executive director of Beijing Houjian Investment Co., Ltd., and an independent director of Taikang Asset Management Co., Ltd. Mr. Tao served in the China Law Counsel Center and Tianping Law Firm from July 1989 to April 1992, and in the Institute of International Law of Chinese Academy of Social Sciences from April 1992 to December 1994. Mr. Tao has been a founding partner of Beijing JunZeJun Law Offices since July 1995.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

Mr. Wei Anning , born in 1963, holds a doctorate in economics. Currently, he is an independent non-executive Director of the Company, the executive director and the general manager of Shanghai Guwang Investment Management Limited, an independent director of Hwabao WP Fund Management Co., Ltd., chairman of the board of directors and the executive committee of DaChan Food (Asia) Limited, the executive director of Ningxia Guwang Investment Management Limited, an executive director of Ningbo Guwang Investment Management Limited, a director of Yantai Changyu Pioneer Wine Company Limited, a director of Jiangsu Financial Leasing Co., Ltd. and an independent director of Jiahe Foods Industry Co., Ltd.. Mr. Wei served as a lecturer of the Department of Economics and Statistics of Ningxia Broadcasting and Television University (Yinchuan) ( 寧夏廣播電視大學（銀川）), a director and assistant researcher of the Economic Development Office of the Economic Research Institute of Chinese Academy of Social Science, an agricultural economist of Agriculture and Natural Resources Bureau of World Bank. Mr. Wei served as a director and a director of agriculture, food, industry and commerce of Rabo bank in Northeastern Asia from February 1998 to January 2003, the executive vice president of New Hope Group from February 2003 to June 2006, the director of Chinese Business Development, CEO in China and president of Shanghai Branch of Fortis Bank Belgium from January 2007 to July 2010, and the chairman of Shandong Pacific Zhonghui Group from August 2010 to August 2012. Mr. Wei has been the executive director and the general manager of Shanghai Guwang Investment Management Limited since September 2010.

Mr. Xu Zhiming , born in 1961, holds a doctorate in economics. Currently, he is an independent non-executive Director of the Company, a founding partner of China Broadband Capital. Mr. Xu served as a research analyst of Institute for International Studies in China International Trust and Investment Corporation, and the co-director of corporate finance department and co-director of capital market department of Nomura International (Hong Kong) Limited, a director and the director of investment banking division in the Great China Region of National Westminster Bank of Britain, a director and the director of corporate financing division in the Great China Region of Bank of Boston of the United States from December 1986 to August 1999, an executive director of China Resources Enterprise, Limited, an executive director of China Resources (Beijing) Land Limited, the managing director and chief operating officer of China Resources Logic Limited from August 1999 to December 2001, as well as a senior consultant of TOM Group Limited, and an executive director and chief operating officer of TOM Online Inc from January 2002 to May 2005. Mr. Xu has been a founding partner of China Broadband Capital since March 2006.

Mr. Jin Qinglu , born in 1972, a member of CPC, holds a doctorate in accountancy and is a professor. Currently, he is an independent non-executive Director of the Company, the dean and a doctoral supervisor of the School of Accountancy of Shanghai University of Finance and Economics, and an independent director of Shanghai Emperor Of Cleaning Hi-tech Co., Ltd. Mr. Jin served as an assistant professor in the School of Accountancy of Shanghai University of Finance and Economics from June 2005 to June 2011, then a vice professor in the School of Accountancy of Shanghai University of Finance and Economics from July 2011 to June 2012. Mr. Jin has been a professor in the School of Accountancy of Shanghai University of Finance and Economics since July 2012, the vice dean of the School of Accountancy and the Institute of Accounting and Finance of Shanghai University of Finance and Economics from February 2014 to November 2018, the vice dean of the School of Accountancy of Shanghai University of Finance and Economics from April 2015 to November 2018, the director of the Collaborative Innovation Center for Accounting Reform and Development of Shanghai University of Finance and Economics from January 2016 to November 2018 and the dean of the School of Accountancy of Shanghai University of Finance and Economics since November 2018.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(ii) Statement of independence

The five independent Directors of the Company and their immediate family members, major social relations are not related to the Company’s substantial Shareholders or other units or individuals with material interests in the Company, and thus there is no situation affecting their independence.

II. ANNUAL WORK PERFORMANCE OF INDEPENDENT DIRECTORS

(i) Attendance of the General Meetings

There was 1 general meeting convened by the Company during the year. The annual general meeting for 2018 was convened on May 28, 2019, which was attended by three independent Directors, including Mr. Xu Guoxiang, Mr. Wei Anning and Mr. Xu Zhiming. Mr. Xu Guoxiang addressed the work report on behalf of the independent Directors at the meeting.

(ii) Attendance of the Board Meetings

There were 9 meetings convened by the Board this year, 3 of which were on-site meetings and 6 of which were held by way of correspondence. Except for Mr. Xu Zhiming who failed to attend the 13th meeting of the fourth session of the Board due to illness, all the other directors attended the meetings in person or appointed other directors as their proxies to attend the meetings. The attendance of such meetings is detailed below:

	Required	Attendance	Attendance
	Attendance	in Person	by Proxy		Absence
Independent Directors	(times)	(times)	(times)		(times)	Voting results
Xu Guoxiang	9	9	0		0	Voting in favour of
						all proposals
Tao Xiuming	9	9	0		0	Voting in favour of
						all proposals
Wei Anning	9	9	0		0	Voting in favour of
						all proposals
Xu Zhiming	9	8	0		1	Voting in favour of
					(failed to	all proposals
					attend the
				13th meeting
				of the fourth
					session of
					the Board
					due to
					illness)
Jin Qinglu	9	9	0		0	Voting in favour of
						all proposals

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(iii) Attendance of the Meetings of the Special Committees of the Board

According to the Securities Company Governance Guidelines and other laws and regulations as well as the provisions of the Articles of Association, the Board of the Company establishes four special committees: the Strategic Development Committee, the Compliance and Risk Management Committee, the Audit Committee and the Remuneration and Nomination Committee. The specific positions of each independent Director are as follows:

Independent Directors of

the fourth session of the Board Position

Xu Guoxiang	Member of the Audit Committee, member of
	the Remuneration and Nomination Committee
Tao Xiuming	Member of the Compliance and Risk Management Committee
Wei Anning	Chairman of the Remuneration and Nomination Committee,
	member of the Audit Committee
Xu Zhiming	Member of the Strategy Development Committee
Jin Qinglu	Chairman of the Audit Committee, member of
	the Remuneration and Nomination Committee

