Guangzhou Automobile Group Co., Ltd. — Proxy Solicitation & Information Statement 2016

Nov 24, 2016

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Guangzhou Automobile Group Co., Ltd. , you should at once hand this circular to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

This circular is for information purpose only and does not constitute any invitation or offer to acquire, purchase or subscribe for securities of Guangzhou Automobile Group Co., Ltd.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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GUANGZHOU AUTOMOBILE GROUP CO., LTD. 廣州汽車集團股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2238)

(1) PROPOSED NON-PUBLIC ISSUANCE OF A SHARES;

(2) NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING; AND (3) NOTICE OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES

The Letter from the Board is set out on pages 5 to 17 of this circular.

The Company will hold the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting in the above order respectively at 2 p.m. on Friday, 16 December 2016 at Conference Room 707 of GAC Center, Xingguo Road No. 23, Zhujiang New Town, Guangzhou, Guangdong Province, the PRC.

Notice of EGM and Notice of H Shareholders’ Class Meeting containing the resolutions to be approved at the EGM and the H Shareholders’ Class Meeting, together with the relevant forms of proxy and reply slips, have been despatched to the Shareholders by the Company on 1 November 2016. Notice of EGM and Notice of H Shareholders’ Class Meeting are also set out in this circular.

Whether or not you are able to attend the said meetings, you are requested to complete the reply slips and forms of proxy in accordance with the instructions printed thereon and return the same to the Company as soon as possible. The reply slips shall be sent in person, by post or fax to the Company’s H Share Registrar, Tricor Investor Services Limited, at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong (fax number: (852) 2810 8185) on or before Saturday, 26 November 2016. The forms of proxy of the EGM and the H Shareholders’ Class Meeting shall be returned to the Company’s H Share Registrar, Tricor Investor Services Limited, at least 24 hours before the time of holding of such meetings or at least 24 hours before the designated time of voting. Completion and return of the form of proxy will not preclude you from attending and voting at the meetings should you so wish.

25 November 2016

CONTENT

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
**LETTER **	FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	Proposed Non-public Issuance of A Shares. . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	EGM and H Shareholders’ Class Meeting . . . . . . . . . . . . . . . . . . . . . . . . . .	16
4.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
5.	Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
6.	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
**NOTICE **	OF 2016 FIRST EXTRAORDINARY GENERAL MEETING . . . . . . . . .	18
**NOTICE **	OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES. . .	22
APPENDIX – PROPOSAL FOR NON-PUBLIC ISSUANCE OF A SHARES

– i –

DEFINITIONS

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

• “A Share(s)”

• domestic ordinary share(s) of nominal value of RMB1.00 each in the share capital of the Company, which are listed on the Shanghai Stock Exchange (stock code: 601238)

• “A Share Convertible Bonds”

• A Share convertible bonds of RMB4,105.58 million publicly issued by the Company on 22 January 2016, which have been listed on the Shanghai Stock Exchange since 4 February 2016 (stock codes: 113009 and 191009)

• “A Shareholders’ Class Meeting”

• the first class meeting for holders of A Shares of 2016 to be held by the Company to consider and, if thought fit, approve, among other things, the resolutions relating to the Non-public Issuance and the transactions contemplated thereunder

• “A Shareholder(s)”

• holders of A Shares

• “Board”

• the board of Directors of the Company

• “Class Meetings”

• the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting

• “Company”

Guangzhou Automobile Group Co., Ltd.（廣州汽車集團 股份有限公司）, a joint stock limited company incorporated in the PRC, the issued H Shares and A Shares of which are listed on the Stock Exchange and the Shanghai Stock Exchange respectively

• “connected person” has the meaning ascribed thereto under the Listing Rules

• “controlling shareholder” has the meaning ascribed thereto under the Listing Rules

• “CSRC” China Securities Regulatory Commission

• “Directors” the directors of the Company

• “EGM”

The first extraordinary general meeting of 2016 of the Company to be held to consider and, if thought fit, approve, among other things, the resolutions relating to the Non-public Issuance and the transactions contemplated thereunder, and any adjournment thereof

– 1 –

DEFINITIONS

• “GAIG” Guangzhou Automobile Industry Group Co., Ltd.（廣州 汽車工業集團有限公司）, holding approximately 60.64% of the equity interests in the Company as at the Latest Practicable Date, and is the controlling shareholder of the Company

• “GAMC” Guangzhou Automobile Group Motor Co. Ltd.（廣州汽 車集團乘用車有限公司）, a wholly-owned subsidiary incorporated on 21 July 2008 under PRC law by the Group

• “GFHAM” Guangzhou Finance Holdings Assets Management Co., Ltd* （廣州金控資產管理有限公司）, a company incorporated in the PRC with limited liability and the scope of business of which includes securities investment, equity investment, property investment and provision of financial consulting services

• “GFHAM Select No.3 Fund”

• GFHAM Wealth Management Select No. 3 Private Investment Fund （廣金資產財富管理優選3號私募投資基 金）, a contractual type fund established and managed by GFHAM and the capital of which was contributed by Guangzhou Finance Holdings Group Co., Ltd.（廣 州金融控股有限公司） and its wholly-owned subsidiary, Guangzhou Finance Holdings Capital Management Co., Ltd.*（廣州金控資本管理有限公司）

• “Group”

• the Company and its subsidiaries, joint venture companies and associated companies

• “Guangdong SASAC”

• the State-owned Assets Supervision and Administration Commission of the People’s Government of Guangdong Province

• “GZLIT”

• Guangzhou Light Industry and Trade Group Co., Ltd.*

• （廣州輕工工貿集團有限公司）, a company incorporated in the PRC with limited liability which is principally engaged in assets management, food manufacturing, sports products manufacturing, daily chemical products manufacturing and import and export of cargo and technologies

• “GZ State-owned Assets Development”

• Guangzhou State-owned Assets Development Holdings Co., Ltd* （廣州國資發展控股有限公司）, a company incorporated in the PRC with limited liability, which is principally engaged in the investment, development and operation of integrated energy business and production and sales of beer

– 2 –

DEFINITIONS

• “Hong Kong”

the Hong Kong Special Administrative Region of the PRC

• “Huiyin Tianyue”

Guangzhou Huiyin Tianyue Equity Investment Fund Management Co., Ltd.* （廣州匯垠天粵股權投資基金管理 有限公司）, a company incorporated in the PRC with limited liability engaged in business of funds management and equity investment

• “H Share(s)”

• overseas listed share(s) of nominal value of RMB 1.00 each in the ordinary share capital of the Company which are listed on the Stock Exchange (stock code: 2238)

• “H Shareholders’ Class Meeting” the first class meeting for holders of H Shares of 2016 to be held by the Company to consider and, if thought fit, approve, among other things, the resolutions relating to the Non-public Issuance and the transactions contemplated thereunder

• “H Shareholder(s)”

• holders of H Shares

• “Latest Practicable Date”

• 18 November 2016, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• “Listing Rules”

• the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• “Non-public Issuance”

• the non-public issuance of new A Shares to five specific target investors by the Company for proceeds amounting to not more than RMB15 billion

• “Notice of EGM”

• the notice of EGM dated 1 November 2016 and despatched to the Shareholders on the same date and set out in this circular

• “Notice of H Shareholders’ Class Meeting”

• the notice of H Shareholders’ Class Meeting dated 1 November 2016 and despatched to the Shareholders on the same date and set out in this circular

• “PRC”

• the People’s Republic of China, for the purpose of this circular, excludes Hong Kong, Macau Special Administrative Region and Taiwan

• “Proposal for Non-public Issuance of A Shares”

• the “Proposal for Non-public Issuance of A Shares” as set out in the appendix to the Notice of EGM and Notice of H Shareholders’ Class Meeting

– 3 –

DEFINITIONS

“RMB” Renminbi, the lawful currency of the PRC “Share(s)” A Shares and/or H Shares “Shareholder(s)” A Shareholders and/or H Shareholders “Shanghai Stock Exchange” Shanghai Stock Exchange “Stock Exchange” The Stock Exchange of Hong Kong Limited “Suiyong Holdings” Suiyong Holdings Co., Ltd.* （穗甬控股有限公司）, a company incorporated in the PRC with limited liability which is principally engaged in provision of investment management services “trading day” with respect to A Shares, means a day on which the Shanghai Stock Exchange opens for dealing in securities, and with respect to H Shares, means a day on which the Stock Exchange opens for dealing in securities

“%” per cent

• In this circular, the English names of the PRC entities are translations of their Chinese names, and are included herein for identification purpose only.

– 4 –

LETTER FROM THE BOARD

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GUANGZHOU AUTOMOBILE GROUP CO., LTD. 廣州汽車集團股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2238)

Executive Directors: Zeng Qinghong (Chairman) Yuan Zhongrong (Vice Chairman) Feng Xingya Lu Sa Wu Song

Non-executive Directors: Yao Yiming Chen Maoshan Li Pingyi Ding Hongxiang

Registered office: 23/F, Chengyue Building 448-458 Dong Feng Zhong Road Yuexiu District Guangzhou, the PRC

Principal place of business in Hong Kong: Room 808, Citicorp Centre 18 Whitfield Road Causeway Bay, Hong Kong

Independent non-executive Directors: Fu Yuwu Lan Hailin Li Fangjin Leung Lincheong Wang Susheng

25 November 2016

To the Shareholders

Dear Sir or Madam,

PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

1. INTRODUCTION

References are made to the announcement of the Company dated 31 October 2016 and the Notice of EGM and Notice of H Shareholders’ Class Meeting.

The main purpose of this circular is to provide you with further information regarding the proposed Non-public Issuance.

2. PROPOSED NON-PUBLIC ISSUANCE OF A SHARES

The Board announces that on 31 October 2016, the Board resolved to propose a non-public issuance of A Shares, details of which are set out below:

– 5 –

LETTER FROM THE BOARD

(i) The structure of Non-public Issuance

• Class and The Shares to be issued under the Non-public Issuance are nominal RMB denominated ordinary Shares with a nominal value of value of the RMB1.00 per Share, which will be listed on the Shanghai Shares to be Stock Exchange (A Shares). issued

• Method of issuance

The new A Shares under the Non-public Issuance will be issued to the specific target investors by way of non-public issuance.

• Method of subscription

The new A Shares to be issued under the Non-public Issuance shall be subscribed by each target subscriber in cash.

• Issue price and The price determination date of the Non-public Issuance is the pricing date of the announcement of the resolutions passed at the 33rd principles meeting of the fourth session of the Board, being 1 November 2016.

The issue price of the Non-public Issuance shall be 90% of the average trading price of A Shares over the 20 trading days preceding the price determination date (the average trading price of A Shares over the 20 trading days preceding the price determination date = the total turnover of A Shares over the 20 trading days preceding the price determination date / the total trading volume of A Shares over the 20 trading days preceding the price determination date), which is RMB20.31 per A Share. The base issue price shall be adjusted accordingly if any ex-rights or ex-dividends events such as entitlement distribution, conversion of reserve into share capital or placing occur during the period from the price determination date to the date of issuance.

The 2016 interim profit distribution plan was considered and approved at the 29th meeting of the fourth session of the Board on 26 August 2016, according to which RMB0.8 (tax included) per 10 Shares based on the total of 6,450,798,045 Shares in issue (including A Shares and H Shares) on the record date (19 October 2016) shall be distributed to all Shareholders in cash. Since trading in A Shares on the Shanghai Stock Exchange was suspended from 18 October 2016 to 31 October 2016 and the implementation of the above entitlement distribution was completed on 20 October 2016, the issue price of the A Shares under the Non-public Issuance has been adjusted to RMB20.23 per A Share.

– 6 –

LETTER FROM THE BOARD

In the event that the CSRC imposes other requirements as to the issue price of the Non-public Issuance, the issue price shall be adjusted according to the relevant requirements of the CSRC.

Assuming that the issue price of the Non-public Issuance is RMB20.23 per A Share, after deduction of the preliminarily estimated expenses incurred or to be incurred by the Company in relation to the Non-public Issuance, the net price of the A Shares to be issued under the Non-public Issuance will be approximately RMB20.03 per A Share. The final net price per A Share will be determined upon completion of the Non-public Issuance and determination of the relevant issuance expenses incurred or to be incurred.

Target Target subscribers of the Non-public Issuance are Huiyin subscribers, Tianyue, GZ State-owned Assets Development, GFHAM Select subscription Fund No.3 (managed by GFHAM), GZLIT and Suiyong amount and Holdings, each of whom has entered into conditional share number of subscription agreements with the Company. Further details of Shares to be the target subscribers and the conditional share subscription issued agreements are set out in section II – “Profile of Target Subscribers” and section III – “Summary of Conditional Share Subscription Agreements of the Proposal for Non-public Issuance of A Shares”. Since none of the target subscribers is a connected person of the Company, subscriptions of A Shares under the Non-public Issuance by them will not constitute connected transactions under Chapter 14A under the Listing Rules.

Based on the aforesaid adjusted issue price of RMB20.23 per A Share, the maximum number of A Shares to be issued under the Non-public Issuance and the number of A Shares to be subscribed by each target subscriber and their respective percentages to the total issued A Shares and total issued Shares respectively (i) as at the Latest Practicable Date; and (ii) as enlarged by the Non-public Issuance (assuming that the number of total issued Shares has not been changed between the Latest Practicable Date and the date of completion of the Non-public Issuance and that the maximum number of A Shares to be issued under the Non-public Issuance has been subscribed in full) are set out below:

– 7 –

LETTER FROM THE BOARD

Target subscribers Huiyin Tianyue GZ State-owned Assets Development GFHAM Select Fund No.3 (managed by GFHAM) GZLIT Suiyong Holdings Total (Note 2)	Number of A Shares to be subscribed (Note 1) 296,589,223 148,294,611 148,294,611 74,147,305 74,147,305 741,473,055	Approximate percentage of the total issued A Shares as at the Latest Practicable Date 7.00% 3.50% 3.50% 1.75% 1.75% 17.49%	Approximate percentage of the total issued Shares as at the Latest Practicable Date 4.60% 2.30% 2.30% 1.15% 1.15% 11.49%	Approximate percentage of the total issued A Shares as enlarged by the Non-public Issuance 5.96% 2.98% 2.98% 1.49% 1.49% 14.89%	Approximate percentage of the total issued Shares as enlarged by the Non-public Issuance 4.12% 2.06% 2.06% 1.03% 1.03%
					10.31%

Notes:

1. The maximum number of A Shares to be issued under the Non-public Issuance and the number of A Shares to be subscribed by each target subscriber are subject to adjustments in accordance with the mechanisms stipulated under the Non-public Issuance.

2. Any discrepancies between the total figures and the sums of direct aggregations are due to the rounding off of decimal places.

If the scale of the Non-public Issuance is to be adjusted in accordance with the requirements of the CSRC (including but not limited to adjustments to the overall scale and/or adjustments to any investment project to be financed with the proceeds raised) or reduced as a result of adjustments by the Company to the investment projects to be financed with the proceeds raised, the final total subscription amount of any of the target subscribers will be reduced accordingly (the final total subscription amount = the total subscription of the particular target subscriber x the reduced scale of issuance/ RMB15 billion). The number of A Shares to be issued under the Non-public Issuance and the final number of A Shares to be subscribed by any of the target subscribers will be adjusted accordingly.

– 8 –

LETTER FROM THE BOARD

The maximum number of A Shares to be issued under the Non-public Issuance will be adjusted accordingly if any ex-rights or ex-dividends events such as entitlement distribution, conversion of reserve into share capital or placing occur during the period from the price determination date to the date of issuance.

Lock-up period The target subscribers shall not transfer the A Shares and listing subscribed by them under the Non-public Issuance within 36 arrangement months from the date of completion of the Non-public Issuance.

The Company will apply to the Shanghai Stock Exchange for listing of the A Shares to be issued under the Non-public Issuance. The A Shares to be issued under the Non-public Issuance may be traded at the Shanghai Stock Exchange upon expiration of the lock-up period.

– 9 –

LETTER FROM THE BOARD

Amount and use of proceeds

The gross proceeds from the Non-public Issuance will not exceed RMB15 billion, which are proposed to be used in the following projects after deduction of relevant fees and expenses:

					Amount of
				Total	proceeds
				project	proposed
Project Type	No.	Name of Project		investment	to be used
				(RMB’0,000)	(RMB’0,000)
	1	New energy vehicles	and	502,367	480,000
		R&D of prospective
		technology project
New energy and	2	Guangzhou Automobile		71,051	60,000
prospective		Group Company
technology		Automotive Engineering
projects		Institute (“GAEI”) phase
		1 base expansion project
	3	GAEI phase 2 base		114,323	100,000
		construction project
	4	GAC proprietary brand		108,695	80,000
		project of Xinjiang
	5	GAC improvement		330,038	220,000
		project of Hangzhou
	6	GAC proprietary brands		353,172	250,000
		technological reformation
		project
	7	GAC proprietary brands		387,941	215,000
Plant and vehicle		vehicle models projects
model projects	7.1	GAMC A16 project		27,200	20,000
	7.2	GAMC A35 project		44,477	35,000
	7.3	GAMC A5H project		55,293	30,000
	7.4	GAMC A10 project		49,020	40,000
	7.5	GAMC A30 project		99,401	15,000
	7.6	GAMC A32 project		14,502	10,000
	7.7	GAMC A06 project		46,193	35,000
	7.8	GAMC A7M project		51,855	30,000
	8	GAMC engine project		57,666	50,000
Key auto parts	9	GAMC gearbox project		42,762	30,000
projects	10	P6 gearbox development		20,646	15,000
		project
			Total	1,988,661	1,500,000

– 10 –

LETTER FROM THE BOARD

If the actual amount of proceeds from the Non-public Issuance is less than the proposed amount to be invested in the above projects, the Company will, according to the actual amount of proceeds raised, adjust and determine the specific projects to be invested in, their priorities and the specific amount of investment in each project according to the importance and urgency of each project. Any shortfall shall be made up by the Company’s own resources or by other financing means.

Before receiving the proceeds from the Non-public Issuance, the Company will inject funds from other sources according to the actual progress of the projects, and such funds injected will be replaced by the proceeds from the Non-public Issuance according to relevant legal procedures once they are received.

Details of the feasibility analysis on each of the above projects to be financed by the proceeds, including project overview, necessity and feasibility of the project, economic benefits of the project and approvals required, are set out in section IV – “Feasibility Analysis by the Board on the Use of Proceeds” of the Proposal for Non-public Issuance of A Shares.

• Arrangement The undistributed profits of the Company accumulated prior to on completion of the Non-public Issuance will be shared among accumulated the new and existing Shareholders after completion of the undistributed Non-public Issuance. profits

• Validity period The resolutions regarding the Non-public Issuance will remain of the valid for a period of 12 months from the date of the resolutions consideration and approval of such resolutions at the Shareholders’ meetings.

(ii) Conditions precedent of the Non-public Issuance

The Non-public Issuance has been considered and approved by the 33[rd] meeting of the fourth session of the Board on 31 October 2016, but remains subject to the approval of the Guangdong SASAC, approval at EGM and the Class Meetings, and approval of the CSRC before implementation.

– 11 –

LETTER FROM THE BOARD

(iii) Effects of the Non-public Issuance on the shareholding structure of the Company

The table below sets out the Company’s shareholding structure (i) as at the Latest Practicable Date; and (ii) immediately after the completion of the Non-public Issuance (assuming that the number of total issued Shares has not been changed from the Latest Practicable Date to the date of the completion of the Non-public Issuance, and assuming that the maximum number of A Shares to be issued under the Non-public Issuance, being 741,473,055 A Shares, has been subscribed in full), strictly for reference only:

Shareholders A Shares GAIG Target subscribers Other holders of A Shares H Shares GAIG Other holders of H Shares Total issued Shares	Shareholding a Number of Shares 3,705,129,384 – 533,741,104 207,542,000 2,005,758,218 6,452,170,706	s at the Latest Practicable Date Approximate percentage of the total issued A Shares Approximate percentage of the total issued Shares 87.41% 57.42% – – 12.59% 8.27% – 3.22% – 31.09% 100% 100%	Shareholding immediately after the completion of the Non-public Issuance Number of Shares Approximate percentage of the total issued A Shares Approximate percentage of the total issued Shares 3,705,129,384 74.40% 51.51% 741,473,055 14.89% 10.31% 533,741,104 10.72% 7.42% 207,542,000 – 2.89% 2,005,758,218 – 27.88% 7,193,643,761 100% 100%	Shareholding immediately after the completion of the Non-public Issuance Number of Shares Approximate percentage of the total issued A Shares Approximate percentage of the total issued Shares 3,705,129,384 74.40% 51.51% 741,473,055 14.89% 10.31% 533,741,104 10.72% 7.42% 207,542,000 – 2.89% 2,005,758,218 – 27.88% 7,193,643,761 100% 100%
				100%

Note: Any discrepancies between the total figures and the sums of direct aggregations are due to the rounding off of decimal places.

As at the Latest Practicable Date, the shareholding of GAIG, the controlling shareholder of the Company, was approximately 60.64%. As GAIG will not participate in the Non-public Issuance, the percentage of Shares held by GAIG over the total issued Shares will decrease to approximately 54.39%, and it will remain to be the controlling shareholder of the Company after completion of the Non-public Issuance. Therefore, the Non-public Issuance will not result in any change of control of the Company.

Upon completion of the Non-public Issuance, the Company will maintain the minimum public float as required under Rule 8.08 of the Listing Rules.

– 12 –

LETTER FROM THE BOARD

(iv) Equity fund raising activities during the past 12 months

A summary of the equity fund raising activities of the Company during the 12 months preceding the Latest Practicable Date is set out below.

of 19 January 2016 announcement 1 February 2016 30 March 2016 13 June 2016 15 July 2016 26 August 2016 12 October 2016

Date of

• Fund raising Issuance of A Share Convertible Bonds activity

• Net proceeds RMB4,064,524,200 (after deduction of underwriting fee and (approximate) sponsor fee of RMB41,055,800)

• Use of proceeds

			Actual amount
			of proceeds
			used as at 30
			September
Name of project		Type of project	2016
			(RMB’0,000)
(1)	Project of upgrading	Technical upgrading	12,128.00
	construction of	project/research and
	Highlander by GAC	development of new
	Toyota Co., Ltd.	products
(2)	Project of the	Expansion of production	62,667.43
	Guangzhou Branch of	capacity/new
	GAC Fiat Chrysler	construction project
	Automobiles Co., Ltd.
(3)	Project of the expansion	Expansion of production	105,402.00
	of production capacity	capacity
	(200,000 units per year)
	of the passenger
	vehicles of proprietary
	brands of the Company
(4)	Project of upgrading	Technical upgrading	16,301.59
	vehicle model (A68) of	project/research and
	GAC Trumpchi GA5	development of new
		products
(5)	Project of vehicle	Technical upgrading	24,171.46
	model A28 of the	project/research and
	Company	development of new
		products

– 13 –

LETTER FROM THE BOARD

Use of proceeds

Name of project Type of project (6) Project of vehicle model AL of the Company Technical upgrading project/research and development of new products (7) Project of the expansion of production capacity and increase in product variety of GAC Toyota Motor Co., Ltd. Capacity expansion project (8) Finance leasing and capital injection project of Guangzhou Automobile Group Business Co., Ltd. Increase in capital contribution Total

Actual amount of proceeds used as at 30 September 2016 (RMB’0,000) 32,798.57 38,593.81 33,000.00

325,062.86

The proceeds have been used in the above projects as consistent with their intended uses.

For details of the issuance of A Shares Convertible Bonds, please refer to the overseas regulatory announcement of the Company dated 31 October 2016 regarding “Assurance Report on the Utilisation of Proceeds from Previous Fund-Raising Activity”.

Save for those disclosed above, the Company has not conducted any equity fund raising activities during the 12 months preceding the Latest Practicable Date.

(v) Dilution of current returns by the Non-public Issuance, the relevant remedial measures and undertakings by relevant parties

In accordance with the requirements of the “Opinions of the General Office of the State Council on Further Strengthening the Protection of Small and Medium Investors’ Legitimate Interests in Capital Market” （《國務院辦公廳關於進一步加強資本市場中小投資 者合法權益保護工作的意見》）(Guo Ban Fa [2013] No. 110), the “Several Opinions of the State Council on Further Promoting the Healthy Development of Capital Market”（《國 務院關於進一步促進資本市場健康發展的若干意見》） (Guo Fa [2014] No. 17) and the “Guiding Opinions on Matters Relating to the Dilution of Current Returns As a Result of Initial Public Offering, Refinancing and Major Asset Restructuring”（《關於首發及再 融資、重大資產重組攤薄即期回報有關事項的指導意見》）(CSRC Announcement [2015] No. 31), and in order to protect the interests of medium and small investors, the Company has formulated remedial measures in relation to the dilution of current returns as a result of the Non-public Issuance. The controlling shareholder (i.e. GAIG), the

– 14 –

LETTER FROM THE BOARD

Directors and senior management of the Company have given certain undertakings in accordance with the relevant requirements of the CSRC to ensure effective implementation by the Company of such remedial measures. For details, please refer to section VII – “Dilution of Current Returns by the Non-public Issuance and Remedial Measures” of the Proposal for Non-Public Issuance of A Shares.

(vi) Authorisation of the Board and persons authorised by the Board to handle all matters in relation to the Non-public Issuance

The Board has resolved to propose at the EGM for authorisation of the Board or persons authorised by the Board to handle all matters in relation to the Non-public Issuance, which will remain valid for a period of 12 months from the date of approval at the EGM. For details, please refer to Resolution no. 10 in the Notice of EGM.

(vii) Further information in relation to the Non-public Issuance

For further information in relation to the Non-public Issuance, please refer to the Proposal for the Non-Public Issuance of A Shares, which contains summary of the proposed Non-public Issuance, basic information of the target subscribers, summary of the conditional share subscription agreements, the Board’s feasibility analysis on the use of proceeds, the Board’s discussion and analysis of the impact of the Non-public Issuance on the Company, explanation on risks related to the Non-public Issuance, dilution of current returns by the Non-public Issuance and remedial measures, and the formulation and execution of the Company’s profit distribution policy and relevant details. Please also refer to the disclosures regarding the Non-public Issuance made on the website of the Shanghai Stock Exchange and on the website of the Stock Exchange by way of overseas regulatory announcement on 31 October 2016.

