古井贡Ｂ：2026年半年度报告（英文版）

古井贡酒·年份原浆

ANHUI GUJING DISTILLERY COMPANY LIMITED

INTERIM REPORT 2026

August 2026

Part I Important Notes, Table of Contents and Definitions

The Board of Directors (or the “Board”), as well as the directors and senior management, of Anhui Gujing Distillery Company Limited (hereinafter referred to as the “Company”) hereby guarantees the factuality, accuracy and completeness of the contents of this Report and its summary, and shall be jointly and severally liable for any misrepresentations, misleading statements or material omissions therein.

Liang Jinhui, the legal representative, and Zhu Jiafeng, the Deputy Chief Accountant and Board Secretary, hereby guarantee that the financial statements carried in this Report are factual, accurate and complete.

All the Company’s directors have attended the Board meeting for the review of this Report and its summary.

The forward-looking statements in this Report, including those concerning future plans, do not constitute substantive commitments by the Company to investors. Investors and other relevant parties should be fully aware of the associated risks and understand the differences between plans, forecasts and commitments. Investors are advised to exercise caution with respect to investment risks.

The Company has provided a detailed description of the risk factors that may adversely affect the implementation of its future development strategies and the achievement of its business objectives, together with the proposed countermeasures, in “X Risks Facing the Company and Countermeasures” under “Part III Management Discussion and Analysis” of this Report. Investors are advised to pay close attention to the relevant information.

The Company has no dividend plan, either in the form of cash or stock, and does not increase the share capital by converting the reserve fund.

Table of Contents

Part I Important Notes, Table of Contents and Definitions 2 Part II Corporate Information and Key Financial Information 6 Part III Management Discussion and Analysis 9 Part IV Corporate Governance, and Environmental and Social Responsibility 25 Part V Significant Events 27 Part VI Share Changes and Shareholder Information 31 Part VII Bonds 36 Part VIII Financial Statements 37

Documents Available for Reference

(I) Financial statements signed and sealed by the Company’s legal representative, as well as Deputy Chief Accountant and Board Secretary;

(II) All originals of the Company’s documents and announcements that have been publicly disclosed in the Reporting Period on the media designated by the China Securities Regulatory Commission (CSRC); and

(III) The interim report disclosed in other securities markets.

Definitions

Part II Corporate Information and Key Financial Information

I Corporate Information

II Contact Information

III Other Information

1. Contact Information of the Company

Indicate by tick mark whether any change occurred to the registered address, office address and their zip codes, website address and email address of the Company in the Reporting Period

□ Applicable ^ Not applicable

No change occurred to the said information in the Reporting Period, which can be found in the 2025 Annual Report.

2. Media for Information Disclosure and Place where this Report is Kept

Indicate by tick mark whether any change occurred to the information disclosure media and the place for keeping the Company’s interim reports in the Reporting Period

□ Applicable ^ Not applicable

The newspapers designated by the Company for information disclosure, the website designated by the CSRC for disclosing the

Company’s interim reports and the place for keeping such reports did not change in the Reporting Period. The said information can be found in the 2025 Annual Report.

3. Other Information

Indicate by tick mark whether any change occurred to other information during the Reporting Period

□ Applicable ^ Not applicable

IV Key Accounting Data and Financial Indicators

Indicate by tick mark whether there is any retrospectively adjusted or restated datum in the table below

□ Applicable ^ Not applicable

V Accounting Data Differences under Domestic and Overseas Accounting Standards

1. Net Profit and Equity Differences under the International Financial Reporting Standards (IFRS) and the Chinese Accounting Standards (CAS)

□ Applicable ^ Not applicable

No such differences for the Reporting Period.

2. Net Profit and Equity Differences under Overseas Accounting Standards and the CAS

□ Applicable ^ Not applicable

No such differences for the Reporting Period.

XI Exceptional Gains and Losses

^ Applicable □ Not applicable

Unit: RMB

Particulars about other items that meet the definition of exceptional gain/loss

□ Applicable ^ Not applicable

No such cases for the Reporting Period.

Explanation of why the Company reclassifies as recurrent an exceptional gain/loss item listed in the Explanatory Announcement No

1 on Information Disclosure for Companies Offering Their Securities to the Public—Exceptional Gain/Loss Items

□ Applicable ^ Not applicable

No such cases for the Reporting Period.

Part III Management Discussion and Analysis

I Principal Activity of the Company in the Reporting Period

(I) Principal Activity of the Company

The Company primarily produces and markets baijiu. According to the Industry Categorization Guide for Listed Companies (Revised in 2012) issued by the CSRC, baijiu making belongs to the “liquor, beverage and refined tea making industry” (C15). Th Company’s principal operations remained unchanged in the Reporting Period.

(II) Status of the Industry and Position of the Company in the Industry

1.Status of the Baijiu Industry

In the first half of 2026, the baijiu industry remained in a period of deep adjustment, shifting from accelerated clearing to a bottoming-out phase. Industry divergence intensified further.

On the demand side, baijiu consumption scenarios continued to be reshaped. Demand for business banquets and gift-giving contracted significantly, while mass-market consumption scenarios such as everyday personal consumption, gatherings with friends and relatives, and family banquets accounted for a growing share. Consumer demand became concentrated in the pivota RMB100–300 price range, and companies with core flagship products in this price range demonstrated greater resilience. Driven by the peak Chinese New Year season, personal dining and banquet scenarios gradually recovered, while business scenarios remained at a low level. Overall demand still fell short of the level recorded in the same period of the previous year.

In terms of the competitive landscape, the high-end baijiu segment was the first to stabilize and rebound. Sub-high-end and regiona baijiu producers generally remained under pressure. Most companies continued to report double-digit declines in operating revenue, although the declines narrowed sequentially, demonstrating a tiered recovery characterized by earlier stabilization among those tha had adjusted earlier.

Changes in distribution channels and pricing systems became the main theme of the industry in the first half of the year. Leading baijiu producers generally strengthened shipment controls, and a consensus was reached on prioritizing price over volume. They proactively controlled shipments, supported prices, and reduced distributor inventories

Overall, the baijiu industry remained in an adjustment cycle in the first half of 2026, but there were clear signs of marginal improvement: The core base of high-end demand remained solid, distributor inventories were reduced in an orderly manner, pricing systems became more market-oriented, and industry concentration increased further. Companies with strong brands, effective control over distribution channels, and a reasonable presence across price ranges will be the first to emerge from the cycle. In the second hal of the year, the industry is expected to continue experiencing a weak recovery alongside pronounced divergence, with the pace of demand recovery and progress in inventory reduction remaining the key variables.

2.Position of the Company in the Industry

China has a long history of baijiu. There are a large number of baijiu production enterprises in the country, but the regiona distribution of baijiu consumers is particularly evident. The baijiu industry is characterized by full competition, with a high degree of marketization. The market competition is fierce, and the industry adjustments are constantly deepening. In the national market, the competitive edges of the enterprises come from their brand influence, product style and marketing & operation models. In a single regional market, the competitive strengths of the enterprises depend on their brand influence in the region, the recognition of the companies by regional consumers and comprehensive marketing capacity

As one of China’s traditional top eight liquor brands, the Company is the first listed baijiu company with both A and B stocks. It is located in Bozhou City, Anhui Province in China, the hometown of historic figures Cao and Hua Tuo, as well as one of the world’s top 10 liquor-producing areas. No changes have occurred to the main business of the Company in the Reporting Period. As the main product of the Company, the Gujing spirit originated as a “JiuYunChun Spirit”, together with its making secrets, being presented as a hometown specialty by Cao, a famous warlord in China’s history, to Emperor Han Xiandi (name: Liu Xie) in A.D. 196, and was continually presented to the royal house since then. With crystalline liquid, rich aroma, a fine flavor and a lingering aftertaste, the Gujing spirit has helped the Company win four national baijiu golden awards, a golden award at the 13th SIAL Paris, the title of China’s “Geographical Indication Product”, the recognition as a “Key Cultural Relics Site under the State Protection”, the recognition with a “National Intangible Cultural Heritage Protection Project”, a Quality Award from the Anhui provincial government, a title of “National Quality Benchmark”, among other honors

In April 2016, Gujing Distillery signed a strategic cooperation agreement with Huanghelou Liquor Co., Ltd., opening a new era of cooperation in China's famous liquor industry. Yellow Crane Tower Baijiu is the only famous Chinese liquor in Hubei. Its unique style is “soft, mellow, elegant and cool, and has a long lingering fragrance”. It won the two China gold medal in baijiu appreciation in 1984 and 1989. At present, Huanghelou liquor industry has three bases: Wuhan, Xianning and Suizhou. Among them, Huanghelou Liquor Culture Expo Park in Wuhan base has been approved as national AAA scenic spot, and Huanghelou forest wine town in Xianning base has been approved as national AAAA scenic spot.

In January 2021, Gujing Distillery and Mingguang signed a strategic cooperation agreement. The unique mung bean flavor adds to the famous liquor family of Gu Jing. The Company had five China Well-known Trademarks—“Gu Jing”, “Gujinggong”, “Origina Vintage”, “Yellow Crane Tower”, and “Laomingguang” till then.

The Company is subject to the disclosure requirements for the “food and liquor & wine production industry” in the Guideline No. 3 of the Shenzhen Stock Exchange for Self-regulation of Listed Companies—Industry-specific Information Disclosure.

Brand operation

Focusing on “brand, quality and morality”, the Company vigorously promotes product development and quality upgrade and gives full play to the leading role of the brand “Gujinggong Liquor”. It proactively participates in the project of China Central Television (“CCTV”) titled Promote Chinese Brands to Strengthen China and takes advantage of platforms provided by CCTV, provincial-level satellite TV channels, the Internet and new media to constantly tell the stories of the brand “Gujinggong Liquor”. Additionally, the Company uses “liquor as the medium” to display the beauty of Chinese culture and convey the values of “Be Honest, Offer Quality Liquor, Be Stronger and Be Helpful to the Society” to the world

The Company has been strengthening the building of access to the end market and creating new marketing forms. It has focused on the core market exploration and comprehensively launched a range of consumer fostering activities. Through the brand communication mode that combines online publicity and offline experience, the Company has offered core consumers an opportunity to watch and experience its liquor-making process and quality. It has organized a series of brand promotion activities, as a result of which the visibility of the brand “Gujinggong Liquor” has continuously increased.

Main sales model

The Company’s key sales model is dealer model. Under the dealer model, the Company will select one or more dealers for sales of a product brand (or product sub-brand) according to the market capacity.

Distribution model:

^ Applicable □ Not applicable

1. Operating performance by distribution channel and product category

Unit: RMB

2. Distributors

3. Principal methods of settlement and distribution with distributors

The Company’s principal method of settlement with its distributors is on a pay-as-you-go basis, and the method of distribution is authorized distribution.

4. Top five distributors

The Company had no accounts receivable from the top five distributors at the end of the Reporting Period.

Proportion of store sales terminal exceeds 10%

□ Applicable ^ Not applicable

Online direct sales

^ Applicable □ Not applicable

The major product varieties sold online are Original Vintage Series, and Gujinggong Liquor Series, among others. The main online sales platforms are Gujing Distillery platform, Tmall, JD.com, and Douyin.

Any over 30% YoY movements in the selling price of main products contributing over 10% of current total operating revenue

□ Applicable ^ Not applicable

Model and contents of purchase

Purchase model: The Company primarily adopts the bidding and strategic cooperation models. It also adopts the base planting mode in order to ensure the quality of some raw materials

Purchase contents

The proportion of raw materials purchased from cooperations or farmers to total purchase amount exceeds 30%

□ Applicable ^ Not applicable

Any over 30% YoY movements in prices of main purchased raw materials

□ Applicable ^ Not applicable

Main production model

The Company’s existing production model is sales-based production. Specifically, the Logistics Control Center is responsible for coordinating the implementation of production plans, release of material production plans, and delivery and tracking of products, and prepares balanced production plans on a quarterly basis according to the product inventory. The logistics distribution system is coordinated according to the production schedule and inventory with a view to ensuring timely delivery of products.

Commissioned production

□ Applicable ^ Not applicable

Breakdown of cost of sales

Output and inventory

1. Output, sales volume and inventory of main products for the Reporting Period and respective YoY changes thereof

2. Ending inventory of finished liquor and semi-product

3. Capacity of the main product Unit: ton

II Core Competitiveness Analysis

No significant changes occurred to the Company’s core competitiveness in the Reporting Period.

III Analysis of Core Businesses

Overview

Indicate whether it is the same with the contents disclosed under the heading “Principal Activity of the Company in the Reporting Period” above

^ Yes □ No

See contents under the heading “I Principal Activity of the Company in the Reporting Period”.