The Board of the Company held a total of 15 meetings of the special committees this year, including 4 meetings for the Compliance and Risk Management Committee, 8 meetings for the Audit Committee and 3 meetings for the Remuneration and Nomination Committee. The specific attendance is as follows (actual attendance/required attendance):

	Compliance		Remuneration
	and Risk		and
	Management	Audit	Nomination
Independent Directors	Committee	Committee	Committee
Xu Guoxiang		8/8	3/3
Tao Xiuming	4/4
Wei Anning		8/8	3/3
Xu Zhiming
Jin Qinglu		8/8	3/3

The proposals considered by the special committees the respective independent directors served for were fully reviewed and discussed, and relevant recommendations were put forward. In the end, the independent directors voted in favour of the related proposals and there was no against or abstain from voting. In addition, the Audit Committee communicated with Deloitte & Touche LLP (Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certified Public Accountants LLP) in respect of reviewing the semi-annual report for 2019 and plan on auditing the financial statement for 2019, respectively, so that the audit process was reasonably arranged, the audit strategy and key issues were defined and the Company’s auditing was ensured to be completed in a timely and effective manner.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(iv) Other Duty Performance

In 2019, the Board focused on the layout and arrangement of the three-year planning of the Company. Pursuant to relevant laws, regulations and the system requirements of the Company, and in due diligence and by scientific decision-making, it fully implemented the overall keynote of seeking progress while maintaining stability, and improving quality and efficiency, adhered to innovation orientation, strictly controlled all kinds of risks, and effectively realized the Company’s missions. In particular, the independent Directors of the Company actively participated in the general meeting, the Board meetings and the meetings of the special committees to actively understand the Company’s strategic development, innovation and transformation, compliance and risk management, and put forward professional opinions and suggestions on relevant decisions and corporate governance, thereby effectively improving the scientific and forward-looking decisions of the Board and enhancing the effectiveness of corporate governance.

Independent Directors had timely access to detailed information on the Company’s operation and management and grasped the Company’s operation dynamics through the Company Report, Board Briefing, Comprehensive Report on Compliance and Risk Management, Compliance Courier and other materials regularly compiled by the Company. At the same time, independent Directors maintained daily contact with the Company in a timely manner through e-mail and telephone, forming an effective communication mechanism to ensuring the information right.

III. KEY ISSUES ON THE ANNUAL WORK PERFORMANCE OF INDEPENDENT DIRECTORS

(i) Related-Party Transactions

The independent Directors of the Company made judgments on the necessity and objectivity of the related party transactions of the Company and determined whether the pricing was fair and reasonable or whether it damaged the interests of the Company and Shareholders in accordance with the Listing Rules of SSE, the Guidelines on Related Party Transactions of Listed Companies, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and other laws and regulations as well as the requirements of the Administrative Measures for Related Party Transactions formulated by the Company. The independent directors of the Company also reviewed the foregoing based on relevant processes.

The independent Directors of the Company expressed their prior approval opinions and independent opinions on the Related-party/Connected Transaction in Relation to Acquisition of Partial Equity Interests in Citi Orient considered at the eighth meeting of the fourth session of the Board that: the acquisition of partial equity interests in Citi Orient was effected to improve the overall strategic synergy between Citi Orient and the Company in future businesses, and enhance the operational continuity and stability of Citi Orient with regard to the adjustment in investment strategies and business layout of Citigroup Global Markets Asia Limited in Mainland China. In line with the shareholders agreement between the Company and Citigroup Asia for the establishment of Citi Orient, the transaction price of the acquisition was determined based on the audited net asset value of Citi Orient as at December 31, 2018, which was legal and valid and the transaction price was fair and reasonable without prejudice to the interests of the Company and the shareholders. The related-party/connected transaction did not have a negative impact on the independence of the Company and the principal business of the Company did not rely upon the related parties/connected persons as a result of the acquisition. The relevant considerations and voting complied with laws, regulations and the articles of association of the Company.

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ANNEX III

2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

The independent Directors of the Company expressed their prior approval opinions and independent opinions on the Projected Routine Related-party Transactions of the Company for 2019 considered at the tenth meeting of the fourth session of the Board that: the routine related-party transactions of the Company for 2019 and the projected related-party transactions prior to the convening of the 2019 annual general meeting were conducted in the ordinary course of business and for the business development of the Company which did not impair the independence of the Company and the projected pricing was fair and reasonable without prejudice to the interests of non-related shareholders of the Company and the Company. The projecting procedures complied with laws, administrative regulations, departmental rules and other normative documents as well as the Articles of Association of the Company.
The independent Directors of the Company expressed their prior approval opinions and independent opinions on the entering into of the Supplemental Connected Transaction Framework Agreement between the Company and Shenergy Group, which was considered at the 12th meeting of the fourth session of the Board that: the Supplemental Connected Transaction Framework Agreement entered into with Shenergy Group was for the purpose of satisfying the Company’s daily operation and business development needs and facilitating centralized management and supervision of connected transactions that may occur continuously between the Company and Shenergy Group; the transaction price was reasonable and fair, conformed to the principle of market transaction without prejudice to the interests of the Company’s non-related Shareholders and the Company and did not affect the independence of the Company; and the relevant consideration and voting procedures complied with the provisions of relevant laws, regulations and the Articles of Association of the Company.
The independent Directors of the Company expressed their prior approval and independent opinions on the related party transaction concerning the transfer of all 45% shares of Shanghai ICY Capital Co., Ltd. held by Orient Securities Capital Investment, a wholly-owned subsidiary of the Company, which was considered at the 16th meeting of the fourth session of the Board that: the proposed transfer of the 45% equity interests held by Orient Securities Capital Investment to Shanghai Shenergy ICY Equity Investment Co., Ltd., a wholly-owned subsidiary of Shenergy Group, the largest Shareholder of the Company constituted connected transaction, which was aimed at adjusting the capital structure of Orient Securities Capital Investment, benefited the Company’s standardized organizational structure, satisfied regulatory requirements, and ensured the stable and standardized operation of the Company;and the transaction pricing was based on the report of the evaluation institution, and was reasonable and fair without prejudice to the interests of the Company’s non-related Shareholders and the Company and did not affect the independence of the Company; and the principal business of the Company was not dependent on related parties due to this related party transaction. The relevant procedural arrangements complied with laws, administrative regulations, departmental rules, other normative documents and the Articles of Association of the Company.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(ii) External Guarantee and Capital Appropriation

In accordance with the Notification on Standardizing the Capital Transfer between Listed Companies and Related Parties and on Certain Issues of External Guarantee of Listed Companies and the Notification on Standardizing External Guarantee Behavior of Listed Companies promulgated by the CSRC, the Administrative Measures for External Guarantee formulated by the Company and other rules and requirements, the independent directors of the Company carefully and meticulously verified, among others, the external guarantee and capital occupation, and were of the opinion that there was no damage to the legitimate rights and interests of the Company and other Shareholders.