(viii) Reasons for and benefits of the Non-public Issuance

The Board considers that the proposed Non-public Issuance will facilitate the comprehensive and sustainable development of the Company’s business. The implementation of the investment projects using the proceeds raised from the Non-public Issuance will, on one hand, further strengthen the research and development capability of the Company’s proprietary brands, enhance the establishment of its range of proprietary brands and enrich the product mix under such brands, while on the other hand, enable the Company to keep abreast of future trend in new energy development of the vehicle industry, laying a solid foundation for the Company to seize a share in the new energy vehicle market.

In addition, the proceeds from the proposed Non-public Issuance will optimise the Company’s capital structure and lower the gearing ratio, which will reduce its financial risk and cost of debt financing.

– 15 –

LETTER FROM THE BOARD

3. EGM AND H SHAREHOLDERS’ CLASS MEETINGS

The EGM and H Shareholders’ Class Meeting will be held at 2 p.m. on Friday, 16 December 2016 (in the order of the EGM, A Shareholders’ Class Meeting and H Shareholders’ Class Meeting respectively) at Conference Room 707 of GAC Center, No. 23 Xingguo Road, Zhujiang New Town, Guangzhou, Guangdong Province, the PRC. To the best of the Directors’ knowledge, information and belief, no Shareholder has material interest in the resolutions proposed at the above meetings and therefore, no Shareholder is required to abstain from voting in such meetings.

The register of members of the Company will be closed from Thursday, 17 November 2016 to Friday, 16 December 2016 (both days inclusive), during which no transfer of Shares will be effected so as to ascertain the H Shareholders’ entitlement to attend and vote at the EGM and H Shareholders’ Class Meeting. In order to be eligible to attend and vote at the EGM and H Shareholders’ Class Meeting, all relevant completed transfer documents accompanied by the relevant share certificates must be lodged with the H Share Registrar of the Company, Tricor Investor Services Limited, at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before 4:30 p.m. on Wednesday, 16 November 2016.

Pursuant to Rule 13.39(4) of the Listing Rules, except where the chairman of the meeting, 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, all votes at the EGM and Class Meetings will be taken by poll and the Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

The Notice of EGM and Notice of H Shareholders’ Class Meeting containing the resolutions to be approved at the EGM and H Shareholders’ Class Meeting, together with the forms of proxy and reply slips, have been despatched to the Shareholders by the Company on 1 November 2016. The Notice of EGM and Notice of H Shareholders’ Class Meeting are also set out in this circular.

Whether or not you intend to attend the EGM and H Shareholders’ Class Meeting, you are requested to complete and return the form of proxy to the Company’s H Share Registrar, Tricor Investor Services Limited, at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the instructions printed thereon, not less than 24 hours before the time fixed for holding such meetings. Completion and return of the form of proxy will not preclude you from attending and voting at the meetings in person should you so wish.

4. RECOMMENDATION

The Directors consider that the resolutions regarding the proposed Non-public Issuance of A Shares set out in the Notice of EGM and Notice of H Shareholders’ Class Meeting are in the best interest of the Company and its Shareholders as a whole. Therefore, the Board recommends the Shareholders to vote in favour of the resolutions to be submitted to the EGM and H Shareholders’ Class Meeting for the approval of the same.

– 16 –

LETTER FROM THE BOARD

5. RESPONSIBILITY STATEMENT

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

6. GENERAL INFORMATION

Should there be any discrepancies between the Chinese and English versions of this circular, the Chinese version shall prevail.

By order of the Board Guangzhou Automobile Group Co., Ltd. Zeng Qinghong Chairman

– 17 –

NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING

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GUANGZHOU AUTOMOBILE GROUP CO., LTD. 廣州汽車集團股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2238)

NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2016 first extraordinary general meeting (the “ EGM ”) of Guangzhou Automobile Group Co., Ltd. (the “ Company ”) will be held at Conference Room 707 of GAC Center, Xingguo Road No. 23, Zhujiang New Town, Guangzhou, Guangdong Province, the PRC at 2:00 p.m. on Friday, 16 December 2016 to consider and, if thought fit, approve the following resolutions:

1. To consider and approve “The Resolution in relation to Satisfaction of the Conditions of Non-public Issuance of A Shares by the Company”

2. To consider and approve “The Resolution in relation to the Proposed Non-public Issuance of A Shares of the Company”:

3. (i) Class and nominal value of shares to be issued

4. (ii) Method of issuance

5. (iii) Method of subscription

6. (iv) Issue price and pricing principles

7. (v) Target subscribers, subscription amount and number of shares to be issued

8. (vi) Lock-up period and listing arrangement

9. (vii) Amount and use of proceeds

10. (viii) Arrangement on the accumulated profits prior to the issuance

11. (ix) Validity period of resolutions regarding the issuance

12. To consider and approve “The Resolution in relation to the Proposal for Non-public Issuance of A Shares of the Company”

13. To consider and approve “The Resolution in relation to the Report on the Use of Proceeds from Previous Fund Raising Activities of the Company”

– 18 –

NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING

1. To consider and approve “The Resolution in relation to the Feasibility Analysis Report on the Use of Proceeds from Non-public Issuance of A Shares of the Company”

2. To consider and approve “The Resolution in relation to the Share Subscription Agreements Entered into between the Company and Specific Target Investors”

3. To consider and approve “The Resolution in relation to the Related Party Transactions Involved in the Non-public Issuance”

4. To consider and approve “The Resolution in relation to the Dilution of Current Returns by the Non-public Issuance of A Shares and the Remedial Measures”

5. To consider and approve “The Resolution in relation to the Undertakings by the Controlling Shareholder, Directors and Senior Management of the Company regarding the Remedial Measures for the Dilution of Current Returns by the Non-public Issuance of A Shares”

6. To consider and approve “The Resolution in relation to the Proposal for Authorisation of the Board or Persons Authorised by the Board at Shareholders’ Meeting to Handle All Matters in relation to the Non-public Issuance”

7. 10.1 In order to complete the non-public issuance of the Company (the “ Non-public Issuance ”) efficiently and orderly, the board of directors (the “ Board ”) has resolved to propose, in accordance with the requirements of relevant laws and the articles of association of the Company (the “ Articles of Association ”), at the EGM for authorisation of the Board, who upon obtaining such approval and authorisation shall authorise any of the two among the chairman, general manager and the secretary of the Board to handle all matters in relation to the Non-public Issuance, including but not limited to:

   • (i) to formulate and implement a specific proposal on the Non-public Issuance in accordance with the specific circumstances, including but not limited to the timing of issuance, issuance period, target subscribers, issuance quantity, issue price and amount of the proceeds to be raised;

   • (ii) to apply to the relevant regulatory authorities for approval of the Non-public Issuance and make specific adjustments to the issuance proposal (save for those matters involving relevant laws and the Articles of Association which require approval at the general meeting again) according to the opinion of the regulatory authorities (if any), including but not limited to adjusting the number of A shares to be issued;

– 19 –

NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING

• (iii) to make appropriate adjustments to the order and specific amount of investment with the proceeds raised within the scope of authorisation granted at the EGM based on the approval process of the issuance, funding needs and priorities and in accordance with the requirements of the relevant regulatory authorities and the actual circumstances; and to make necessary adjustments to the investment projects financed by the proceeds raised in accordance with the state regulations, requirements of the relevant regulatory authorities and the market conditions;

• (iv) to conduct all negotiations in relation to the Non-public Issuance on behalf of the Company and to draft, prepare, amend, improve and sign all agreements and other documents in relation to the Non-public Issuance and make disclosures as appropriate;

• (v) to select and appoint qualified professional institutions, including but not limited to sponsors, underwriters, legal advisors, audit firms and valuers involved in the Non-public Issuance;

• (vi) to handle the amendments to the Articles of Association, capital verification formalities and change of business registration in respect of the changes in the share capital structure and registered capital of the Company in accordance with the actual situation after completion of the Non-public Issuance;

• (vii) to handle matters in relation to the registration, lock-up and listing of the new shares after completion of the Non-public Issuance;

• (viii) to set up a specific bank account for the proceeds raised; and

• (ix) to take all necessary actions as permitted under relevant laws to determine and handle all other specific matters in relation to the Non-public Issuance.

• 10.2 The above authorisation will remain valid for a period of 12 months from the date of approval at the EGM.

Resolutions nos. 2, 3, 6 and 10 above will be considered and approved by way of special resolutions, among which items under Resolution no. 2 will be voted upon separately. Resolutions nos. 1, 4, 5, 7, 8 and 9 above will be considered and approved by way of ordinary resolutions.

By order of the Board Guangzhou Automobile Group Co., Ltd.

LU Sa Company Secretary

Guangzhou, the PRC, 1 November 2016

– 20 –

NOTICE OF 2016 FIRST EXTRAORDINARY GENERAL MEETING

Notes:

1. Full text of the “Proposal for Non-public Issuance of A Shares” (the “ Proposal ”) mentioned in Resolution no. 3 in this notice is set out in the Appendix to this notice. Details of Resolutions nos. 2, 5, 6, 7, 8 and 9 are set out in the Proposal.

2. Details of Resolution no. 4 in this notice is set out in the “Assurance Report on the Use of Proceeds from Previous Fund Raising Activities of the Company” published by way of overseas regulatory announcement on 31 October 2016 by the Company.

3. The “ Related Party Transactions ” in Resolution no. 7 in this notice refers to related party transactions under the Listing Rules of Shanghai Stock Exchange.

4. Any shareholder of the Company (“ Shareholder ”) entitled to attend and vote at the said meeting is entitled to appoint one or more than one proxy to attend and vote on his behalf. A proxy need not be a Shareholder.

5. In order to be valid, the proxy form and, if such proxy form is signed by a person under a power of attorney or other authority on behalf of the appointer, a notarially certified copy of that power of attorney or authority shall be deposited at the Company’s H Share Registrar, Tricor Investor Services Limited at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 24 hours before the time for holding the meeting or 24 hours before the time appointed for taking the poll.

6. Shareholders or their proxies shall present proofs of identities when attending the meeting.

7. The register of members of the Company will be closed from Thursday, 17 November 2016 to Friday, 16 December 2016 (both days inclusive), during which no transfer of Shares will be effected so as to ascertain the Shareholders’ entitlement to attend and vote at the forthcoming EGM. In order to be eligible to attend and vote at the forthcoming EGM, all completed transfer documents accompanied by the relevant share certificates must be lodged with the H share registrar of the Company, Tricor Investor Services Limited at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before 4:30 p.m. on Wednesday, 16 November 2016.

8. Shareholders who are entitled to attend the said meeting are requested to deliver the reply slip for attendance not later than 20 days before the date of the meeting. i.e. no later than Saturday, 26 November 2016 by hand, by post or by fax to the Company’s H Share Registrar, Tricor Investor Services Limited at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong, fax no.: (852) 2810 8185.

9. Shareholders or their proxies attending the EGM are responsible for their own transportation and accommodation expenses.

10. Pursuant to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”), 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, all votes at the EGM will be taken by poll and the Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

11. This notice of EGM is despatched to the holders of H Shares of the Company only. The notice of EGM to the holders of A Shares and the relevant reply slip and proxy form are separately published on the websites of the Company (http:// www.gagc.com.cn) and the Shanghai Stock Exchange (http://www.sse.com.cn).

12. The contact person of the EGM is Mr. Liu Yong and his contact number is (86)-20-83150281.

As at the date of this notice, the executive directors of the Company are ZENG Qinghong, YUAN Zhongrong, FENG Xingya, LU Sa and WU Song, the non-executive directors of the Company are YAO Yiming, CHEN Maoshan, LI Pingyi and DING Hongxiang, and the independent non-executive directors of the Company are FU Yuwu, LAN Hailin, LI Fangjin, LEUNG Lincheong and WANG Susheng.

– 21 –

NOTICE OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES

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GUANGZHOU AUTOMOBILE GROUP CO., LTD. 廣州汽車集團股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2238)

NOTICE OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES

NOTICE IS HEREBY GIVEN that the 2016 first class meeting for holders of H shares (“ H Shareholders’ Class Meeting ”) of Guangzhou Automobile Group Co., Ltd. (the “ Company ”) will be held at Conference Room 707 of GAC Center, Xingguo Road No. 23, Zhujiang New Town, Guangzhou, Guangdong Province, the PRC at 2:00 p.m. (to be held in the order of the 2016 first extraordinary general meeting, the 2016 first class meeting for holders of A Shares and the 2016 first class meeting for holders of H shares of the Company) on Friday, 16 December 2016 to consider and, if thought fit, approve the following resolutions:

SPECIAL RESOLUTIONS

1. To consider and approve “The Resolution in relation to the Proposed Non-public Issuance of A Shares of the Company”:

2. (i) Class and nominal value of shares to be issued

3. (ii) Method of issuance

4. (iii) Method of subscription

5. (iv) Issue price and pricing principles

6. (v) Target subscribers, subscription amount and number of shares to be issued

7. (vi) Lock-up period and listing arrangement

8. (vii) Amount and use of proceeds

9. (viii) Arrangement on the accumulated profits prior to the issuance

10. (ix) Validity period of resolutions regarding the issuance

11. To consider and approve “The Resolution in relation to the Proposal for Non-public Issuance of A Shares of the Company”

– 22 –

NOTICE OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES

1. To consider and approve “The Resolution in relation to the Share Subscription Agreements Entered into between the Company and Specific Target Investors”

Items under Resolution no. 1 above will be voted upon separately.

By order of the board of directors Guangzhou Automobile Group Co., Ltd. LU Sa

Company Secretary

Guangzhou, the PRC, 1 November 2016

Notes:

1. Full text of the “Proposal for Non-public Issuance of A Shares” (the “ Proposal ”) mentioned in Resolution no. 2 in this notice is set out in the Appendix to this notice. Details of Resolutions no. 1 and 3 are set out in the Proposal.

2. Any holder of H shares of the Company (“ H Shareholder ”) entitled to attend and vote at the said meeting is entitled to appoint one or more than one proxy to attend and vote on his behalf. A proxy need not be a shareholder of the Company.

3. In order to be valid, the proxy form and, if such proxy form is signed by a person under a power of attorney or other authority on behalf of the appointer, a notarially certified copy of that power of attorney or authority shall be deposited at the Company’s H Share Registrar, Tricor Investor Services Limited at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 24 hours before the time for holding the meeting or 24 hours before the time appointed for taking the poll.

4. H Shareholders or their proxies shall present proofs of identities when attending the meeting.

5. The register of members of the Company will be closed from Thursday, 17 November 2016 to Friday, 16 December 2016 (both days inclusive), during which no transfer of Shares will be effected so as to ascertain the H Shareholders’ entitlement to attend and vote at the H Shareholders’ Class Meeting. In order to be eligible to attend and vote at the H Shareholders’ Class Meeting, all completed transfer documents accompanied by the relevant share certificates must be lodged with the H share registrar of the Company, Tricor Investor Services Limited at 22nd Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before 4:30 p.m. on Wednesday, 16 November 2016.

6. H Shareholders who are entitled to attend the H Shareholders’ Class Meeting are requested to deliver the reply slip for attendance not later than 20 days before the date of the meeting. i.e. no later than Saturday, 26 November 2016 by hand, by post or by fax to the Company’s H Share Registrar, Tricor Investor Services Limited at 22/F, Hopewell Centre, 183 Queen’s Road East, Hong Kong, fax no.: (852) 2810 8185.

7. H Shareholders or their proxies attending the H Shareholders’ Class Meeting are responsible for their own transportation and accommodation expenses.

8. Pursuant to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”), 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, all votes at the H Shareholders’ Class Meeting will be taken by poll and the Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

9. The notice of H Shareholders’ Class Meeting is despatched to the H Shareholders only.

10. The contact person of the H Shareholder’s Class Meeting is Mr. Liu Yong and his contact number is (86)-20-83150281.

– 23 –

NOTICE OF 2016 FIRST CLASS MEETING FOR HOLDERS OF H SHARES

As at the date of this notice, the executive directors of the Company are ZENG Qinghong, YUAN Zhongrong, FENG Xingya, LU Sa and WU Song, the non-executive directors of the Company are YAO Yiming, CHEN Maoshan, LI Pingyi and DING Hongxiang, and the independent non-executive directors of the Company are FU Yuwu, LAN Hailin, LI Fangjin, LEUNG Lincheong and WANG Susheng.

– 24 –

APPENDIX

A share short name: GAC A share stock code: 601238 Announcement no.: Group H share short name: GAC H share stock code: 02238

Group

Group

Bond short name: 12 GAC 01/ Bond code: 122242, 122243, 122352 02/03 GAC Convertible Bonds 113009, 191009

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������������ Guangzhou Automobile Group Co., Ltd.

(Registered address: 23/F, Chengyue Building, 448-458 Dong Feng Zhong Road, Yuexiu District, Guangzhou, Guangdong Province, the PRC)

Proposal for Non-public Issuance of A Shares

October 2016

Statement of the Company

1. The Board of the Company and all members of the Board warrant the truthfulness, accuracy and completeness of the contents of this Proposal, confirm that there are no false representations, misleading information or material omissions in this Proposal, and are jointly and severally responsible for the truthfulness, accuracy and completeness of the contents of this Proposal.

2. The Company will be responsible for the change in the operation and income of the Company upon completion of the Non-public Issuance of A Shares. Investors shall bear the investment risk arising from the Non-public Issuance of A Shares.

3. The Proposal constitutes an explanation of the Non-public Issuance of A Shares made

by the Board, and any statements to the contrary are untrue.

1. In case of any doubts, investor shall consult his/her own stockbroker, legal advisor, professional accountant or other professional advisors.

2. The statements in this Proposal do not represent the substantive assessment, confirmation, approval or authorisation by the relevant approval authorities for the Non-public Issuance of A Shares. The taking effect and completion of the Non-public Issuance of A Shares is still subject to the approval or authorisation of the relevant approval authorities.

1

Special Notes

1. The Non-public Issuance of A Shares has been considered and passed at the 33[rd] meeting of the fourth session of the Board of GAC Group on 31 October 2016.

2. The Non-public Issuance of A Shares is still subject to the approval of Guangdong SASAC, the consideration and approval of the shareholders of the Company at the general meeting, the A share class meeting and the H share class meeting, and the approval of the CSRC.

3. The target subscribers under the Non-public Issuance are Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM Select No.3 Fund managed by GFHAM, GZLIT and Suiyong Holdings. All subscribers will subscribe for the A Shares under the Non-public Issuance at the same price in cash, and the A Shares subscribed by them shall not be transferred within 36 months of completion of the Non-public Issuance.

4. The price determination date of the Non-public Issuance is the date of the announcement of the resolutions passed at the 33[rd] meeting of the fourth session of the Board, i.e. 1 November 2016. The issue price will be 90% of the average trading price of A Shares of the Company for the 20 trading days immediately preceding the price determination date (calculated by dividing the total trading value of A Shares of the Company for the 20 trading days immediately preceding the price determination date by the total trading volume of A Shares of the Company for the 20 trading days immediately preceding the price determination date), which is RMB20.31 per A share. In case of any ex-rights or ex-dividends events in relation to the Company such as entitlement distribution, capitalisation of reserve or placing during the period from the price determination date to the date of issuance, the issue price under the Non-public Issuance will be adjusted accordingly.

The 2016 interim profit distribution plan was considered and approved at the 29[th] meeting of the fourth session of the Board on 26 August 2016, according to which

2

RMB0.8 (tax included) per 10 Shares based on the total share capital of 6,450,798,045 Shares (including A Shares and H Shares) on the record date (19 October 2016) shall be distributed to all Shareholders in cash. Since trading in the A Shares on the Shanghai Stock Exchange has been suspended since 18 October 2016 and the implementation of the above entitlement distribution was completed on 20 October 2016, the issue price of the A Shares under the Non-public Issuance has been adjusted to RMB20.23 per A Share.

In the event that the CSRC imposes other requirements as to the issue price of the Non-public Issuance, the issue price will be adjusted in accordance with the requirements of the CSRC.

1. Based on the adjusted issue price of RMB20.23/Share above, the number of Shares to be issued under the Non-public Issuance will not exceed 741,473,055 Shares, of which Huiyin Tianyue intends to subscribe for 296,589,223 Shares at a consideration of RMB6 billion; Guangzhou State-owned Assets Development intends to subscribe for 148,294,611 shares at a consideration of RMB3 billion; GFHAM Select No.3 Fund under the management of GFHAM intends to subscribe for 148,294,611 Shares at a consideration of RMB3 billion; GZLIT intends to subscribe for 74,147,305 Shares at a consideration of RMB1.5 billion; and Suiyong Holdings intends to subscribe for 74,147,305 Shares at a consideration of RMB1.5 billion.

If the scale of the Non-public Issuance is to be adjusted in accordance with the requirements of the CSRC (including but not limited to adjustments to the overall scale and/or adjustments to any investment project to be financed with the proceeds raised) or reduced as a result of adjustments by the Company to the investment projects to be financed with the proceeds raised, the final total subscription amount of any of the target subscribers will be adjusted downwards accordingly (the final total subscription amount = the total subscription of the particular target subscriber x the adjusted scale of issuance / RMB 15 billion). The number of A Shares to be issued under the Non-public Issuance and the final number of A Shares to be subscribed by any of the target subscribers shall be adjusted accordingly.

3

6. The gross proceeds from the Non-public Issuance will not exceed RMB15

billion, which are proposed to be used in the following projects after deduction of the relevant fees and expenses:

Unit: RMB0’000

Project Type	No.	Name of Project	Total project investment	Amount of proceeds proposed to be used
New energy and prospective technology projects	1	New energy vehicles and R&D of prospective technology project	502,367	480,000
	2	GAEI phase 1 base expansion project	71,051	60,000
	3	GAEI phase 2 base construction project	114,323	100,000
Plant and vehicle model projects	4	GAC proprietary brand project of Xinjiang	108,695	80,000
	5	GAC improvement project of Hangzhou	330,038	220,000
	6	GAC proprietary brands technological reformationproject	353,172	250,000
	7	GAC proprietary brands vehicle modelsprojects	387,941	215,000
	7.1	GAMC A16project	27,200	20,000
	7.2	GAMC A35project	44,477	35,000
	7.3	GAMC A5Hproject	55,293	30,000
	7.4	GAMC A10project	49,020	40,000
	7.5	GAMC A30project	99,401	15,000
	7.6	GAMC A32project	14,502	10,000
	7.7 7.8	GAMC A06 project GAMC A7Mproject	46,193 51,855	35,000 30,000
Key auto parts projects	8	GAMC engineproject	57,666	50,000
	9	GAMCgearboxproject	42,762	30,000
	10	P6gearbox developmentproject	20,646	15,000
	Total		1,988,661	1,500,000

1. The Non-public Issuance of A Shares will not cause any share distribution of the Company that fails to meet the listing requirements.

2. The controlling shareholder of the Company is GAIG, and the actual controller of the Company is Guangzhou SASAC. Upon completion of the

4

Non-public Issuance of A Shares, the controlling shareholder and actual controller of the Company will remain unchanged.

1. For details of the profit distribution policy of the Company and its cash dividend distribution for the last three years, please refer to “Section VIII Formulation and Execution of the Company’s Profit Distribution Policy” of this Proposal.

2. The Non-public Issuance of A Shares has been considered and passed by the Board on 31 October 2016. Following the date of issuance of this Proposal, the Company will undertake the following tasks in the order as follows:

(1) GAIG will submit the Proposed Non-public Issuance of A Shares to Guangzhou SASAC, which will then submit the same to Guangdong SASAC for consideration;

(2) Upon receipt of the reply from Guangdong SASAC, the Company will convene the general meeting, the A Share class meeting and the H Share class meeting to consider and approve matters in relation to the Non-public Issuance of A Shares;

(3) Upon consideration and approval of the relevant matters of the Non-public Issuance of A Shares at the general meeting, the A Share class meeting and the H Share class meeting, the Company will submit this Proposal for the Non-public Issuance of A Shares to the CSRC.