Year-on-year changes in key financial data

Unit: RMB

Material changes to the profit structure or sources of the Company in the Reporting Period

□ Applicable ^ Not applicable

No such changes in the Reporting Period.

Breakdown of operating revenue

Unit: RMB

Operating division, product category or operating segment contributing over 10% of operating revenue or operating profit Applicable Not applicable

Core business data of the prior year restated according to the changed statistical caliber for the Reporting Period

□ Applicable ^ Not applicable

The Company is subject to the disclosure requirements for the “food and liquor & wine production industry” in the Guideline No. of the Shenzhen Stock Exchange for Self-regulation of Listed Companies—Industry-specific Information Disclosure.

Breakdown of selling expense

Unit: RMB

Details about advertisement

IV Analysis of Non-Core Businesses

□ Applicable ^ Not applicable

V Analysis of Assets and Liabilities

1. Significant Changes in Asset Composition

Unit: RMB

2. Major Assets Overseas

□ Applicable ^ Not applicable

3. Assets and Liabilities at Fair Value

^ Applicable □ Not applicable

Unit: RMB

Significant changes to the measurement attributes of the major assets in the Reporting Period:

□ Yes ^ No

4. Restricted Asset Rights as at the Period-End

Unit: RMB

VI Investments Made

1. Total Investments Made

□ Applicable ^ Not applicable

2. Significant Equity Investments Made in the Reporting Period

□ Applicable ^ Not applicable

3. Major Non-Equity Investments Ongoing in the Reporting Period

^ Applicable ☑ Not applicable

4. Financial Investments

(1) Securities Investments

□ Applicable ^ Not applicable

(2) Investments in Derivative Financial Instruments

1) Investments in derivative financial instruments for the purpose of hedging during the Reporting Period

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

2) Investments in derivative financial instruments for the purpose of speculation during the Reporting Period

^ Applicable □ Not applicable

5. Use of Funds Raised

Applicable Not applicable

There was no use of funds raised during the Reporting Period.

VII Sale of Major Assets and Equity Interests

1. Sale of Major Assets

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

2. Sale of Major Equity Interests

□ Applicable ^ Not applicable

VIII Main Controlled and Joint Stock Companies

^ Applicable □ Not applicable

Main subsidiaries and joint stock companies with an over 10% influence on the Company’s net profits

Unit: RMB

Subsidiaries obtained or disposed in the Reporting Period

^ Applicable ☑ Not applicable

Notes to main controlled and joint stock companies

Not applicable.

IX Structured Bodies Controlled by the Company

□ Applicable ^ Not applicable

X Risks Facing the Company and Countermeasures

(I) Risks Facing the Company

1. Uncertainty in the external environment;

2. Industry competition has intensified, entering a period of deep adjustment;

3. Consumption scenarios have changed, consumer demand remains sluggish, and sales turnover has further slowed.

(II) Operating Measures

1.Brand Leadership: Anchoring the “Four Transformations” Trend, and Building a Lifestyle Brand

The Company will adhere to high-end leadership, and deepen cooperation with mainstream media. It will keep pace with changin consumer trends, innovate consumption scenarios around lower alcohol content, health, individuality, and youthfulness. On the product side, the Company will promote “Mild Gu 20” to target the younger customer segment, rely on the “Gujing Shenli Baijiu” series to establish a presence in the health track, and use the “Han, Tang, Song, Ming” Chinese trendy product line to advance internationalization. On the channel side, it will build the “Gujing Light Wellness Club” experiential scenario, strengthen instan retail, and drive the leap from “selling products” to “leading lifestyles.”

2.Deep Marketing Cultivation: Deeply Advancing the Dual Strategy of “Nationwide Expansion + Sub-high-end”

The Company will firmly implement the strategy of “national expansion, sub-high-end, Gu 20+, strong foundation”, and coordinate the baijiu and “baijiu+” businesses. With the core focus of “boosting sell-through, reducing inventory, expanding channels, stabilizing prices”, the Company will strengthen terminal execution. It will also build a three-dimensional framework of “consolidating Anhui, leading the Yangtze River Delta, and achieving breakthroughs in border areas and economic, cultural, and tourism zones”, while simultaneously advancing internationalization and e-commerce deployment, forming a dual-engine drive of “stable domestic performance and overseas growth”.

3.Building a Quality Foundation: Systematically Upgrading Product Strength and Strengthening the Food Safety Defense Line The Company will comprehensively optimize product quality, taste, and sensory experience, creating a cost-effective product matrix. It will improve the dual mechanisms of quality accountability and market information feedback, and strengthen research on quality and safety risks and support for production technology. It will also use big data to continuously optimize processes, scientifically plan production capacity, and dynamically optimize production cycles and shifts.

4.Digital-Intelligence Empowerment: Four-in-One Operations and Maintenance, with AI Transformation across All Businesses

The Company will build a four-in-one collaborative innovation service digital operations and maintenance model integrating “requirements review, agile development, platform operations and maintenance, and intelligent services”, with “proactive embrace, deep application, and comprehensive integration” as the strategic orientation for AI. It will promote the deep integration of AI with business, reconstruct distinctive AI application scenarios suited to the Company’s needs, and comprehensively empower business development through intelligent transformation

5.Governance Upgrade: Three-in-One Risk Control, with Deepening Talent Mechanism Reform

The Company will improve and fully cover the integrated compliance, internal control, and risk “three-in-one” collaborative supervision mechanism across all businesses and the entire process, and strengthen supervision, auditing, and disciplinary inspection efforts in key areas. It will deepen the reform of talent systems and mechanisms, build a scientific and standardized talent development system, create a strategic talent team of appropriate scale, rational structure, and excellent quality, and ensure the standardized, transparent, and efficient operation of the enterprise

6.Safety and Environmental Protection as a Strong Foundation: Company-wide and End-to-end Control, with Green and Low-Carbon Development

The Company will build a safety management system involving all personnel, the entire process, and all aspects, and promote the implementation of safety responsibilities at every level. It will strengthen the food safety risk control system and achieve closed-loop management throughout the entire process, strengthen industrial host security protection and cybersecurity, strictly uphold the environmental protection baseline, and promote the iterative upgrading of the development model toward green and low-carbon development.

7.Forging the Soul with Culture: Innovative Dissemination of Baijiu Culture and Telling the Brand Story

The Company will deepen the construction of the Gujing Distillery Original Vintage Culture Research Institute, cultivate younger consumer groups, and reconstruct drinking culture for the new era. It will jointly develop cultural and creative products, advance innovation in the expression of the new national trends, innovate dissemination methods such as short videos and livestreaming, and vividly tell the story of Chinese baijiu

The year 2026 is Gujing’s “Year of Forging Ahead and Navigating the Cycle”. We must put down deep roots and grow upward, consolidate our foundation through meticulous efforts, and respond to change with perseverance and determination. Strategically, we must remain steadfast; in quality, we must pursue excellence without relenting; in the market, we must press ahead vigorously to capture new ground; and in management, we must replace the old with the new and maintain our vitality. We will navigate the cycle by forging ahead, build momentum through innovation, remain focused on value, achieve breakthroughs despite adverse conditions, and secure the Company’s steady and healthy development.

On this new journey, the Company will closely unite around the CPC Central Committee with Comrade Xi Jinping at its core. Unde the leadership of the CPC Bozhou Municipal Committee and the Bozhou Municipal People’s Government, the Company will act with greater determination, more pragmatic measures, and more innovative thinking to seize opportunities amid industry transformation and achieve steady and sustained progress, generate greater returns for shareholders, and contribute Gujing’s strength to the high-quality development of the baijiu industry.

XI Formulation and Implementation of Market Cap Management Systems and Valuation Enhancement Plans

Whether the Company has formulated a market cap management system

Yes No

Whether the Company has disclosed a valuation enhancement plan

Yes No

The Company held the Tenth Meeting of the Tenth Session of the Board of Directors on April 25. 2025, at which the Proposal or Formulating a Market Cap Management System of the Company was considered and passed. In order to strengthen market cap management, further standardize its market cap management behavior, and effectively enhance its investment value and return to shareholders, the Company formulated the Market Cap Management Policy of Anhui Gujing Distillery Co., Ltd., in accordance with laws, regulations, and normative documents, such as the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Several Opinions of the State Council on Strengthening Regulation, Preventing Risks and Promoting the High-Quality Development of the Capital Market, and Guidelines No. 10 for the Regulation of Listed Companies—Market Value Management, as well as internal provisions such as the Articles of Association. See the Market Cap Management Policy disclosed on the website of Cninfo by the Company for details.

XII Implementation of the Action Plan for “Dual Enhancement of Quality and Profitability”

Indicate whether the Company has disclosed its Action Plan for “Dual Enhancement of Quality and Profitability”.

^ Yes □ No

In order to implement the guiding ideology of “to activate the capital market and boost investor confidence” proposed by the meeting of the Political Bureau of the CPC Central Committee and “to vigorously improve the quality and investment value of listed companies, and to take more effective and effective measures to stabilize the market and stabilize confidence” proposed by the National Standing Committee, combined with the Company’s development strategy, operating conditions and financial conditions, in order to safeguard the interests of all shareholders of the company, To enhance investor confidence and promote the long-term healthy and sustainable development of the company, the company has formulated a “quality return double improvement” action plan. For details, see the Announcement on Promoting the Double Improvement of Quality Return “Action Plan” disclosed by the company on March 7, 2024 (Announcement Number: 2024-001).

In line with the relevant regulations related to profit distribution policies, such as the Company Law and the Articles of Association and the Company’s actual situation and development needs, and in order to earnestly return to shareholders, the Company’s 2025 profit distribution plan is as follows: Based on the total share capital of 528,600,000 shares, the Company will distribute a cash dividend of RMB34.00 (including tax) to all shareholders for every 10 shares. The Company proposed to distribute a total cash dividend of RMB1,797,240,000.00 (including tax). In combination of the interim dividend plan for 2025, the Company’s total dividend for 2025 accounted for 65.53% of the net profit attributable to the listed Company’s shareholders in the consolidated statement of this year, representing an increase of 8.04 percentage points from 57.49% in 2024, fully sharing the Company’ development results with investors. The Company’s 2025 profit distribution plan was approved at its 2025 Annual General Meeting of Shareholders and implemented in July 2026

Part IV Corporate Governance, and Environmental and Social

Responsibility

I Change of Directors and Senior Management

^ Applicable □ Not applicable

II Profit Distribution and Increase in the Share Capital by Converting the Reserve Fund during the Reporting Period

□ Applicable ^ Not applicable

III Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measures for Employees

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

IV Disclosure of Environmental Information

Indicate whether the listed company and its main subsidiaries are included in the list of enterprises that disclose environmental information by law

^ Yes □ No

V Social Responsibility

During the Reporting Period, the Company, in strict accordance with the requirements for high-quality development of listed companies in the new era, focused on its established strategies, actively responded to the expectations of society, shareholders and other stakeholders, continuously improved its corporate governance structure, standardized its operations, attached importance to investor relations, and took the initiative to fulfil its social responsibilities in the areas of protection of the rights and interests of suppliers, customers and employees, and environmental protection and sustainable development. The Company upholds the core values of “Be Honest, Offer Quality Liquor, Be Stronger and Be Helpful to the Society”, actively builds and develops strategic partnerships with suppliers and customers. Also, the Company focuses on communication and coordination with all relevant parties, jointly builds a platform of trust and cooperation, and effectively fulfills the Company’s social responsibility to suppliers and customers.

The Company continued to strengthen its quality management system and improve its customer service response mechanisms. While strictly adhering to its environmental requirements for green production and ensuring that all discharges met the applicable standards, the Company further advanced the development of green products and the innovative application of energy-saving and carbon-reduction technologies. The Company remained committed to talent-driven development and building a dynamic workforce. It effectively protected employees’ lawful rights and interests, strengthened its talent pipeline, and supported employees in pursuing diverse development paths. It also continued to reinforce workplace safety management and the prevention and control of occupational health risks, endeavoring to create an open, inclusive, safe, healthy and harmonious working environment in which employees could progress together.

Part V Significant Events

I Commitments of the Company’s De Facto Controller, Shareholders, Related Parties and Acquirers, as well as the Company Itself and Other Entities Fulfilled in the Reporting Period or Ongoing at the Period-End

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

II Occupation of the Company’s Capital by the Controlling Shareholder or any of Its Related Parties for Non-Operating Purposes

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

III Irregularities in the Provision of Guarantees

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

IV Engagement and Disengagement of Independent Auditor

Are the interim financial statements audited

□ Yes ^ No

The interim financial statements have not been audited.