The independent Directors of the Company expressed independent opinions on the estimated 2019 external guarantees considered at the 10th meeting of the fourth session of the Board: the Company’s estimation of the guarantees provided to or among subsidiaries during the authorization period arose from the Company’s business plan and the need to reduce financing costs; and it was expected to comply with relevant laws and regulations, the Articles of Association of the Company, the Administrative Measures for External Guarantees of the Company and other provisions, and the decision-making procedures were arranged legally.
The independent Directors of the Company issued special statements and independent opinions on the Company’s external guarantees as of December 31, 2018 in accordance with the Notice on Regulating the Capital Exchanges Between Listed Companies and Related Parties and Certain Issues Concerning the External Guarantees of Listed Companies (Zheng Jian Fa [2003] No.56) (revised in 2017) and relevant regulations and requirements: As of December 31, 2018, the Company’s external guarantees included the guarantee provided by the parent company and Orient Finance Holdings, a wholly-owned subsidiary, for bonds issued by the subsidiaries of Orient Finance Holdings and the guarantees provided by Orient Finance Holdings for bank borrowings granted to its subsidiaries. The above-mentioned guarantees totalled RMB7.507 billion, accounting for 14.51% of the Company’s net assets. Such guarantees were carried out to meet the Company’s business development and broaden overseas financing channels. Save for the above, the Company did not have other external guarantees, and the Company did not provide any guarantees to controlling Shareholders, de facto controllers and their related parties. In accordance with legal procedures, the Company performed the review procedure for external guarantees to fully protect the legitimate rights and interests of the Company and all Shareholders without prejudice to the legitimate rights and interests of the Company and other Shareholders.

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2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(iii) Use of Proceeds Raised

At the end of December 2017, the Company completed the non-public issuance of ordinary shares (A shares) dominated in Renminbi with net proceeds raised of RMB10,957,180,338.81. According to the “No. 2 Guideline on Supervision of Listed Companies – Regulatory Requirements for the Management and Use of Proceeds by Listed Companies” and “Measures for the Management of Proceeds by Listed Companies of SSE” and other regulations of the CSRC, independent Directors of the Company expressed their independent opinions twice on the above-mentioned issues concerning the deposit and actual use of proceeds at the 10th meeting of the fourth session of the Board (annual) and the 14th meeting of the fourth session of the Board (semi-annual) that: upon verification, the deposit, use and management of the Company’s proceeds conformed to the relevant provisions of the CSRC and the SSE on the deposit and use of the proceeds of listed companies, the relevant provisions of the Company’s “Administrative Measures for the Management of Proceeds” and the interests of all Shareholders of the Company. The investment projects of the proceeds remained unchanged. During the period, the Company fulfilled its relevant obligations without any violation of laws and regulations, and there was no untimely, untrue, inaccurate or incomplete disclosure of information about the proceeds.

(iv) Results Forecast and Results Express

During the reporting period, the Company published the announcement on the expected decrease of its 2018 annual results, the announcement on preliminary financial data for the year of 2018, the announcement on preliminary financial data for the first quarter of 2019, and the announcement on preliminary financial data for the first half year of 2019, respectively. The independent directors of the Company were of the opinion that the company discloses information in a timely manner in accordance with the Listing Rules of SSE, the Memorandum of Understanding on the Daily Information Disclosure of Listed Companies and the Company’s Administrative Measures for Information Disclosure, and that the financial data and indicators contained in the results forecast and results express are not significantly different from the actual data and indicators disclosed in related regular reports.

(v) Appointment of Accounting Firm

Given that Deloitte Touche Tohmatsu Certified Public Accountants LLP ( 德勤華永會計師事務所 ) and Deloitte Touche Tohmatsu ( 德勤 • 關黃陳方會計師行 ) (collectively, “ DTT ”) were in compliance with the auditing standards and other laws and regulations as well as professional ethics to serve as the domestic and overseas auditor for 2018 of the Company, diligently performed its audit duties, and completed the audit work in an independent, objective and fair manner. The independent Directors expressed independent opinion in respect of the issue for appointing the accounting firm for 2019 as considered at the 10th meeting of the fourth session of the Board: the re-appointment of DTT was based on scientific decision-making, legal and compliant procedures, and complied with the provisions of the Articles of Association; and it was agreed to re-appoint DTT as the domestic and overseas auditor of the Company for 2019 and to re-appoint Deloitte Touche Tohmatsu Certified Public Accountants LLP as the internal control auditor of the Company for 2019 and agreed to submit the same to the general meeting of the Company for consideration.

– III-8 –

2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(vi) Changes in accounting policies

The independent Directors of the Company expressed their independent opinions on the matters concerning the change of the Company’s accounting policies which was considered at the 10th meeting of the fourth session of the Board that: the change of accounting policies and adjustment of relevant financial information conformed to the relevant regulations of the Ministry of Finance and the CSRC and the actual needs of the Company and could objectively and fairly reflect the Company’s current financial situation and operating results without prejudice to the interests of the Company and its Shareholders; and the decision-making procedure complied with the provisions of relevant laws and regulations and the Articles of Association of the Company.

(vii) Provision for Impairment of Assets

The independent Directors of the Company expressed independent opinions on the matters concerning the provision for impairment of assets which was considered at the 13th meeting of the fourth session of the Board and the provision for individual credit impairment which was considered at the 15th meeting of the fourth session of the Board that: the provision for impairment of assets and provision for individual credit impairment was based on sufficient grounds and standardized decision-making procedures, and complied with the provisions of the Accounting Standards for Business Enterprises and the Company’s accounting policies, which truly and fairly reflected the Company’s financial situation at specific time slots and its operating results during relevant periods, conformed to the overall interests of the Company, and facilitated the provision of more authentic, reliable and accurate accounting information for investors; and the decision-making process complied with the provisions of relevant laws, regulations and the Articles of Association of the Company without prejudice to the interests of the Company and all Shareholders, especially the small and medium Shareholders.