5

CONTENTS

Statement of the Company .......................................................................................... 1 Special Notes ................................................................................................................. 2 DEFINITIONS ............................................................................................................. 9 Section I Summary of the Proposed Non-public Issuance of A Shares ................ 16 I. Basic information of the Issuer ........................................................................................ 16 II. Background and Purposes of the Non-public Issuance ................................................... 17 III. Summary of the Proposed Non-public Issuance ............................................................ 21 IV. Whether the Non-public Issuance constitutes a related party transaction ..................... 25 V. Whether change of control will be caused by the Issuance ............................................ 26 VI. Approvals obtained and to be obtained from the relevant competent departments for the Issuance ............................................................................................................................... 27 Section II Profile of Target Subscribers .................................................................. 28 I. Basic information of the target subscribers ...................................................................... 28 II. Competition and related party transactions upon completion of the Issuance ................ 42 III. Material transactions between the target subscribers and their controlling shareholders and actual controllers and the Company for the 24 months immediately preceding the disclosure of the Proposal .................................................................................................... 42 Section III Summary of Conditional Share Subscription Agreements ................. 43 I. Parties and date of execution ............................................................................................ 43 II. Subscription amount, number of shares to be subscribed, subscription price, lock-up period and payment method ................................................................................................ 43 III. Conditions precedent ..................................................................................................... 45 IV. Liability for breach ........................................................................................................ 47

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Section IV Feasibility Analysis by the Board on the Use of Proceeds ................... 48 I. Plan on the use of proceeds .............................................................................................. 48 II. Feasibility analysis on the projects to be financed by the proceeds ................................ 49 III. Effects of the Non-Public Issuance on the operation management and financial position of the Company ................................................................................................................... 79 Section V Discussion and Analysis of the Board on the Impacts of the Non-Public Issuance of A Shares on the Company ..................................................................... 82 I. Changes in company business, revenue structure, articles of association, shareholders’ structure and senior management structure ......................................................................... 82 II. Changes in the financial position, profitability and cash flows of the Company ........... 83 III. Business relationship, management relationship, related party transactions and competition between the Company and the controlling shareholder and its affiliates ........ 84 IV. Upon completion of the Issuance, whether there will be embezzlement of funds and assets by the controlling shareholder and its affiliates, or whether guarantee will be provided by the Company for the controlling shareholder and its affiliates ....................... 84 V. Effect of the Issuance on the debt structure of the Company ......................................... 84 Section VI Risks related to the Issuance .................................................................. 85 I. Market risk ....................................................................................................................... 85 II. Business and operational risks ........................................................................................ 86 III. Financial risk ................................................................................................................. 89 IV. Management risk ........................................................................................................... 91 V. Policy risk ....................................................................................................................... 92 VI. Issuance approval risk ................................................................................................... 95 VII. Stock market risk ......................................................................................................... 95 Section VII Dilution of Current Returns by the Non-public Issuance and Remedial Measures .................................................................................................... 96 I. Impact of the Non-Public Issuance on major financial indicators of the Company including earnings per share ................................................................................................ 96 II. Special risk warning for dilution of current returns by the Non-public Issuance ......... 100

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III. Relationship between the projects to be financed by the proceeds and the Company’s existing businesses, reserve of human resources, technologies and market for the projects ........................................................................................................................................... 102 IV. Dilution of current returns by the Non-public Issuance and specific remedial measures ........................................................................................................................................... 105 V. Undertakings made by all directors, senior management and the controlling shareholder ........................................................................................................................................... 108 Section VIII Formulation and Execution of the Company’s Profit Distribution Policy ......................................................................................................................... 110 I. The Company’s profit distribution policy ...................................................................... 110 II. Cash dividends distribution and uses of undistributed profits by the Company in the last three years .......................................................................................................................... 112 III. Dividend distribution policy and plan for returns on equity for three years (2015-2017) ........................................................................................................................................... 113

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DEFINITIONS

Unless otherwise noted, the following abbreviations herein shall have the following meanings:

General glossaries and terms

General glossaries and terms
GAC Group/the Issuer/the Company/the Listed Company	Guangzhou Automobile Group Co., Ltd.
GAIG/GAI/the controlling shareholder	Guangzhou Automobile Industry Group Co., Ltd.
Huiyin Tianyue	Guangzhou Huiyin Tianyue Equity Investment Fund Management Co., Ltd. (����������������� �)
Guangzhou State-owned Assets Development	Guangzhou State-owned Assets Development Holdings Co., Ltd. (��� ���������)
GFHAM	Guangzhou Finance Holdings Assets Management Co., Ltd (�������� ����)
GFH	Guangzhou Finance Holdings Group Co., Ltd (������������)
GFHC	Guangzhou Finance Holdings Capital Management Co., Ltd. (������� �����)

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GFHAM Select No.3 Fund	GFHAM Wealth Management Select No.3 Private Investment Fund (������� ���3�������), is a deed fund established and managed by GFHAM
GZLIT	Guangzhou Light Industry & Trade Group Co., Ltd.(������������)
Suiyong Holdings	Suiyong Holdings Ltd. (������� �)
target subscribers	Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM Select No.3 Fund managed by GFHAM, GZLIT and Suiyong Holdings
Non-public Issuance of A Shares, Non-public Issuance, the Issuance	the proposed issuance of A Shares by GAC Group to Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM Select No.3 Fund under the management of GFHAM, GZLIT and Suiyong Holdings for total proceeds amounting to not more than RMB15 billion
the Proposal	the“Proposal for the Non-public Issuance of A Shares by Guangzhou Automobile Industry Group Co., Ltd.”prepared by the Issuer for the Issuance according to relevant laws and regulations
price determination date	the date of announcement of the resolutions passed at the 33rdmeeting of the fourth session of the Board, being 1 November 2016

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Share Subscription Agreement(s), share subscription agreement(s)

the“A Shares Subscription Agreements between Guangzhou Automobile Group Co., Ltd. and Guangzhou Huiyin Tianyue Equity Investment Fund Management Co., Ltd.”, the A“Shares Subscription Agreement between Guangzhou Automobile Group Co., Ltd. and Guangzhou State-owned Assets Development Holdings Co., Ltd.”, the“A Shares Subscription Agreement between Guangzhou Automobile Group Co., Ltd. and Guangzhou Finance Holdings Assets Management Co., Ltd. (on behalf of GFHAM Wealth Management Select No.3 Private Investment Fund under its management)”, the“A Shares Subscription Agreement between Guangzhou Automobile Group Co., Ltd. and Guangzhou Light Industry & Trade Group Co., Ltd.”, and the“A Shares Subscription Agreement between Guangzhou Automobile Group Co., Ltd. and Suiyong Holdings Co., Ltd”entered into between GAC Group and each of the target subscribers respectively in relation to the Non-public Issuance of A Shares on 31 October 2016

Company Law

the Company Law of the People’s Republic of China

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Securities Law	the Securities Law of the People’sRepublic of China
Administrative Measures for the Issuance of Securities	Administrative Measures for the Issuance of Securities byListed Companies
Articles of Association	Articles of Association of Guangzhou Automobile IndustryGroupCo.,Ltd.
A Shares	the ordinary shares of the Company issued to domestic investors with the approval of the CSRC and traded on the domestic stock exchanges in the PRC, which are denominated in Renminbi and subscribed for and traded in Renminbi
H Shares	the ordinary shares of the Company with nominal value of RMB1.00 each issued with the approval of the CSRC and traded on the Hong Kong Stock Exchange, which are denominated and traded in Hong Kong dollars
General Meeting	General meeting of Guangzhou Automobile IndustryGroupCo.,Ltd.
Board	The Board of Guangzhou Automobile IndustryGroupCo.,Ltd.
Supervisory Committee	Supervisory Committee of Guangzhou Automobile IndustryGroupCo.,Ltd.
PRC/China/the country	the People’s Republic of China, which, for the purposes of the Proposal, excludes the Hong Kong Special Administrative Region of the PRC, the Macau Special Administrative Region of the PRC and Taiwan
State Council	the State Council of the People’s Republic of China

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NDRC	the National Development and Reform Commission of the People’s Republic of China
Xinjiang Uighur Autonomous Region DRC	the Development and Reform Commission of XinjiangUighur Autonomous Region
Guangdong DRC	the Development and Reform Commission of GuangdongProvince
MOF	the Ministry ofFinance of the People’s Republic of China
MIIT	the Ministry of Industry and Information Technologyof the People’s Republic of China
Guangdong SASAC	State-owned Assets Supervision and Administration Commission of Guangdong Provincial People’s Government
Guangzhou SASAC	State-owned Assets Supervision and Administration Commission of Guangzhou Municipal People’s Government
CSRC	China Securities RegulatoryCommission
Shanghai Stock Exchange	the Shanghai Stock Exchange
Hong Kong Stock Exchange	The Stock Exchange of Hong Kong Limited
Yuan	Renminbi Yuan
Name of companies andprojects
Guangqi Honda	Guangqi Honda Automobile Co., Ltd.
GAC Toyota	GAC Toyota Motor Co. Ltd
GAMC	Guangzhou Automobile Group Motor Co., Ltd.
GAEI	Automotive Engineering Institute of Guangzhou Automobile GroupCo.,Ltd.
Honda	Honda Motor Co., Ltd.
Toyota	Toyota Motor Corporation
FIAT	Fabbrica Italiana di Automobili Torino

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	(FIAT), which has been renamed FCA Italy SpA
Mitsubishi	MITSUBISHI Motors Corporation
Hino	Hino Motors, Ltd.
SAIC Motor	SAIC Motor Corporation Limited
FAW	FAW GroupCorporation
Changan	China Changan Automobile Group Co., Ltd.
HAVECO	Hangzhou HAVECO Automotive Transmission Co.,Ltd.
Japan Aisin	Aisin Seiki Co.,Ltd.
Professional glossaries and technical terms
SUV	Sport Utility Vehicle, a vehicle combing the functions of comfort and space function of station wagon and together with the traction and the off-road capabilityof van
MPV	Multi-Purpose Vehicle(s), vehicles combing functions of sedans, station wagons and vans
Extended Range Hybrid Electric Vehicle(s)	Install small auxiliary power (dynamic) units based on pure electrical vehicles, so that batteries can be re-charged when the battery is low; vehicles are directly driven by motors while motors are used to drive generators to charge batteries
Plug-in Hybrid Electric Vehicle(s)	Vehicles between electrical vehicles and fuel vehicles, which possess engines, gear boxes, transmission systems, oils and fuel tanks of traditional vehicles, and also possess batteries, motors and control circuits of electrical vehicles, and also with larger battery capacitance, and possess charging interface, which possess two power systems of integrated electric vehicles and fuel vehicles
EIC Systems of Electric Vehicle(s)	power battery, drive motor and control system of electric vehicles
A/B/C -Class Sedan(s)	the classification of sedans primarily depend on parameters such as axis distance,displacement,weight e.t.c.,

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	vehicles with a latter letter, the axis distance of such vehicle will be longer, displacement and weight will be bigger, the luxuryof the sedan will be increased
WDCT	Wet Dual - Clutch Transmission
DDCT	DryDual - Clutch Transmission
MT	Manual Transmission
AT	Automatic Transmission
Internet of Vehicle(s)	a big system network which performs wireless communications and information exchange bases on intra-car network, car network and automotive Internet, and follows exchange standards of the agreed communication agreement and data, by using car–X (where X : car, road , pedestrian and Internet)
GDP	Gross Domestic Product
GPS	GACproduction system
National V Emission Standards	The Fifth-Stage Limits for Motor Vehicle Pollutant Emission Standards of the PRC
National VI Emission Standards	The Sixth-Stage Limits for Motor Vehicle Pollutant Emission Standards of the PRC
One Belt and One Road	Silk Road Economic Belt and the 21st CenturySilk Road
Silk Road Economic Belt	economic cooperation regions formed between China and the West Asian countries,which cover Ancient Silk Road
Environmental Assessment	the environmental effect assessment

In the Proposal, there may be differences between certain figures in total and the direct arithmetic sum of the respective figures on the last digit due to rounding.

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Section I Summary of the Proposal for Non-public

Issuance of A Shares

I. Basic information of the Issuer

Company Name (in Chinese): ������������

Company Name (in English): Guangzhou Automobile Group Co., Ltd

Chinese short name: ����

Legal representative� Zeng Qinghong[1]

Date of establishment: 6 June 1997

Registered capital: RMB6,435,020,097

Place of listing of A Shares: Shanghai Stock Exchange

A Share short name: GAC Group

A Share stock code: 601238.SH

Place of listing of H Shares: Hong Kong Stock Exchange

H share short name: GAC Group

H share stock code: 02238.HK

Registered address: 23/F, Chengyue Building, 448-458 Dong Feng Zhong Road,

Yuexiu District, Guangzhou, Guangdong Province, the PRC

Office address: GAC Center, No. 23 Xingguo Road, Zhujiang New Town, Tianhe District, Guangzhou, the PRC

Postal code: 510623

Telephone: 020-8315 0886

Fax: 020-8315 0319

1 Pursuant to a resolution passed at the 32th meeting of the fourth session of the Board, Mr. Zeng Qinghong was elected the new chairman of the Company. The change in legal representative of the Company is required and the procedures for the relevant business change registration are yet to be completed.

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Website: www.gagc.com.cn

Email: ir@gagc.com.cn

Scope of business: Investment with its own funds; research and development of vehicular engineering technologies; information technology consultancy services; sales of automobiles; wholesale and retailing of auto parts; conference and exhibition services; the import and export of goods (save for licensed and franchised goods); import and export of technologies; property management.

II. Background and Purposes of the Non-public Issuance

(i) Background of the Non-public Issuance

1. There is huge room for development in the automobile market in the PRC

Against the backdrop of rapid economic development, as one of the key pillar industries in the national economy, the automobile industry in the PRC has experienced its golden development for a decade. It has played an important role in driving growth, creating job opportunities and stimulating domestic consumption etc. Automobile production and sales volume in the PRC have ranked first in the world for seven consecutive years since 2009, when the sales volume of new vehicles in the PRC reached 13.64 million units, becoming the world’s largest producer and the sales volume of new vehicles in the PRC exceeded 24.50 million units in 2015. According to the global development experience of the automobile industry, the automobile industry in the PRC has entered a period of rapid growth when automobiles are becoming household necessities, which means automobiles are no longer luxuries owned by the elite class but are also affordable by the general public. Therefore, there remains huge room for development of the automobile market in the PRC.

1. The development of proprietary brands following the country’s development strategies

The automobile industry has become one of the key pillar industries and forerunner industries in the PRC, which has brought profound impacts and changes to

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people’s social life. Contrary to its growing market size and improving economic status, the automobile industry in the PRC is still dominated by the joint ventures with foreign brands while proprietary brands are still in a weak position. The automobile industry in the PRC as a whole is huge but not strong enough. Accelerating the development of proprietary brands is inevitable for China to realise the transition from a big automobile country to a strong automobile country and the transformation from “Made in China” to “Created in China”.

GAC Group plans to have its annual automobile production and sales volume reach 2.4 million units at a compound annual growth rate of approximately 12% and to grow into a leading automobile group with operating income exceeding RMB400 billion and total profit before tax exceeding RMB50 billion by the end of the “13[th] Five-Year Plan” period. It is a priority to achieve leap-forward development for its proprietary brand business under the “13[th] Five-Year Plan” of the Company. In 2015, the Company and its joint ventures and associates realised sales volume of 1,299,700 units of automobiles together, representing a year-on-year increase of 10.86%. Trumpchi, a proprietary brand, delivered extraordinary results by realising sales volume of 195,100 units, representing a year-on-year increase of 61.64%. With the accelerated development of proprietary brands, the production capacity of the existing plants of the Company will be unable to fully meet the needs of the rapid development of the proprietary brands. The key to ensure the successful implementation of its “13[th] Five-Year Plan” is for the Company to increase its supply of proprietary brand passenger vehicles in the future and strengthen its own research and development capabilities.

1. Structural adjustments are becoming increasingly evident in the automobile industry

In recent years, as the macro-economy entered the new normality featuring slower growth rates, optimised structure and new growth drivers, the growth of overall automobiles sales volume in the PRC had slowed down. However, the sales volume of SUVs and MPVs continued to grow rapidly. Diversified consumption

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preferences and maturing consumption concepts as well as increased vehicle ownerships will further accelerate the structural adjustments in the automobile market. The demand for multi-purpose vehicles such as SUVs and MPVs will further increase. As compared with the automobile markets of developed countries, the SUV and MPV segments in the PRC accounted for a much less proportion of its overall market than that in the USA and Japan. There is still enormous growth potential. During the period of “13[th] Five-Year Plan”, the SUV segment will continue to grow and the differentiation of vehicle models in this segment will become more evident. The MPV segment is expected to become a new growth driver due to an increase in the number - of family members as a result of the implementation of the “second child policy”.

4. Positive outlook for the new energy vehicle market

As vehicle ownership in the PRC continues to grow, huge energy consumption and exhaust emission have brought mounting pressure on energy safety and environment protection in the PRC. The development of low-carbon emission and environment-friendly new energy vehicles has become a strategic choice in the PRC. At the policy level, a number of authorities including the State Council and the NDRC have expressly proposed the plans to develop new energy vehicles and to make it one of the PRC’s strategic focuses on development for breakthroughs in the future. At the operation level, the central PRC government has successively introduced a large number of policies for the promotion of and financial support for new energy vehicles, providing comprehensive support for the development of new energy vehicles from direct financial subsidies, reduction and relief of vehicle purchase taxes to construction of re-charging facilities. A series of policies in support of the development of new energy vehicles were also introduced by local governments in Beijing, Shanghai and Shenzhen, encouraging the promotion and application of new energy vehicles in the respective regions.

Strong government support has assured the development of new energy vehicles. According to the statistics of China Association of Automobile Manufacturers, the production and sales volume of new energy vehicles in 2015 were 340,500 units and

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331,100 units respectively, representing year-on-year increases of 3.3 times and 3.4 times respectively. In the first half of 2016, the production and sales volume of new energy vehicles were 177,000 unit and 170,000 units respectively, representing year-on-year increases of 1.25 times and 1.27 times respectively. China’s new energy vehicle market has entered a period of fast growth. Currently, the technology, ancillary facilities and market of new energy vehicles including electric vehicles, extended range hybrid electric vehicles and plug-in hybrid electric vehicles have gradually matured. As the new energy vehicle technology continues to advance, the price of automobile batteries will decrease significantly, and the performance and quality-price ratio of new energy vehicles will hopefully be further improved in the future.

(ii) Purpose and implications of the Non-public Issuance

1. Strengthen research and development in technology of proprietary brands of the Company and improve its core competitiveness

In recent years, the products of GAC Group under its proprietary brands have become popular in the market. The implementation of the projects financed by the proceeds raised will further improve the research and development capability of the Company for the products under its proprietary brands, facilitate the building of a system of its proprietary brands, diversify the product line of its proprietary brands, and accelerate the development of its proprietary brands, which will further improve its brand image and is of great significance to the increase in core competiveness of GAC Group.

1. Meet the needs of investment in new energy vehicle projects and capture the share of the new energy vehicle market

In order to adapt to the future trend of developing new energy vehicles in the automotive industry, the Company has made the development of new energy vehicles one of the key goals for the strategic upgrade of GAC Group. The proceeds from the Non-public Issuance of Shares are proposed to be utilised in the investments in the new energy area, including new energy vehicle and prospective technology project,

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GAMC A5H project in the plant and vehicle model projects, and GAMC engine project in the key components and parts projects. The uses of proceeds from the Non-public Issuance are in line with the national policy for the new energy vehicles industry and the direction of future strategic development of the Company, which will enable the Company to capture the share of the new energy vehicle market and have positive prospects in market development and financial performance.

3. Further optimise capital structure

The Company adheres to a policy of steady operation and has long maintained its asset-liability ratio at a low level. Under the influence of the industry environment, the asset-liability ratio of the Company has been increasing since 2011. As at 30 September 2016, the asset-liability ratio of the Company reached 46.59%, reaching a high level in its history. The long-term proceeds to be raised through the Non-public Issuance will optimise the capital structure of the Company and lower its asset-liability ratio, which will in turn lower the financial risk exposure and debt financing cost of the Company.

III. Summary of the Non-public Issuance Proposal

(i) Class and nominal value of the Shares to be issued

The Shares to be issued under the Non-public Issuance are RMB denominated ordinary Shares with a nominal value of RMB1.00 per Share, which will be listed on the Shanghai Stock Exchange (A Shares).

(ii) Method of Issuance

The new A Shares under the Non-public Issuance will be issued by way of non-public issuance to the specific target investors.

(iii) Method of subscription

The new A Shares to be issued under the Non-public Issuance shall be subscribed by each target subscriber in cash.

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(iv) Issue price and pricing principles

The price determination date is the date of the announcement of the resolutions passed at the 33[rd] meeting of the fourth session of the Board, i.e. 1 November 2016. The issue price of the Non-public Issuance shall be 90% of the average trading price of the A Shares over the 20 trading days preceding the price determination date (the average trading price of the A Shares over the 20 trading days preceding the price determination date = the total turnover of the A Shares over the 20 trading days preceding the price determination date /the total trading volume of the A Shares over the 20 trading days preceding the price determination date), which is RMB20.31 per A Share. The base issue price shall be adjusted accordingly if any ex-rights or ex-dividends events such as entitlement distribution, conversion of reserve into share capital or placing occur during the period from the price determination date to the date of issuance.

The 2016 interim profit distribution plan was considered and approved at the 29[th] meeting of the fourth session of the Board on 26 August 2016, according to which RMB0.8 (tax included) per 10 shares based on the total share capital of 6,450,798,045 Shares (including A Shares and H Shares) on the record date (19 October 2016) shall be distributed to all Shareholders in cash. Since trading in A Shares has been suspended since 18 October 2016 and the implementation of the above entitlement distribution was completed on 20 October 2016, the issue price of the A Shares under the Non-public Issuance has been adjusted to RMB20.23 per Share.

In the event that the CSRC imposes other requirements as to the issue price of the Non-public Issuance, the issue price will be adjusted accordingly in accordance with the requirements of the CSRC.

(v) Target subscribers, subscription amount and number of Shares to be issued

Based on the adjusted issue price of RMB20.23 per Share above, the number of Shares to be issued under the Non-public Issuance will not exceed 741,473,055 Shares, of which Huiyin Tianyue intends to subscribe for 296,589,223 shares at a consideration of RMB6 billion; Guangzhou State-owned Assets Development intends

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to subscribe for 148,294,611 shares at a consideration of RMB3 billion; GFHAM Select No.3 Fund under the management of GFHAM intends to subscribe for 148,294,611 shares at a consideration of RMB3 billion; GZLIT intends to subscribe for 74,147,305 shares at a consideration of RMB1.5 billion; and Suiyong Holdings intends to subscribe for 74,147,305 shares at a consideration of RMB1.5 billion.

If the scale of the Non-public Issuance is to be adjusted in accordance with the requirements of the CSRC (including but not limited to adjustments to the overall scale and/or adjustments to any investment project to be financed with the proceeds raised) or reduced as a result of adjustments by the Company to the investment projects to be financed with the proceeds raised, the final total subscription amount of any of the target subscribers will be adjusted downwards accordingly (the final total subscription amount = the total subscription of the particular target subscriber x the adjusted scale of issuance / RMB 15 billion). The number of A Shares to be issued under the Non-public Issuance and the final number of A Shares to be subscribed by any of the target subscribers shall be adjusted accordingly.

The maximum number of A Shares to be issued under the Non-public Issuance shall be adjusted accordingly if any ex-rights or ex-dividends events such as entitlement distribution, conversion of reserve into share capital or placing occur during the period from the price determination date to the date of issuance.

(vi) Lock-up period and listing arrangement

The A Shares subscribed by the target subscribers under the Non-public Issuance shall not be transferred within 36 months from the date of completion of the Non-public Issuance.

The Company will apply to the Shanghai Stock Exchange for listing of the A Shares to be issued under the Non-public Issuance. The A Shares to be issued under the Non-public Issuance may be traded at the Shanghai Stock Exchange upon expiration of the lock-up period.

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(vii) Uses of proceeds

T he gross proceeds from the Non-public Issuance will not exceed RMB15 billion, which are proposed to be used in the following projects after deduction of relevant fees and expenses:

Unit: RMB0’000	Unit: RMB0’000	Unit: RMB0’000	Unit: RMB0’000	Unit: RMB0’000
Project Type	No.	Name of Project	Total project investment	Amount of proceeds proposed to be used
New energy and prospective technology projects	1	New energy vehicles and R&D of prospective technology project	502,367	480,000
	2	GAEI phase 1 base expansion project	71,051	60,000
	3	GAEI phase 2 base constructionproject	114,323	100,000
Plant and vehicle model projects	4	GAC proprietary brand project of Xinjiang	108,695	80,000
	5	GAC improvement project of Hangzhou	330,038	220,000
	6	GAC proprietary brands technological reformation project	353,172	250,000
	7	GAC proprietary brands vehicle modelsprojects	387,941	215,000
	7.1	GAMC A16project	27,200	20,000
	7.2	GAMC A35project	44,477	35,000
	7.3	GAMC A5Hproject	55,293	30,000
	7.4	GAMC A10project	49,020	40,000
	7.5	GAMC A30project	99,401	15,000
	7.6	GAMC A32project	14,502	10,000
	7.7	GAMC A06project	46,193	35,000
	7.8	GAMC A7Mproject	51,855	30,000
Key auto parts projects	8	GAMC engineproject	57,666	50,000
	9	GAMCgearboxproject	42,762	30,000
	10	P6 gearbox development project	20,646	15,000
	Total		1,988,661	1,500,000

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If the actual amount of proceeds from the Non-public Issuance is less than the proposed amount to be invested in the above projects, the Company will, according to the actual amount of proceeds raised, adjust and determine the specific projects to be invested in, their priorities and the specific amount of investment in each project according to the importance and urgency of each project. Any shortfall shall be made up by the Company’s own resources or by other financing means.

Before receiving the proceeds from the Non-public Issuance, the Company will inject funds from other sources according to the actual progress of the projects, and such funds injected will be replaced by the proceeds from the Non-public Issuance according to relevant legal procedures once they are received.

(viii) Arrangement on accumulated profits prior to the Issuance

The undistributed profits of the Company accumulated prior to completion of the Non-public Issuance will be shared among the new and existing Shareholders after completion of the Non-public Issuance.

(ix) Validity period of the resolutions regarding the Issuance

The resolutions regarding the Non-public Issuance shall remain valid for a period of 12 months from the date of the consideration and approval of such resolutions at the Shareholders’ meetings.

IV. Whether the Non-public Issuance constitutes a related party transaction

Li Fangjin, an independent director of the Company, is also acting as chairman of the board of directors of GFH at the same time, and GFHAM, a holding subsidiary of GFH, is also the fund manager of GFHAM Select No.3 Fund. According to applicable laws, regulations and normative policies including the “Listing Rules of Shanghai Stock Exchange”, and internal governance documents such as the “Articles of Association”, and according to the principle of substance over form, the Company considers that the subscription by GFHAM Select No.3 Fund managed by GFHAM of A Shares issued under the Non-public Issuance at a consideration of RMB3 billion

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constitutes a related party transaction. For the main contents of the Share Subscription Agreement entered into between the Company and GFHAM (on behalf of GFHAM Select No.3 Fund under its management), please refer to Section III Summary of Conditional Share Subscription Agreements of this Proposal.