V Explanations Given by the Board of Directors Regarding the Independent Auditor’s “Modified Opinion” on the Financial Statements of the Reporting Period

□ Applicable ^ Not applicable

VI Explanations Given by the Board of Directors Regarding the Independent Auditor’s “Modified Opinion” on the Financial Statements of Last Year

□ Applicable ^ Not applicable

VII Insolvency and Reorganization

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

VIII Legal Matters

Significant lawsuits and arbitrations

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

Other legal matters

□ Applicable ^ Not applicable

IX Punishments and Rectifications

□ Applicable ^ Not applicable

X Credit Quality of the Company as well as its Controlling Shareholder and De Facto Controller

□ Applicable ^ Not applicable

XI Major Related-Party Transactions

1. Continuing Related-Party Transactions

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

2. Related-Party Transactions Regarding Purchase or Disposal of Assets or Equity Investments

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

3. Related-Party Transactions Regarding Joint Investments in Third Parties

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

4. Amounts Due to and from Related Parties

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

5. Transactions with Related Finance Companies, or Finance Companies Controlled by the Company

□ Applicable ^ Not applicable

The Company did not make deposits in, receive loans or credit from and was not involved in any other finance business with any related finance company, finance company controlled by the Company or any other related parties.

6. Transactions between Related Parties and Finance Companies Controlled by the Company

□ Applicable ^ Not applicable

No related parties made deposits in, received loans or credit from and were involved in any other finance business with any finance company controlled by the Company.

7. Other Major Related-Party Transactions

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

XII Major Contracts and Execution thereof

1. Entrustment, Contracting and Leases

(1) Entrustment

□ Applicable ^ Not applicable No such cases in the Reporting Period.

(2) Contracting

□ Applicable ^ Not applicable No such cases in the Reporting Period.

(3) Leases

□ Applicable ^ Not applicable No such cases in the Reporting Period.

2. Major Guarantees

□ Applicable ^ Not applicable No such cases in the Reporting Period.

3. Cash Entrusted for Wealth Management

□ Applicable ^ Not applicable

4. Other Significant Contracts

□ Applicable ^ Not applicable No such cases in the Reporting Period.

XIII Record of Research Visits, Communications, Interviews and Other Activities during the Reporting Period

□ Applicable ^ Not applicable

During the Reporting Period, the Company did not receive any research visits or conduct any communications, interviews or other such activities.

XIV Other Significant Events

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

XV Significant Events of Subsidiaries

□ Applicable ^ Not applicable

Part VI Share Changes and Shareholder Information

I Share Changes

1. Share Changes

Unit: share

Reasons for share changes

□ Applicable ^ Not applicable

Approval of share changes

□ Applicable ^ Not applicable

Transfer of share ownership

□ Applicable ^ Not applicable

Progress on any share repurchase

□ Applicable ^ Not applicable

Progress on reducing the repurchased shares by means of centralized bidding

□ Applicable ^ Not applicable

Effects of share changes on the basic and diluted earnings per share, equity per share attributable to the Company’s ordinary shareholders and other financial indicators of the prior year and the prior accounting period, respectively

□ Applicable ^ Not applicable

Other information that the Company considers necessary or is required by the securities regulator to be disclosed

□ Applicable ^ Not applicable

2. Changes in Restricted Shares

□ Applicable ^ Not applicable

II Issuance and Listing of Securities

□ Applicable ^ Not applicable

III Shareholders and Their Shareholdings at the Period-End

Unit: share

5% or greater shareholders, top 10 shareholders and top 10 unrestricted shareholders involved in refinancing shares lending □ Applicable Not applicable

Changes in top 10 shareholders and top 10 unrestricted shareholders due to refinancing shares lending/return compared with the prio period

Applicable Not applicable

Indicate by tick mark whether any of the top 10 ordinary shareholders or the top 10 unrestricted ordinary shareholders of the Company conducted any promissory repo during the Reporting Period

□ Yes ^ No

No such cases in the Reporting Period.

IV Change in Shareholdings of Directors and Senior Management

□ Applicable ^ Not applicable

No changes occurred to the shareholdings of the directors and senior management in the Reporting Period. See the 2025 Annua Report for more details.

V Change of the Controlling Shareholder or the De Facto Controller

Where the Company has previously disclosed that its de facto controller was planning a change in control that has not yet been completed, please provide an update on its progress

□ Applicable ^ Not applicable

Change of the controlling shareholder in the Reporting Period.

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

Change of the de facto controller in the Reporting Period

□ Applicable ^ Not applicable

No such cases in the Reporting Period.

VI Information on Preference Shares

□ Applicable ^ Not applicable

No preference shares in the Reporting Period.

Part VII Bonds

□ Applicable ^ Not applicable

Part VIII Financial Statements

I Independent Auditor’s Report

Are these interim financial statements audited by an independent auditor

□ Yes ^ No

These interim financial statements have not been audited by an independent auditor.

II Financial Statements

Currency unit for the financial statements and the notes thereto: RMB

1. Consolidated Balance Sheet

Prepared by Anhui Gujing Distillery Company Limited

June 30, 2026 Unit: RMB

Legal representative: Liang Jinhui The Company’s chief accountant: Zhu Jiafeng Head of the Company’s financial department: Zhu Jiafeng

2. Balance Sheet of the Company as the Parent

Unit: RMB

3. Consolidated Income Statement

Unit: RMB

Legal representative: Liang Jinhui The Company’s chief accountant: Zhu Jiafeng Head of the Company’s financial department: Zhu Jiafeng

4. Income Statement of the Company as the Parent

Unit: RMB

5. Consolidated Cash Flow Statement

Unit: RMB

6. Cash Flow Statement of the Company as the Parent

Unit: RMB

7. Consolidated Statements of Changes in Owners’ Equity

Amount in H1 2026

Unit: RMB

Amount in H1 2025

Unit: RMB

8. Statements of Changes in Owners’ Equity of the Company as the Parent

Amount in H1 2026

Amount in H1 2025

Unit: RMB

Anhui Gujing Distillery Company Limited Notes to Financial Statements for H1 2026 (Currency Unit is RMB Unless Otherwise Stated)

I Basic Information about the Company

The Anhui State-owned Asset Management Bureau approved through WanGuoZiGongZi (1996) No. 053 the incorporation of Anhui Gujing Distillery Company Limited (the Company and GJ Distillery) by Anhui Gujing Group Company Limited (GJ Group), as the sole founder, by the operating assets of Anhui Bozhou Gujing Distillery Factory (GJ Distillery Factory), which is the core operating unit of GJ Group. The incorporation was further approved by the Anhui People’s Government through WanZhengMi (1996) 42 on March 5, 1996. The incorporation General Meeting was held on May 28, 1996 and the incorporation was registered with the Anhui Administration Bureau for Commerce and Industry on May 30, 1996 with the registered address at Bozhou, Anhui, the People’s Republic of China (the PRC). At incorporation, the Company’s total number of shares stood at 155 million with a valuation of RMB377.17 million, which was the fair value of the operating assets of GJ Distillery Factory upon appraisal.

The Company initiated public offering of 60 million domestic listed shares held by foreign investors (known as “B share(s)”) in June 1996 and 20 million domestic listed RMB ordinary shares (known as “A share(s)”) in September 1996. The par value of both the B share and A share is RMB1.00 per share. The B shares and A shares issued were listed on the Shenzhen Stock Exchange.

As of the public listing, the Company has 235 million shares in total with the share capital at RMB235 million. The Company’s at public listing comprised 155 million state-owned shares, 60 million B shares and 20 million A shares. Each of the Company’s shares has a par value at RMB1.00 per share.

In accordance with the resolution of the General Meeting held on May 29, 2006, the Company exercised the share reorganization plan in June 2006. Immediately after the implementation of the share reorganization plan, the Company had in total 235 million shares, comprising 147 million shares with restriction of disposal (equal to 62.55% of total shares) and 88 million free-floating shares (equal to 37.45% of total shares).

Upon the Company’s publication of the Notice of Lifting Restriction of Shares on June 27, 2007, the restriction on disposal on 11.75 million shares was lifted on June 29, 2007. Immediately after the lifting, the Company had in total 235 million shares, comprising 135.25 million shares with restriction of disposal (equal to 57.55% of total shares) and 99.75 million free-floating shares (equal

to 42.45% of total shares).

Upon the Company’s publication of the Notice of Lifting Restriction of Shares on July 17, 2008, the restriction on disposal on 11.75 million shares was lifted on July 18, 2008. Immediately after the lifting, the Company had in total 235 million shares, comprising 123.5 million shares with restriction of disposal (equal to 52.55% of total shares) and 111.5 million free-floating shares (equal to 47.45% of total shares).

Upon the Company’s publication of the Notice of Lifting Restriction of Shares on July 24, 2009, the restriction on disposal on 123.5 million shares was lifted on July 29, 2009. Immediately after the lifting, the Company had in total 235 million shares, comprising 235 million free-floating shares (equal to 100% of total shares).

Upon approval by the China Securities Regulatory Commission (CSRC) through ZhengJianXuKe [2011] 943, the Company issued on July 15, 2011 through private offering of 16.8 million A shares with the par value at RMB1.00 to designated investors. The shares were issued at RMB75.00 per share. Gross proceeds from this issuance was RMB1,260 million and the respective net proceeds after deduction of the cost of issuance (RMB32.5 million) was RMB1,227.5 million. The subscription for the issuance was verified by Reanda CPAs Co., Ltd. through Reanda YanZi [2011] No. 1065. Immediately after this private offering, the share capital of the Company increased to RMB251.8 million.

In accordance with the resolution of the Company’s 2011 General Meeting, a bonus issue of 10 shares for every 10 shares held at December 31, 2011 through utilization of capital reserves was exercised in 2012. 251.8 bonus shares were issued in total. Immediately after the exercise of the bonus issue, the Company’s share capital increased to RMB503.6 million.

Upon approval by the CSRC through ZhengJianXuKe [2021] 1422, the Company issued on July 22, 2021 through private offering of 25 million A shares with the par value at RMB1.00 to designated investors. The shares were issued at RMB200.00 per share. Gross proceeds from this issuance was RMB5,000 million and the respective net proceeds after deduction of the cost of issuance (RMB45.66 million) was RMB4,954.34 million. The subscription for the issuance was verified by RSM China CPAs LLP through RSM Yan [2021] No. 518Z0050. Immediately after this private offering, the share capital of the Company increased to RMB528.6 million.

As of June 30, 2026, total number of the Company’s shares stood at 528.6 million. See Note 5.32 for further details.

The Company’s headquarters is located in Gujing town, Bozhou City, Anhui Province. Legal representative of the company is Liang Jinhui.

The Company is mainly engaged in the production and sales of baijiu, which belongs to the food

manufacturing industry.

These financial statements are approved on August 28, 2026 by the Company’s Board of Directors for publication.

II Basis of Preparation of the Financial Statements

1. Basis of Preparation

Based on going concern, according to actually occurred transactions and events, the Company prepares its financial statements in accordance with the Accounting Standards for Business Enterprises – Basic standards and concrete accounting standards, Accounting Standards for Business Enterprises – Application Guidelines, Accounting Standards for Business Enterprises – Interpretations and other relevant provisions (collectively known as “Accounting Standards for Business Enterprises, issued by Ministry of Finance of PRC”). In addition, the Company discloses the relevant financial information in accordance with Rules No.15 for the Information Disclosure and Reporting of Companies Offering Securities to the Public - General Requirements for Financial Reporting (2023 Revision) issued by CSRC.

2. Going Concern

The Company has assessed its ability to continually operate for the next 12 months from the end of the Reporting Period, and no any matters that may result in doubt on its ability as a going concern were noted. Therefore, it is reasonable for the Company to prepare financial statements on the going concern basis.

III Significant Accounting Policies and Accounting Estimates

The Company is subject to the disclosure requirements for the “food and liquor & wine production industry” in the Guideline No. 3 of the Shenzhen Stock Exchange for Self-regulation of Listed Companies—Industry-specific Information Disclosure.

Notes to specific accounting policies and accounting estimates: The disclosures below cover the specific accounting policies and accounting estimates formulated by the Company based on the characteristics of its actual production and operations.

1. Statement of Compliance with the Accounting Standards for Business Enterprises

The Company prepares its financial statements in accordance with the requirements of the Accounting Standards for Business Enterprises, truly and completely reflecting the Company’s financial position, operating results, changes in shareholders’ equity, cash flows and other related information.

2. Accounting Period

The accounting year of the Company is from January 1 to December 31 in calendar year.

3. Operating Cycle

The normal operating cycle of the Company is one year.