(viii) Cash Dividends

The independent Directors of the Company expressed independent opinions on the 2018 profit distribution plan at the 10th meeting of the fourth session of the Board that, the 2018 profit distribution plan proposed by the Company upon comprehensive consideration of the interests of Shareholders, the Company’s development and other factors, was in line with relevant laws, regulations and normative documents as well as the ongoing, stable profit distribution policy determined in accordance with the Articles of Association and the Shareholders’ Returns in the Next Three Years of the Company (2017-2019), which was conducive to the Company’s long-term development and in line with the interests of Shareholders. The independent directors agreed to submit the plan to the general meeting.

(ix) Performance of the Undertakings of the Company and Shareholders

The independent Directors diligently performed their duties and safeguarded the overall interests of the Company. In particular, the independent directors attached great importance to protecting the legitimate rights and interests of the minority Shareholders from being damaged and actively concerned about the performance of the undertakings of the Company and Shareholders. The undertakings that had not yet been fulfilled by the Shareholders and the Company were fully disclosed in the Company’s announcements. During the reporting period, the Company and its Shareholders had fulfilled related undertakings in good faith, and there was no breach thereof.

– III-9 –

2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

(x) Implementation of Information Disclosure

The Company disclosed the information in accordance with the Company Law, Securities Law, the Listing Rules of SSE, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and other laws, regulations, normative documents as well as the Articles of Association. The independent directors were of the opinion that the Company’s information was disclosed in a true, accurate, complete, timely and fair manner, and there was no false representation, misleading statement or material omission.

(xi) Implementation of internal control

The independent Directors were of the opinion that the Company had established and continuously improved the internal control system in accordance with the Company Law, the Securities Law, the Basic Norms of Corporate Internal Control and its supporting guidelines as well as the requirements of CSRC on regulating internal control. The relevant system covers all levels and links of the Company’s operation and management, and has formed a standardized management system in actual operation, which can effectively control the risks of operation and management, protect the safety and integrity of the Company’s assets, and safeguard the interests of the Company and all Shareholders. The Company’s internal control evaluation report comprehensively, truly and accurately reflected the actual situation of the Company’s internal control without false records, misleading statements or major omissions and agreed with the conclusions made in the 2018 Internal Control Evaluation Report of the Company.

(xii) The Operation of the Board of Directors and its Special Committees

The independent Directors were of the opinion that the meetings for the Board of Directors and its special committees were convened and held in accordance with the Articles of Association, the Rules of Procedures of the Board of Directors and the working rules of the committees; and that their duties were performed under laws and rules, the decision-making process was scientific and efficient, the voting results were effectively implemented, and the information was disclosed in a true, accurate, complete and timely manner.

(xiii) Other Issues that Independent Directors Consider Necessary to be Improved by the Listed Company

The independent Directors are of the opinion that, amid the complicated and grim domestic and overseas backdrop, the Company should make well-ground market analysis and adhere to the keynote of “risk prevention and steady growth”, in a bid to press ahead with innovation and transformation, strike a balance between development and risk control, optimize allocation of assets and liabilities and liquidity management, enhance compliance and risk management of subsidiaries and branches, strengthen efforts in disposal of risky assets, improve building and consultation of management and talents and refine the remuneration incentive and constraint system of the Company to fully tap upon the mobility of talents.

– III-10 –

2019 DUTY PERFORMANCE REPORT OF INDEPENDENT DIRECTORS

ANNEX III

IV. OVERALL EVALUATION AND RECOMMENDATIONS

In 2019, all the independent directors were faithful in performing their duties. Through diligent and dedicated engagement in the decision-making for significant matters of the Company under the principle of objectivity, fairness and independence, the independent directors made positive contribution for improving the corporate governance structure and safeguarding the interests of the Company as a whole as well as the legitimate rights and interests of the public Shareholders.

In 2020, all the independent Directors will continuously abide by the regulatory requirements for listed securities companies; diligently and faithfully perform their duties in strict compliance with the requirements under the laws, regulations and the Articles of Association; actively engage in the decision-making for significant matters of the Company; and safeguard the legitimate rights and interests of all the Shareholders and in particular of the minority Shareholders, with a view to promote the Company to develop in a sustainable, health and stable way.

– III-11 –

2019 FINAL ACCOUNTS REPORT

ANNEX IV

Dear Shareholders,

The preparation of 2019 final accounts report of the Company has finished. The 2019 financial statements of the Company were audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP and Deloitte Touche Tohmatsu, who each issued a standard unqualified audit report.

Unless otherwise stated, the financial data in this report are based on its A Shares audited consolidated financial statements. Among which, the data of net asset, net profit, and total comprehensive income are all based on those attributable to owners of the parent company.

2019 KEY ACCOUNTING DATA AND FINANCIAL INDICATORS

Unit: 100 million Currency: RMB

		A Share			H Share
	As at the	As at the		As at the	As at the
Items	end of 2019	end of 2018	Change	end of 2019	end of 2018	Change
Total assets	2,629.71	2,268.70	+16%	2,629.71	2,268.70	+16%
Total liabilities	2,089.60	1,745.97	+20%	2,089.60	1,745.97	+20%
Net assets	539.66	517.39	+4%	539.66	517.39	+4%
Net capital
(parent company)	401.08	402.35	-0%	401.08	402.35	-0%
Items	2019	2018	Change	2019	2018	Change
Operating income/
revenue and other
income	190.52	103.03	+85%	243.51	157.02	+55%
Operating expenses/
total expenses	163.01	90.46	+80%	220.87	150.35	+47%
Total profit	28.55	13.31	+114%	28.55	13.31	+114%
Net profit	24.35	12.31	+98%	24.35	12.31	+98%
Total comprehensive
income	29.25	9.35	+213%	29.25	9.35	+213%
Earnings per Share
(RMB/Share)	0.35	0.18	+93%	0.35	0.18	+93%
Weighted average	4.61%	2.37%	↑2.24	4.61%	2.37%	↑2.24
returns on net assets			Percentage			Percentage
			points			points

Note: For financial report of A Share and H share, total assets, total liabilities and net assets are identical; the differences in operating income and operating expenditure are mainly attributable to the income and expenses for fees and interests, which are reflected on a net basis for A Share but reflected separately for H Share.