Prior approvals have been obtained from independent directors of the Company in respect of the related party transaction, and the related party transaction has been considered and approved at the 33rd meeting of the foruth session of the Board with the related director Li Fangjin abstained from voting in respect of related resolutions. Save for Li Fangjin, other directors have issued independent opinions in agreement that: “1.the Board considered that the voting procedures of the related party transaction under the related resolutions were in compliance with the relevant laws and regulations, the Articles of Association and the Listing Rules of the relevant place of listing; 2. Price and the conditions agreed under the terms of the Share Subscription Agreement and the related party transaction under the related resolutions are fair; 3. The related party transaction under the related resolutions is fair to the Company and all shareholders, and in line with the interests of the Company, there is no damage to the Company and other shareholders, especially the interests of small and medium shareholders; 4. It is agreed that the related party transaction under the related resolutions will proceed.”

The above-mentioned transaction does not constitute connected transaction under the Listing Rules of the Hong Kong Stock Exchange.

V. Whether change of control will be caused by the Issuance

As at 30 September 2016, the total share capital of the Company was 6,450,053,139 shares, of which 3,912,671,384 shares, representing 60.66% of its share capital, were directly or indirectly held by GAIG, the controlling shareholder of the Company. As a result of the exercise of options under the share options incentive scheme of the Company, as at the date of the Proposal, the total share capital of the Company has increased to 6,450,798,045 shares. Guangzhou SASAC is the actual controller of the Company.

The number of A Shares to be issued under the Non-public Issuance of A Shares will be no more than 741,473,055 Shares. Based on the shareholding structure of the

26

Company as at 30 September 2016 and the maximum number of A shares to be issued under the Issuance, upon completion of the Non-public Issuance of A Shares, GAIG will hold 54.41% interest in the Company and remain as the controlling shareholder of the Company and Guangzhou SASAC will remain as the actual controller of the Company.

As such, no change of control of the Company will be caused by the Issuance.

VI. Approvals obtained and to be obtained from the relevant competent departments for the Issuance

The Non-public Issuance of A Shares has been considered and passed at the 33[rd] meeting of the fourth session of the Board of the Company on 31 October 2016.

The Non-public Issuance is subject to the approval of Guangdong SASAC.

The Non-public Issuance is subject to consideration and approval at the general meeting, the A Share class meeting and the H Share class meeting of the Company.

The Non-public Issuance is subject to the approval of the CSRC.

Upon approval by the CSRC, the Company will apply to the Shanghai Stock Exchange and Shanghai Branch of the China Securities Depository and Clearing Company Limited, for the issuance and listing of the A Shares and complete all the filing and approval procedures for the Non-public Issuance.

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Section II Profile of Target Subscribers

I. Basic information of target Subscribers

The subscribers under the Non-public Issuance of A Shares are Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM Select No.3 Fund under the management of GFHAM, GZLIT and Suiyong Holdings, details of which are as follows:

(i) Information of Huiyin Tianyue

1. Summary of Huiyin Tianyue

Name (in Chinese): ������������������

Registered address: J18, 1101, 11/F, Nansha Finance Building, 171 Haibin Road, Nansha District, Guangzhou (for office use only)

Legal representative�Min Fei

Registered capital: RMB1,240,000,000

Scope of business: Entrusted management of equity investment funds; equity investment; fund management services; enterprise management and consulting services; investment consulting services; investment management services; (approvals from competent authorities shall be obtained for the operation of the activities requiring approval in accordance with the laws)

2. Shareholding and control

As at the date of the issuance of this Proposal, the relationship of shareholding and control between Huiyin Tianyue, its controlling shareholder and its actual controller is as follows:

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==> picture [398 x 208] intentionally omitted <==

----- Start of picture text -----

Guangzhou Municipal People’s Government
100%
Guangzhou Industrial Investment Fund Management Co., Ltd.
100%
Canton Venture Capital Co., Ltd.
5%
95%
Huiyin Tianyue
----- End of picture text -----

1. Principal activities and operation in the last three years

Huiyin Tianyue was established with the approval from the Guangzhou municipal people’s government in April 2014, with registered capital of RMB1.24 billion. Huiyin Tianyue is positioned as the core platform for the market-oriented investment business of Guangzhou Industrial Investment Fund Management Co., Ltd.. The funds under its management currently include urban development funds, industrial transformation and upgrade funds, state-owned enterprise mixed-ownership reform funds, private equity funds, placement funds and merger and acquisition funds with focuses on new energy, environmental protection, medical services, agriculture, high-end manufacturing, smart city and culture industries. Huiyin Tianyue cooperates with listed companies in the establishment of merger and acquisition funds using the “PE+ listed companies” model. Through capital operation, it has become one of the most influential and active professional equity investment firms in the PRC.

As at the end of June 2016, the assets under the management of Huiyin Tianyue exceeded RMB13 billion. As for business presence, Huiyin Tianyue has established subsidiaries in major cities in the PRC including Beijing, Shanghai, Changsha and Hong Kong.

4. Summary of financial statements for the recent year

• (1) Key information in the balance sheet

Unit: RMB0’000

(1) Key information in the balance sheet	Unit: RMB0’000
Item	31 December 2015
Current assets	116,735
Non-current assets	94,552
Total assets	211,287
Current liabilities	28,878
Non-current liabilities	49,017

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Item	31 December 2015
Total liabilities	77,895
Total owners’ equity	133,392

(2) Key information in the income statement

Unit: RMB0’000

(2) Key information in the income statement	Unit: RMB0’000
Item	2015
Total operatingincome	16,451
Total operatingcost	9,445
Operating profit	14,325
Totalprofit	14,325
Netprofit	10,656

(3) Key information in the cash flow statement

Unit: RMB0’000

(3) Key information in the cash flow statement	Unit: RMB0’000
Item	2015
Net cash flow from operatingactivities	-8,392
Net cash flow from investingactivities	-92,661
Net cash flow from financingactivities	104,479
Net increase in cash and cash equivalents	3,426
Cash and cash equivalents at the end of theperiod	12,750

Note: The aforesaid financial information has been audited by Grant Thornton (special general partnership).

5. Sanctions imposed on Huiyin Tianyue and its chief executives for the last five years

None of Huiyin Tianyue or its directors, supervisors and senior managements has been subject to any administrative penalty (other than those clearly not related to the securities market), criminal penalty or any material civil action or arbitration in relation to economic disputes in the last five years.

6. Source of subscription funds of Huiyin Tianyue

Huiyin Tianyue proposed to subscribe for the A Shares to be issued under the Issuance of GAC Group in the amount of RMB6 billion.

According to the “Commitment letter in relation to the source of subscription funds” issued by Huiyin Tianyue, “the source of subscription funds for the Non-public Issuance of the Company is its own funds or funds raised by itself, and the source of funds is legal; the assets position of the Company is healthy and can support the full payment for the subscription of A Shares issued under the Issuance of the Company on time.”

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(2) Information of Guangzhou State-owned Assets Development

1. Summary of Guangzhou State-owned Assets Development

Name (in Chinese): ������������

Registered address: 33/F, Development Centre, 3 Linjiang Avenue, Tianhe District, Guangzhou

Legal representative� Wang Haibin

Registered capital: RMB4,026,197,000

Scope of business: Investment using self-owned funds; investment management services; enterprise management services (except the activities requiring approval); investment consulting services; wholesale trading of goods (except goods requiring approval); retail trading of goods (except goods requiring approval); (approvals from competent authorities shall be obtained for the operation of the activities requiring approval in accordance with the laws)

2. Shareholding and control

As at the date of the issuance of this Proposal, the relationship of shareholding and control between State-owned Assets Development, its controlling shareholder and its actual controller is as follows:

==> picture [251 x 87] intentionally omitted <==

----- Start of picture text -----

Guangzhou Municipal People’s Government
100%
Guangzhou State-owned Assets Development
----- End of picture text -----

3. Principal activities and operation in the last three years

Guangzhou State-owned Assets Development was established on 26 September 1989. The positioning of State-owned Assets Development as set by Guangzhou SASAC is a listed company shares holding platform, capital operation management platform and strategic investment development platform. The operating income of Guangzhou State-owned Assets Development is mainly derived from two business segments, being integrated energy development and operation, and production and sale of beer. The structure of the operating income of Guangzhou State-owned Assets Development for the last three years remained substantially stable. The operating income from integrated energy development and operation accounts for approximately 83% of its total operating income, and the operating income from

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production and sale of beer accounts for approximately 14% of its total operating income. Other operating income includes property rental revenue, revenue from sales of materials.

4. Summary of financial statements for the recent year

• (1) Key information in the consolidated balance sheet

Unit: RMB0’000

(1) Key information in the consolidated balance sheet	Unit: RMB0’000
Item	31 December 2015
Current assets	1,720,667
Non-current assets	3,414,485
Total assets	5,135,151
Current liabilities	1,262,690
Non-current liabilities	1,025,878
Total liabilities	2,288,568
Total equityattributable to owners of the Company	1,768,561
Total minorityinterest	1,078,023
Total owners’ equity	2,846,583

(2) Key information in the consolidated income statement

Unit: RMB0’000

	Unit: RMB0’000
Item	2015
Operatingincome	2,498,994
Operatingcost	1,994,269
Operating profit	247,711
Totalprofit	263,524
Netprofit	201,614
Netprofit attributable to owners of the Company	94,126

(3) Key information in the consolidated cash flow statement

Unit: RMB0’000

	Unit: RMB0’000
Item	2015
Net cash flow from operatingactivities	420,041
Net cash flow from investingactivities	214,895
Net cash flow from financingactivities	-388,820
Net increase in cash and cash equivalents	246,129
Cash and cash equivalents at the end of theperiod	825,760

Note: The aforesaid financial information has been audited by Guangdong Zhongtianyue Certified Public Accountants Co., Ltd..

1. Sanctions imposed on Guangzhou State-owned Assets Development and its existing chief executives for the last five years

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None of Guangzhou State-owned Assets Development or its current directors, supervisors and senior managements has been subject to any administrative penalty (other than those clearly not related to the securities market), criminal penalty or any material civil action or arbitration in relation to economic disputes in the last five years.

6. Source of subscription funds of Guangzhou State-owned Assets Development

Guangzhou State-owned Assets Development proposed to subscribe for the A Shares to be issued under the Issuance of GAC Group in the amount of RMB3 billion.

According to the “Commitment letter in relation to the source of subscription funds” issued by Guangzhou State-owned Assets Development, “the source of subscription funds for the Non-public Issuance of the Company is its own funds or funds raised by itself, and the source of funds is legal; the assets position of the Company is healthy and can support the full payment for the subscription of A Shares issued under the Issuance of the Company on time.”

(iii) Information of GFHAM and GFHAM Select No.3 Fund under its management

GFHAM proposes to subscribe, through GFHAM Select No.3 Fund under its management, for the A Shares to be issued under the Non-public Issuance. Details are as follows:

1. Summary of GFHAM

Name (in Chinese): ������������

Registered address: Room 1004, 365 Tianhe Road, Tianhe District, Guangzhou

Legal representative: You Bingjun

Registered capital: RMB65,000,000

Scope of business: Investment management services; investment using self-owned funds; (Approvals from competent authorities shall be obtained for the operation of the activities requiring approval in accordance with the laws)

2. Shareholding and control

As at the date of the issuance of this Proposal, the relationship of shareholding between GFHAM, its controlling shareholder and actual controller is as follows:

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----- Start of picture text -----

Guangzhou Municipal People’s Government
100%
Guangzhou Finance Holdings Group Co., Ltd.
61.53%
GFHAM
----- End of picture text -----

3. Principal activities and operation in the last three years

GFHAM was incorporated in May 2001, its formerly name was “"Guangzhou Pearl River Asset Management Limited” (������������), and was changed to its present name, “Guangzhou Finance Holdings Assets Management Co., Ltd.” in March 2016. The scope of business of GFHAM covers securities investment, equity investment, property investment and provision of financial consulting services. It aims to become a first-class assets management company with diversified business, regulated management and strong performance. Since May 2015, GFHAM was registered as a private fund manager and completed the issuance of GFHAM No.1 Flexible Portfolio Securities Investment Fund and the GFHAM Wealth Management Select No.1 Private Investment Fund in 2016. In recent years, the size of its business and operation continues to expand and its performance has been improving. Currently, GFHAM has assets under its management with value of approximately RMB700 million.

4. Summary of financial statements for last year

(1) Key information in the balance sheet

Unit: RMB0’000

(1) Key information in the balance sheet	Unit: RMB0’000
Item	31 December 2015
Current assets	11,069
Non-current assets	179
Total assets	11,248
Current liabilities	3,728
Non-current liabilities	340
Total liabilities	4,068
Total owners’ equity	7,180

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(2) Key information in the income statement

Unit: RMB0’000

(2) Key information in the income statement	Unit: RMB0’000
Item	2015
Profit or loss from change in fair value	-
Investment income	-
Operatingincome	1,270
Operatingcost	2,412
Operating profit	2,646
Totalprofit	2,646
Netprofit	2,206

(3) Key information in the cash flow statement

(3) Key information in the cash flow statement	(3) Key information in the cash flow statement
Unit: RMB0’000
Item	2015
Net cash flows from operatingactivities	-417
Net cash flows from investingactivities	-4,061
Net cash flow from financingactivities	3,000
Net increase in cash and cash equivalents	-1,479
Cash and cash equivalents at the end of theperiod	3,036

Note: The aforesaid financial information has been audited by Guangdong Link Certified Public Accountants Co., Ltd. (��������������).

5. Sanctions imposed on GFHAM and its chief executives for the last five years

None of GFHAM or its directors, supervisors and senior managements has been subject to any administrative penalty (other than those clearly not related to the securities market), criminal penalty or any material civil action or arbitration in relation to economic disputes in the last five years.

1. Information of GFHAM Select No.3 Fund and source of subscription funds

GFHAM Select No.3 Fund is a deed fund established and managed by GFHAM and its investors are GFH and GFHC, a wholly-owned subsidiary of GFH. As the date of issuance of the Proposal, GFHAM has completed registration for private equity fund manager with registration number of P1014505. GFHAM Select No.3 Fund is in the process of filing for private equity funds.

GFHAM Select No.3 Fund proposed to subscribe for the A Shares to be issued under the Issuance of GAC Group in the amount of RMB3 billion, among which, GFH will contribute RMB2.9 billion, and GFHC will contribute RMB100 million.

According to the “Commitment letter in relation to the source of subscription funds” issued by GFH , “the source of subscription funds for the Non-public Issuance of the

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Company is from its own funds or funds raised by itself, and the source of funds is legal, there is not any structural arrangement such as grading income or leveraged structured finance; the assets position of the Company is healthy and can support the full payment for the subscription by GFHAM Select No.3 Fund of A Shares to be issued under the Issuance of the Company on time.”

According to the “Commitment letter in relation to the source of subscription funding” issued by GFHC , “the source of subscription funds for the Non-public Issuance of the Company by the listed Company is from its own funds or funds raised by itself, and the source of funding is legal, there is not any structural arrangement such as grading income or leveraged structured finance; the assets position of the Company is healthy, and can support the full payment of the subscription by GFHAM No.3 Fund of A Shares to be issued under the Issuance of the listed Company on time.”

(iv) Information of GZLIT

1. Summary of GZLIT

Name (in Chinese): ������������

Registered address: 147 Yanjiang West Road, Yuexiu District, Guangzhou

Legal representative: Fang Guiquan

Registered capital: RMB1,984,522,000

Scope of business: asset management (except for monitoring chemicals, hazardous chemicals); watches and clocks and instruments manufacturing; household plastic products manufacturing; household chemicals, chemical products, chemical products, Other sports equipment manufacturing; other sports goods manufacturing; woven garments manufacturing; knitting or crochet clothing manufacturing; sales of the Company's products (national laws and regulations prohibit the operation of the company); the production of leather goods; Goods import and export (except for the exclusive control of goods franchise); technology import and export; general machinery and equipment sales; trade agents; textiles, knitwear, knitted fabrics, knitted fabrics, knitted fabrics, knitted fabrics and other fabrics; And the wholesale of raw materials; textiles and knitwear retail; handicrafts wholesale; arts and crafts retail; wholesale hardware products; metal retail; metal and metal mine wholesale (except the state franchise-controlled category); non-metallic minerals and products wholesale (Excluding approval of the type of goods); warehousing agency services; to provide tourists with tourism, transportation, accommodation, catering and other agency services (not involved in travel agency business); commodity retail trade (except for the approval of commodities) Technology consulting services; security production technology services; business management consulting services; technology intermediary services; real estate development and management; property

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management; real estate intermediary services; real estate advisory services; own real estate business activities; housing leasing; advertising; ; Canned food; biscuits and other baked goods manufacturing (excluding on-site production and sales); instant noodles and other convenient food manufacturing; health care; health care products; food and beverage processing; (Including hazardous chemicals; excluding refined oil, precursor chemicals); chemical products retail (including hazardous chemicals; excluding refined oil, precursor chemicals, chemical products); chemical products; ); Retail grain and oil; pre-packaged food wholesale; pre-packaged food retail; bulk food wholesale; bulk retail food; Chinese herbal medicine wholesale (acquisition); drug retail; road transport of goods; domestic general cargo transport; (subject to approval of the project , Approved by the relevant departments before carrying out business activities).

2. Shareholding and control

As at the date of the issuance of this Proposal, the relationship of shareholding between GZLIT, its controlling shareholder and its actual controller is as follows:

==> picture [211 x 87] intentionally omitted <==

----- Start of picture text -----

Guangzhou SASAC
100%
GZLIT
----- End of picture text -----

3. Principal activities and operation in the last three years

GZLIT is the first large-scale enterprise group in Guangzhou which was established according to modern enterprise system. It was established in 2000 and mainly engaged in asset management, food manufacturing, sporting products manufacturing, daily chemical products manufacturing, goods and technology import and export business. In recent years, GZLIT vigorously promotes the upgrading of traditional industries, optimise internal resources, the use of external resources, focusing on building a modern industrial system with light industrial characteristics, the formation of energy-saving electric light, green, health food, sports industry, modern trade, culture Creative six business segments, while actively using the capital market, to promote asset securitisation, to achieve sustainable and rapid development of enterprises.

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4. Summary of financial statements for the recent year

(1) Key information in the consolidated balance sheet

Unit: RMB0’000

(1) Key information in the consolidated balance sheet	Unit: RMB0’000
Item	31 December 2015
Current assets	1,116,511
Non-current assets	417,470
Total assets	1,533,982
Current liabilities	755,779
Non-current liabilities	175,783
Total liabilities	931,562
Total equityattributable to owners of the Company	520,053
Total minorityinterest	82,367
Total owners’ equity	602,420

(2) Key information in the consolidated income statement

(2) Key information in the consolidated income statement	(2) Key information in the consolidated income statement
Unit: RMB0’000
Item	2015
Total operatingincome	4,105,394
Total operatingcost	3,959,844
Operating profit	31,744
Totalprofit	39,738
Netprofit	29,739
Netprofit attributable to owners of the Company	26,658

• (3) Key information in the consolidated cash flow statement

(3) Key information in the consolidated cash flow statement	(3) Key information in the consolidated cash flow statement
Unit: RMB0’000
Item	2015
Net cash flow from operatingactivities	28,231
Net cash flow from investingactivities	3,500
Net cash flow from financingactivities	-9,497
Net increase in cash and cash equivalents	23,956
Cash and cash equivalents at the end of theperiod	382,879

Note: The aforesaid financial information has been audited by Guangzhou Lingnan

Certified Public Accountants Co., Ltd. (��������������).

5. Sanctions imposed on GZLIT and its chief executives for the last five years

None of GZLIT or its directors, supervisors and senior managements has been subject to any administrative penalty (other than those clearly not related to the securities market), criminal penalty or any material civil action or arbitration in relation to economic disputes in the last five years.

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6. Source of subscription funds of GZLIT

GZLIT proposed to subscribe for the A Shares to be issued under the Issuance of GAC Group in the amount of RMB1.5 billion.

According to the “Commitment letter in relation to the source of subscription funds” issued by GZLIT, “the source of subscription funds for the Non-public Issuance of the Company is its own funds or funds raised by itself, and the source of funds is legal; the assets position of the Company is healthy and can support the full payment of the subscription of A Shares issued under the Issuance of the Company on time.”

(v) Information of Suiyong Holdings

1. Summary of Suiyong Holdings

Name (in Chinese): ��������

Registered address: X1301-E1093, Block 1, 106 Fengze East Road, Nansha District, Guangzhou (for office use only)

Legal representative�Qu Guohui

Registered capital: RMB3 billion

Scope of business: Assets management (except the activities requiring approval); investment consulting services; investment management services; enterprise management consulting services; (approvals from competent authorities shall be obtained for the operation of the activities requiring approval in accordance with the laws)

2. Shareholding and control

As at the date of the issuance of the Proposal, the relationship of shareholding and control between Suiyong Holdings, its controlling shareholder and its actual controller is as follows:

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==> picture [210 x 28] intentionally omitted <==

----- Start of picture text -----

Guangzhou Municipal People’s Government
----- End of picture text -----

==> picture [418 x 215] intentionally omitted <==

----- Start of picture text -----

100%
Guangzhou Industrial Investment Fund Management Co., Ltd.
�����
Canton Venture Capital Co., Shanghai Gangshi Equity Tibet Yinghui Investment
Shanshan Holdings Ltd. ���������� Investment Co., Ltd. Management Partnership (Limited
���������� (��������� Partnership)
Co., Ltd.
���) ����������������
�����
30% 30% 20% 20%
Suiyong Holdings
----- End of picture text -----

1. Principal activities and operation in the last three years

Established on 20 May 2016, Suiyong Holdings is mainly engaged in the business of investment management, and has no operation results in the last three years.

4. Summary of financial statements for the recent year

Established on 20 May 2016, Suiyong Holdings has no financial information for the recent year.

1. Sanctions imposed on Suiyong Holdings and its chief executives for the last five years

None of Suiyong Holdings or its directors, supervisors and senior managements has been subject to any administrative penalty (other than those clearly not related to the securities market), criminal penalty or any material civil action or arbitration in relation to economic disputes in the last five years.

6. Source of subscription funds of Suiyong Holdings

GZLIT proposed to subscribe for the A Shares to be issued under the Issuance of GAC Group in the amount of RMB1.5 billion.

According to the “Commitment letter in relation to the source of subscription funds” issued by Suiyong Holdings, “the source of subscription funds for the Non-public Issuance of the Company is its own funds or funds raises by itself, and the source of funds is legal; the assets position of the Company is healthy and can support the full

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payment for the subscription of A Shares issued under the Issuance of the Company on time.”

(vi) Penetration information of the target subscribers

After penetration verification performed on the target subscribers of the Non-public Issuance, the subjects of subscription involved in the subscription are as follows:

No.	target subscribers	Number of subject involved in the subscription	Note
1	Huiyin Tianyue	1	Eventually penetrated to 1 unit of the Guangzhou Municipal People's Government
2	Guangzhou State-owned Assets Development	1	Eventually penetrated to 1 unit of the Guangzhou Municipal People's Government
3	GFHAM Select No.3 Fund managed by GFHAM	1	Each of GFH and GFHC, which are fund share holders, is eventually penetrated to 1 unit of the Guangzhou Municipal People's Government
4	GZLIT	1	Eventually penetrated to 1 unit of the Guangzhou Municipal People's Government
5	Suiyong Holdings	6	Eventually penetrated to the Shanshan Holdings Limited (��������), (not a special purpose company or corporate funds established for the purpose of this Non-public Issuance), and Guangzhou Municipal People's Government (2 units) and Wu Junhui, Wei Jian, Qu Guohui, and Wang Yue (being 4 natural persons)
Total		6	The above subjects overlap after penetration of the target subscribers, i.e., Guangzhou Municipal People's Government and Guangzhou SASAC, have been deducted when calculating the total amount.

Note: The investor responsibilities of Guangzhou Municipal People's Government in the above table are performed by the Guangzhou SASAC on its behalf. As such, Guangzhou Municipal People's Government and the Guangzhou Municipal SASAC shall be deemed as the same subject.

Based on the above, there are totally 6 subjects of subscription following penetration of the target subscribers under the Non-public Issuance, being less than 200.

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II. Competition and related party transactions upon completion of the Issuance

(i) Competition

The Non-public Issuance will not cause any competition or potential competition between the Company and the target subscribers and their respective controlling shareholders and actual controllers in business operation.

(ii) Related Party transactions

The Issuance will not create any new related party transactions except for the proposed subscription by GFHAM Select No.3 Fund for certain shares under the Non-public Issuance, which constitutes related party transaction. In addition, the Company will strictly comply with the relevant requirements of the CSRC and the Shanghai Stock Exchange on related party transactions of listed companies in order to ensure that it will operate in accordance with the law and protect the interest of itself and other shareholders from damage.

III. Material transactions between the target subscribers and their controlling shareholders and actual controllers and the Company for the 24 months immediately preceding the disclosure of the Proposal

There were no material transactions between any of the target subscribers and their controlling shareholders and actual controllers and the Company for the 24 months immediately preceding the disclosure of the Proposal.

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Section III Summary of share subscription agreement with conditions precedent

On 31 October 2016, the Company entered into conditional “Share Subscription Agreements” with Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM (on behalf of GFHAM Select No.3 Fund under its management), GZLIT and Suiyong Holdings respectively, the principal terms of which are as follows:

I. Parties and date of execution

Subscriber: Huiyin Tianyue, Guangzhou State-owned Assets Development, GFHAM Select No.3 Fund under the management of GFHAM, GZLIT and Suiyong Holdings

Issuer: Guangzhou Automobile Group Co., Ltd.

Date of execution: 31 October 2016

II. Subscription amount, number of shares to be subscribed, subscription price, lock-up period and payment method

(i) Subscription amount and number of Shares to be subscribed

Unless otherwise agreed in the “Share Subscription Agreements”, Huiyin Tianyua will subscribe for A Shares to be issued by GAC Group at a cash consideration of RMB6 billion; State-owned Assets Development will subscribe for A Shares to be issued by GAC Group at a cash consideration of RMB3 billion; GFHAM Select No.3 Fund under the management of GFHAM will subscribe for A Shares to be issued by GAC Group at a cash consideration of RMB3 billion; GZLIT will subscribe for A Shares to be issued by GAC Group at a cash consideration of RMB1.5 billion; Suiyong Holdings will subscribe for A Shares to be issued by GAC Group at a cash consideration of RMB1.5 billion (collectively, the “Newly Issued A Shares”). The number of Shares to be subscribed for is equal to the total subscription price divided by the price per Share as provided in clause 2.2 of the “Share Subscription Agreements”. (Please refer to “Section III Summary of Conditional Share Subscription Agreements/ II. Subscription amount, number of Shares to be subscribed,

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subscription price, lock-up period and payment method/ (ii) Subscription price). In case of any fraction of the number of new A Shares to be issued as calculated in accordance with the formula above, it shall be rounded down, which will not affect the total subscription price.