4. Functional Currency

The Company takes Renminbi Yuan (“RMB”) as the functional currency. The Company’s overseas subsidiaries choose the currency of the primary economic environment in which the subsidiaries operate as the functional currency.

5. Determining Factor and Basis of Selection of Materiality

6. Accounting Treatment of Business Combinations under and not under Common Control

(1) Business combinations under common control

The assets and liabilities that the Company obtains in a business combination under common control shall be measured at their carrying amount of the acquired entity at the combination date. If the accounting policies or accounting periods adopted by the acquired entity before the business combination differ from those adopted by the acquiring entity, they are aligned on the basis of materiality. Specifically, the carrying amounts of the acquired entity’s assets and liabilities are adjusted in accordance with the acquiring entity’s accounting policies and accounting periods. As for the difference between the carrying amount of the net assets obtained by the acquiring entity and the carrying amount of the consideration paid by it, the capital reserve (capital premium or share premium) shall be adjusted. If the capital reserve (capital premium or share premium) is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings.

For the accounting treatment of business combination under common control by step acquisitions, please refer to Note 3.7 (6).

(2) Business combinations not under common control

The assets and liabilities that the Company obtains in a business combination not under common control shall be measured at their fair value at the acquisition date. If the accounting policies or accounting periods adopted by the acquired entity before the business combination differ from those adopted by the acquiring entity, they are aligned on the basis of materiality. Specifically, the carrying amounts of the acquired entity’s assets and liabilities are adjusted in accordance with the acquiring entity’s accounting policies and accounting periods. The acquiring entity shall recognize the positive balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquired entity as goodwill. The acquiring entity shall, pursuant to the following provisions, treat the negative balance between the combination costs and the fair value of the identifiable net assets it obtains from the acquired entity:

(i) It shall review the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities it obtains from the acquired entity as well as the combination costs;

(ii) If, after the review, the combination costs are still less than the fair value of the identifiable net assets it obtains from the acquired entity, the balance shall be recognized in profit or loss of the Reporting Period.

For the accounting treatment of business combination under the same control by step acquisitions, please refer to Note 3.7 (6).

(3) Treatment of business combination related costs

The intermediary costs such as audit, legal services and valuation consulting and other related management costs that are directly attributable to the business combination shall be charged in profit or loss in the period in which they are incurred. The costs to issue equity or debt securities for the consideration of business combination shall be recorded as a part of the value of the respect equity or debt securities upon initial recognition.

7. Judgment of Control and Method of Preparing the Consolidated Financial Statements

(1) Judgment of control and consolidation decision

Control exists when the Company has power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the returns. The definition of control contains there elements: - power over the investee; exposure, or rights to variable returns from the Company’s involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. The

Company controls an investee if and only if the Company has all the above three elements.

The scope of consolidated financial statements shall be determined on the basis of control. It not only includes subsidiaries determined based on voting rights (or similar) or together with other arrangement, but also structured entities under one or more contractual arrangements.

Subsidiaries are the entities that controlled by the Company (including enterprise, a divisible part of the investee, and structured entity controlled by the enterprise). A structured entity (sometimes called a Special Purpose Entity) is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity.

(2) Special requirement as the parent company is an investment entity

If the parent company is an investment entity, it should measure its investments in particular subsidiaries as financial assets at fair value through profit or loss instead of consolidating those subsidiaries in its consolidated and separate financial statements. However, as an exception to this requirement, if a subsidiary provides investment-related services or activities to the investment entity, it should be consolidated.

The parent company is defined as investment entity when meets following conditions:

(i) Obtains funds from one or more investors for the purpose of providing those investors with investment management services;

(ii) Commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

(iii) Measures and evaluates the performance of substantially all of its investments on a fair value basis.

If the parent company becomes an investment entity, it shall cease to consolidate its subsidiaries at the date of the change in status, except for any subsidiary which provides investment-related services or activities to the investment entity shall be continued to be consolidated. The deconsolidation of subsidiaries is accounted for as though the investment entity partially disposed subsidiaries without loss of control.

When the parent company previously classified as an investment entity ceases to be an investment entity, subsidiary that was previously measured at fair value through profit or loss shall be included in the scope of consolidated financial statements at the date of the change in status. The fair value of the subsidiary at the date of change represents the transferred deemed consideration in accordance with the accounting for business combination not under common control.

(3) Method of preparing the consolidated financial statements

The consolidated financial statements shall be prepared by the Company based on the financial statements of the Company and its subsidiaries, and using other related information.

When preparing consolidated financial statements, the Company shall consider the entire group as an accounting entity, adopt uniform accounting policies and apply the requirements of Accounting Standard for Business Enterprises related to recognition, measurement and presentation. The consolidated financial statements shall reflect the overall financial position, operating results and cash flows of the group.

(i) Like items of assets, liabilities, equity, income, expenses and cash flows of the parent are combined with those of the subsidiaries.

(ii) The carrying amount of the parent’s investment in each subsidiary is eliminated (off-set) against the parent’s portion of equity of each subsidiary.

(iii) Eliminate the impact of intragroup transactions between the Company and the subsidiaries or between subsidiaries, and when intragroup transactions indicate an impairment of related assets, the losses shall be recognized in full.

(iv) Make adjustments to special transactions from the perspective of the group.

(4) Method of preparation of the consolidated financial statements when subsidiaries are acquired or disposed in the Reporting Period

(i) Acquisition of subsidiaries or business

A. Subsidiaries or business acquired through business combination under common control

(a) When preparing consolidated statements of financial position, the opening balance of the consolidated balance sheet shall be adjusted. Related items of comparative financial statements shall be adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control.

(b) Incomes, expenses and profits of the subsidiary incurred from the beginning of the Reporting Period to the end of the Reporting Period shall be included into the consolidated statement of profit or loss. Related items of comparative financial statements shall be adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control.

(c) Cash flows from the beginning of the Reporting Period to the end of the Reporting Period shall be included into the consolidated statement of cash flows. Related items of comparative financial statements shall be adjusted as well, deeming that the combined entity has always existed ever since the ultimate controlling party began to control.

B. Subsidiaries or business acquired through business combination not under common control

(a) When preparing the consolidated statements of financial position, the opening balance of the consolidated statements of financial position shall not be adjusted.

(b) Incomes, expenses and profits of the subsidiary incurred from the acquisition date to the end of the Reporting Period shall be included into the consolidated statement of profit or loss.

(c) Cash flows from the acquisition date to the end of the Reporting Period shall be included into the consolidated statement of cash flows.

(ii) Disposal of subsidiaries or business

A. When preparing the consolidated statements of financial position, the opening balance of the consolidated statements of financial position shall not be adjusted.

B. Incomes, expenses and profits incurred from the beginning of the subsidiary to the disposal date shall be included into the consolidated statement of profit or loss.

C. Cash flows from the beginning of the subsidiary to the disposal date shall be included into the consolidated statement of cash flows.

(5) Special consideration in consolidation elimination

(i) Long-term equity investment held by the subsidiaries to the Company shall be recognized as treasury stock of the Company, which is offset with the owner’s equity, represented as “treasury stock” under “owner’s equity” in the consolidated statement of financial position.

Long-term equity investment held by subsidiaries between each other is accounted for taking long-term equity investment held by the Company to its subsidiaries as reference. That is, the long-term equity investment is eliminated (off-set) against the portion of the corresponding subsidiary’s equity.

(ii) Due to not belonging to paid-in capital (or share capital) and capital reserve, and being different from retained earnings and undistributed profit, “Specific reserves” and “General risk provision” shall be recovered based on the proportion attributable to owners of the parent company after long-term equity investment to the subsidiaries is eliminated with the subsidiaries’ equity.

(iii) If temporary timing difference between the book value of the assets and liabilities in the consolidated statement of financial position and their tax basis is generated as a result of elimination of unrealized inter-company transaction profit or loss, deferred tax assets of deferred tax liabilities shall be recognized, and income tax expense in the consolidated statement of profit or loss shall be adjusted simultaneously, excluding deferred taxes related to transactions or events directly recognized in owner’s equity or business combination.

(iv) Unrealized inter-company transactions profit or loss generated from the Company selling assets to its subsidiaries shall be eliminated against “net profit attributed to the owners of the parent company” in full. Unrealized inter-company transactions profit or loss generated from the subsidiaries selling assets to the Company shall be eliminated between “net profit attributed to the owners of the parent company” and “non-controlling interests” pursuant to the proportion of the Company in the related subsidiaries. Unrealized inter-company transactions profit or loss generated from the assets sales between the subsidiaries shall be eliminated between “net profit attributed to the owners of the parent company” and “non-controlling interests” pursuant to the proportion of the

Company in the selling subsidiaries.

(v) If loss attributed to the minority shareholders of a subsidiary in current period is more than the proportion of non-controlling interest in this subsidiary at the beginning of the period, non-controlling interest is still to be written down.

(6) Accounting for special transactions

(i) Purchasing of non-controlling interests

Where, the Company purchases non-controlling interests of its subsidiary, in the separate financial statements of the Company, the cost of the long-term equity investment obtained in purchasing non-controlling interests is measured at the fair value of the consideration paid. In the consolidated financial statements, difference between the cost of the long-term equity investment newly obtained in purchasing non-controlling interests and share of the subsidiary’s net assets from the acquisition date or combination date continuingly calculated pursuant to the newly acquired shareholding proportion shall be adjusted into capital reserve (capital premium or share premium). If capital reserve is not enough to be offset, surplus reserve and undistributed profit shall be offset in turn.

(ii) Gaining control over the subsidiary in stages through multiple transactions

A. Business combination under common control in stages through multiple transactions

On the combination date, in the separate financial statement, initial cost of the long-term equity investment is determined according to the share of carrying amount of the acquiree’s net assets in the ultimate controlling entity’s consolidated financial statements after combination. The difference between the initial cost of the long-term equity investment and the carrying amount of the long -term investment held prior of control plus book value of additional consideration paid at acquisition date is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess shall be adjusted against surplus reserve and undistributed profit in turn.

In the consolidated financial statements, the assets and liabilities acquired during the combination should be recognized at their carrying amount in the ultimate controlling entity’s consolidated financial statements on the combination date unless any adjustment is resulted from the differences in accounting policies and accounting periods. The difference between the carrying amount of the investment held prior of control plus book value of additional consideration paid on the acquisition date and the net assets acquired through the combination is adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess shall be adjusted against retained earnings.

If the acquiring entity holds equity investment in the acquired entity prior to the combination date, related profit or loss, other comprehensive income and other changes in equity which have been recognized during the period from the later of the date of the Company obtaining original equity interest and the date of both the acquirer and the acquiree under common control of the same ultimate controlling party to the combination date should be offset against the opening balance of retained earnings or current profit and loss at the comparative financial statements period respectively.

B. Business combination not under common control in stages through multiple transactions

On the consolidation date, in the separate financial statements, the initial cost of long-term equity investment is determined according to the carrying amount of the original long-term investment plus the cost of new investment.

In the consolidated financial statements, the equity interest of the acquired entity held prior to the acquisition date shall be re-measured at its fair value on the acquisition date. For the financial assets designated to be measured at fair value through other comprehensive income, among the acquiree’s equity held prior to the acquisition date, the difference between the fair value and the book value shall be recognized as retained earnings. The cumulative changes in fair value of the equity, which is recognized as other comprehensive income, shall be transferred out to retained earnings. For the financial assets measured at fair value through current profit and loss among the acquiree’s equity held prior to the acquisition date, or long-term equity investment under the equity method, the difference between the fair value of the equity interest and its book value is recognized as investment income of the current period. In case of changes in the acquiree’s equity held prior to the acquisition date that involves other comprehensive income under the equity method and other owner’s equity under the equity method excluding net profit and loss, other comprehensive income, and profit distribution, the relevant other comprehensive income shall go through accounting treatment on the acquisition date on the same basis as the relevant assets or liabilities directly treated by investors; changes in the relevant other owner’s equity shall be converted into the investment income of the current period on the acquisition date.

(iii) Disposal of investment in subsidiaries without a loss of control

For partial disposal of the long-term equity investment in the subsidiaries without a loss of control, when the Company prepares consolidated financial statements, difference between consideration received from the disposal and the corresponding share of subsidiary’s net assets cumulatively calculated from the acquisition date or combination date shall be adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess shall be offset against retained earnings.

(iv) Disposal of investment in subsidiaries with a loss of control

A. Disposal through one transaction

If the Company loses control in an investee through partial disposal of the equity investment, when the consolidated financial statements are prepared, the retained equity interest should be re-measured at fair value at the date of loss of control. The difference between i) the fair value of consideration received from the disposal plus non-controlling interest retained; ii) share of the former subsidiary’s net assets cumulatively calculated from the acquisition date plus goodwill or combination date according to the original proportion of equity interest, shall be recognized in current investment income when control is lost.