– IV-1 –

2019 FINAL ACCOUNTS REPORT

ANNEX IV

I. FINANCIAL POSITION IN 2019

(i) Assets

As at the end of 2019, the total assets of the Company amounted to RMB262.971 billion, representing an increase of RMB36.102 billion or 16% compared with that of the end of the previous year. The major changes were as follows: the financial investments and derivative financial assets in aggregate recorded an increase of RMB18.640 billion over the end of the previous year; monetary funds recorded an increase of RMB12.176 billion over the end of the previous year; clearing settlement funds recorded an increase of RMB3.889 billion over the end of the previous year; lending amount recorded an increase of RMB2.938 billion over the end of the previous year; and the financial assets held under resale agreements recorded an decrease of RMB3.962 billion over the end of the previous year.

(ii) Liabilities

As at the end of 2019, total liabilities of the Company amounted to RMB208.960 billion, representing an increase of RMB34.363 billion or 20% compared with that of the end of the previous year. The major changes were as follows: bonds payable increased by RMB10.260 billion over the end of the previous year; amount from agency securities sales business increased by RMB8.120 billion over the end of the previous year; financial assets sold under repurchase agreements increased by RMB8.062 billion over the end of the previous year; financial liabilities held for trading increased by RMB5.797 billion over the end of the previous year; short-term bills payable increased by RMB3.702 billion over the end of the previous year; and deposits due to banks and other financial institutions decreased by RMB4.642 billion over the end of the previous year.

After deducting amount from agency securities sales business and funds payable to securities issuers, as at the end of 2019, the gearing ratio of the Company was 75.75%, representing a rise of 2.58 percentage points compared with that of the end of the previous year.

(iii) Net assets and net capital

As at the end of 2019, the net assets of the Company amounted to RMB53.966 billion, representing an increase of RMB2.226 billion or 4% compared with that of the end of the previous year. The major changes were as follows: a net profit of RMB2.435 billion in 2019, other comprehensive income (net of tax) of RMB490 million, and cash dividend distributed for 2018 of RMB699 million.

At the end of 2019, net asset per share attributable to owners of the parent company was RMB7.72/ Share, representing an increase of RMB0.32/Share or 4% over the end of the previous year.

As of the end of 2019, net capital of the parent company amounted to RMB40.108 billion, representing a decrease of RMB127 million over the end of the previous year. During the year, major risk control indicators such as net capital continued to meet regulatory requirements, and each indicator maintained a certain margin of safety.

– IV-2 –

2019 FINAL ACCOUNTS REPORT

ANNEX IV

II. OPERATION RESULTS IN 2019

(i) Operating Income

In 2019, the Company realized operating income of RMB19.052 billion, representing a year-on-year increase of RMB8.749 billion or 85%. Among which:

Net commissions and fee income amounted to RMB4.516 billion, down by RMB473 million year on year, which was mainly attributable to the decrease of RMB579 million in net income from asset management business as compared with the same period last year and the increase of RMB194 million in net fee income from brokerage business as compared with the same period last year.
Gains from fair value change amounted to RMB937 million, representing a year-on-year increase of RMB2.868 billion, and the investment gains amounted to RMB3.415 billion, representing a year-on-year increase of RMB821 million, which was mainly attributable to a rise of 22.30% in the SSE Composite Index due to the active trading of domestic stock market in 2019, and the year-on-year increase in investment gains as a result of a significant increase in the fair value of proprietary securities of the Company.
Exchange gains amounted to RMB12 million, representing a year-on-year increase of RMB30 million, which was mainly attributable to a rise in foreign exchange rates.
Income from other businesses amounted to RMB9.259 billion, up by RMB5.459 billion year on year, which was mainly attributable to the significantly increased income from sales of bulk commodities of subsidiaries.

(ii) Operating expenditure

In 2019, the Company incurred operating expenditure of RMB16.301 billion, representing a year-on-year increase of RMB7.255 billion or 80%, which was mainly attributable to a year-on-year increase of RMB5.466 billion in other business expenditure as a result of the increased sales cost of bulk commodities of subsidiaries, a year-on-year increase of RMB902 million in business and management fee, and a year-on-year increase of RMB887 million in credit impairment loss.

– IV-3 –

2019 FINAL ACCOUNTS REPORT

ANNEX IV

(iii) Profit and comprehensive income

In 2019, the Company realized net profit of RMB2.435 billion, an increase of RMB1.204 billion or 98% compared with the same period of last year. The Company realized total comprehensive income of RMB2.925 billion, an increase of RMB1.990 billion or 213% compared with the same period of last year.

In 2019, earnings per Share attributable to owners of the parent company amounted to RMB0.35 per Share, an increase of RMB0.17 per Share or 94% compared with the same period of last year.

In conclusion, since the stock market picked up in 2019, the Company actively seized market opportunities to promote the development of various businesses. Revenues from proprietary investment, wealth management and international business increased significantly, the revenue and costs of the bulk commodity business of subsidiaries doubled year-on-year, and the Company achieved satisfactory overall operating performance.

The above proposal is hereby put forth to the Shareholders for consideration.

– IV-4 –

PROPOSAL REGARDING THE PROJECTED ROUTINE RELATED PARTY TRANSACTIONS OF THE COMPANY IN 2020

ANNEX V

Dear Shareholders,

In accordance with the Listing Rules of Shanghai Stock Exchange, the Guidelines for the Implementation of Related Party Transactions of Listed Companies of Shanghai Stock Exchange, and the Administrative Measures for the Related Party Transactions of the Company, taking into consideration of the Company’s daily operation and business development needs, the Company has made estimation on the routine related party transactions that may occur in 2020 and during the period to 2020 annual general meeting, details of which are as follows:

I. DESCRIPTION OF RELATED PARTIES AND RELATED RELATIONSHIP

1. Shenergy (Group) Company Limited (“Shenergy Group”) and its Related Companies

Shenergy Group was established by Shanghai State-owned Assets Supervision and Administration Commission on November 18, 1996 with a registered capital of RMB10 billion. Its legal representative is HUANG Dinan. Shenergy Group holds 25.27% shares of the Company and is the largest shareholder of the Company. Shenergy Group and its related companies include legal persons or other organizations directly or indirectly controlled by Shenergy Group, upstream and downstream companies of Shenergy Group and the above entities and 30%-controlled companies and its subsidiaries held, directly or indirectly, by Shenergy Group.