If the scale of the Non-public Issuance is to be adjusted in accordance with the requirements of the CSRC (including but not limited to adjustments to the overall scale and/or adjustments to any investment project to be financed with the proceeds raised) or reduced as a result of adjustments by the Company to the investment projects to be financed with the proceeds raised, the final total subscription amount payable by the subscribers shall be reduced accordingly in accordance with the following formula: Final total subscription price = Total subscription price provided in clause 2.1.1 of the “Share Subscription Agreements” x reduced size of issue/RMB15 billion. If so requested by GAC Group, the subscribers shall enter into a supplemental agreement or letter of confirmation in relation to these adjustments with GAC Group.

(ii) Subscription price

The purchase price of each newly issued A Share is 90% of the average trading price of A Shares of GAC Group for the 20 trading days immediately preceding the price determination date (calculated by dividing the total trading value of A Shares of GAC Group for the 20 trading days immediately preceding the price determination date by the total trading volume of A Shares of GAC Group for the 20 trading days immediately preceding the price determination date), which is RMB20.31 per share. Since trading in A shares of GAC Group has been suspended on 18 October 2016, and GAC Group also distributed dividends in cash on 20 October 2016, therefore, the purchase price has been adjusted to RMB20.23 per share (the “Price per Share”). In case of any other requirement imposed by the CSRC on the issue price of the Issuance, the parties have agreed that the Price per Share will be adjusted, and the number of A Shares to be issued will be adjusted accordingly.

Notwithstanding the above, in case of any ex-rights and ex-dividends events by GAC Group such as dividend distribution, capitalisation of reserve or placing prior to the date of completion, the Price per Share above shall be adjusted with reference to the “ex-rights and ex-dividends price” as determined in accordance with the formula

44

under rule 4.3.2 of the Listing Rules of the Shanghai Stock Exchange, and the number of new A Shares to be issued shall be adjusted accordingly.

(iii) Lock-up period

The target subscribers shall not directly or indirectly transfer any newly issued A Shares within thirty-six (36) months from the date of completion of the Issuance.

(iv) Payment method

On the date of completion, the target subscribers shall deliver to GAC Group an irrevocable wire transfer instruction duly executed by them. The instruction shall be that all the total subscription price be transferred to a bank account maintained by the sponsor solely for the purpose of the Issuance from a bank account designated by the target subscribers. GAC Group shall inform the target subscribers of the details of such bank account at least seven (7) business days prior to the date of completion in writing.

III. Conditions precedent

(i)Effective time of the agreement

The “Share Subscription Agreement” shall be established upon its signing by the Company and target subscribers, and subject to the approvals having been obtained from all of the followings:

1. The Board’s approval of the Issuance;

2. Shareholders’ approval at the general meeting and class meetings of the

Issuance;

1. Guangdong SASAC’s approval of the Issuance;

2. CSRC’s approval of the Issuance.

(ii) Conditions regarding the obligations of each party

The taking effect of the obligations of each party under the “Share Subscription Agreement” is conditional upon the fulfilment or due waiver of the following on or before the long stop date:

1. All approvals listed under the “Share Subscription Agreement” (please refer to

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“Section III Summary of Conditional Share Subscription Agreements/III. Conditions precedent/(i) Effective time of the agreement” of the Proposal) have been obtained and shall be continued to be effective in full on the date of completion;

1. No laws, regulations, rules, instructions, orders or notices prohibiting the completion of the transaction have been issued, promulgated or imposed by any relevant authority;

2. The provisions under clause 4.1.2 of the “Share Subscription Agreement” have been complied with by the date of completion (i.e., according to the relevant regulations of CSRC, if the number of investors, subscribing for the A Shares under the Issuance of GAC Group, after penetration of the target subscribers is over 200, GAC Group has the right to request the relevant target subscribers to make adjustment at any time, so that the total number of investors subscribed for the Issuance shall be below 200 after penetration of the target subscribers);

3. In relation to the obligations on the part of target subscribers to effect completion, all declarations and undertakings made by GAC Group in clause 5.1 of the “Share Subscription Agreement” shall be true and accurate in all material respects as at the date of the Share Subscription Agreement and remain true and accurate in all material respects up to the date of completion (as if repeated on the date of completion);

4. In relation to the obligations on the part of GAC Group to effect completion, all declarations and undertakings made by target subscribers in clause 5.2 of the “Share Subscription Agreement” shall be true and accurate in all material respects as at the date of the Share Subscription Agreement and remain true and accurate in all material respects up to the date of completion (as if repeated on the date of completion).

(iii) Non-fulfillment of conditions

1. In case up to the long stop date (refer to the date other than the date that GAC Group and the target subscribers otherwise agreed in writing, on which GAC Group and target subscribers provide to each other the receivable evidence that relevant regulatory authorities do not approve the Issuance, or other dates on which the Share Subscription Agreement shall be terminated after such date), the “Conditions

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regarding the obligations of each party” under of the “Share Subscription Agreement” are not satisfied or not properly waived, each party has the right to terminate the Share Subscription Agreement with immediate effect.

1. Upon termination of the “Share Subscription Agreement”, further rights and obligations of each party thereunder shall cease simultaneously, but the accrued rights and obligations of any party thereunder as at the date of termination shall not be affected.

IV. Liability for breach

If any party is in breach of any declaration or warranty made by it under the “Share Subscription Agreement” or any of its undertakings or obligations thereunder, thereby causing, directly or indirectly, the other party to suffer any loss, assume any liability and/or incur any reasonable fees, the defaulting party shall indemnify the non-defaulting party in full.

If the “Share Subscription Agreement” is terminated as a result of the default by target subscribers under the “Share Subscription Agreement”, 10% of the subscription price, shall be payable to GAC Group as liquidated damages. If the liquidated damages are insufficient to cover the loss suffered by GAC Group as a result of its default, it shall indemnify GAC Group against any further losses.

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Section IV Feasibility Analysis by the Board on the Use of Proceeds

I. Plan on use of proceeds

The gross proceeds from the Non-public Issuance will not exceed RMB15 billion which, after deduction of the relevant fees and expenses, will be utilised in 10 projects in relation to new energy and prospective technology, plant and vehicle model and key auto parts, details of which are as follows:

Unit: RMB0’000

Project Type	No.	Name of Project	Total project investment	Amount of proceeds proposed to be used
New energy and prospective technology projects Plant and vehicle model projects	1	New energy vehicles and R&D of prospective technology project	502,367	480,000
	2 3 4	GAEI phase 1 base expansion project GAEI phase 2 base construction project GAC proprietary brand project of Xinjiang	71,051 114,323 108,695	60,000 100,000 80,000
	5	GAC improvement project of Hangzhou	330,038	220,000
	6	GAC proprietary brands technological reformation project	353,172	250,000
	7	GAC proprietary brands vehicle modelsprojects	387,941	215,000
	7.1	GAMC A16project	27,200	20,000
	7.2	GAMC A35project	44,477	35,000
	7.3	GAMC A5Hproject	55,293	30,000
	7.4	GAMC A10project	49,020	40,000
	7.5	GAMC A30project	99,401	15,000
	7.6	GAMC A32project	14,502	10,000
	7.7	GAMC A06project	46,193	35,000
	7.8	GAMC A7Mproject	51,855	30,000
Key auto parts projects	8	GAMC engineproject	57,666	50,000
	9	GAMCgearboxproject	42,762	30,000
	10	P6 gearbox development project	20,646	15,000
	Total		1,988,661	1,500,000

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If the actual amount of proceeds from the Non-public Issuance is less than the proposed amount to be invested in the above projects, the Company will, according to the actual amount of proceeds raised, adjust and determine the specific projects to be invested in, their priorities and the specific amount of investment in each project according to the importance and urgency of each project. Any shortfall shall be made up by the Company’s own resources or by other financing means.

Before receiving the proceeds from the Non-public Issuance, the Company will inject funds from other sources according to the actual progress of the projects, and such funds injected will be replaced by the proceeds from the Non-public Issuance according to relevant legal procedures once they are received.

II. Feasibility analysis on the projects to be financed by the proceeds

(i) New energy vehicles and R&D of prospective technology project

1. Project overview

The project will be implemented by GAC Group with a total investment amount of RMB5,023,670,000. The project will invest in the research and development of new energy vehicles of proprietary brands and research and development of prospective technologies of GAC Group, centred around ground-breaking technologies in the industrialisation of electric vehicles and the construction of four major vehicle model platforms, being the hybrids vehicle platform, plug-in/extended range technology platform, electric vehicle platform and inter-connected smart vehicle platform, complete the development and mass production of a series of energy-saving and new energy vehicles in line with leading technology capability in the world, make breakthroughs in key technologies in relation to auto parts of EIC systems of electric vehicles, Atkinson/Miller high efficiency engines and integrated electromechanical coupling system, and form a complete innovation system and industry system from key core auto parts to whole vehicles. Leveraging the technology development trend of low carbon emission, smart connection and light weight, the project will continue to develop key technologies such as the next generation of power batteries, internet of vehicles, fuel battery integration and

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automated driving. The project does not involve new construction work. Its research and development expenses consist mainly of platform development expenses, expenses on the development of whole passenger vehicle product, expenses on the development and industrialisation of key auto parts, and research expenses on prospective technologies.

2. Necessity and feasibility of the project

(1) Necessity of the project

1) Coping with energy crisis and the prevention of environment pollution requires the development of the new energy vehicle industry

With rapid growth of the Chinese economy, the reliance on imported oil resources continued to grow in recent years. Gasoline and diesel consumption by vehicles accounted for approximately 55% of total gasoline and diesel consumption in the PRC. The gasoline and diesel consumption by vehicles accounted for 70% of the increase in oil consumption every year. The growth of vehicle consumption has generated increasingly high demand for energy supply. In addition, the exhaust generated by traditional oil fuels consumed by vehicles has become major air pollutants and aggravated the greenhouse effect. As such, the research and development and production of energy-saving, environment-friendly and safe electric vehicles and hybrid vehicles is not only an important means to solve the oil energy problem and cope with energy crisis, but also a critical measure for environment preservation and ecology protection and the best choice to meet the needs for sustainable development of the automobile industry.

2) The research and development of new energy vehicle and prospective technologies represents a major trend in the development of global automobile industry

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In the era of Industry 4.0, the automobile industry will accelerate its transformation and upgrade by focusing on breakthroughs in low carbon emission, smart connection and light weight. Currently, the total sales volume of new energy vehicle in the world has reached approximately 1.3 million units, showing a trend of strong growth. In order to cope with global shortage of resources and global warming, China, the United States, European countries and Japan with developed automobile industries have announced the standards and regulations for passenger vehicle fuel consumption. In the future, the implementation of the “Interim Measures for Paralleled Management of Average Fuel Consumption and New Energy Vehicle Points for Enterprises” will further accelerate the development of new energy vehicles. As for key auto parts, with the rapid development of new lithium ion batteries and new system batteries, industrialisation of the motor drive control will be realised by 2020, and smart electric vehicle technologies will significantly change the landscape of the whole automobile industry in the next decade. Although the commencement of development of new energy vehicle in the PRC was not late, its research foundation remains weak and its core auto parts still rely on importation. The acceleration of the cultivation and development of new energy vehicles is an important measure to accelerate the transformation and upgrade of the automobile industry and cultivate new growth drivers and international competitive strengths.

3) The research and development of new energy vehicle and prospective technologies meets the needs of GAC Group for strategic upgrade

As competition in the traditional automobile industry becomes increasingly fierce, the automobile industry is facing changes and transformation. As a leading automobile group in the PRC with a whole industrial chain, GAC Group adheres to market-driven development and leverages the major trends of market changes, industry changes and technological changes by focusing on new energy vehicle as one of the major areas of development for its strategic upgrade. The implementation of the new energy and prospective technology research and development project will enable the Company to strengthen its reserve of prospective key technologies in order to

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achieve the individualisation of proprietary core technologies and intellectual property rights, continue to improve the competitiveness of its technologies and products, lower the costs of whole vehicles, attract skilled human resources, further increase the market share of the products of the Company and consolidate its leading position in the market.

(2) Feasibility of the project

1) National policies supporting the development of new energy vehicles

The new energy vehicle industry is one of the seven emerging strategic industries in the PRC with strong government support. China launched the significant “863” electric vehicle development plan in 2001, and a development layout of “three verticals and three horizontals” has been established. During the 12th Five-Year Plan period, China’s new energy vehicle market recorded rapid growth and a policy system for development of the industry had been substantially formed. The industry ecology has taken shape. The 13th Five-Year Plan makes clear the strategic position of new energy vehicles in the national economic and social development in the PRC. The “Made in China 2025” plan also introduces the relevant work policy of market-oriented, innovation-driven and coordinated development focusing on key breakthroughs. To date, the State Council and various departments have launched nearly 30 policies supporting the development of the new energy vehicle industry, covering a number of areas including industry development, demonstration and promotion, financial and tax subsidies and infrastructure which comprehensively inspire and guide the development of the new energy vehicle industry.

2) Positive outlook for the new energy vehicle market

With the support of a series of national policies and regulations, the sales volume of new energy vehicles in the PRC has recorded rapid growth since 2014 and reached 331,100 units in 2015, representing a year-on-year increase of more than 3 times. China has overtaken the United States to become the largest new energy vehicle market in the world. With the advantages of being energy-saving,

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environment-friendly and affordable, new energy vehicles are gradually gaining consumers’ recognition. To date, the market of new energy vehicles such as electric vehicles, extended range hybrid electric vehicles and plug-in hybrid electric vehicles and their accessories are growing continuously. As the technology continues to advance, the price of automobile batteries will decrease significantly, and the performance and quality-price ratio of new energy vehicles will hopefully be further improved in the future.

3) GAC Group has made progress in the research and development and production of energy-saving and new energy vehicles

GAC Group has completed the development of energy-saving and new energy vehicles including hybrid vehicles, plug-in electric vehicles and extend range vehicles under Trumpchi brand, which have been published in national product announcements and included in the “Catalogue of Recommended Vehicle Models for the Energy-saving and New Energy Vehicle Demonstration and Promotion Project”. In particular, GA5 REV was launched in the market for sale in 2015 and is now operating for demonstration in various cities in the Pearl River Delta. The Company is also conducting self-development of core auto parts for the three core types of electric vehicles, including whole vehicle controllers, batteries and electric engine systems. Through the research and development of the aforesaid new energy vehicles and auto parts, the Company has accumulated research and development capability and resources in prospective technologies.

3. Economic benefits of the project

The project is a research and development project which will generate economic benefits upon industrialisation. With the successful implementation of the project, the Company will be able to launch new energy vehicle products in meeting market needs to diversify its product offering, capture and increase its share of the new energy vehicle market, and realise strategic upgrade of its automobile business.

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4. Approvals required

The Company is applying for approval for acceptance of the project. The project is a research and development project and requires no approval for environmental assessment. No additional land is required for the project and it does not involve approval for land use.

(ii) GAEI phase 1 base expansion project

1. Project overview

The project will be implemented by GAC Group with a total investment amount of RMB710,510,000. The project will be conducted on the reserved land at Hualong facility of the GAEI, and involves mainly the construction of a new comprehensive environment simulation laboratory, and the expansion of existing new energy laboratory, power train laboratory, rolling laboratory and trial production plant.

2. Necessity and feasibility of the project

(1) Necessity of the project

1) Sustainable development of the automobile industry requires improved research and development capability

With rapid growth of the PRC automobile industry in recent years, China’s automobile production and sales volume has maintained its No. 1 position in the world. Contrary to its total market size, the PRC automobile industry still relies on foreign investment in many technological areas or is at an early stage of reverse engineering. Against the backdrop of the popular trend of new energy vehicles, diversified needs of consumers and the advancement of proprietary brands from low-end positioning to medium-and-high-end positioning, there is a growing urgent demand for high-end technologies in the automobile industry. Automobile manufacturers also need to continue to strengthen their investment in research and development and improve their research and development capability based on market trends, their own development strategies and government policies, in order to realise

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the transformation from reverse engineering to positive development and the brand new creation from development of products in laboratories to their launch in the market. Only the building of a relatively comprehensive self-development platform can meet market needs, build core competiveness and realise sustainable development of an enterprise.

2) Improved competitiveness of GAC Group requires improvement in research and development capability

The 13[th] Five-Year Plan of GAC Group has imposed higher requirements for its research and development system. The existing equipment and human resources of GAEI can only meet the needs to develop 1 to 1.5 brand new basic models and 1 new energy vehicle model per year on average, while in the next five years, 20 new vehicle models are planned to be developed in the new energy vehicle segment alone. The current insufficient testing capability will affect the realisation of its long-term strategic objectives. In order to meet the urgent need of GAC Group for improved research and development capability and its objective of seeking long-term development, maintaining technology prospective and level of advancement, GAC Group plans to build a new comprehensive environment simulation laboratory and expand its existing new energy laboratory, power train laboratory, rolling laboratory and trial production plant. It will meet the needs of its future development strategies by strengthening the research and development capability of GAEI and upgrading its research and development facilities.

(2) Feasibility of the project

GAC Group has extensive experience in building and operating research and development facilities. GAEI is responsible for the overall planning of new products and new technologies for the proprietary brands of GAC Group and the implementation of research and development tasks for GAC Group. Since its establishment, GAEI has successfully developed a number of products including whole vehicles and core auto parts, which has laid a solid foundation for the

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self-development of GAC Group. The completion of the construction of phase 1 of the new Hualong facility of GAEI in 2012 indicates that GAC Group has built a bigger, higher and more advanced development platform for the research and development of its proprietary brands, with a total of 15 newly built laboratories on vehicle appearance, power train, new energy vehicle, performance, collision, structural intensity, electrical devices, auto parts and materials and etc. Through previous projects, GAC Group has accumulated extensive experience in construction and operation of research and development facilities, established a mature technical innovation system, accumulated experience in key technical upgrades of the facilities, and increased technical reserves, which will ensure smooth implementation of the project.

3. Economic benefits of the project

The construction under the project will help improve the overall research and development capability of the Company, establish an advanced environment simulation laboratory in the PRC, expand its testing capability for certain new energy, build relatively complete power train development capability, improve its current insufficient testing and trial production capability, and create a relatively complete testing and trial production system. Upon completion of the project, the Company will be able to develop whole vehicles and auto parts including engines and gearboxes on such basis, which will generate strong economic benefits. In addition, the completion of the project will be able to save the outsourcing development expenses due to current insufficient testing resources, and will also bring revenue from providing testing services to other whole vehicle manufacturers, auto parts manufacturers and scientific research institutes.

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4. Approvals required

The Company is applying for approval for acceptance and environmental assessment of the project. No additional land is required for the project and it does not involve approval for land use.

(iii) GAEI phase 2 base construction project

1. Project overview

The project will be implemented by GAC Group with a total investment amount of RMB1,143,230,000. The project will invest in the construction of a high-technology and new energy laboratory, a system and auto parts development laboratory, a light weight laboratory, a parking building for sample engineering vehicles and basic vehicles and a scientific research design building.

2. Necessity and feasibility of the project

(1) Necessity of the project

1) The improvement in research and development capability requires the establishment of new laboratories

With the increase in the size of its research and development team, the expansion of research and development areas and the improvement in independent innovation capability, GAEI needs to establish independent laboratories to conduct research of new technologies and new energy vehicle experiments. Currently, GAEI’s research mainly focuses on whole vehicles, and its ability to research on system and auto parts is still weak. In accordance with the V-shape positive development process, a system and auto parts laboratory is required to improve its ability to develop and test system and auto parts. GAEI is conducting research on super light weight and high strength composite materials (graphene, which can replace carbon fibre and reduce half of the vehicle weight) and their application, and therefore has the need to develop light weight testing capability including the application of new materials (graphene, aluminium alloy and carbon fibre) and to strengthen its control over whole vehicle quality.

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2) Needs for construction of ancillary facilities for the laboratories

The current the ancillary facilities of Hualong base are unable to meet the needs of product development and use as office for staff. On one hand, there is insufficient parking space for the sample engineering vehicles produced in the development process. On the other hand, with the improvement in its research and development capability, the size of GAEI is growing, and the existing office facilities cannot meet the needs of research and development staff. Offices and facilities for research and development staff are required to enable better ideas and technology innovations.

(2) Feasibility of the project

GAC Group has extensive experience in building and operating research and development facilities. Through the construction of phase 1 of the new Hualong base of GAEI in 2012, it has obtained extensive experience in construction and operation of research and development facilities, established a mature technological innovation system, and accumulated successful experience and technological reserves for the construction of large-scale research and development facilities. According to the plan, GAC Group will expand its phase 1 facility by building a new comprehensive environment simulation laboratory and expanding its existing new energy laboratory, power train laboratory, rolling laboratory and trial production plant. The important experience in the aforesaid projects will enable the smooth implementation of the construction of the Automotive Engineering Institute phase 2 facility construction project.

3. Economic benefits of the project

The development of the project will help strengthen the Company’s ability to design, test and verify new energy vehicles, systems and key auto parts and significantly improve its overall research and development capability. Upon completion of the project, the products developed by the Company with the project platform including whole vehicles and auto parts will generate relatively strong economic benefits. In addition, completion of the project will be able to save the

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development outsourcing expenses due to current insufficient testing resources, and will also bring revenue from providing testing services to other whole vehicle manufacturers, auto parts manufacturers and scientific research institutes.

4. Approvals required

The Company is applying for approval for acceptance, environmental assessment and land use permit for the project.

(iv) GAC proprietary brand project of Xinjiang

1. Project overview

This project will be implemented by the Xinjiang branch of GAMC with a total investment amount of RMB1,086,950,000. The project will be developed in Urumqi Economic and Technological Development Zone and will have an annual production capacity of 50,000 units. Its products include new energy vehicles and basic vehicle. Assembly workshop, welding workshop, painting workshop and relevant production and living-supportive facilities will be constructed.

1. Necessity and feasibility of the project

2. (1) Necessity of the project

1) Following national strategies of developing the Xinjiang project

The “Silk Road Economic Belt” occupies vast areas and has rich resources and deep cultural background, covering a population of nearly 3 billion. Situated at the geological centre of Asian and European continents, Xinjiang is a core region on the “Silk Road Economic Belt” and can serve both surrounding countries and various provinces and cities in the PRC along the belt.

• During the “13th Five Year Plan” period, the government of Guangdong Province will further strengthen the assistance provided to Xinjiang, improved the wok mechanics for assisting Xinjiang, and continue to improve the ability to assist Xinjiang in order to finish the task of assisting Xinjiang as assigned to Guangdong

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Province by the central government. As China’s western development plan entered a period of accelerated development, it focused on the comprehensive upgrade of industrialisation, marketisation, ecology and specialised regional network.

The automobile industry has a long industrial chain and will drive comprehensive local development of scientific research, services, financial services, manufacturing and energy areas. Investing in Xinjiang to build an automobile plant represents the Company’s fulfilment of its social responsibilities and response to the call for the “One Belt One Road” initiative, realisation of support for industries in Xinjiang and opening up of the west.

2) Developing northwestern China and central Asia markets and covering the whole country requires distribution in Xinjiang

Xinjiang is an important window for the connection between China and five central Asian countries (being Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan and Turkmenistan) with strong influences. In 2015, the five central Asian countries recorded a high-level GDP growth of 6.6%, representing a medium to high level. However, their vehicle ownership is only 108 units per 1,000 persons, being much lower than the average international level. There is room and strong potential for the vehicle markets.

The automobile sales volume in the five provinces in the northwestern part of China (being Xinjiang, Qinghai, Gansu, Ningxia and Shaanxi) where Xinjiang is situated exceeded 1.10 million units in 2015, representing a growth rate of 8.1%, higher than national average. The northwestern part of China experienced rapid social and economic development and will hopefully become a new growth driver in the market. There is already certain foundation for the automobile industry in Urumqi with automobile sales volume of more than 70,000 units in 2015.

The development of northwestern China and central Asia market requires the construction of an automobile plant of GAC Group in Xinjiang. Upon completion, the Company will complete its distribution network in southern, eastern, central and

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western China with the ability to produce and sell vehicles across China.

(2) Feasibility of the project

1) Supportive national and local policies

China’s “One Belt and One Road” initiative and western development strategy support the development of Xinjiang. At the second central symposium for work in Xinjiang, Mr. Xi Jinping, the general secretary of the party, even raised the assistance to Xinjiang to the level of a national strategy. Support from local governments in Guangdong Province, Guangzhou City, Xinjiang Uighur Autonomous Region and Urumqi City has been obtained for the project, which is beneficial for the steady advancement of the project.

2) Vast markets in northwestern China and central Asia

The five provinces in northwestern China including Xinjiang and the five countries in central Asia have vast automobile markets and large room for the increase in vehicle ownership. The project will be a major breakthrough for GAC Group to enter such markets.

3) Positive outlook for new energy vehicles

There is a vast market for new energy vehicles. In addition, the central and the local governments have various policies in place to support new energy vehicles meeting certain conditions, such as vehicle purchase subsidies, exemption of vehicle purchase taxes, land for charging facilities and discounts for electricity, as well as financial support for new energy vehicle manufacturers with strong research and development, production and promotion capability. In northwestern China, the new energy passenger vehicle market is still relatively undeveloped but has strong potential. With the introduction of local subsidy policies and the construction of charging infrastructure, the new energy passenger vehicle market in northwestern China, represented by Xinjiang, will experience strong growth. Its positive market outlook will be a major driver for the development of the project.