Moreover, other comprehensive income related to the equity investment in the former subsidiary shall go through accounting treatment on the same basis as the direct treatment of relevant assets or liabilities in the former subsidiary, when control is lost. Other changes in owner’s equity under the equity method related to the former subsidiary shall be transferred into current profit and loss, when control is lost.

B. Disposal in stages

In the consolidated financial statements, whether the transactions should be accounted for as “a single transaction” needs to be decided firstly.

If the disposal in stages should not be classified as “a single transaction”, in the separate financial statements, for transactions prior of the date of loss of control, carrying amount of each disposal of long-term equity investment need to be recognized, and the difference between consideration received and the carrying amount of long-term equity investment corresponding to the equity interest disposed should be recognized in current investment income; in the consolidated financial statements, the disposal transaction should be accounted for according to related policy in “Disposal of long-term equity investment in subsidiaries without a loss of control”.

If the disposal in stages should be classified as “a single transaction”, these transactions should be accounted for as a single transaction of disposal of subsidiary resulting in loss of control. In the separate financial statements, for each transaction prior of the date of loss of control, difference between consideration received and the carrying amount of long-term equity investment corresponding to the equity interest disposed should be recognized as other comprehensive income firstly, and transferred to profit or loss as a whole when control is lost; in the consolidated financial statements, for each transaction prior of the date of loss of control, difference between consideration received and proportion of the subsidiary’s net assets corresponding to the equity interest disposed should be recognized in profit or loss as a whole when control is lost.

In considering of the terms and conditions of the transactions as well as their economic impact, the presence of one or more of the following indicators may lead to account for multiple transactions as a single transaction:

(a) The transactions are entered into simultaneously or in contemplation of one another.

(b) The transactions form a single transaction designed to achieve an overall commercial effect.

(c) The occurrence of one transaction depends on the occurrence of at least one other transaction.

(d) One transaction, when considered on its own merits, does not make economic sense, but when considered together with the other transaction or transactions would be considered economically justifiable.

(v) Diluting equity share of parent company in its subsidiaries due to additional capital injection by the subsidiaries’ minority shareholders.

Other shareholders (minority shareholders) of the subsidiaries inject additional capital in the subsidiaries, which resulted in the dilution of equity interest of parent company in these subsidiaries. In the consolidated financial statements, difference between share of the corresponding subsidiaries net assets calculated based on the parent’s equity interest before and after the capital injection shall be adjusted into capital reserve (capital premium or share premium). If the capital reserve is not enough to absorb the difference, any excess shall be adjusted against retained earnings.

8. Classification of Joint Arrangements and Accounting for Joint Operation

A joint arrangement is an arrangement of which two or more parties have joint control. Joint arrangement of the Company is classified as either a joint operation or a joint venture.

(1) Joint operation

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

The Company shall recognize the following items in relation to shared interest in a joint operation, and account for them in accordance with relevant accounting standards of the Accounting Standards for Business Enterprises:

(i) its assets, including its share of any assets held jointly;

(ii) its liabilities, including its share of any liabilities incurred jointly;

(iii) its revenue from the sale of its share of the output arising from the joint operation;

(iv) its share of the revenue from the sale of the output by the joint operation; and

(v) its expenses, including its share of any expenses incurred jointly.

(2) Joint venture

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

The Company accounts for its investment in the joint venture by applying the equity method of long-term equity investment.

9. Cash and Cash Equivalents

Cash comprises cash on hand and deposits that can be readily withdrawn on demand. Cash equivalents include short-term (generally within three months of maturity at acquisition), highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

10. Financial Instruments

Financial instrument is any contract which gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

(1) Recognition and derecognition of financial instrument

A financial asset or a financial liability should be recognized in the statement of financial position when, and only when, an entity becomes party to the contractual provisions of the instrument.

A financial asset can only be derecognized when meets one of the following conditions:

(i) The rights to the contractual cash flows from a financial asset expire

(ii) The financial asset has been transferred and meets one of the following derecognition conditions:

Financial liabilities (or part thereof) are derecognized only when the liability is extinguished—i.e., when the obligation specified in the contract is discharged or canceled or expires. An exchange of the Company (borrower) and lender of debt instruments that carry significantly different terms or a substantial modification of the terms of an existing liability are both accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

Purchase or sale of financial assets in a regular-way shall be recognized and derecognized using trade date accounting. A regular-way purchase or sale of financial assets is a transaction under a contract whose terms require delivery of the asset within the time frame established generally by regulations or convention in the market place concerned. Trade date is the date at which the entity commits itself to purchase or sell an asset.

(2) Classification and measurement of financial assets

At initial recognition, the Company classified its financial asset based on both the business model for managing the financial asset and the contractual cash flow characteristics of the financial asset: financial asset at amortized cost, financial asset at fair value through profit or loss (FVTPL) and financial asset at fair value through other comprehensive income (FVTOCI). Reclassification of financial assets is permitted if, and only if, the objective of the entity’s business model for managing those financial assets changes. In this circumstance, all affected financial assets shall be reclassified on the first day of the first reporting period after the changes in business model;

otherwise the financial assets cannot be reclassified after initial recognition.

Financial assets shall be measured at initial recognition at fair value. For financial assets measured at FVTPL, transaction costs are recognized in current profit or loss. For financial assets not measured at FVTPL, transaction costs should be included in the initial measurement. Notes receivable or accounts receivable that arise from sales of goods or rendering of services are initially measured at the transaction price defined in the accounting standard of revenue where the transaction does not include a significant financing component.

Subsequent measurement of financial assets will be based on their categories:

(i) Financial asset at amortized cost

The financial asset at amortized cost category of classification applies when both the following conditions are met: the financial asset is held within the business model whose objective is to hold financial assets in order to collect contractual cash flows, and the contractual term of the financial asset gives rise on specified dates to cash flows that are solely payment of principal and interest on the principal amount outstanding. These financial assets are subsequently measured at amortized cost by adopting the effective interest rate method. Any gain or loss arising from derecognition according to the amortization under effective interest rate method or impairment are recognized in current profit or loss.

(ii) Financial asset at fair value through other comprehensive income (FVTOCI)

The financial asset at FVTOCI category of classification applies when both the following conditions are met: the financial asset is held within the business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual term of the financial asset gives rise on specified dates to cash flows that are solely payment of principle and interest on the principal amount outstanding. All changes in fair value are recognized in other comprehensive income except for gain or loss arising from impairment or exchange differences, which should be recognized in current profit or loss. At derecognition, cumulative gain or loss previously recognized under OCI is reclassified to current profit or loss. However, interest income calculated based on the effective interest rate is included in current profit or loss.

The Company make an irrevocable decision to designate part of non-trading equity instrument investments as measured through FVTOCI. All changes in fair value are recognized in other comprehensive income except for dividend income recognized in current profit or loss. At derecognition, cumulative gain or loss are reclassified to retained earnings.

(iii) Financial asset at fair value through profit or loss (FVTPL)

Financial asset except for above mentioned financial asset at amortized cost or financial asset at fair value through other comprehensive income (FVTOCI), should be classified as financial asset at fair value through profit or loss (FVTPL). These financial assets should be subsequently measured at fair value. All the changes in fair value are included in current profit or loss.

(3) Classification and measurement of financial liabilities

The Company classified the financial liabilities as financial liabilities at fair value through profit or loss (FVTPL), loan commitments at a below-market interest rate and financial guarantee contracts and financial asset at amortized cost.

Subsequent measurement of financial assets will be based on the classification:

(i) Financial liabilities at fair value through profit or loss (FVTPL)

Held-for-trading financial liabilities (including derivatives that are financial liabilities) and financial liabilities designated at FVTPL are classified as financial liabilities at FVTP. After initial recognition, any gain or loss (including interest expense) are recognized in current profit or loss except for those hedge accounting is applied. For financial liability that is designated as at FVTPL, changes in the fair value of the financial liability that is attributable to changes in the own credit risk of the issuer shall be presented in other comprehensive income. At derecognition, cumulative gain or loss previously recognized under OCI is reclassified to retained earnings.

(ii) Loan commitments and financial guarantee contracts

Loan commitment is a commitment by the Company to provide a loan to customer under specified contract terms. The provision of impairment losses of loan commitments shall be recognized based on expected credit losses model.

Financial guarantee contract is a contract that requires the Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contracts liability shall be subsequently measured at the higher of: The amount of the loss allowance recognized according to the impairment principles of financial instruments; and the amount initially recognized less the cumulative amount of income recognized in accordance with the revenue principles.

(iii) Financial liabilities at amortized cost

After initial recognition, the Company measured other financial liabilities at amortized cost using the effective interest method.

Except for special situation, financial liabilities and equity instrument should be classified in accordance with the following principles:

(i) If the Company has no unconditional right to avoid delivering cash or another financial instrument to fulfill a contractual obligation, this contractual obligation meet the definition of financial liabilities. Some financial instruments do not comprise terms and conditions related to obligations of delivering cash or another financial instrument explicitly, they may include contractual obligation indirectly through other terms and conditions.

(ii) If a financial instrument must or may be settled in the Company’s own equity instruments, it should be considered that the Company’s own equity instruments are alternatives of cash or another financial instrument, or to entitle the holder of the equity instruments to sharing the remaining rights over the net assets of the issuer. If the former is the case, the instrument is a liability of the issuer; otherwise, it is an equity instrument of the issuer. Under some circumstances, it is regulated in the contract that the financial instrument must or may be settled in the Company’s own equity instruments, where, amount of contractual rights and obligations are calculated by multiplying the number of the equity instruments to be available or delivered by its fair value upon settlement. Such contracts shall be classified as financial liabilities, regardless that the amount of contractual rights and liabilities is fixed, or fluctuate totally or partially with variables other than market price of the entity’s own equity instruments (such as interest rate, price of some kind of goods or some kind of financial instrument).

(4) Derivatives and embedded derivatives

At initial recognition, derivatives shall be measured at fair value at the date of derivative contracts are signed and subsequently measured at fair value. The derivative with a positive fair value shall be recognized as an asset, and with a negative fair value shall be recognized as a liability.

Gains or losses arising from the changes in fair value of derivatives shall be recognized directly into current profit or loss except for the effective portion of cash flow hedges which shall be recognized in other comprehensive income and reclassified into current profit or loss when the hedged items affect profit or loss.

An embedded derivative is a component of a hybrid contract with a financial asset as a host, the Company shall apply the requirements of financial asset classification to the entire hybrid contract. If a host that is not a financial asset and the hybrid contract is not measured at fair value with changes in fair value recognized in profit or loss, and the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, the embedded derivative shall be separated from the hybrid instrument and accounted for as a separate derivative instrument. If the Company is unable to measure the fair value of the embedded derivative at the acquisition date or subsequently at the balance sheet date, the entire hybrid contract is designated as financial assets or financial liabilities at fair value through profit or loss.

(5) Impairment of financial instrument

The Company shall recognize a loss allowance based on expected credit losses on a financial asset that is measured at amortized cost, a debt investment at fair value through other comprehensive income, a contract asset, a lease receivable, a loan commitment and a financial guarantee contract.

(i) Measurement of expected credit losses

Expected credit losses are the weighted average of credit losses of the financial instruments with the respective risks of a default occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the Company expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate or credit- adjusted effective interest rate for purchased or originated credit-impaired financial assets.

Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument.

12-month expected credit losses are the portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date (or the expected lifetime, if the expected life of a financial instrument is less than 12 months).

At each reporting date, the Company classifies financial instruments into three stages and makes provisions for expected credit losses accordingly. A financial instrument of which the credit risk has not significantly increased since initial recognition is at stage 1. The Company shall measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses. A financial instrument with a significant increase in credit risk since initial recognition but is not considered to be credit-impaired is at stage 2. The Company shall measure the loss allowance for that financial instrument at an amount equal to the lifetime expected credit losses. A financial instrument is considered to be credit-impaired as at the end of the Reporting Period is at stage 3. The Company shall measure the loss allowance for that financial instrument at an amount equal to the lifetime expected credit losses.

The Company may assume that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date and measure the loss allowance for that financial instrument at an amount equal to 12-month expected credit losses.

For financial instrument at stage 1, stage 2 and those have low credit risk, the interest revenue shall be calculated by applying the effective interest rate to the gross carrying amount of a financial asset (i.e. impairment loss not been deducted). For financial instrument at stage 3, interest revenue shall be calculated by applying the effective interest rate to the amortized cost after deducting of impairment loss.