2. Other related parties

Expect for the above-mentioned related parties, related natural persons and other related legal persons of the Company include:

(1) Related natural persons

Related natural persons refer to natural persons who directly or indirectly hold more than 5% of the shares of the Company; directors, supervisors and senior management of the company; close family members of the aforementioned persons, including their spouse, parents and parents-in-law, siblings and their spouses, offspring of 18 years old or above and their spouses, siblings of their spouses and parents of daughters-in-law or sons-in-law; and other natural persons, recognized based on the principal of substance over form by the CSRC, the SSE, or by the Company, who have a special relationship with the Company and may cause the Company to lean against its interest, including natural persons holding 10% or more of shares of the holding subsidiaries that controlled by and have significant influence on the Company.

(2) Other related legal persons

Related legal persons refer to legal persons or other organizations which hold more than 5% of the shares of the Company, other than Shenergy Group; legal persons or other organizations directly or indirectly controlled by the related natural persons of the Company, or where the related natural persons of the Company serve as directors and senior management, other than the Company and its holding subsidiaries; and legal persons or other organizations, recognized based on the principal of substance over form by the CSRC, the SSE, or by the Company, who have a special relationship with the Company and may cause the Company to lean against its interest, including legal persons or other organization holding 10% or more of shares of the holding subsidiaries that controlled by and have significant influence on the Company.

– V-1 –

PROPOSAL REGARDING THE PROJECTED ROUTINE RELATED PARTY TRANSACTIONS OF THE COMPANY IN 2020

ANNEX V

II. DETAILS OF PROJECTED ROUTINE RELATED-PARTY TRANSACTIONS

1. Projected related party-transactions with Shenergy Group and its related companies

Category of No. Transactions Description

Projected Amount

1 Services for The services cover, including but not limited to, Securities securities and futures brokerage; leasing of and Financial trading seats; sale of securities and financial Products products; securities and financial business; entrusted assets management; investment and consultancy; securities underwriting; financial consultancy and asset custody services.
2 Trading in The trading covers, including but not limited Securities to, resale or repurchase in the interbank and Financial market; bonds proprietary trade business in the Products inter-bank market; usufruct transfer business; subscription for funds, wealth management or trust plans issued by related parties; related parties’ subscription for funds and wealth management products issued by the Company.
Due to
uncertainties of the occurrence and volume of such business, the projected cap will be calculated based on the actual amount.
3 Purchasing goods Including services within the business scope of and receiving Shenergy Group and its related companies, labor which cover, including but not limited to, purchase gas, natural gas, gas stoves, gas equipment, gas kitchen equipment, and acceptance of supporting services such as gas transmission and distribution, gas project planning, design and construction.
Note: Under the requirements of the Hong Kong Listing Rules and other management rules, the Company carried out and managed the connected transactions with Shenergy Group and its related companies in compliance with the method determined by the “Resolution on the of Signing Connected Transaction Framework Agreement with Shenergy (Group) Company Limited” considered and approved at the fourth meeting of the fourth session of the Board and the “Resolution on the Signing of Supplemental Agreement to Connected Transaction Framework Agreement with Shenergy (Group) Company Limited” considered and approved at the 12th meeting of the fourth session of the Board.

– V-2 –

PROPOSAL REGARDING THE PROJECTED ROUTINE RELATED PARTY TRANSACTIONS OF THE COMPANY IN 2020

ANNEX V

2. Projected related-party transactions with other related companies

Category of No. Transactions

Contents of Transactions

Projected Amount

1 Services for Securities and Financial Products
The services cover, including but not limited to, securities and futures brokerage; leasing of trading seats; sale of securities and financial products; securities and financial business; entrusted assets management; investment and consultancy; securities underwriting; financial consultancy and asset custody services.
2 Trading in The transactions with related parties may refer Securities to, including but not limited to, resale and and Financial repurchase in the inter-bank market; bonds Products proprietary trade business in the inter-bank market; usufruct transfer business; subscription for bonds, funds, wealth management or trust plans issued by related parties; related parties’ subscription for bonds, funds and wealth management products issued by the Company.

Due to uncertainties of the occurrence and volume of such business, the projected cap will be calculated based on the actual amount.

3. Projected related-party transactions with related natural persons

Related natural persons of the Company will receive securities and futures brokerage services rendered by the Company or subscribe for wealth management products issued by the Company in accordance with laws, regulations and regulatory requirements. Due to uncertainties of the occurrence and volume of such business, the projected cap will be calculated based on the actual amount.

III. DESCRIPTION AND PRICING BASIS OF RELATED-PARTY TRANSACTIONS

For the aforementioned related-party transactions in the ordinary course of business, the Company will determine the transaction price in strict compliance with the principle of fairness with reference to the prevailing market price, industry practice and prices determined by any third party. The aforementioned related-party transactions did not impair the interests of the Company and its shareholders, especially minority shareholders.

– V-3 –

PROPOSAL REGARDING THE PROJECTED ROUTINE

ANNEX V

RELATED PARTY TRANSACTIONS OF THE COMPANY IN 2020

IV. IMPACT OF ROUTINE RELATED-PARTY TRANSACTIONS ON THE COMPANY

The above related-party transactions are those that arise from the ordinary business operation of the Company and will contribute to normal business development of the Company;
The pricing of the aforesaid related-party transactions was determined with reference to the market price, which was fair and reasonable without causing any prejudice against the interests of the non-related shareholders of the Company and the Company;
The above related-party transactions did not affect the independence of the Company as the principal businesses of the Company did not rely on the related parties as a result of the above related-party transactions.

The above proposal is hereby put forth to the Shareholders for consideration (the relevant related Shareholders shall abstain from voting on the related proposals, respectively).

– V-4 –

SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS (2020-2022)

ANNEX VI

In order to further standardize the dividends distribution of 東方證券股份有限公司 (hereinafter referred to as the “ Company ”), promote the Company to establish a solid, scientific, sustainable and stable shareholders’ return mechanism, as well as protect the legal interests of the minority investors, and according to the relevant regulations under the Company Law of the People’s Republic of China (hereinafter referred to as the “ Company Law ”), the Notice Regarding Further Implementation of Cash Dividends Distribution of Listed Companies (《關於進一步落實上市公司現金分紅有關事項的通知》), the Guideline No.3 for the Supervision and Administration of Listed Companies – Cash Dividends Distribution of Listed Companies (《上市公司監管指引第 3 號 – 上市公司現金分紅》) issued by the China Securities Regulatory Commission, the Notice Regarding Further Carrying out Dividends Distribution of Listed Companies in Shanghai Jurisdiction (《關於進一步做好上海轄區上市公司現金分紅有關工作的通知》) issued by the Shanghai branch office of the China Securities Regulatory Commission as well as the Articles of Association, and in combination with the actual conditions of the Company, the Shareholders’ Return Plan for the Next Three Years (from 2020 to 2022) (hereinafter referred to as the “ Plan ”) is formulated. Detailed information is as follows:

Article 1 Factors considered in formulating the Plan

With a vision on long-term and sustainable development, the Company has fully taken into account development strategic planning of the Company, industrial development trend, shareholders’ returns, cost of social funds, external financing environment to establish a sustainable, stable and scientific return plan and mechanism for investors and make clear and systematic arrangements for profit distribution of the Company in order to ensure the continuity and stability of the profit distribution policy.