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3. Economic benefits of the project

The project will have a post-tax internal rate of return of 10.3% and a dynamic investment payback period of 10.9 years.

4. Approvals required

The approval from the Development and Reform Commission of Xinjiang Uighur Autonomous Region has been obtained and filing has been made with the NDRC for the project. The Company is in the process of applying for environmental assessment and approval and land use permit for the project.

(v) GAC improvement project of Hangzhou

1. Project overview

This project will be implemented by Guangzhou Automobile Group Motor (Hangzhou) Co., Ltd. with a total investment amount of RMB3,300,380,000. The project aims to upgrade the existing plants and resume production. Upon completion of the project, self-developed strategic vehicle models of GAC including sedans, SUVs and MPVs will be introduced for production.

2. Necessity and feasibility of the project

(1) Necessity of the project

1) The Company’s rapid growth calls for increased production capacity for proprietary brands

The “13th Five-Year Plan” of GAC Group proposes to develop its proprietary brands with all of its resources in achieving leap-forward development for its proprietary brand business. The first production line of GAMC’s plant in Guangzhou currently has an annual production capacity of 200,000 units and has a second production line currently has an annual production capacity of 150,000 units. - According to the development trend and plan in its “13th Five Year Plan”, the first and second production lines in Panyu plant are planned to produce 13 vehicle models

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and will face severe production capacity shortage issues. In addition, as there are no land resources in Panyu available for future production capacity expansion, insufficient production capacity will become an important factor limiting the development of GAMC, and there is an urgent need to seek another plant to break the bottleneck for production capacity of GAMC.

2) Developing eastern China market and covering the whole country requires distribution in Hangzhou

Currently, GAMC only has the Guangzhou facility, and the sales of its products are mainly concentrated in southern China. Upon implementation of the project, the Company will have a facility in eastern China and complete the distribution network of GAC Group in southern, eastern, central and western China with the ability to produce and sell vehicles across China. GAC improvement project of Hangzhou project is strategically located at the Hangzhou Dajiangdong Industrial Cluster District in the central area of the Yangtze River Delta, with good transportation network, in close proximity to Xiaoshan International Airport and with significant geographical advantage. Being the most economically-developed region in the PRC, eastern China has great value in market size and consumption potential. As such, the project is a key project of GAC Group to accelerate strategic planning and an important facility of the proprietary brands of GAC Group.

(2) Feasibility of the project

1) Make full use of existing products and assets to realise sustainable operation

The project aims to conduct renovation and technical upgrade of Hangzhou facility, make full use of its products and assets, resume production and make reasonable plans for the introduction of its proprietary brand of Trumpchi product series, which will be conducive to the steady transition and sustainable operation of the project and enable its sustainable development.

2) Make full use of existing production facility to develop eastern China market

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The sales volume of passenger vehicles in eastern China accounts for 30% of total sales volume in the PRC and eastern China has become the most important market in the PRC automobile industry. The renovation of the old production facility can save costs for the Company. Through its headquarters in Guangzhou, GAMC can cover the whole Pearl River Delta and consolidate its position in southern and central China. With the formal launch of GAC improvement project of Hangzhou project, GAC Group will have presence in the Yangtze River Delta comprehensively and consolidate its position in eastern and northern China.

3. Economic benefits of the project

Assuming that there are no subsidies from the government, the project will have a post-tax internal rate of return of 18% and a dynamic investment payback period of 8.5 years.

4. Approvals required

The Company is applying for approval for acceptance and environmental assessment for the implementation of the project. No additional land for construction is required for the project and it does not involve approval for land use.

(vi) GAC proprietary brands technological reformation project

1. Project overview

The project will be implemented by GAMC with a total investment amount of RMB3,531,720,000. The project aims to use its existing workshops with GAC’s GPS production method to renovate its existing workshops. Upon completion, the project will be utilised to produce A/A0 class SUVs.

2. Necessity and feasibility of the project

(1) Necessity of the project

• 1) Meeting the market growth requires an increase in production capacity of

• compact SUVs

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According to the report of China Association of Automobile Manufacturers, the sales volume of passenger vehicles in the PRC in 2015 exceeded 20 million units, representing a year-on-year increase of 7.30%. Benefiting from consumers’ needs to upgrade and China’s introduction of the two-child policy, SUVs have become the spotlight of the growth in the passenger vehicles market and recorded growth of over 50%, accounting for nearly 30% of total sales volume of passenger vehicles. As estimated by IHS Automotive, a professional automobile survey company based in the United States, China’s passenger vehicle sales volume will continue to grow till 2020, mainly attributable to the growth of SUVs. Currently, major automobile manufacturers in the PRC are actively increasing their production capacity of SUV models to meet growing market demand.

2) Achieving the initial planning of proprietary brands’ SUVs calls for the diversification of model offering

As a result of supportive national policies and improved quality of products of proprietary brands, the demand for proprietary brands’ vehicles continued to grow and their market share increased steadily. In order to capture market share and improve self-development ability, GAC Group places strong emphasis on the development of Trumpchi, its proprietary brand, during the “13[th] Five-Year Plan”, increases its investment in production capacity, diversifies product offerings, accelerates the presence of proprietary brands in the SUV market and improves the competitiveness of its SUV products.

(2) Feasibility of the project

1) Improving quality of the proprietary brand “Trumpchi” has gained recognition in the market

In order to improve core competitiveness, GAC Group has long been adhering to scientific development and self-innovations and committed to the development, production and sale of whole vehicles, engines and auto parts products of proprietary brands with world-class quality. In the five years since its debut in the market, GAC

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Trumpchi product series have realised leap-forward development with annual production and sales volume of 17,000 units, 33,000 units, 85,000 units, 117,000 units and 188,000 units, respectively. In particular, Trumpchi GS4, a new SUV model launched in 2015, recorded growing monthly sales volume and maintained its No. 2 SUV position in terms of sales volume in the PRC. In January 2016 alone, its sales volume exceeded 30,000 units, creating the impressive “Trumpchi speed” in the industry and gaining high recognition in the market.

2) GPS production method upgrade techniques are mature and make full use of the advantage of existing workshop facilities

GAC Group invented the GAC’s GPS production method and has extensive experience in the technical upgrade of existing workshops. It conducts upgrades for four major workshops including punching, welding, painting and assembling with advanced equipment, materials and processes. The project meets process requirements, national laws and regulations and standards in relation to civil works, utilities, environmental protection, firefighting, logistics, labour, safety and hygiene and is feasible.

3. Economic benefits of the project

The project will have a post-tax internal rate of return of 17.6% and a dynamic investment payback period of 8 years.

4. Approvals required

The Company is applying for approval for acceptance, environmental assessment and land use permit for the implementation of the project.

(vii) GAC proprietary brands vehicle models projects

1. Project overview

The projects comprise a total of eight projects, being (1) GAMC A16 project, (2) GAMC A35 project, (3) GAMC A5H project, (4) GAMC A10 project, (5) GAMC A30 project, (6) GAMC A32 project, (7) GAMC A06 project, and (8) GAMC A7M

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project.

These projects will be jointly implemented by GAEI and GAMC, with GAEI being responsible for research and development and GAMC being responsible for production and sale.

(1) GAMC A16 project

The project has a total investment amount of RMB272,000,000. The A16 project mainly involves the development of the enhanced and next generation product of GA3S model using an A class platform. The project aims to conduct adaptive upgrades for the punching, welding, painting and assembling workshops, introduce special equipment including mould clamping devices to existing production lines and upgrade certain general equipment in order to realise production using a single production line.

(2) GAMC A35 project

The project has a total investment amount of RMB444,770,000. The A35 project mainly involves the development of the next generation product of GA6 model using an A class platform structure. The project aims to introduce certain special equipment and upgrade certain general equipment in order to realise production using a single production line.

(3) GAMC A5H project

The project has a total investment amount of RMB552,930,000. The A5H project mainly involves the development of the first A0 class model using an A class platform, with products including two models, being an A0 class basic SUV model and a A0 class electric SUV model. The project aims to introduce certain special equipment and upgrade certain general equipment of the existing product lines of GAMC in order to realise production using a single production line.

(4) GAMC A10 project

The project has a total investment amount of RMB490,200,000. The A10 project

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mainly involves the development of the next generation product of GS5 model using an A class extended-length platform. The project aims to conduct adaptive upgrades for the punching, welding, painting and assembling workshops, introduce special equipment including mould clamping devices to existing production lines and upgrade certain general equipment in order to realise production using a single production line.

(5) GAMC A30 project

The project has a total investment amount of RMB994,010,000. The A30 projects mainly involves the development of the next generation products of Trumpchi GS5 model using a B/C platform, with products including two models, being A30-I (long wheelbase version, with 5-seat model and 7-seat model) and A30-II (short wheelbase version, with 5-seat model). The project aims to introduce certain special equipment and upgrade certain general equipment in order to realise production of two models using a single production line.

(6) GAMC A32 project

The project has a total investment amount of RMB145,020,000. The A32 project mainly involves the development of the mid-term revised model of GS4 using an A class platform. The project aims to conduct adaptive upgrades for the punching, welding, painting and assembling workshops and introduce certain assembling equipment in order to minimise production cost.

(7) GAMC A06 project

The project has a total investment amount of RMB461,930,000. The A06 project mainly involves the development of an A+ class MPV using an A class extended platform. The project aims to introduce special equipment including mould clamping devices and upgrade certain general equipment in order to realise production using a single production line.

(8) GAMC A7M project

The project has a total investment amount of RMB518,550,000. The A7M

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project mainly involves the development of a middle-to-high-end business MPV using a B/C platform. The project aims to introduce certain special equipment and upgrade certain general equipment in order to realise production using a single production line.

1. Necessity and feasibility of the project

2. (1) Necessity of the project

1) Meeting diversified consumer needs requires comprehensive vehicle model offering

As the automobile industry continues to grow, consumers, when purchasing vehicles, place greater emphasis on meeting their own needs. As such, competition has become increasingly intense in SUV, MPV and sedan segments. Consumers have strict requirements for various parametres of vehicles including oil consumption, control feel, space and interior decorations. In addition, customization and diversification have become new indicators for vehicle purchase. Understanding consumers’ preferences and purchase intentions and meeting their increasingly diversified needs with different models is the key to take the initiative in the market.

2) Coping with the increasingly fierce competition calls for comprehensive vehicle model offering

With increasingly fierce competition in the PRC automobile market, major automobile manufacturers expanded and upgraded their proprietary brand product lines. This has motivated GAC Group to expand its proprietary brand passenger vehicle product line and realised leap-forward development of its proprietary brands.

3) The needs to improve brand value and capture market share of GAC Group require comprehensive vehicle model offering

The proprietary brands have gradually gained market recognition with its price advantage and improved technology and quality in recent years. With 5 years of rapid growth, the market share and reputation of GAC Trumpchi have been gradually improving, with vast growth potential in the future. Currently, GAMC’s “13[th]

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Five-Year Plan” has substantially taken shape, which requires sufficient product and capacity to support the development of its proprietary brands and facilitate the - fulfilment of the “big self development strategy” objective of GAC Group.

(2) Feasibility of the project

1) Positive market outlook for the relevant vehicle models of the project

According to the statistics of China Association of Automobile Manufacturers, the sales volume of passenger vehicles in the PRC exceeded 20 million units in 2015 for the first time. In view of the development trend in the PRC passenger vehicle market and through analysis of the current situations of GAMC, GAC Group had made plans for new vehicle models.

The sales volume of sedans accounted for approximately 55% of the total sales volume in the passenger vehicle market. A-class sedan is the largest segment in terms of sales volume, of which the A+ class market continued to expand, representing the latest product trend of A-class sedans. GAMC will introduce the brand new GA3, a next generation product with extended wheelbase and improved power, to capture market share in particular the taxi market share. In the compact sedan market, compact medium-and-high-end sedan is the largest segment. The upgraded next generation GA6 of GAMC will improve the competiveness of the Company in the compact medium-and-high-end sedan market.

The sales volume of SUVs accounted for approximately 30% of the passenger vehicle sales volume and recorded a year-on-year growth of nearly 50%. SUVs continued to play the role of driving engine in the PRC automobile market. With the introduction of the two-child policy, the PRC automobile market is expected to record accelerated growth. GAMC will consolidate the foundations of its Trumpchi GS5 series and introduce brand new SUV products to support the survival and rapid growth of Trumpchi.

The sales volume of MPVs accounted for approximately 10% of the passenger vehicle sales volume, of which the proprietary brands have overwhelming advantages.

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In 2015, the sales volume of proprietary brands’ MPVs accounted for nearly 90% of total MPV sale volume. GAMC will also develop medium-and-high-end MPVs to improve its passenger vehicle product mix and develop the MPV market with larger room for development in order to improve its overall brand competitiveness.

2) Strong research and development capability of the proprietary brands of GAC Group

GAC Group has been committed to improving the research and development capability and technological level of GAEI. According to the “13[th] Five-Year Plan” of GAC Group, in terms of self-development and innovations, GAC Group will continue to build a research and development system, with GAEI as the core and research and development centres of joint ventures and auto parts enterprises as support. Leveraging its years of innovation experience in research and development of automobiles, GAEI has established a complete set of advanced cross-discipline research and development workflow and system and possessed a series of world-class leading research and development facilities and techniques. Pursuant to the overall plan of the Company for its proprietary brands, GAEI has successfully developed a series of vehicle models, including GA5, GA6 and GA8 (Trumpchi B/C class sedans), GS5, GS5-Super and GS4 (Trumpchi SUV models), brand new A/A0 class model platform and Trumpchi midsize sedans GA3/GA3S (Vision). Its other research and development achievements also gained wide recognition in the industry. Trumpchi brand has been recognised as No. 1 domestic brand for four consecutive years according to the J.D.Power China Initial Quality Study 2013 to 2016. The implementation of the project will fully leverage its experience in vehicle model research and development and take into account the prevailing market needs in order to ensure the successful completion of development of new vehicle models.

3) Flexible production capability of new and existing production lines supports the production of new vehicle models

The sales volume of vehicles of GAC Trumpchi has been climbing in recent

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years. In order to meet the needs of consumers and cope with the investment and production of new vehicle models, Trumpchi plant continued to improve production capacity through process optimisation, re-designed workflow, technological innovations and organised production. In early 2016, the daily production volume of Trumpchi plant reached 1,125 units, representing a historic breakthrough, with annual production capacity of whole vehicles rising to 280,000 units from 200,000 units. The completion of its second production line brought about an additional basic annual production capacity of 150,000 units. This will provide strong production capacity support for market breakthroughs in the future.

3. Economic benefits of the project

(1) GAMC A16 project

The project will have a post-tax internal rate of return of 19.55% and a dynamic investment payback period of 3.4 years.

(2) GAMC A35 project

The project will have a post-tax internal rate of return of 19% and a dynamic investment payback period of 5.9 years.

(3) GAMC A5H project

The project will have a post-tax internal rate of return of 17.4% and a dynamic investment payback period of 6.7 years.

(4) GAMC A10 project

The project will have a post-tax internal rate of return of 32% and a dynamic investment payback period of 4.3 years.

(5) GAMC A30 project

The A30-I model will have a post-tax internal rate of return of 15% and a dynamic investment payback period of 6.2 years. The A30-II model will have a post-tax internal rate of return of 15% and a dynamic investment payback period of

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6.4 years.

(6) GAMC A32 project

The project will have a post-tax internal rate of return of 30% and a dynamic investment payback period of 3.7 years.

(7) GAMC A06 project

The project will have a post-tax internal rate of return of 15% and a dynamic investment payback period of 6.5 years.

(8) GAMC A7M project

The project will have a post-tax internal rate of return of 15% and a dynamic investment payback period of 6.4 years.

4. Approvals required

Approvals of the State-owned Development and Reform Commission of Guangdong Province have been obtained for A30, A5H and A7M projects. For the other projects, the Company is applying for approval for acceptance. No approval for environmental assessment is required as there will be no material change in the industrial process. No additional land for construction is required for the project and it does not involve approval for land use.

(viii) GAMC engine project

1. Project overview

The project will be implemented by GAMC with a total investment amount of RMB576,660,000. The project will invest in the partial upgrade of existing workshops (including power). Upon completion, the project will be utilised for the production of engines to be equipped on traditional vehicles and engines to be equipped on new energy vehicles.

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1. Necessity and feasibility of the project

2. (1) Necessity of the project

3. 1) Optimisation of engine production line is needed to match the production of

4. whole vehicles

With the development of the automobile market, the demand for automobiles has become increasingly diversified. Different automobile models shall be equipped with different engines, which imposes higher requirements for the model and production capacity of engines. Optimisation of engine production line to produce engines to be equipped on different automobile models driven by traditional power and new energy is needed to match the production of whole vehicles.

• 2) The upgrade of engine production line is required to meet the new standards

• for oil consumption and emission

The new oil consumption and emission standards have imposed higher requirements for engines. In relation to oil consumption, China has issued and implemented the compulsory standards for passenger vehicle fuel consumption: by 2015, the average fuel consumption of passenger vehicles produced in that year shall decrease to 6.9 litres/100 kilometres, and by 2020, the average fuel consumption of passenger vehicles produced in that year shall decrease to below 5.0 litres/per 100 kilometres. This has brought huge challenges to automobile manufacturers in the PRC. New technology is required to lower fuel consumption of engines. As for emission, China’s national VI emission standards are expected to be gradually adopted by different regions from 2018 onwards, and the existing engines under national V emission standards need to be upgraded to meet the new emission standards. As such, an optimised production line is required to produce new engines in meeting higher standards.

(2) Feasibility of the project

GAMC’s engine technologies meet the oil consumption and emission

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requirements of national standards. GAC Trumpchi’s technology roadmap to reduce emission and lower consumption is consistent with those of major international brands. Through adoption of new technologies, the major parameters of the third-generation engine of GAC Trumpchi are approximate to advanced level in the world. Consistent technology roadmap and advanced technical capability have provided support for the expansion of engine production capacity. The implementation of the project will fully leverage its experience in production capacity expansion and take into account the prevailing market needs in order to ensure the smooth completion of operation for new engine models.

3. Economic benefits of the project

The project will have a post-tax internal rate of return of 26% and a dynamic investment payback period of 5.7 years.

4. Approvals required

The Company is applying for approval for acceptance and environmental assessment of the project. The project will involve constructions on existing plants. No additional land for construction is required for the project and it does not involve approval for land use.

(ix) GAMC gearbox project

1. Project overview

The project will be implemented by GAMC with a total investment amount of RMB427,620,000. The project will invest in the partial upgrade of existing workshops of the power train plant of GAMC. The main products of the project upon completion will be 7WDCT automatic gearboxes.

2. Necessity and feasibility of the project

• (1) Necessity of the project

• 1) Increasing the production ratio of automatic gearbox is required to meet the

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major product trend

According to the product plan, the passenger vehicles produced by GAMC may be equipped with self-made manual gearboxes or automatic gearboxes. The ratio of manual gearboxes equipped on A0, A, B and C class vehicles to automatic gearboxes has gradually decreased, and C class vehicles can be equipped with automatic gearboxes only. WDCT gearboxes will be the main automatic gearboxes in the future. As such, the Company needs to focus on the development of WDCT gearboxes and increase its production volume of WDCT gearboxes.

2) Optimising the production line of WDCT gearboxes is required to meet the production needs of whole vehicles

According to the production capacity plan for whole vehicles, for manual gearboxes, the production capacity of 5MT manufacturers can meet the needs till 2020, and the planned production capacity of 6MT gearboxes can meet the needs till 2018, whereas for automatic gearboxes, after 2018, the production line of WDCT gearboxes will fail to meet the needs to support whole vehicles and will need to be increased.

(2) Feasibility of the project

7WDCT is a high-tech product, the development of which is encouraged by the PRC government, with mature product technology, advanced and reliable structure and product performance reaching or exceeding that of major high-end competitors in the world, and can well match Trumpchi products. The product also has reserved four-wheel drive and hybrid power interfaces, with strong scalability and promising market outlook. The implementation of the project will fully leverage its past experience and take into account the prevailing market needs in order to ensure the smooth completion of the project.

3. Economic benefits of the project

The project will have a post-tax internal rate of return of 22% and a post-tax

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dynamic investment payback period of 5.4 years.

4. Approvals required

The Company is applying for approval for acceptance and environmental assessment of the project. The project will involve constructions on existing plants. No additional land for construction is required for the project and it does not involve approval for land use.

(x) P6 gearbox development project

1. Project overview

The project will be implemented by GAEI. The total investment amount of the project is RMB206,460,000. The project will invest in the development of a Wet Dual Clutch Transmission (WDCT) platform and the launch of two products including 7WF35 and 7WF25. The funds for the project will be utilised for research and development expenses of GAEI.

1. Necessity and feasibility of the project

2. (1) Necessity of the project

1) The research and development of P6 gearboxes is required to closely follow state policies

Currently, dual clutch automatic transmissions have received strong support from state policies, and the relevant documents issued by the State Council have called for the vigorous development of dual clutch automatic transmissions. In addition, state regulations require enterprises to reduce oil consumption in the fourth stage by 30% from that in the third stage, and dual clutch automatic transmissions will meet the needs of power, affordability and emission of whole vehicles better and can be used as hybrid gearboxes to further lower oil consumption.

2) The research and development of core auto parts is required to meet the needs of strategic planning of the Company

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Major automobile manufacturers in the PRC including SAIC Motor, FAW and Changan have substantially completed their strategic planning on automatic gearboxes, and most of them commenced their platform development from WDCT. Currently, GAC Group does not have its own automatic transmission platform and relies completely on external purchase. There are risks in relation to possible failure to efficiently match self-made engines, long calibration cycle limiting the launch of new vehicle models and high purchase cost. The development of P6 automatic gearbox with fully independent intellectual property rights is conducive to changing the situation of domestic automatic transmission industry, which is currently dominated by foreign brands, further lowering purchase cost of auto parts, establishing an independent supplier system to better lower cost and improve performance and the results of the Company, providing platform support for the development of traditional and new energy vehicles, shortening development cycle, lowering development cost, realizing coordinated development with the engine project, building “golden power” of GAC Group, and providing support for the reduction in oil consumption at the fourth stage. The development of self-made gearboxes will help improve the whole vehicle product competitiveness of GAC and realise the “13th Five-Year Plan” of GAC Group.

3) Independent development of WDCT is needed to alleviate the risk of supply shortage

Currently, the automatic gearboxes equipped on the vehicles under the proprietary brands of GAC are mainly DDCT produced by HAVECO and AT produced by Japan-based Aisin. With the rapid growth of GAC, these two suppliers both face insufficient production capacity issues, which may become the bottleneck for the rapid development of the proprietary brands of GAC. As such, the development of WDCT may effectively alleviate the issues of insufficient supply of key auto parts.

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(2) Feasibility of the project

Since its inception, GAEI has conducted the research and development of many whole vehicle and key auto parts projects. Its self-developed manual gearboxes have commenced mass production, realizing fast improvement in research and development capability. Its extensive experience in research and development will enable the successful implementation of the project. The commercial production of its self-developed WDCT will effectively solve the problem of supply shortage and improve the competitiveness of GAC Group in the future.

3. Economic benefits of the project

The project is a research and development project and will generate economic benefits upon industrialisation. With the successful implementation of the project, the Company will be able to launch two wet dual clutch transmission models to meet market needs, which will better meet the demand for whole vehicles in terms of power, affordability and emission, alleviate the problem of supply shortage for key auto parts and enable the Company to realize its strategic planning for its automobile business.

4. Approvals required

The Company is applying for approval for acceptance of the project. No approval for environmental assessment is required as this project is a research and development project. No additional land for construction is required for the project and it does not involve approval for land use.

III. Effects of the Non-Public Issuance on the operation management and financial position of the Company

(i) Effect of the Non-public Issuance on the operation management of the Company

1. Conducive to strengthening the research and development capability of the

Company and improving its core competitiveness

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The projects to be financed by the proceeds from the Non-public Issuance comprise 10 projects in relation to new energy and prospective technology, plant and vehicle model and key auto parts, covering the whole process from research and development to production, and a various product types from whole vehicles to auto parts. Upon completion of the Non-public Issuance of Shares and the utilisation of proceeds in these projects, the Company will be able to further strengthen the development of its proprietary brand system, expand its product variety and accelerate the extension of its industrial value chain. The Company will strive to quickly capture a leading position in the new industrial value chain by improving its research and development capability and further consolidating its core competitiveness.

1. Conducive to becoming even bigger and stronger and building an advanced automobile group

Gross proceeds from the Non-public Issuance are expected to be no more than RMB15 billion and utilised to finance the long-term steady development of the Company, which will effectively improve its financial strengths and size of assets. The projects to be financed by the proceeds from the Non-public Issuance have positive market outlook. Once the projects under the Non-public Issuance are completed and put into production, the production and research and development capability of the Company will be improved and its core competitiveness will be enhanced, which is a key step for GAC Group to realise the strategic objectives under its “13[th] Five-Year Plan” and become an advanced automobile group.

(ii) Effect of the Non-Public Issuance on the financial position of the Company

1. Optimise the revenue structure of the Company and increase its comprehensive competitiveness

The projects to be financed by the proceeds from the Non-public Issuance are all in line with the relevant state policies and development trend of the industry and have positive market outlook. With the gradual implementation and construction of these

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projects, the Company’s production capacity will be further optimised and expanded and its vehicle models will have a larger variety and its research and development capability will be further enhanced. Through improvement in the competitiveness of its proprietary brands, the Company’s revenue structure will be further optimised. In addition, the investment in prospective technology areas, such as new energy vehicle, internet of vehicles, active safety, power batteries and fuel batteries, and automatic driving, will help improve the comprehensive competitiveness of the Company. Once these projects are completed and put into production, the economic benefits generated will have positive impact on the Company’s financial indicators in the future.

1. Optimise capital structure of the Company and strengthen its ability to withstand risks

Upon completion of the Non-public Issuance, the size of total assets and net assets of the Company will increase, and its asset-liability ratio will decline. While the Company’s capital strengths are further enhanced, its capital structure will be further improved. Moreover, the solvency of the Company will be effectively increased, which is beneficial for enhancing its ability to withstand financial risk and saving interest expenses.