For notes receivable, accounts receivable and accounts receivable financing, no matter it contains a significant financing component or not, the Company shall measure the loss allowance at an amount equal to the lifetime expected credit losses.

A. Receivables/Contract assets

For the notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables which are demonstrated to be impaired by any objective evidence, or applicable for individual assessment, the Company shall individually assess for impairment and recognize the loss allowance for expected credit losses. If the Company determines that no objective evidence of impairment exists for notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables, or the expected credit loss of a single financial asset cannot be assessed at reasonable cost, such notes receivable, accounts receivable, other receivables, accounts receivable financing and long-term receivables shall be divided into several groups with similar credit risk characteristics and collectively calculated the expected credit loss. The determination basis of groups is as following:

Determination basis of notes receivable is as following:

Group 1: Commercial acceptance bills

Group 2: Bank acceptance bills

For each group, the Company calculates expected credit losses through default exposure and the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

Determination basis of accounts receivable is as following:

Group 1: Related parties within the scope of consolidation

Group 2: Receivables due from third parties

For each group, the Company calculates expected credit losses through preparing an aging analysis schedule with the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

Determination basis of other receivables is as following:

Group 1: Related parties within the scope of consolidation

Group 2: Receivables due from third parties

For each group, the Company calculates expected credit losses through default exposure and the 12-months or lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

Determination basis of accounts receivable financing is as following:

Group 1: Commercial acceptance bills

Group 2: Bank acceptance bills

For each group, the Company calculates expected credit losses through default exposure and the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

Determination basis of contract assets is as following:

Group 1: Project construction

Group 2: Undue warranty

For each group, the Company calculates expected credit losses through default exposure and the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

Determination basis of long-term receivables financing is as following:

Group 1: Project receivables, lease receivables

Group 2: Others

For group 1, the Company calculates expected credit losses through default exposure and the lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

For group 2, the Company calculates expected credit losses through default exposure and the 12-months or lifetime expected credit losses rate, taking reference to historical experience for credit losses and considering current condition and expectation for the future economic situation.

The Company’s aging calculation method of credit risk characteristic combination based on aging is as follows:

B. Debt investment and other debt investment

For debt investment and other debt investment, the Company shall calculate the expected credit loss through the default exposure and the 12-month or lifetime expected credit loss rate based on the nature of the investment, counterparty and the type of risk exposure.

(ii) Low credit risk

If the financial instrument has a low risk of default, the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfill its contractual cash flow obligations.

(iii) Significant increase in credit risk

The Company shall assess whether the credit risk on a financial instrument has increased significantly since initial recognition, using the change in the risk of a default occurring over the expected life of the financial instrument, through the comparison of the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition.

To make that assessment, the Company shall consider reasonable and supportable information, that is available without undue cost or effort, and that is indicative of significant increases in credit risk since initial recognition, including forward-looking information. The information considered by the Company are as following:

A. Significant changes in internal price indicators of credit risk as a result of a change in credit risk since inception

B. Existing or forecast adverse change in the business, financial or economic conditions of the borrower that results in a significant change in the borrower’s ability to meet its debt obligations;

C. An actual or expected significant change in the operating results of the borrower; An actual or expected significant adverse change in the regulatory, economic, or technological environment of the borrower;

D. Significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements, which are expected to reduce the borrower’s economic incentive to make scheduled contractual payments or to otherwise influence the probability of a default occurring;

E. Significant change that are expected to reduce the borrower’s economic incentive to make scheduled contractual payments;

F. Expected changes in the loan documentation including an expected breach of contract that may lead to covenant waivers or amendments, interest payment holidays, interest rate step-ups, requiring additional collateral or guarantees, or other changes to the contractual framework of the instrument;

G. Significant changes in the expected performance and behavior of the borrower;

H. Contractual payments are more than 30 days past due.

Depending on the nature of the financial instruments, the Company shall assess whether the credit risk has increased significantly since initial recognition on an individual financial instrument or a group of financial instruments. When assessed based on a group of financial instruments, the Company can group financial instruments on the basis of shared credit risk characteristics, for example, past due information and credit risk rating.

Generally, the Company shall determine the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due. The Company can only rebut this presumption if the Company has reasonable and supportable information that is available without undue cost or effort, that demonstrates that the credit risk has not increased significantly since initial recognition even though the contractual payments are more than 30 days past due.

(iv) Credit-impaired financial asset

The Company shall assess at each reporting date whether the credit impairment has occurred for financial asset at amortized cost and debt investment at fair value through other comprehensive income. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidences that a financial asset is credit-impaired include observable data about the following events:

Significant financial difficulty of the issuer or the borrower; a breach of contract, such as a default or past due event; the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; it is becoming probable that the borrower will enter bankruptcy or other financial reorganization; the disappearance of an active market for that financial asset because of financial difficulties; the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

(v) Presentation of impairment of expected credit loss

In order to reflect the changes of credit risk of financial instrument since initial recognition, the Company shall at each reporting date remeasure the expected credit loss and recognize in profit or loss, as an impairment gain or loss, the amount of expected credit losses addition (or reversal). For financial asset at amortized cost, the loss allowance shall reduce the carrying amount of the financial asset in the statement of financial position; for debt investment at fair value through other comprehensive income, the loss allowance shall be recognized in other comprehensive income and shall not reduce the carrying amount of the financial asset in the statement of financial position.

(vi) Write-off

The Company shall directly reduce the gross carrying amount of a financial asset when the Company has no reasonable expectations of recovering the contractual cash flow of a financial asset in its entirety or a portion thereof. Such write-off constitutes a derecognition of the financial asset. This circumstance usually occurs when the Company determines that the debtor has no assets or sources of income that could generate sufficient cash flow to repay the write-off amount.

Recovery offinancial asset written off shall be recognized in profit or loss as reversal of impairment loss.

(6) Transfer of financial assets

Transfer of financial assets refers to following two situations:

A. Transfers the contractual rights to receive the cash flows of the financial asset;

B. Transfers the entire or a part of a financial asset and retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.

(i) Derecognition of transferred assets

If the Company transfers substantially all the risks and rewards of ownership of the financial asset, or neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset but has not retained control of the financial asset, the financial asset shall be derecognized.

Whether the Company has retained control of the transferred asset depends on the transferee’s ability to sell the asset. If the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to impose additional restrictions on the transfer, the Company has not retained control.

The Company judges whether the transfer of financial asset qualifies for derecognition based on the substance of the transfer.

If the transfer of financial asset qualifies for derecognition in its entirety, the difference between the following shall be recognized in profit or loss:

A. The carrying amount of transferred financial asset;

B. The sum of consideration received and the part derecognized of the cumulative changes in fair value previously recognized in other comprehensive income (The financial assets involved in the transfer are classified as financial assets at fair value through other comprehensive income in accordance with Article 18 of the Accounting Standards for Business Enterprises No.22 - Recognition and Measurement of Financial Instruments).

If the transferred asset is a part of a larger financial asset and the part transferred qualifies for derecognition, the previous carrying amount of the larger financial asset shall be allocated between the part that continues to be recognized (For this purpose, a retained servicing asset shall be treated as a part that continues to be recognized) and the part that is derecognized, based on the relative fair values of those parts on the date of the transfer. The difference between following two amounts shall be recognized in profit or loss:

A. The carrying amount (measured at the date of derecognition) allocated to the part derecognized;

B. The sum of the consideration received for the part derecognized and part derecognized of the cumulative changes in fair value previously recognized in other comprehensive income (The financial assets involved in the transfer are classified as financial assets at fair value through other comprehensive income in accordance with Article 18 of the Accounting Standards for Business Enterprises No.22 - Recognition and Measurement of Financial Instruments).

(ii) Continuing involvement in transferred assets

If the Company neither transfers nor retains substantially all the risks and rewards of ownership of a transferred asset, and retains control of the transferred asset, the Company shall continue to recognize the transferred asset to the extent of its continuing involvement and also recognize an associated liability.

The extent of the Company’s continuing involvement in the transferred asset is the extent to which it is exposed to changes in the value of the transferred asset

(iii) Continue to recognize the transferred assets

If the Company retains substantially all the risks and rewards of ownership of the transferred financial asset, the Company shall continue to recognize the transferred asset in its entirety and the consideration received shall be recognized as a financial liability.

The financial asset and the associated financial liability shall not be offset. In subsequent accounting period, the Company shall continuously recognize any income (gain) arising from the transferred asset and any expense (loss) incurred on the associated liability.

(7) Offsetting financial assets and financial liabilities

Financial assets and financial liabilities shall be presented separately in the statement of financial position and shall not be offset. When meets the following conditions, financial assets and financial liabilities shall be offset and the net amount presented in the statement of financial position:

The Company currently has a legally enforceable right to set off the recognized amounts;

The Company intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

In accounting for a transfer of a financial asset that does not qualify for derecognition, the Company shall not offset the transferred asset and the associated liability.

(8) Determination of fair value of financial instruments

Determination of fair value of financial assets and financial liabilities please refer to Note 3.11.

11. Fair Value Measurement

Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company determines fair value of the related assets and liabilities based on market value in the principal market, or in the absence of a principal market, in the most advantageous market price for the related asset or liability. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The principal market is the market in which transactions for an asset or liability take place with the greatest volume and frequency. The most advantageous market is the market which maximizes the value that could be received from selling the asset and minimizes the value which is needed to be paid in order to transfer a liability, considering the effect of transport costs and transaction costs both.

If the active market of the financial asset or financial liability exists, the Company shall measure the fair value using the quoted price in the active market. If the active market of the financial instrument is not available, the Company shall measure the fair value using valuation techniques.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

(i) Valuation techniques

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, including the market approach, the income approach and the cost approach. The Company shall use valuation techniques consistent with one or more of those approaches to measure fair value. If multiple valuation techniques are used to measure fair value, the results shall be evaluated considering the reasonableness of the range of values indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

When using the valuation technique, the Company shall give the priority to relevant observable inputs. The unobservable inputs can only be used when relevant observable inputs is not available or practically would not be obtained. Observable inputs refer to the information which is available from market and reflects the assumptions that market participants would use when pricing the asset or liability. Unobservable Inputs refer to the information which is not available from market and it has to be developed using the best information available in the circumstances from the assumptions that market participants would use when pricing the asset or liability.

(ii) Fair value hierarchy

To Company establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs and second to the Level 2 inputs and the lowest priority to Level 3 inputs. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.

12. Inventories

(1) Classification of inventories

Inventories are finished goods or products held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services, including raw materials, work in progress, semi-finished goods, finished goods, goods in stock, turnover material, etc.

(2) Measurement method of cost of inventories sold or used

Inventories are measured at actual cost at recognition. The actual cost of an item of inventories comprises the purchase cost, cost of processing and other costs. The cost of inventories used or sold is determined on the weighted average basis.

(3) Inventory system

The perpetual inventory system is adopted. The inventories should be counted at least once a year, and surplus or losses of inventory stocktaking shall be included in current profit and loss.

(4) Recognition criteria and provision for impairment of inventory

Inventories are stated at the lower of cost and net realizable value. The excess of cost over net realizable value of the inventories is recognized as provision for impairment of inventory, and recognized in current profit or loss.

Net realizable value of the inventory should be determined on the basis of reliable evidence obtained, and factors such as purpose of holding the inventory and impact of post balance sheet event shall be considered.

(i) In normal operation process, finished goods, products and materials for direct sale, their net realizable values are determined at estimated selling prices less estimated selling expenses and relevant taxes and surcharges; for inventories held to execute sales contract or service contract, their net realizable values are calculated on the basis of contract price. If the quantities of inventories specified in sales contracts are less than the quantities held by the Company, the net realizable value of the excess portion of inventories shall be based on general selling prices. Net realizable value of materials held for sale shall be measured based on market price.

(ii) For materials in stock need to be processed, in the ordinary course of production and business, net realizable value is determined at the estimated selling price less the estimated costs of completion, the estimated selling expenses and relevant taxes. If the net realizable value of the finished products produced by such materials is higher than the cost, the materials shall be measured at cost; if a decline in the price of materials indicates that the cost of the finished products exceeds its net realizable value, the materials are measured at net realizable value and differences shall be recognized at the provision for impairment.

(iii) Provisions for inventory impairment are generally determined on an individual basis. For inventories with large quantity and low unit price, the provisions for inventory impairment are determined on group basis.

(iv) If any factor rendering write-downs of the inventories has been eliminated at the reporting date, the amounts written down are recovered and reversed to the extent of the inventory impairment, which has been provided for. The reversal shall be included in profit or loss.

(5) Amortization method of low-value consumables

(i) Low-value consumables: One-off writing off method is adopted.

(ii) Package material: One-off writing off method is adopted.