Article 2 Principles for formulating the Plan

The Plan shall be formulated in compliance with the rules under the relevant laws, regulations and the Articles of Association through attaching importance to the reasonable investment return for investors and paying attention to actual operation for the current year and sustainable development of the Company. The Shareholder’ Return Plan of the Company shall fully consider and listen to the opinions from the Shareholders (in particular the minority investors), independent directors and supervisors.

Article 3 Specific Shareholders’ Return Plan for the next three years of the Company (from 2020 to 2022)

(I) The Company may distribute its profit in cash, shares or a combination of both or in any other forms as permitted by the laws and regulations. The Company shall determine a cash dividends policy that enables the shareholders to share the growth and development results of the Company and receive reasonable investment returns, by considering factors such as its development stage, capital requirements.

– VI-1 –

SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS (2020-2022)

ANNEX VI

(II) The Company adopts cash dividends as its priority profit distribution policy, i.e. the Company shall distribute its dividends in cash when the Company gains profit in that year and the accumulated undistributed profit is positive and if there is distributable profit available after making up losses, and making appropriation of various accumulation funds and reserve funds in accordance with the laws. The profit distributed by the Company shall not exceed its accumulated distributable profit. Profit distributed in cash in a single year shall be no less than 30% of the distributable profit of that year.
(III) The Company generally distributes its profit on a yearly basis. Subject to the compliance of the profit distribution principles and cash dividends conditions, the Board of the Company may propose to distribute interim cash dividends based on the operational condition of the Company.
(IV) If the Company grows rapidly and the Board considers that there is a mismatch between Company’s share price and the size of its share capital, the Company may, after making the above cash dividends distribution and taking into consideration the growth of the Company and the diluted net assets per share, propose and implement a proposal on distribution of dividends in cash.
(V) The Board of the Company shall take into account features of the industries where the Company operates, its development stage, business model, and profit level and whether it has any significant capital expenditure plans, and formulate differentiated cash dividends policies in accordance with the provisions set out below and procedures provided in the Articles of Association:
(1) If the Company is at the mature stage of development and has no significant capital expenditure plan, the proportion of cash dividends shall be at least 80% in the profit distribution;
(2) If the Company is at the mature stage of development and has a significant capital expenditure plan, the proportion of cash dividends shall be at least 40% in the profit distribution;
(3) If the Company is at the growing development stage and has a significant capital expenditure plan, the proportion of cash dividends shall be at least 20% in the profit distribution.

If it is difficult to determine the Company’s stage of development while it has a significant capital expenditure plan, the profit distribution may be dealt with pursuant to the rules applied in the previous distribution.

– VI-2 –

SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS (2020-2022)

ANNEX VI

Article 4 Decision-making mechanism for the profit distribution plan of the Company

The Board shall formulate a definite and clear Shareholders’ Return Plan every three years after carrying out a thorough discussion of the conditions and percentage of profit distribution, the development stage of the Company, and its significant capital expenditure plans; and shall formulate profit distribution plan for the current period after conducting careful research into and deliberation on the timing, conditions and minimum percentage of cash dividends of the Company as well as conditions of adjustment. The profit distribution plan proposed by the Board shall be passed by a majority of the Directors, and independent Directors shall express their independent opinions on the profit distribution plan before it is submitted to the shareholders’ general meeting for consideration and approval.

The independent Directors may collect opinions from minority shareholders for formulating and putting forward a dividends distribution proposal to the Board for consideration.

When the profit distribution plan is considered at the shareholders’ general meeting, the Company shall communicate and contact with its Shareholders, especially minority Shareholders, and discuss in detail and exchange ideas with Shareholders on the profit distribution plan. If profit distribution plan for the current year is decided in compliance with the existing cash dividends policy or as per the minimum proportion of cash dividends, the profit distribution plan shall be passed by more than a half of the voting rights held by Shareholders (including their proxies) present at the Shareholders’ general meeting. If profit distribution plan for the current year cannot be decided in compliance with the existing cash dividends policy or as per the minimum proportion of cash dividends under special circumstances, the Company shall disclose specific reasons and definite opinions from independent Directors in regular reports, and make specific explanation to matters such as use of retained earnings, estimated investment gains, etc. Profit distribution plan for the current year shall be passed by more than two thirds of the voting rights held by shareholders (including their proxies) present at the shareholders’ general meeting and the shareholders shall be accessible to network voting when attending the shareholders’ general meeting to consider such plan. The Supervisory Committee shall supervise the Board in the implementation of the cash dividend policy, the shareholders’ returns plan and the corresponding decision-making procedures and information disclosure. In case that the Board fails to strictly execute the cash dividends policy and Shareholders’ Return Plan, fails to strictly implement the corresponding decision-making procedures for cash dividends, or fails to make an authentic, accurate and complete disclosure of cash dividends policy and its execution progress, the Supervisory Committee shall express explicit opinions and urge the Board to make corrections in a timely manner.

– VI-3 –

SHAREHOLDERS’ RETURNS IN THE NEXT THREE YEARS (2020-2022)

ANNEX VI

Article 5 Formulation cycle and decision-making mechanism for the Shareholders’ Return Plan

(I) The Company shall review the Shareholders’ Return Plan again at least once every three years and finalize the Shareholders’ Return Plan for that period based on its own actual conditions and the opinions from the shareholders (in particular the public investors) and independent directors, and make sure that such return plan will not violate the relevant regulations of the profit distribution policy.
(II) Relevant department of the Company shall formulate the Plan by combing actual operation of the Company and fully taking into account the profit scale, cash flow condition, development stage and current funds needs of the Company to protect the equity of the shareholders (in particular the minority shareholders). The department shall carry out specific discussion based on the sustainable development of the Company and fully listen to the opinions from the shareholders (in particular the minority shareholders) and independent directors.
Article 6 The matters not covered in the Plan shall be executed in accordance with the requirements under the relevant laws and regulations, regulatory documents and the applicable Articles of Association.
Article 7 The Plan shall be interpreted by the Board of the Company.