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Section V Discussion and Analysis of the Board on the Impacts of the Non-Public Issuance of A Shares on the Company

I. Changes in company business, revenue structure, articles of association, shareholder structure and senior management structure

(i) Impact on company business and revenue structure

Upon completion of the Non-public Issuance, the Company’s capital strengths will be enhanced and its level of net assets will be further increased, which is conducive to optimising the capital structure, alleviating debt repayment pressure on the Company, strengthening its ability to withstand risks and overall competitiveness, and providing strong support for the Company to make further use of its core strengths. Upon completion of the Non-public Issuance, there will be no material changes in the business and revenue structure of the Company. The Board is of the view that the Non-public Issuance will facilitate the long-term growth of the Company on the basis of its existing business and revenue structure.

(ii) Impact on the Articles of Association, shareholder structure and senior management structure

Upon completion of the Non-public Issuance, the Company’s share capital will increase accordingly, and there will be changes in the shareholding percentage of its existing shareholders. The Company will, based on the actual issuance situation, make amendments to the provisions in the Articles of Association of the Company in relation to share capital and complete the relevant business change registration.

Upon completion of the Non-public Issuance, the Company will have additional share capital of no more than 741,473,055 A Shares, representing 10.31% of its enlarged share capital. GAI will remain as the controlling shareholder of the Company and the Issuance will not cause any material changes in its shareholder structure.

The Issuance will not cause any changes in the senior management structure of the Company.

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II. Changes in the financial position, profitability and cash flows of the Company

(i) Impact on the financial position of the Company

Upon completion of the Non-public Issuance, the total assets and net assets of the Company will increase, and its asset-liability ratio will decline. While the Company’s capital strengths are further enhanced, its capital structure will be further improved. Moreover, the solvency of the Company will be effectively increased, which is beneficial for enhancing its ability to withstand financial risk and saving interest expenses.

(ii) Impact on the profitability of the Company

The projects to be financed by the proceeds from the Non-public Issuance are all in line with the relevant state policies and development trend of the industry and have positive market outlook. With the gradual implementation and construction of these projects, the Company’s production capacity will be further expanded and its research and development capability will be enhanced. Through improvement in the competitiveness of its proprietary brands, the Company’s revenue structure will be further optimised. In addition, the investment in advanced technology areas, such as new energy vehicle, internet of vehicles, active safety, power batteries and fuel batteries, and automatic driving, will help improve the comprehensive competitiveness of the Company. Once these projects are completed and put into production, the economic benefits generated will have positive impact on the Company’s financial indicators in the future.

(iii) Effect on the cash flows of the Company

Upon receipt of the proceeds, the Company’s cash inflows from financing activities will significantly increase. Once the proceeds are being utilised, the Company’s solvency will be improved and its cash outflows from investing activities will increase. The Company’s cash flows from operating activities will be improved once these project start to generate results.

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III. Business relationship, management relationship, connected transactions and competition between the Company and the controlling shareholder and its affiliates

Upon completion of the Non-public Issuance, there will be no changes in the business relationship and management relationship between the Company and GAI (i.e. the controlling shareholder) and its affiliates.

There is no material competition between the Company and the controlling shareholder and its actual controller and no new competition will arise from the Issuance.

IV. Upon completion of the Issuance, whether there will be embezzlement of funds and assets by the controlling shareholder and its affiliates, or whether guarantee will be provided by the Company for the controlling shareholder and its affiliates

Upon completion of the Non-public Issuance, any money transferred between the Company and the controlling shareholder and its affiliates will all be normal business dealings. There will be no embezzlement of funds and assets in breach of the rules, nor will be there any guarantee provided by the Company for its controlling shareholder or its affiliates in breach of the rules.

V. Effect of the Issuance on the debt structure of the Company

All the A Shares under the Non-public Issuance will be subscribed for by the target subscribers in cash. Upon completion of the Issuance, the Company’s total assets and net assets will increase. Its asset-liability ratio will be lowered by a reasonable margin and its capital structure will become steadier. The Company will not significantly increase its liabilities or have an asset-liability ratio that is too low as a result of the Issuance, nor will there be any unreasonable finance cost.

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Section VI Risks related to the Issuance

I. Market risk

(i) Risk of fluctuation in macro environment

The overall automobile industry significantly depends on level of development of the national economy, where changes in the economic growth rate would stimulate or suppress consumption of automobiles. Moreover, due to globalisation of economy, the automobile industry is also affected by international macro environment and circumstances. In recent years, sustained growth in the economic scale of the PRC, steady growth in citizen’s disposable income, prompt economic policies promulgated by the Chinese government and relatively favourable international environment resulted in an overall trend of growth in demand of the automobile industry in the PRC. However, with slower macroeconomic growth, the demand for the automobile industry of the PRC is currently gradually slowing down. In the future, such demand will continue to be influenced by such factors as the macroeconomic policies of the PRC, industrial structural adjustments and international environment.

(ii) Risk of rapid growth in the production capacity of the automobile industry in the PRC

The automobile industry in the PRC showed an overall trend of growth in the past 10 years. China has ranked No. 1 in the whole world in terms of sales volume of newly-made vehicles for several consecutive years since 2009 when the sales volume of its newly-made vehicles reached 13.64 million units, being the world’s largest, to 2015 when the same exceeded 24.50 million units, reaching a new high in the history of the world. In the face of market opportunities, many automobile manufacturers target at the domestic market by implementing or formulating plans to expand their production capacity. The competition between joint ventures and local companies, foreign brands and domestic brands, among vehicles with similar emission volume and new and old models is relatively intense.

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(iii) Impact of new energy vehicle products and technological research and development on conventional vehicle products and risk of technological development

Under the background of energy shortage and higher awareness of energy saving and environmental protection, new energy vehicles and technological research and development are increasingly valued by automobile manufacturers and are the direction of future automobile technological innovation. Consumption of the conventional vehicles will be affected and suppressed to a certain extent. In 2015, the sales volume of new energy vehicles grew almost fourfold. Although the development of new energy vehicles has been included in the “13[th] Five-year” plan of the Company and great efforts have been made in the development, promotion and industrialization of new energy vehicles, its technology and ancillary system are not mature enough to completely replace conventional fuel vehicles in the short term. There is relatively great uncertainty in the future development prospects and short term direction of this technology.

II. Business and operational risks

(i) Risk of fluctuation in the financial conditions and operating results of joint ventures

The Company has established close cooperation relationship with international cooperation partners such as Honda, Toyota, Fiat, Mitsubishi and Hino. The joint ventures jointly established with such companies have a relatively great impact on the operating results of the Company. The Company has continued to nurture independent R&D ability and to accumulate core techniques, and it has successfully developed the first proprietary brand passenger vehicle Trumpchi in September 2010. After years of development, GS4, a new SUV model, was launched in April 2015, and received positive feedback from the market, achieving a total sales volume of approximately 130,000 units in 2015. The Group has initially formed a new layout of coordinated development of three series, namely the Japanese series, European and American series and proprietary brand series. However, in view of the present situation, joint ventures such as Guangqi Honda and GAC Toyota, etc. still exert a relatively great impact on the operating results of the Company. If there is any fluctuation in the financial conditions and operating results of the joint ventures, the financial

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conditions and operating results of the Company may be adversely affected.

(ii) Risk of fluctuation in the costs of factors of production

The factors of production for vehicle manufacturing include labour and different types of raw materials, including steel, aluminium, rubber, plastics, paints, thinners and other chemical products; and those used for the manufacturing of automobile parts and components include metallic components, chemical components and electronic devices. The Company needs to purchase a large amount of raw materials from upstream manufacturers for the production of such products as passenger and commercial vehicles, engines and auto parts. If there is an increase in the prices of bulk raw materials, the production costs of upstream manufacturers of parts and components will increase significantly. When the suppliers raise their prices, despite that the Company can offset the inflation of auto parts through measures such as launching new products, re-valuing its product, optimising work flow and reducing wear and tear, it may have a negative impact on the profit of the Company if the price of major raw materials surges to an exceedingly high level.

(iii) Risk of being unable to launch popular products on a continuous basis

The continuous ability to launch popular products directly affects product sales and operating results of the Company. The Company needs to make continuous improvement in existing products and develop and introduce new products in time based on market demand, in order to consolidate its market position and increase market shares in targeted segments. In 2015, the Company launched competitive new vehicle models like GS4, JEEP Cherokee, upgraded Highlander, 1.5L VEZEL, leading to consistent growth in overall sales volume. In the first half of 2016, the production and sales volume of GAMC, a proprietary brand of the Company, continued to increase rapidly, representing an increase of 132.84% and 143.47% as compared to the corresponding period of last year, and Trumpchi GS4 has become a star product of the Company’s proprietary brands. In the meantime, sustaining hot sales of joint ventures’ models such as Highlander, Vezel and Cherokee has led to an increase in the overall sales, resulting in the steady increase of the operating results of the Company. If subsequently the Company fails to develop and produce competitive products and fails to reach a certain market share within a reasonable time and achieve economies of scale, it may be unable to implement its business strategies,

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which will also have a negative impact on the business, financial conditions and operating results of the Company.

(iv) Risk of launching proprietary brand products

The Company is committed to promoting the development and building of its proprietary brand products in accordance with the PRC government’s policy of development of automobile industry and the Company’s strategic development of proprietary brands. In the current market environment, automobile consumption showed a trend of overall steady growth. Moreover, proprietary brand automobile products launched by various automobile manufacturers are gradually being recognised by domestic consumers. GAMC, one of the Company’s subsidiary, also launched its first proprietary brand passenger vehicle Trumpchi in September 2010 and it subsequently launched other proprietary brand products including GA5, GS5, GA3, GA3S, GS5 Super, GA5 REV, GA6 and GS4, all of which received positive feedback from the market and realised sound sales volume. In the first half of 2016, the Company launched its first executive and commercial vehicle Trumpchi GA8, making a breakthrough by the entering of a proprietary brand into the high-end market from the mid-end market. However, at present, development, production, sales and brand building of the proprietary brands of the Company is still at the developing stage. Meanwhile, automobiles manufactured by joint ventures are gradually penetrating into the middle- and-low-end markets. If subsequent proprietary brand products launched by the Company fail to gain a certain market share to obtain economies of scale, the Company may not be able to implement its business strategy and its business and financial position may be adversely affected.

(v) Risk of related party transaction

The existing related party transactions of the Company and its subsidiaries comprise mainly the related party transactions between GAI and its subsidiaries (other than the Company and its subsidiaries) and the joint ventures and associates of the Company.

The related party transactions between the Company and its subsidiaries and GAI and its subsidiaries (other than the Company and its subsidiaries) comprise mainly the provision of labour services, sale of insurance contracts and payment of insurance claims, connected leases and transfer of equity interest by the Company to

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GAI and its subsidiaries (other than the Company and its subsidiaries).

The related party transactions between the Company and its subsidiaries and its joint ventures and associates comprise mainly related purchase and sales, provision/receipt of labour services, provision of insurance services, related leases and entrusted loans.

The Company has consistently commenced from practical needs. When entering into related party transactions, the Company has always adhered to the principles of equality, voluntariness, equal value and consideration and based on fair market price to ensure the fairness and reasonableness of the transactions. In addition, the Company entered into related party transaction contracts with its related persons, which specify the subject, pricing principle, transaction amount of the related party transactions and rights and obligations of each party to regulate these transactions. Although the Company has adopted a number of measures to regulate the related party transactions, any related party transaction with unfair pricing may have an adverse effect on the production and operation of the Company.

III. Financial risk

(i) Risk relating to distribution of profit by joint venture and associates

The whole vehicle manufacturing business of the Company is mainly conducted by its joint ventures, and the Company also has a number of associates producing automobile auto parts. The investment income from these joint ventures and associates contributed to a substantial portion of the operating profit of the Company. As such, the ability to distribute cash dividends by the joint ventures and associates of the Company has a direct impact on the Company’s ability to distribute cash dividends.

In accordance with the joint venture contract, the Company or its subsidiaries and the foreign party each holds 50% equity interest in the major whole vehicle manufacturing joint ventures, and they exercise joint control over the joint ventures. The distribution of profit by a joint venture requires consents from the shareholders of both parties. If the shareholders of the foreign party in a joint venture disagrees with the Company or its subsidiary in profit distribution, the distribution of cash dividends by such joint venture will be affected. In its associates, the Company is not the single

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largest shareholder, and the distribution of cash dividends by its associates depends on the opinion of the controlling shareholder of the associates on profit distribution. In addition, the Company’s ability to distribute cash dividends is also subject to the operation performance and capital expenses of its joint ventures and associates. Although the joint ventures and associates of the Company are currently able to distribute profit, the above factors may still have an adverse effect on the Company’s ability to distribute cash dividends.

(ii) Cash flow fluctuation risk

The whole vehicle and auto parts business of the Company is mainly conducted by its joint ventures and associates. However, the financial statements of these joint ventures and associates have not been consolidated and their product sales are not included in the cash flows from operating activities of the Company, but are included in the cash flows from investment activities of the Company. As such, in the last three years and the last period, the Company recorded relatively low net cash flows from its operating activities. In 2013, 2014, 2015 and the period from January to September 2016, net cash flows flow operating activities of the Company were RMB978 million, RMB1,105 million, RMB5,082 million and RMB5,481 million respectively. During the same period, net cash outflows from investing activities of the Company were -RMB165 million, -RMB477 million, -RMB3,078 million and -RMB7,037 million respectively, in which cash received from investment income were RMB3,060 million, RMB4,364 million, RMB4,407 million and RMB4,771 million respectively and cash outflows from investing activities were RMB4,373 million, RMB7,413 million, RMB24,518 million and RMB28,322 million respectively, with high capital expenses.

If, in the future, the net cash flows from operating activities of the Company decrease and the cash received from investment income decreases, the Company’s overall cash flows and its operation may be adversely affected.

(iii) Risk of change in taxation policies

The State may adjust taxation policies in the future and the taxation burden of the Company and its subsidiaries and investees may increase, which will have an adverse effect on the results of the Company.

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(iv) Risk of change in exchange rate

The exchange rates of Renminbi against United Stated dollars, Japanese Yen, Euro and other currencies are subject to international political and economic conditions. The revenue of the Company is denominated in Renminbi, while certain raw materials and auto parts are imported from Japan and other countries. In addition, the products of certain subsidiaries and investees of the Company are exported to overseas markets, which are denominated in United States dollars, Japanese Yen and Euro. In case of any relative huge fluctuations of the exchange rates of Renminbi against these foreign currencies, the product procurement cost, sales revenue and investment income of the Company may be affected.

IV. Management risk

(i) Corporate governance risk

The Company has established a relatively complete corporate governance structure and system and internal control system, meeting the requirements of domestic and international capital markets. As China’s economic system reform continues to deepen and the regulation of capital markets continues to be strengthened, if the Company fails to further improve, prefect or adjust its management model and system, its sustainable development may be affected.

(ii) Human resources risk

As the asset size, business size, geographic coverage of business, business activities, number of subsidiaries and number of employees continue to expand, there will also be material changes in the management structure of the Company, and the Company will face increasing difficulties in its overall management in terms of allocation of financial and human resources. The Company has adopted various measures to strengthen its efforts to attract talents, cultivated a large number of experienced core staff, and established a relatively sound restraint and incentive mechanism. However, the Company will still face the shortage of human resources in its steady development, and its employee structure needs to continue to adapt to its business development and cope with the challenges. If the Company’s talent cultivation, organisation model and management system cannot be further improved and perfected and the Company fails to continuously provide competitive work

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environment and remuneration system, there may be loss of management and core technicians of the Company, which will cause adverse impacts on the core competitiveness of the Company.

(iii) Investment management risk

The operation results of the Company mainly depend on the results of operation of enterprises in which it has invested, in particular of its joint ventures and associates. With the increase in the business size and external investments of the Company, the number of its subsidiaries and investees, including joint ventures and associates, continues to increase. As the industrial chain of the Company continues to extend, its industrial presence, business size and offering further expanded, and its organisational structure had become increasingly complex, which had brought growing difficulties for the management of the Company. If the production and operation, sales, quality control, risk management ability of the Company fails to meet the needs of adjustment to management structure and rapid business growth of the Company, the results of operation of the Company may be adversely affected.

V. Policy risk

(i) Product recall risk

China’s product quality regulations and technology standards for the automobile industry have become increasingly strict in recent years. The “Regulations for Management of Recall of Defective Automobile Products” became effective on 1 January 2013, which amends and supplements the “Rules for Management of Recall of Defective Automobile Products” and requires automobile manufacturers to provide repair services for or recall defective vehicles. The “Rules for Repair, Replacement and Return of Civil Automobile Products” became effective on 1 October 2013, which specifies that civil automobile manufacturers are obliged to repair, replace or return defective vehicles. According to statistics published by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC, there were 133 times, 176 times, 226 times of recalls of vehicles in the PRC in 2013, 2014 and 2015 respectively, and the number of vehicles recalled were 5,311,000 units, 4,786,300 units and 5,548,500 units respectively. Any recall by the Company of its products may have an adverse effect on its sales and performance.

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(ii) Risk of increased cost due to higher safety standards

The safety standards for the automobile industry comprise mainly the regulations for vehicle collision safety. PRC’s safety regulations and technology standards for the automobile industry have become increasingly strict in recent years, and the “Requirements for Protection of Passengers in Side Collision” and the “Requirements for Fuel System Safety Back in Collision of Rear Collision of Passenger Vehicles” were successively issued.

If any regulatory department introduces stricter safety regulations and technical standards for the automobile industry, it may increase the production costs and expense of automobile manufacturers, which may in turn affect the operation results of the Company.

(iii) Risk of increased cost due to stricter environmental protection and energy saving standards

The Third-Stage Limits for Motor Vehicle Pollutant Emission Standards of the PRC (equivalent to European III standards) became effective in the PRC on 1 July 2007, signalling that China’s vehicle emission control has entered a new stage. As required by the Ministry of Environment Protection of the PRC, since 1 July 2011, passenger vehicles sold in the PRC must meet national IV standards, which means that new vehicles failing to meet the national IV standards will not be admitted to the new vehicle catalogue issued by the Ministry of Industry and Information Technology since 1 July 2011.

In order to achieve the goals of saving energy and reducing consumption and pollutants emission, the State may introduce even stricter policies for environmental protection and energy saving, which will increase the research and development and production costs of the Company and affect its results of operation.

(iv) Risk of adjustment to vehicle consumption policies

The automobile industry has a long industrial chain and is a strong drive for economic growth. As a pillar industry for the PRC economy, it is also an industry with developed market and intense competition. Recently, the State has provided greater incentives to encourage the purchase of new energy vehicles. For instance, in July 2014 the General Office of the State Council issued the “Guiding Opinions on

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Accelerating the Promotion and Application of New Energy Vehicles”, requiring further acceleration of the promotion and application of new energy vehicles to alleviate energy and environment pressure and facilitate the transformation and upgrade of the automobile industry.

On the other hand, however, with the mounting pressure on urban transportation, policies were issued in certain regions in the PRC to limit the total number of motor vehicles, which may have an adverse effect on local automobile sales. The government also may further adjust its automobile purchase policies in the future, which may have a material effect on the production and sales of automobiles.

(v) Risk of fluctuation in fuel oil price

The price of crude oil in the world experienced huge fluctuations in recent years, and factors affecting the price include, among other things, the supply and demand dynamics and the character of crude oil as a financial product. There is a large number of uncertainties about the fluctuations of crude oil price. With the fluctuations of crude oil price, reforms of the oil product pricing mechanism in the PRC also continued. Currently, the prices of oil products in the PRC are still not marketised. In case of any gap between international crude oil price and oil product price in the PRC, there may still be adjustments to oil product price in the PRC. Any huge fluctuations in global crude oil price or change in the existing product oil pricing policy in the PRC may result in fluctuations of the selling prices of oil products in the PRC, which will affect the automobile consumption structure and in turn the product sales of the Company.

– (vi) Risk of anti monopoly investigations

The NDRC has strengthened its anti-monopoly investigations into a number of industries since July 2014, including whole vehicles and auto parts in the automobile industry. Such anti-monopoly investigations are expected to affect the operation environment of the automobile industry. If the Company or any of its joint ventures is subject to any punishment imposed by regulatory authorities, the Company may be adversely affected.

(vii) Risk of adjustment to policies for subsidies for new energy vehicles

In accordance with the requirements of the “Circular of the Ministry of Finance,

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the Ministry of Science and Technology, the Ministry of Industry and Information Technology and the National Development and Reform Commission on the Policies for Financial Subsidies Provided to Support the Promotion and Application of New Energy Vehicles for 2016 to 2020”, the subsidies provided for new energy vehicles will be gradually reduced based on the performance of energy saving and emission reduction and taking into account production cost, economies of scale and technical advancement. The subsidies for new energy vehicles provided to the Company may decrease as a result of the changes in relevant policies in the future.

VI. Issuance approval risk

The Non-public Issuance of A Shares is subject to the approval of Guangdong SASAC, the consideration and approval of the shareholders of the Company at the general meeting, the A share class meeting and the H share class meeting, and the approval of the CSRC. There are uncertainties as to whether these internal and external approvals will be obtained and the timing of the approvals.

VII. Stock market risk

The price of the shares of the Company in the secondary market fluctuates subject to fundamental factors including the operation environment, financial position and industrial development and outlook of the Company, as well as various macro-economic and political factors, psychology of investors and stock market conditions. A number of approvals are required for the Non-public Issuance, and it takes time to obtain such approvals, during which the market price of the shares of the Company may fluctuate, directly or indirectly affecting the returns to investors. Investors are advised to bear these risks in mind.

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Section VII Dilution of Current Returns by the Non-public Issuance and Remedial Measures

I. Impact of the Non-Public Issuance on major financial indicators of the Company including earnings per share

(i) Major assumptions

The following assumptions are made mainly to estimate the effects of the Non-public Issuance on major financial indicators of the Company. They do not represent the Company’s expectation of its results of operation and trend in 2016 and 2017, and neither do they constitute a profit forecast. Investors shall not make any investment decision based on such assumptions, and the Company disclaims any liability for any losses incurred by investors arising from any investment decisions made based on them. The relevant assumptions are as follows:

1. There will be no material adverse changes in macroeconomic environment, securities market and the operation environment of the Company;

2. As at 30 September 2016, the Company had a total share capital of 6,450,053,139 shares. It was assumed that the Company’s total share capital as at 31 December 2016 will be the same as its total share capital as at 30 September 2016, and that the number of shares to be issued under the Non-public Issuance will be the maximum number of shares to be issued under the Proposal for the Issuance as considered and passed by the Board and at the general meeting, being 741,473,055 shares.

3. The Issuance will be completed on 30 June 2017. This assumption is made only to estimate the effect of the Issuance on the earnings per share of the Company and does not represent the Company’s estimation of the actual date of completion of the Issuance, which is subject to the actual date of completion following the approval for CSRC for the Issuance.

4. Net profit attributable to shareholders of the parent company after deduction

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of non-recurring items for 2015 is RMB3,969,693,000. As the Company recorded net profit attributable to shareholders of the parent company for the period from January to June 2016 of RMB3,912,153,500, representing an increase of 206.24% from the same period in 2015, assuming that net profit attributable to shareholders of the parent company after deduction of non-recurring items for the period from July to December 2016 will be at the same level as that for the same period in 2015, then, net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2016 would be RMB6,604,365,000.

Assuming that net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2017 will increase by 0%, 5% and 10%, respectively from 2016, net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2017 would be RMB6,604,365,000, RMB6,934,583,200 and RMB7,264,801,500, respectively.

The aforesaid profits do not represent the Company’s forecast of its profits for 2016 and 2017, which is subject to uncertainties due to a number of factors such as China’s macro-economic policies, securities market conditions and its own operation.

1. Equity attributable to owners of the parent company as at 30 June 2016 was RMB41,838,452,500. Without taking into account the conversion of convertible bonds into shares of the Company during the period from July to December 2016, equity attributable to owners of the parent company as at 31 December 2016 = the equity attributable to owners of the parent company as at 30 June 2016 + estimated net profit attributable to shareholders of the parent company for the period from July to December 2016 – interim cash dividends to be distributed for 2016. Equity attributable to owners of the parent company as at 31 December 2017 = equity attributable to owners of the parent company as at the beginning of 2017 + estimated proceeds from the Issuance + estimated net profit attributable to shareholders of the – – parent company for 2017 estimated annual cash dividends for the year of 2016 estimated interim cash dividends to be distributed in 2017.

The aforesaid figures do not represent the Company’s estimation of equity attributable to owners of the parent company as at the end of 2016 and the end of 2017, which are subject to uncertainties.

1. Without taking into account issuance expenses, it was assumed that the

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proceeds from the Non-public Issuance of shares will be RMB15,000,000,000.

1. The impact on the production and operation and financial position of the Company (such as operating income, financial cost and investment income) upon receipt of the proceeds from the Issuance were not taken into account.

2. Assuming that the profit of the Company to be distributed as cash dividends for 2016 and 2017 will represent 30% of the net profit attributable to shareholders of the parent company for 2016 and 2017 respectively, that net profit attributable to shareholders of the parent company for the period from January to June 2017 will be 50% of net profit attributable to shareholders of the parent company for 2017, and that profit for 2017 to be distributed as interim cash dividends will be 30% of the net profit attributable to shareholders of the parent company for the period from January to June 2017, then:

Cash dividends for 2016 = estimated net profit attributable to shareholders of the parent company for 2016 x 30% – interim cash dividends for 2016

Interim cash dividends for 2017 = estimated net profit attributable to shareholders of the parent company for the period from January to June 2017 x 30%

1. It was assumed that the resolution on distribution of annual cash dividends will be passed in June and that the resolution on distribution of interim cash dividends will be passed in August.

2. It was assumed that there will be no non-recurring gain or loss of the Company for the period from July to December 2016 and the year of 2017.