13. Contract Assets and Contract Liabilities

The Company shall present contract assets or contract liabilities in the statement of financial position, depending on the relationship between the Company’s satisfying a performance obligation and the customer’s payment. A contract asset shall be presented if the Company has the right to consideration in exchange for goods or services that the Company has transferred to a customer when that right is conditioned on something other than the passage of time. A contract liability shall be presented if the Company has the obligation to transfer goods or services to a customer for which the Company has received consideration (or the amount is due) from the customer.

Method of determination and accounting for expected credit loss for contract assets please refer to Note 3.10.

Contract assets and contract liabilities shall be presented separately in the statement of financial position. The contract asset and contract liability for the same contract shall be presented on a net basis. A net balance shall be listed in the item of “Contract assets” or “Other non-current assets” according to its liquidity; a credit balance shall be listed in the item of “Contract liabilities” or “Other non-current liabilities” according to its liquidity. Contract assets and contract liabilities for different contracts cannot be offset.

14. Contract Costs

Contract costs include costs to fulfill a contract and the costs to obtain a contract.

The Company shall recognize an asset from the costs incurred to fulfill a contract only if those costs meet all of the following criteria:

(i) The costs relate directly to a contract or to an anticipated contract, including: direct labor, direct materials, manufacturing costs (or similar costs), costs that are explicitly chargeable to the customer under the contract and other costs that are incurred only because an entity entered into the contract;

(ii) The costs enhance resources of the Company that will be used in satisfying performance obligations in the future; and

(iii) The costs are expected to be recovered.

The incremental costs of obtaining a contract shall be recognized as an asset if the Company expects to recover them.

An asset related to contract costs shall be amortized on a systematic basis that is consistent with the revenue recognition of the goods or services to which the asset relates. The Company recognizes the contract acquisition costs as an expense when incurred if the amortization period of the asset that the Company otherwise would have recognized is one year or less.

The Company shall accrue the provision for impairment, recognize an impairment loss in profit or loss to the extent that the carrying amount of an asset related to the contract cost exceeds the difference of below two items, and further consider whether the estimated liability related to the onerous contract needs to be accrued:

(i) The remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which the asset relates; less

(ii) The costs that relate directly to providing those goods or services and that have not been recognized as expenses.

The Company shall recognize in profit or loss a reversal of some or all of an impairment loss previously recognized when the impairment conditions no longer exist or have improved. The increased carrying amount of the asset shall not exceed the amount that would have been determined (net of amortization) if no impairment loss had been recognized previously.

Providing that the costs to fulfill a contract satisfy the requirement to be recognized as an asset, the Company shall present them in the account “Inventory” if the contract has an original expected duration of one year (or a normal operating cycle) or less, or in the account “Other non-current assets” if the contract has an original expected duration of more than one year (or a normal operating cycle).

Providing that the costs to obtain a contract satisfy the requirement to be recognized as an asset, the Company shall present them in the account “Other current asset” if the contract has an original expected duration of one year (or a normal operating cycle) or less, or in the account “Other non-current assets” if the contract has an original expected duration of more than one year (or a normal operating cycle).

15. Long-term Equity Investments

Long-term equity investments refer to equity investments where an investor has control of, or significant influence over, an investee, as well as equity investments in joint ventures. Associates of the Company are those entities over which the Company has significant influence.

(1) Determination basis of joint control or significant influence over the investee

Joint control is the relevant agreed sharing of control over an arrangement, and the arranged relevant activity must be decided under unanimous consent of the parties sharing control. In assessing whether the Company has joint control of an arrangement, the Company shall assess first whether all the parties, or a group of the parties, control the arrangement. When all the parties, or a group of the parties, considered collectively, are able to direct the activities of the arrangement, the parties control the arrangement collectively. Then the Company shall assess whether decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. If two or more groups of the parties could control the arrangement collectively, it shall not be assessed as have joint control of the arrangement. When assessing the joint control, the protective rights are not considered.

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. In determination of significant influence over an investee, the Company should consider not only the existing voting rights directly or indirectly held but also the effect of potential voting rights held by the Company and other entities that could be currently exercised or converted, including the effect of share warrants, share options and convertible corporate bonds that issued by the investee and could be converted in current period.

If the Company holds, directly or indirectly 20% or more but less than 50% of the voting power of the investee, it is presumed that the Company has significant influence of the investee, unless it can be clearly demonstrated that in such circumstance, the Company cannot participate in the decision-making in the production and operating of the investee.

(2) Determination of initial investment cost

(i) Long-term equity investments generated in business combinations

(A) For a business combination involving enterprises under common control, if the Company makes payment in cash, transfers non-cash assets or bears liabilities as the consideration for the business combination, the share of carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controlling party is recognized as the initial cost of the long-term equity investment on the combination date. The difference between the initial investment cost and the carrying amount of cash paid, non-cash assets transferred and liabilities assumed shall be adjusted against the capital reserve; if capital reserve is not enough to be offset, undistributed profit shall be offset in turn.

(B) For a business combination involving enterprises under common control, if the Company issues equity securities as the consideration for the business combination, the share of carrying amount of the owners’ equity of the acquiree in the consolidated financial statements of the ultimate controlling party is recognized as the initial cost of the long-term equity investment on the combination date. The total par value of the shares issued is recognized as the share capital. The difference between the initial investment cost and the carrying amount of the total par value of the shares issued shall be adjusted against the capital reserve; if capital reserve is not enough to be offset, undistributed profit shall be offset in turn.

(C) For business combination not under common control, the assets paid, liabilities incurred or assumed and the fair value of equity securities issued to obtain the control of the acquiree at the acquisition date shall be determined as the cost of the business combination and recognized as the initial cost of the long-term equity investment. The audit, legal, valuation and advisory fees, other intermediary fees, and other relevant general administrative costs incurred for the business combination, shall be recognized in profit or loss as incurred.

(ii) Long-term equity investments acquired not through the business combination, the investment cost shall be determined based on the following requirements:

(A) For long-term equity investments acquired by payments in cash, the initial cost is the actually paid purchase cost, including the expenses, taxes and other necessary expenditures directly related to the acquisition of long-term equity investments;

(B) For long-term equity investments acquired through issuance of equity securities, the initial cost is the fair value of the issued equity securities;

(C) For the long-term equity investments obtained through exchange of non-monetary assets, if the exchange has commercial substance, and the fair values of assets traded out and traded in can be measured reliably, the initial cost of long-term equity investment traded in with non-monetary assets are determined based on the fair values of the assets traded out together with relevant taxes. Difference between fair value and book value of the assets traded out is recorded in current profit or loss. If the exchange of non-monetary assets does not meet the above criterion, the book value of the assets traded out and relevant taxes are recognized as the initial investment cost;

(D) For long-term equity investment acquired through debt restructuring, the initial cost is determined based on the fair value of the equity obtained and the difference between initial investment cost and carrying amount of debts shall be recorded in current profit or loss.

(3) Subsequent measurement and recognition of profit or loss

Long-term equity investment to an entity over which the Company has ability of control shall be accounted for at cost method. Long-term equity investment to a joint venture or an associate shall be accounted for at equity method.

(i) Cost method

For Long-term equity investment at cost method, cost of the long-term equity investment shall be adjusted when additional amount is invested or a part of it is withdrawn. The Company recognizes its share of cash dividends or profits which have been declared to distribute by the investee as current investment income.

(ii) Equity method

The general accounting treatment for long-term equity investments accounted for using the equity method is as follows:

If the initial cost of the investment is in excess of the share of the fair value of the net identifiable assets in the investee at the date of investment, the difference shall not be adjusted to the initial cost of long-term equity investment; if the initial cost of the investment is in short of the share of the fair value of the net identifiable assets in the investee at the date investment, the difference shall be included in the current profit or loss and the initial cost of the long-term equity investment shall be adjusted accordingly.

The Company recognizes the share of the investee’s net profits or losses, as well as its share of the investee’s other comprehensive income, as investment income or losses and other comprehensive income respectively, and adjusts the carrying amount of the investment accordingly. The carrying amount of the investment shall be reduced by the share of any profit or cash dividends declared to distribute by the investee. The investor’s share of the investee’s owners’ equity changes, other than those arising from the investee’s net profit or loss, other comprehensive income or profit distribution, shall be recognized in the investor’s equity, and the carrying amount of the long-term equity investment shall be adjusted accordingly. The Company recognizes its share of the investee’s net profits or losses after making appropriate adjustments of investee’s net profit based on the fair values of the investee’s identifiable net assets at the investment date. If the accounting policy and accounting period adopted by the investee is not in consistency with the Company, the financial statements of the investee shall be adjusted according to the Company’s accounting policies and accounting period, based on which, investment income or loss and other comprehensive income, etc., shall be adjusted. The unrealized profits or losses resulting from inter-company transactions between the company and its associate or joint venture are eliminated in proportion to the Company’s equity interest in the investee, based on which investment income or losses shall be recognized. Any losses resulting from inter-company transactions between the investor and the investee, which belong to asset impairment, shall be recognized in full.

Where the Company obtains the power of joint control or significant influence, but not control, over the investee, due to additional investment or other reason, the relevant long-term equity investment shall be accounted for by using the equity method, initial cost of which shall be the fair value of the original investment plus the additional investment. Where the original investment is classified as other equity investment, difference between its fair value and the carrying value, in addition to the cumulative changes in fair value previously recorded in other comprehensive income, shall be recognized into retained earnings of the period of using equity method.

If the Company loses the joint control or significant influence of the investee for some reasons such as disposal of equity investment, the retained interest shall be measured at fair value and the difference between the carrying amount and the fair value at the date of loss the joint control or significant influence shall be recognized in profit or loss. When the Company discontinues the use of the equity method, the Company shall account for all amounts previously recognized in other comprehensive income under equity method in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities.

(4) Equity investment classified as held for sale

Any retained interest in the equity investment not classified as held for sale, shall be accounted for using equity method.

When an equity investment in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly.

(5) Impairment testing and provision for impairment loss

For investment in subsidiaries, associates or a joint ventures, provision for impairment loss please refer to Note 3.22.

16. Investment Properties

(1) Classification of investment properties

Investment properties are properties to earn rentals or for capital appreciation or both, including:

(i) Land use right leased out

(ii) Land held for transfer upon appreciation

(iii) Buildings leased out

(2) The measurement model of investment property

The Company adopts the cost model for subsequent measurement of investment properties. For provision for impairment please refer to Note 3.22.

The Company calculates the depreciation or amortization based on the net amount of investment property cost less the accumulated impairment and the net residual value using straight-line method. The estimated useful life and annual depreciation rates which are determined according to the categories, estimated economic useful lives and estimated net residual rates are listed as followings:

17. Fixed Assets

Fixed assets refer to the tangible assets with higher unit price held for the purpose of producing commodities, rendering services, renting or business management with useful lives exceeding one year.

(1) Recognition criteria of fixed assets

Fixed assets will only be recognized at the actual cost paid when obtaining as all the following criteria are satisfied:

(i) It is probable that the economic benefits relating to the fixed assets will flow into the Company; (ii) The costs of the fixed assets can be measured reliably.

Subsequent expenditure for fixed assets shall be recorded in cost of fixed assets, if recognition criteria of fixed assets are satisfied, otherwise the expenditure shall be recorded in current profit or loss when incurred.

(2) Depreciation methods of fixed assets

The Company begins to depreciate the fixed asset from the next month after it is available for intended use using the straight-line-method. The estimated useful life and annual depreciation rates which are determined according to the categories, estimated economic useful lives and estimated net residual rates of fixed assets are listed as followings:

For the fixed assets with impairment provided, the impairment provision should be excluded from the cost when calculating depreciation.

At the end of reporting period, the Company shall review the useful life, estimated net residual value and depreciation method of the fixed assets. Estimated useful life of the fixed assets shall be adjusted if it is changed compared to the original estimation.

18. Construction in Progress

(1) Classification of construction in progress

(2) Recognition criteria and timing of transfer from construction in progress to fixed assets The initial book values of the fixed assets are stated at total expenditures incurred before they are ready for their intended use, including construction costs, original price of machinery equipment, other necessary expenses incurred to bring the construction in progress to get ready for its intended use and borrowing costs of the specific loan for the construction or the proportion of the general loan used for the constructions incurred before they are ready for their intended use. The construction in progress shall be transferred to fixed asset when the installation or construction is ready for the intended use. For construction in progress that has been ready for their intended use but relevant budgets for the completion of projects have not been completed, the estimated values of project budgets, prices, or actual costs should be included in the costs of relevant fixed assets, and depreciation should be provided according to relevant policies of the Company when the fixed assets are ready for intended use. After the completion of budgets needed for the completion of projects, the estimated values should be substituted by actual costs, but depreciation already provided is not adjusted.