– VI-4 –

PROPOSAL REGARDING THE GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

ANNEX VII

Dear Shareholders,

Given that the Proposal on General Mandate to Issue Onshore Debt Financing Instruments by the Company considered and approved at the 2017 first extraordinary general meeting of the Company will expire in April 2020, to guarantee the smooth implementation of relevant financing tasks, optimize debt structure, diversify financing portfolio and enhance financing efficiency, the Company needs to re-obtain a general mandate for issuance of onshore debt financing instruments at the general meeting. For such purpose, it is proposed to the general meeting to consider and approve:

1. ISSUANCE SIZE OF DEBT FINANCING INSTRUMENTS

The Company imposes quota management on debt financing instruments. The outstanding amount of onshore debt financing instruments stipulated under this proposal shall in aggregate not exceed 200% (including currently issued but outstanding debt financing instruments) of the audited net assets as of the end of the previous year (at the parent company level) and shall comply with the issuance limit of onshore debt financing instruments under relevant laws and regulations as well as various risk control indicators.

2. TYPE OF DEBT FINANCING INSTRUMENTS

Depending on actual issuance, onshore debt financing instruments under this proposal include but are not limited to corporate bonds (including short-term corporate bonds of securities companies), short-term financing bonds, subordinated bonds (including perpetual subordinated bonds), subordinated debt, income certificate, financial bonds and other with onshore debt financing instruments issuable by the Company upon approval from or filing the People’s Bank of China, the CSRC, China Securities Association, stock exchanges and other relevant authorities in accordance with relevant regulations, excluding asset-backed securities, right to earnings from margin financing and securities lending and refinancing. The proposed onshore debt financing instruments under this proposal do not include conversion clause.

3. TERM OF DEBT FINANCING INSTRUMENTS

Subject to the minimum term required by regulatory authorities, onshore debt financing instruments under this proposal shall be finite with a term of not more than 10 years (10 years inclusive) and infinite, i.e., perpetual instruments. Instruments of various terms may be single type or hybrid types. The specific term and size is subject to relevant requirements and market condition at the time of issuance.

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ANNEX VII PROPOSAL REGARDING THE GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

4. COUPON RATE OF DEBT FINANCING INSTRUMENTS AND METHOD OF DETERMINATION

Debt financing instruments under this proposal may be of fixed and/or floating coupon rate. The coupon rate and method of determination of debt financing instruments will be ascertained by the Company and lead underwriter (or sponsor, if any) upon negotiation based on market condition and relevant coupon rate management regulations of debt financing instruments.

5. METHOD AND TARGET OF ISSUANCE

Onshore debt financing instruments shall be approved or filed with the CSRC and other relevant departments in accordance with relevant regulations, and shall be issued to the public in one or more tranches on stock exchanges recognized by the CSRC and other relevant departments in accordance with the law, or to qualified investors in accordance with relevant regulations.

6. USE OF PROCEEDS

Proceeds will be used to supplement the Company’s working capital, meet the needs of the Company’s business operations, adjust the Company’s debt structure and for other purposes in accordance with relevant laws and regulations or the permissions of regulatory agencies.

7. AUTHORIZATION

It is proposed at the AGM to authorize the Board to, in accordance with the provisions of relevant laws and regulations and the requirements of regulatory agencies, subject to the framework and content as considered and approved at the AGM and for the purpose of safeguarding the maximum interests of the Company, handle all matters at its sole discretion concerning debt financing instruments issued within the validity period of the resolution, and approve that the Board shall delegate to the management all authorize matters within the scope where the outstanding amount of the onshore debt financing instruments under this proposal shall not be more than 185% of the audited net assets (at the parent company level) as of the end of the previous year, including but not limited to:

(1) formulate and implement specific plans for each issuance according to the applicable laws and regulations, the relevant regulations of the regulatory authorities and the resolutions of the general meeting, as well as the actual situation of the Company and the market, including but not limited to the specific type, size, term, coupon rate and its determination method, issuance target, guarantee arrangement, issuance price, timing of issuance (including single or multiple tranches and number of tranche), use of proceeds, with or without repurchase and redemption terms (including coupon rate increase option and investor repurchase option, etc.), rating arrangement, specific subscription method, specific placement arrangement, specific debt repayment guarantee measures, time limit and method for principal and interest repayment, listing of debt financing instruments and other matters related to the issuance terms;

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ANNEX VII PROPOSAL REGARDING THE GENERAL MANDATE TO ISSUE ONSHORE DEBT FINANCING INSTRUMENTS OF THE COMPANY

(2) determine upon engagement of intermediary agency(ies) to handle declaration, approval, filing, registration, listing and other related matters for each issuance to the relevant regulatory authorities, exchanges and other institutions, including but not limited to authorizing, signing, executing, modifying and completing all necessary contracts, agreements and documents related to each issuance and listing of debt financing instruments (including but not limited to prospectus, underwriting agreement, guarantee agreement, engagement letter(s) of intermediary agency(ies), entrusted management agreement, creditor’s rights agency agreement, registration and custody agreement, listing agreement, various announcements and other legal documents, etc.), and make relevant information disclosure in accordance with relevant laws and regulations, exchange listing rules and other normative documents;
(3) select and engage trustee(s) and liquidation manager(s) for the issuance of debt financing instruments, sign trustee management agreements and liquidation management agreements, and formulate meeting rules for holders of debt financing instrument (if applicable);
(4) adjust relevant matters such as the specific plan for the issuance and listing of debt financing instruments according to the opinions of the regulatory agencies if there is any change in the policies of the regulatory authorities, exchanges and other competent agencies on the issuance and listing of debt financing instruments or market conditions, except for matters that are required to be re-voted by the general meeting in accordance with relevant laws, regulations and the Articles of Association;
(5) handle other specific matters related to each issuance and listing of debt financing instruments.

8. VALIDITY PERIOD OF PROPOSAL

The resolution of the AGM regarding the general mandate to issue onshore debt financing instruments of the Company shall be valid for 36 months from the date of consideration and approval at the AGM.

If the Board and/or the management has decided to issue or partially issue the onshore debt financing instruments within the validity period of the authorization, and the Company has also obtained the issuance approval, permission, filing or registration (if applicable) from the regulatory authority within the validity period of the authorization, the Company may complete the issuance or partial issuance of the domestic debt financing instruments within the validity period of such approval, permission, filing or registration.

The above proposal is hereby put forth to Shareholders for consideration.

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