3. The effect of conversion of convertible bonds of the Company and exercise of the options under its share option incentive scheme subsequent to 30 September 2016 was not taken into account. In addition, it was assumed that there will be no events affecting the number of shares of the Company such as capitalisation of reserve and distribution of stock dividends in 2017.

(ii) Estimation of the impact of the Issuance on major financial indicators of the Company including earnings per share

Based on the aforesaid assumptions, the Company estimated the effect of the Non-public Issuance on major financial indicators of the Company including earnings

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per share to be as follows:

Item Total share capital (in ten thousand shares)	2016/31 December 2016 645,005.31	2017/31 December 2017	2017/31 December 2017
		Before the Non-public Issuance 645,005.31	After the Non-public Issuance 719,152.62
Scenario 1: Net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2017 remains at the same level as that for 2016
Net profit attributable to shareholders of the parent company after deduction of non-recurring items (in RMB ten thousand)	660,436.50	660,436.50	660,436.50
Equity attributable to owners of the parent company as at the end of the period (in RMB ten thousand)	4,401,460.01	4,814,229.58	6,314,229.58
Basic earningsper share(RMB)	1.03	1.02	0.97
Diluted earnings per share (RMB)	1.02	1.02	0.96
Net assetsper share(RMB)	6.82	7.46	8.78
Weighted average return on equity	15.83%	14.28%	12.29%
Scenario 2: Net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2017 increases by 5% from that for 2016
Net profit attributable to shareholders of the parent company after deduction of non-recurring items (in RMB ten thousand)	660,436.50	693,458.32	693,458.32
Equity attributable to owners of the parent company as at the end of the period (in RMB ten thousand)	4,401,460.01	4,842,298.13	6,342,298.13
Basic earningsper share(RMB)	1.03	1.08	1.02
Diluted earnings per share (RMB)	1.02	1.07	1.01
Net assetsper share(RMB)	6.82	7.51	8.82
Weighted average return on equity	15.83%	14.95%	12.87%
Scenario 3: Net profit attributable to shareholders of the parent company after deduction of non-recurring items for 2017 increases by 10% from that for 2016

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Item Net profit attributable to shareholders of the parent company after deduction of non-recurring items (in RMB ten thousand)	2016/31 December 2016 660,436.50	2017/31 December 2017	2017/31 December 2017
		Before the Non-public Issuance 726,480.15	After the Non-public Issuance 726,480.15
Equity attributable to owners of the parent company as at the end of the period (in RMB ten thousand)	4,401,460.01	4,870,366.68	6,370,366.68
Basic earningsper share(RMB)	1.03	1.13	1.07
Diluted earnings per share (RMB)	1.02	1.12	1.06
Net assetsper share(RMB)	6.82	7.55	8.86
Weighted average return on equity	15.83%	15.61%	13.44%

Note: The basic earnings per share, diluted earnings per share and weighted average return on equity were calculated in accordance with the requirements of the “Guiding Opinions on Matters regarding the Dilution of Current Return by Initial Offering, Refinancing and Material Asset Reorganisation” and the requirements of “Rule No. 9 of Compilation and Submission of Information Disclosure by Companies that Offer Securities to the Public – Calculation and Disclosure of Net Return on Equity and Earnings Per Share”, both issued by China Securities Regulatory Commission.

II. Special risk warning for dilution of current returns by the Non-public Issuance

The gross proceeds from the Non-public Issuance will be no more than RMB15 billion which, after deduction of the relevant fees and expenses, will be utilised in 10 projects in relation to new energy and prospective technology, plant and vehicle model and key auto parts, details of which are as follows:

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Unit: RMB0’000

Project Type	No.	Name of Project	Total project investment	Amount of proceeds proposed to be used
New energy and prospective technology projects	1	New energy vehicles and R&D of prospective technology project	502,367	480,000
	2	GAEI phase 1 base expansion project	71,051	60,000
	3	GAEI phase 2 base constructionproject	114,323	100,000
Plant and vehicle model projects	4	GAC proprietary brand project of Xinjiang	108,695	80,000
	5	GAC improvement project of Hangzhou	330,038	220,000
	6	GAC proprietary brands technological reformation project	353,172	250,000
	7	GAC proprietary brands vehicle modelsprojects	387,941	215,000
	7.1	GAMC A16project	27,200	20,000
	7.2	GAMC A35project	44,477	35,000
	7.3	GAMC A5Hproject	55,293	30,000
	7.4	GAMC A10project	49,020	40,000
	7.5	GAMC A30project	99,401	15,000
	7.6 7.7	GAMC A32 project GAMC A06project	14,502 46,193	10,000 35,000
	7.8	GAMC A7Mproject	51,855	30,000
Key auto parts projects	8	GAMC engineproject	57,666	50,000
	9	GAMCgearboxproject	42,762	30,000
	10	P6 gearbox development project	20,646	15,000
	Total		1,988,661	1,500,000

As the Company’s total share capital will increase upon receipt of the proceeds from the Non-public Issuance, while it will take some time for the proposed projects to generate profits and for the performance of its business development to improve, the Non-public Issuance may result in slight decrease in the earnings per share of the Company for the year of receipt of proceeds from the Non-public Issuance compared

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with the previous year, and there is risk of short-term dilution of current returns of the Company. In addition, if the projects proposed to be financed by the proceeds from the Issuance fail to deliver expected performance, earnings per share of the Company may be diluted, which will in turn lower the returns to shareholders of the Company. Investors are advised to exercise caution when making investment decisions and be reminded of investment risks.

Furthermore, the Company’s estimation of net profitable attributable to shareholders of the parent company after deduction of non-recurring items for 2016 and 2017 in the process of estimation of the dilution effect of the Non-public Issuance on current returns, is an assumption and the Company’s planned measures to cope with the risk of current returns dilution. It does not constitute a profit forecast by the Company and is not an undertaking made by the Company as to its future profits. Investors should not make any investment decision based on such assumptions, and the Company disclaims any liability for any losses incurred by investors arising from any investment decisions made based on them. Investors are advised to exercise caution.

III. Relationship between the projects to be financed and the Company’s existing businesses, reserve of human resources, technologies and market for the projects

(i) Relationship between the projects to be financed and the Company’s existing businesses

The projects to be financed by the proceeds from the Non-public Issuance comprise 10 projects in relation to new energy and prospective technology, plant and vehicle model and key auto parts, covering the whole process from research and development to production and a large variety of product types from whole vehicles to auto parts etc. Among the aforesaid projects, the implementation of the new energy and prospective technology projects (including new energy vehicles and R&D of prospective technology project, GAEI phase 1 base expansion project and GAEI phase 2 base construction project) will enable the Company to launch new energy vehicle product meeting the market’s needs, enhance the Company’s product variety, capture the Company’s share in the new energy vehicle market, increase the market

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share of the Company’s products and realise strategic upgrade of its automobile business. The plant and vehicle model projects (including GAC proprietary brand project of Xinjiang, GAC improvement project of Hangzhou, GAC proprietary brands technological reformation project and GAC proprietary brands vehicle models projects) have laid solid foundations for the rapid growth of vehicles of proprietary brands of the Company. The key auto parts projects (including GAMC engine project, GAMC gearbox project and P6 gearbox development project) aim to enable the Company to further improve the quality, technological level and production capacity of its self-made core auto parts, break the dominance by foreign brands, reduce its reliance on external supply of auto parts, lower purchase cost and improve efficiency of the Company.

The projects to be financed by the proceeds from the Non-public Issuance will be able to further strengthen the development of its proprietary brand system, expand its product offering, accelerate the extension of its industrial value chain, improve its production and research and development capability and enhance its core competitiveness, which are key steps for GAC Group to realise the strategic objectives under its “13[th] Five-Year Plan” and to become an advanced automobile group.

(ii) Reserve of human resources, technologies and market for the projects

1. Reserve of human resources

The Company has established a steady, experienced, practical and aggressive management team with international visions, adopted various measures to strengthen its efforts to attract talents, cultivated a large number of experienced core staff, and established a relatively sound restraint and incentive mechanism. The high-quality team has extensive experience in many aspects in relation to the development of core business of the Company such as research and development, production, sales and marketing and the projects to be financed, providing strong human resources support for the implementation of such projects.

2. Technology reserve

Over the years, the Company has established a relatively complete research and development system with strong capability. As a hub in the research and development

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network of the Company, GAEI currently conducts a series of research and development including new energy vehicle technologies, covering production segments at all levels. As at 31 December 2015, the Company had 3,050 research and development staffs. GAEI, as the technological research and development centre of the Company, has relatively comprehensive means for the development, trial production and testing of whole vehicles and power trains, covering the ability to design, develop and verify the general design, power train, appearance design, body structure, chassis and electric devices of vehicles under proprietary brands. The Company also has a number of comprehensive research and development systems for trial production and testing, which has provided technical support necessary for its sustainable development. As at 31 December 2015, GAC Group and its subsidiaries had a total of 1,047 patents. The comprehensive and strong research and development system has provided sufficient technical support for the implementation of the projects to be financed.

3. Market reserve

In view of market needs, the Company has established an innovative, high-quality, efficient sales and services network with reasonable distribution and prepared sales strategies for each market segment. Through years of development and accumulation, as at 31 December 2015, the Company and its joint ventures and associates had a total of 2,404 sales outlets covering 31 provinces, autonomous regions and municipalities. The sales and service centres of the Company have wide coverage and extensive experience in market promotion and provide high-quality services, which has significantly facilitated the sales of automobile products of the Company. In addition to traditional physical outlets, the Company also actively explored multi-level, cross-industry and modern marketing models including internet marketing. In 2015, the Company and its joint ventures and associates sold a total of 127,765 units of vehicles through the internet, accounting for 9.8% of total sales volume for the year. On such basis, the Company also actively explored overseas market and established overseas sales network.

GAC Group is one of the leading automobile manufacturers in the PRC and also the largest automobile manufacturer in southern China. The Company’s products are mainly medium- and-high-end products. It also continues to launch new products to

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gradually cover the whole series of vehicle models. Most of the existing passenger vehicle products of the Company are the most successful and popular passenger vehicles in their respective segments and account for large market share of these segments. According to the “Production and Sales News in the PRC Automobile Industry”, the Company’s market share of the PRC automobile sales market in 2013, 2014 and 2015 were 4.57%, 4.99% and 5.92%, respectively, and it ranked sixth in the top ten automobile manufacturers in the PRC in 2015, showing a general upward trend of market share.

In view of the above, the Company has been operating in the automobile industry for many years and is one of the leading automobile manufacturers in the PRC, with sufficient reserve of human resources, technologies and market to fully ensure the smooth development of the projects to be financed by the proceeds raised and enable these projects to realise expected performance.

IV. Dilution of current returns by the Non-public Issuance and specific remedial measures

The Issuance may result in a decrease in current returns to investors. The Company intends to improve the returns to its shareholders by way of deepening development and improving core competitiveness in accordance with its “1513” strategy, regulating the management of the proceeds to be raised, accelerating the construction of the projects to be financed, improving profit distribution system, actively increasing future profit and realising its development goals. The specific measures are as follows:

(i) Comprehensively improve core competitiveness by deepening development in accordance with the “1513” strategy

During the “13[th] Five-Year Plan” period, the Company will carry on the development principle of “internal coordination and innovation, open for external cooperation” in order to achieve its goals of realising a production volume exceeding 3,000,000 units at the end of the “13[th] Five-year Plan” period with 80% production capacity utilisation rate and to become a modern automobile enterprise. Also, the Company will strengthen its five major segments (namely research and development, whole vehicle, auto parts, commercial services and financial services); strive to develop proprietary brand so as to achieve leap-forward development; and achieve

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breakthroughs in areas of automisation, internationalisation and internet connection.

In the future, the Group will continue development with a focus on the “1513” strategy. Through acquiring complete core technology, the Group will develop competitive automobile products and research and develop vehicles with core technology in order to support the Group’s sustainable development with technological innovation. Meanwhile, the Group will consider making the whole vehicle segment the core business pillar to drive co-development with other segments, develop overseas markets, develop new energy vehicles and realise the three- pillar whole vehicle layout. Beginning with product portfolio, corporate structure, research and development and production strength and supportive system, the Group intends to improve the overall comprehensive compatibility of its auto parts, consolidate the Group’s major business, being whole vehicle manufacturing, further strengthen the Group’s leading position in automobile sales and after-sales market, extend service industry chain and enhance competitive advantage in commercial business. In addition, the Group will establish a diversified financial service platform to build a capital engine focusing on diversified financial services. The Group will strengthen research and development, strive to develop proprietary brand, focus on whole vehicle manufacturing business, manage core parts and components, extend automobile service industry chain, enhance production and financing innovation, advance transformation from manufacturing to service, achieve breakthroughs in areas of automisation, internationalisation and internet connection and improve overall core competitiveness in order to lay a solid foundation for the Group to achieve its strategic objective.

(ii) Regulate the management of the proceeds to be raised to ensure safe utilisation thereof

In order to regulate the management and utilisation of the proceeds to be raised and ensure that the proceeds from the Issuance will be utilised solely in the specific projects, the Company has established and improved its raised proceeds management rules in view of the situations of the Company and in accordance with the requirements of laws and regulations including the “Company Law of the People’s Republic of China”, the “Securities Law of the People’s Republic of China” and the “Listing Rules of the Shanghai Stock Exchange”. Such rules expressly provide that

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the proceeds to be raised by the Company shall be deposited at a designated account and utilised in specific uses only in order to facilitate the management of the proceeds raised and the supervision of their uses. The Board will regulate the management of proceeds raised in strict accordance with the relevant laws and regulations and the Company’s rules of proceeds management in order to ensure safe utilisation of these proceeds.

(iii) Accelerate the progress of investment in the projects to be financed by the proceeds to be raised in order to deliver expected results as soon as practicable

The implementation of the projects to be financed by the proceeds to be raised will enable the Company to improve its brand image, enhance market competitiveness and establish a complete customer service network system and service workflow, which is of significant importance to improve the core competitiveness of GAC Group. Completion of these projects will further expand the product offering of GAC Group and diversify its source of profits, while further improving its brand image and enhancing its competitiveness in the relevant markets.

Upon receipt of the proceeds from the Issuance, the Company will quickly commence the implementation of the projects to be financed by actively deploying resources and coordinating reasonable arrangements for the investing construction progress of these projects in an effort to shorten the project construction cycle, enable the projects to commence production and generate expected returns as soon as practicable, avoid the dilution of current returns, or compensate for the diluted current returns of the Company as soon as possible.

(iv) Strictly implement distribution of cash dividends to protect the interests of investors

In accordance with the “Circular on Further Implementation of Distribution of Cash Dividends by Listed Companies” and the “Listed Companies Supervision Guidance No. 3 – Distribution of Cash Dividends by Listed Companies issued by China Securities Regulatory Commission” and the “Guidance of the Shanghai Stock Exchange on Distribution of Cash Dividends by Listed Companies”, the Company has established and improved the provisions of its Articles of Association in relation to profit distribution, specified the conditions to profit distribution, in particular the

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distribution of cash dividends, the percentage , form of distribution and distribution conditions of stock dividends, improved its decision-making procedures and mechanism for profit distribution and the principle of adjustment to profit distribution policies, and strengthened its mechanism to protect the interests of medium and small investors.

In order to improve the Company’s reasonable, sustainable and steady dividend distribution decision-making and supervision mechanism, to increase the transparency and feasibility of its profit distribution decisions, and to guide investors on establishing investment philosophy of long-term investment and reasonable investment, the Company has established the “Plan of Guangzhou Automobile Group ” – Co., Ltd. on Distribution of Dividends to Shareholders (2015 2017) in accordance with the “Listed Companies Supervision Guidance No. 3 – Distribution of Cash Dividends by Listed Companies” and the “Circular on Further Implementation of Distribution of Cash Dividends by Listed Companies” issued by China Securities Regulatory Commission as well as the provisions of the Articles of Association of the Company in relation to dividend distribution policy, specifying the form, percentage and cycle of profit distribution by the Company to protect the interests of investors.

V. Undertakings made by all directors, senior management and the controlling shareholder

All directors and senior management of the Company will faithfully and diligently perform their respective duties and uphold the lawful interests of the Company and all shareholders, and have made the following undertakings in accordance with the relevant requirements of the CSRC in order to ensure the effective implementation by the Company of remedial measures in relation to current returns:

“1. I undertake not to transfer benefits to other entities or individuals at nil consideration or on unfair conditions, nor to damage the interests of the Company by other means;

1. I undertake to impose restrictions on spending during performance of my

duties;

1. I undertake not to apply any assets of the Company for investment or

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consumption activities that are irrelevant to performance of duties;

1. I undertake that the remuneration system set up by the Board or the remuneration committee will be linked with the implementation of remedial measures for returns of the Company;

2. If the Company subsequently launches a share incentive scheme, I undertake that the conditions to exercise the right in respect of the proposed share incentive scheme will be linked with the implementation of remedial measures for returns of the Company;

3. I undertake to firmly perform the remedial measures for returns of the Company and my undertakings made in relation to such remedial measures. If the Company or any investor incurs losses from my breach of such undertakings, I am willing to be liable to compensate the Company or the investor in accordance with the law.”

Guangzhou Automobile Industry Group Co., Ltd., the controlling shareholder of the Company, has made the following undertakings in accordance with the relevant requirements of the CSRC in order to ensure the effective implementation by the Company of remedial measures in relation to current returns:

“The company will not interfere with the operation and management of GAC Group beyond its authority nor infringe the interests of GAC Group.

If GAC Group or any other shareholder of GAC Group other than the company incurs losses from the breach of such undertakings by the company, the company will be liable in accordance with the law.”

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Section VIII Formulation and Execution of the Company’s Profit Distribution Policy

I. The Company’s profit distribution policy

In accordance with the requirements of the “Circular on Further Implementation of Distribution of Cash Dividends by Listed Companies” (Zheng Jian Fa [2012] No. 37) and the “Listed Companies Supervision Guidance No. 3 – Distribution of Cash Dividends” (Zheng Jian Hui Gong Gao [2013] No. 43) issued by China Securities Regulatory Commission, the Company has amended the provisions in its Articles of Association in relation to profit distribution, established the “Plan of Guangzhou Automobile Group Co., Ltd. on Distribution of Dividends to Shareholders – ” (2015 2017) , and further improved its profit distribution policy. In accordance with the amended “Articles of Association” of the Company, its profit distribution policy is as follows:

(i) Principles of profit distribution

The Company implements continuous and steady profit distribution policy, which focuses on reasonable returns to investors while maintaining its sustainable development.

(ii) Form of profit distribution

The Company adopts an active cash and/or share distribution policy.

(iii) Conditions for distribution of cash dividends

When the conditions for cash dividends are met, the Company shall distribute profit in cash. The conditions for cash dividends are:

1. The distributable profit realised (i.e. the profit after tax after deducting compensation for loss and withdrawal of provident fund by the Company) and accumulated undistributed profit of the Company for the year are positive;

2. The auditors issue a standard auditor’s report without qualified opinion on the financial report of the Company for the year.

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(iv) Cash dividend ratio

The Company should maintain the continuity and stability of its profit distribution policy. When the conditions for cash dividend are met, the Company shall distribute no less than 10% of its distributable profit realised for the year in cash.

The Board shall comprehensively consider factors such as the characteristics of the industry, phase of development, its own operation model, profit level and whether there is material capital expenditure to identify the following scenarios and propose different cash dividend policies according to the procedures provided in the Articles of Association:

1. In the distribution of profit, when the Company’s development is in the phase of maturity and no material capital expenditure has been arranged, the cash dividends to be distributed shall be at least 80% of its distributable profit;

2. In the distribution of profit, when the Company is at a stage of maturity and there are arrangements for significant capital expenses, in distributing profit, the cash dividends to be distributed shall be at least 40% of its distributable profit;

3. In the distribution of profit, when the Company is at a stage of growth and there are arrangements for significant capital expenses, in distributing profit, the cash dividends to be distributed shall be at least 20% of its distributable profit.

If it is difficult to identify the Company’s phase of development but material capital expenditure has been arranged, the Board can proceed according to the previous provisions.

(v) Procedures for consideration of and adjustment to profit distribution policies and plan

1. The annual profit distribution proposal of the Company is proposed and formulated by the Strategy Committee of the Board, combined with the requirements of the Articles of Association, profitability and capital demand. It will be submitted to the general meeting for consideration and approval after it has been considered and approved by the Board with the approval of over half of the independent directors. Independent directors and supervisors shall review the profit distribution proposals submitted to general meeting for consideration and approval and issue a written opinion;

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1. When considering a specific cash dividend proposal, the Board shall carefully study matters such as the timing, conditions, minimum ratio, conditions for adjustment and other requirements of procedures of decision-making. Independent directors shall express a clear opinion. Independent directors can collect the views from minority shareholders and make a proposal for dividend distribution and directly submit it to the Board for consideration;

2. While considering a specific cash dividend proposal at the general meeting, active communication and interaction with shareholders, especially medium and small shareholders, through various channels (including but not limited to online voting and inviting them to meetings) are encouraged in order to sufficiently collect their views and demands and to address their concerns promptly;

3. When the conditions for cash dividends are met in that year and the Board does not propose profit distribution in cash or distributes profit with a cash dividend ratio lower than required by the Articles of Association, the reasons shall be provided and disclosed in the annual report. Independent directors shall individually express their opinion. While convening the general meeting, the Company shall also provide other means such as online voting for the convenience of medium and minority shareholders to vote in the general meeting;

4. The Supervisory Committee shall supervise the implementation of the Company’s profit distribution policy by the Board and management and the planning and decision-making process of shareholders’ return. When profit distribution proposal has not been proposed regarding the profit for the year, it shall also express its opinion after reviewing relevant policies and implementation;

5. The general meeting shall vote on the profit distribution proposal proposed by the Board according to the laws and regulations and the provisions of the Articles of Association.

II. Cash dividends distributed and uses of undistributed profits by the Company in the last three years

(i) Cash dividends distributed in the last three years

The cash dividends distributed by the Company in the last three years are as

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follows:

Unit: RMB	Unit: RMB	Unit: RMB	Unit: RMB	Unit: RMB
Year of distribution	Dividends distributed for every 10 shares (inclusive of tax)	Amount of cash dividends (inclusive of tax)	Net profit attributable to shareholders of the Company for the year of distribution in consolidated financial statements	Percentage of net profit attributable to the shareholders of the Company in the consolidated financial statements (%)
2015	2.0	1,287,004,019.40	4,232,351,906	30.41
2014	1.6	1,029,603,215.52	3,194,789,681	32.23
2013	1.6	1,029,603,215.52	2,668,921,930	38.58

(ii) Uses of undistributed profits by the Company in the last three years

The consolidated undistributed profits of the Company in the last three years were as follows:

were as follows:
Date	Undistributed profit as at the end of period (RMB)
31 December 2015	20,865,960,751
31 December 2014	18,074,948,755
31 December 2013	16,289,702,000

The Company has always placed great emphasis on the balance between returns to shareholders and its own development. After providing reasonable returns to shareholders, the undistributed profit of the Company were mainly utilised to replenish its working capital required for business operation, lower its financing cost, improve its financial stability and support the implementation of its development strategies and its sustainable development.

III. Dividend distribution policy and plan for returns to shareholders for three years (2015-2017)

(i) Factors considered by the Company in the preparation of plans

The Company focuses on long-term and sustainable development. By taking into account factors including the profitability, operation plan, returns to shareholders and future capital needs of projects, social capital cost and financing environment of the Company, it has established a plan and mechanism for providing sustainable, steady and reasonable returns to shareholders, on the basis of which systematic arrangements

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for the profit distribution are made to ensure the continuity and stability of its profit distribution policy.

(ii) Principles of formulation of plans

Subject to national laws and regulations and the provisions of the “Articles of Association” in relation to profit distribution, the preparation of a dividend distribution plan shall not only emphasise on reasonable returns to investors but shall also take into account the actual situation of the Company and its sustainable development. On the basis of fully protecting the interests of shareholders while realising the balance between the short-term interests of the Company and its long-term development, a reasonable profit distribution proposal was prepared, pursuant to which the plan for the implementation of profit distribution policies during a certain period was established to ensure the continuity and stability of its profit distribution policy.

(iii) Cycle of plan preparation and relevant decision-making mechanism

The Board prepares the plan in accordance with profit distribution policy specified in the “Articles of Association”. In case of any need to adjust the profit distribution policy as a result of material changes in the external operation environment for the Company and its own operation, the adjustment shall focus on the protection of the interests of shareholders (in particular public shareholders) by conducting detailed demonstration and offering explanations. Detailed explanations on the cash dividend policy shall be given in regular reports of the Company and the procedures for decision-making shall be strictly complied with. The Board shall review the plan once every three years to ensure the plan meets the profit distribution policy as set out in the “Articles of Association”.

(iv) Plan for returns to shareholders for the coming three years (2015-2017)

1. The Company may distribute profit in cash, shares and the combination of cash and shares.

2. The Company prefers the method of profit distribution through cash dividends. The Company shall distribute profit through cash dividend if the conditions for cash dividends are met.

3. In accordance with the laws and regulations including the “Company Law” as

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well as the “Articles of Association”, subject to the Company’s profit and cash meeting the needs of its sustainable operation and long-term development, the profit to be distributed by the Company through cash dividends for each year from 2015 to 2017 shall not be less than 10% of the distributable profit for the respective year, and the total profit to be distributed by the Company through cash dividends for the three consecutive years from 2015 to 2017 shall not be less than 30% of the average annual distributable profit of these three years.

1. In the next three years (2015-2017), in principle, the Company shall conduct a distribution of cash dividends each year. The Board may distribute interim cash dividends in view of the profit and capital position of the Company.

2. In the next three years (2015-2017), the Company may distribute profit through shares in order to align the expansion of share capital with performance growth in view of its total distributable profit, reserve and cash flows, while ensuring a minimum percentage of cash dividend distribution and a reasonable level of share capital.

The Board of Directors of Guangzhou Automobile Group Co., Ltd. 31 October 2016

Should there be any discrepancies between the Chinese and English versions of the Proposal, the Chinese version shall prevail.

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