The specific criteria and timing of transfer to fixed assets for the Company’s different categories of construction in progress items:

19. Right-of-use Assets

At the lease commencement date, a right-of-use asset is measured at cost. The cost of a right-of-use asset comprise:

(1) The amount of the initial measurement of the lease liability;

(2) Any lease payments made at or before the commencement date, less any lease incentives received;

(3) Any initial direct costs incurred by the Group; and (4) An estimate of costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.

A right-of-use asset is subsequently measured at cost. If it is reasonably certain that ownership of the lease item will transfer to the Group upon expiration of the lease, the leased item is depreciated over its useful life; if, however, transfer of ownership of the leased item upon expiration of the lease to the Group cannot be reasonably expected, the leased item is depreciated over the shorter of its useful life and the lease term. Where a leased item has recorded impairment, its residual value after deducting the impairment allowance is depreciated in accordance the principle described in this paragraph.

20. Borrowing Costs

(1) Recognition criteria and period for capitalization of borrowing costs

The Company shall capitalize the borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets when meet the following conditions:

(i) Expenditures for the asset are being incurred;

(ii) Borrowing costs are being incurred, and;

(iii) Acquisition, construction or production activities that are necessary to prepare the assets for their intended use or sale are in progress.

Other borrowing cost, discounts or premiums on borrowings and exchange differences on foreign currency borrowings shall be recognized into current profit or loss when incurred.

Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is interrupted abnormally and the interruption is for a continuous period of more than 3 months.

Capitalization of such borrowing costs ceases when the qualifying assets being acquired, constructed or produced become ready for their intended use or sale. The expenditure incurred subsequently shall be recognized as expenses when incurred.

(2) Capitalization rate and measurement of capitalized amounts of borrowing costs

When funds are borrowed specifically for purchase, construction or manufacturing of assets eligible for capitalization, the Company shall determine the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any interest income on bank deposit or investment income on the temporary investment of those borrowings.

Where funds allocated for purchase, construction or manufacturing of assets eligible for capitalization are part of a general borrowing, the eligible amounts are determined by the weighted-average of the cumulative capital expenditures in excess of the specific borrowing multiplied by the general borrowing capitalization rate. The capitalization rate will be the weighted average of the borrowing costs applicable to the general borrowing.

21. Intangible Assets

(1) Measurement method of intangible assets

Intangible assets are recognized at actual cost at acquisition.

(2) The useful life and amortization of intangible assets

(i) The estimated useful lives of the intangible assets with finite useful lives are as follows:

For intangible assets with finite useful life, the estimated useful life and amortization method are reviewed annually at the end of each reporting period and adjusted when necessary. No change has incurred in current year in the estimated useful life and amortization method upon review.

(ii) Assets of which the period to bring economic benefits to the Company are unforeseeable are regarded as intangible assets with indefinite useful lives. The Company reassesses the useful lives of those assets at every year end. If the useful lives of those assets are still indefinite, impairment test should be performed on those assets at the balance sheet date.

(iii) Amortization of the intangible assets

For intangible assets with finite useful lives, their useful lives should be determined upon their acquisition and systematically amortized on a straight-line basis [units of production method] over the useful life. The amortization amount shall be recognized into current profit or loss or the relevant asset cost according to the beneficial items. The amount to be amortized is cost deducting residual value. For intangible assets which has impaired, the cumulative impairment provision shall be deducted as well. The residual value of an intangible asse with a finite useful life shall be assumed to be zero unless: there is a commitment by a third party to purchase the asset at the end of its useful life; or there is an active market for the asset and residual value can be determined by reference to that market; and it is probable that such a market will exist at the end of the asset’s useful life.

Intangible assets with indefinite useful lives shall not be amortized. The Company reassesses the useful lives of those assets at every year end. If there is evidence to indicate that the useful lives of those assets become finite, the useful lives shall be estimated and the intangible assets shall be amortized systematically and reasonably within the estimated useful lives.

(3) Scope of research and development expenditures

The Company classifies the expenses directly related to research and development activities as research and development expenditures, including remuneration of research and development staff, direct material, depreciation cost and long-term amortized expense, design fee, equipment commissioning fee, intangible assets amortization cost, outsourcing research and development cost, and other expenses, etc.

(4) Criteria of classifying expenditures on internal research and development projects into research phase and development phase

(i) Preparation activities related to materials and other relevant aspects undertaken by the Company for the purpose of further development shall be treated as research phase. Expenditures incurred during the research phase of internal research and development projects shall be recognized in profit or loss when incurred.

(ii) Development activities after the research phase of the Company shall be treated as development phase.

(5) Criteria for capitalization of qualifying expenditures during the development phase

Expenditures arising from development phase on internal research and development projects shall be recognized as intangible assets only if all of the following conditions have been met:

A. Technical feasibility of completing the intangible assets so that they will be available for use or sale;

B. Its intention to complete the intangible asset and use or sell it;

C. The method that the intangible assets generate economic benefits, including the Company can demonstrate the existence of a market for the output of the intangible assets or the intangible assets themselves or, if it is to be used internally, the usefulness of the intangible assets;

D. The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

E. Its ability to measure reliably the expenditure attributable to the intangible asset.

22. Impairment of Long-Term Assets

Impairment loss of long-term equity investment in subsidiaries, associates and joint ventures, investment properties, fixed assets, constructions in progress, and intangible assets subsequently measured at cost shall be determined according to following method:

The Company shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Company shall estimate the recoverable amount of the asset and test for impairment. Irrespective of whether there is any indication of impairment, the Company shall test for impairment of goodwill acquired in a business combination, intangible assets with an indefinite useful life or intangible assets not yet available for use annually.

The recoverable amounts of the long-term assets are the higher of their fair values less costs to dispose and the present values of the estimated future cash flows of the long-term assets. The Company estimate the recoverable amounts on an individual basis. If it is difficult to estimate the recoverable amount of the individual asset, the Company estimates the recoverable amount of the groups of assets that the individual asset belongs to. Identification of a group of asset is based on whether the cash inflows from it are largely independent of the cash inflows from other assets or groups of assets.

If, and only if, the recoverable amount of an asset or a group of assets is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount and the provision for impairment loss shall be recognized accordingly.

For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to relevant group of assets based on reasonable method; if it is difficult to allocate to relevant group of assets, good will shall be allocated to relevant combination of asset groups. The relevant group of assets or combination of asset groups is a group of assets or combination of asset groups that is benefit from the synergies of the business combination and is not larger than the reporting segment determined by the Company.

When test for impairment, if there is an indication that relevant group of assets or combination of asset groups may be impaired, impairment testing for group of assets or combination of asset groups excluding goodwill shall be conducted first, and the recoverable amount shall be then calculated and the impairment loss shall be recognized accordingly. Then the group of assets or combination of asset groups including goodwill shall be tested for impairment, by comparing the carrying amount with its recoverable amount. If the recoverable amount is less than the carrying amount, the Company shall recognize the impairment loss.

The mentioned impairment loss will not be reversed in subsequent accounting period once it had been recognized.

23. Long-term Deferred Expenses

Long-term deferred expenses are various expenses already incurred, which shall be amortized over current and subsequent periods with the amortization period exceeding one year.

24. Employee Benefits

Employee benefits refer to all forms of consideration or compensation given by the Company in exchange for service rendered by employees or for the termination of employment relationship. Employee benefits include short-term employee benefits, post-employment benefits, termination benefits and other long-term employee benefits. Benefits provided to an employee’s spouse, children, dependents, family members of decreased employees, or other beneficiaries are also employee benefits.

According to liquidity, employee benefits are presented in the statement of financial position as “Employee benefits payable” and “Long-term employee benefits payable”.

(1) Short-term employee benefits

(i) Employee basic salary (salary, bonus, allowance, subsidy)

The Company recognizes, in the accounting period in which an employee provides service, actually occurred short-term employee benefits as a liability, with a corresponding charge to current profit except for those recognized as capital expenditure based on the requirement of accounting standards.

(ii) Employee welfare

The Company shall recognize the employee welfare based on actual amount when incurred into current profit or loss or related capital expenditure. Employee welfare shall be measured at fair value as it is a non-monetary benefits.

(iii) Social insurance such as medical insurance, work injury insurance and maternity insurance, housing funds, labor union fund and employee education fund

Payments made by the Company of social insurance for employees, such as medical insurance, work injury insurance and maternity insurance, payments of housing funds, and labor union fund and employee education fund accrued in accordance with relevant requirements, in the accounting period in which employees provide services, is calculated according to required accrual bases and accrual ratio in determining the amount of employee benefits and the related liabilities, which shall be recognized in current profit or loss or the cost of relevant asset.

(iv) Short-term paid absences

The company shall recognize the related employee benefits arising from accumulating paid absences when the employees render service that increases their entitlement to future paid absences. The additional payable amounts shall be measured at the expected additional payments as a result of the unused entitlement that has accumulated. The Company shall recognize relevant employee benefit of non-accumulating paid absences when the absences actually occurred.

(v) Short-term profit-sharing plan

The Company shall recognize the related employee benefits payable under a profit-sharing plan when all of the following conditions are satisfied:

A. The Company has a present legal or constructive obligation to make such payments as a result of past events; and

B. A reliable estimate of the amounts of employee benefits obligation arising from the profit- sharing plan can be made.

(2) Post-employment benefits

(i) Defined contribution plans

The Company shall recognize, in the accounting period in which an employee provides service, the contribution payable to a defined contribution plan as a liability, with a corresponding charge to the current profit or loss or the cost of a relevant asset.

When contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, they shall be discounted using relevant discount rate (market yields at the end of the Reporting Period on high quality corporate bonds in active market or government bonds with the currency and term which shall be consistent with the currency and estimated term of the defined contribution obligations) to measure employee benefits payable.

(ii) Defined benefit plan

A. The present value of defined benefit obligation and current service costs

Based on the expected accumulative welfare unit method, the Company shall make estimates about demographic variables and financial variables in adopting the unbiased and consistent actuarial assumptions and measure defined benefit obligation, and determine the obligation period. The Company shall discount the obligation arising from defined benefit plan using relevant discount rate (market yields at the end of the Reporting Period on high quality corporate bonds in active market or government bonds with the currency and term which shall be consistent with the currency and estimated term of the defined benefit obligations) in order to determine the present value of the defined benefit obligation and the current service cost.

B. The net defined benefit liability or asset

The net defined benefit liability (asset) is the deficit or surplus recognized as the present value of the defined benefit obligation less the fair value of plan assets (if any).

When the Company has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower ofthe surplus in the defined benefit plan and the asset ceiling.

C. The amount recognized in the cost of asset or current profit or loss

Service cost comprises current service cost, past service cost and any gain or loss on settlement. Other service cost shall be recognized in profit or loss unless accounting standards require or allow the inclusion of current service cost within the cost of assets.

Net interest on the net defined benefit liability (asset) comprising interest income on plan assets, interest cost on the defined benefit obligation and interest on the effect of the asset ceiling, shall be included in profit or loss.

D. The amount recognized in other comprehensive income

Changes in the net liability or asset of the defined benefit plan resulting from the remeasurements including:

(a) Actuarial gains and losses, the changes in the present value of the defined benefit obligation resulting from experience adjustments or the effects of changes in actuarial assumptions;

(b) Return on plan assets, excluding amounts included in net interest on the net defined benefit liability or asset;

(c) Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

Remeasurements of the net defined benefit liability (asset) recognized in other comprehensive income shall not be reclassified to profit or loss in a subsequent period. However, the Company may transfer in full the portion originally recognized in other comprehensive income within equity to undistributed profit, when the original defined benefit terminates.

(3) Termination benefits

The Company providing termination benefits to employees shall recognize an employee benefits liability for termination benefits, with a corresponding charge to the profit or loss of the Reporting Period, at the earlier of the following dates:

(i) When the Company cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal.

(ii) When the Company recognizes costs or expenses related to a restructuring that involves the payment of termination benefits.

If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Company shall discount the termination benefits using relevant discount rate (market yields at the end of the Reporting Period on high quality corporate bonds in active market or government bonds with the currency and term which shall be consistent with the currency and estimated term of the defined benefit obligations) to measure the employee benefits.

(4) Other long-term employee benefits

(i) Meet the conditions of the defined contribution plan

When other long-term employee benefits provided by the Company to the employees satisfies the conditions for classifying as a defined contribution plan, all those benefits payable shall be accounted for as employee benefits payable at their discounted value.

(ii) Meet the conditions of the defined benefit plan

At the end of the Reporting Period, the Company recognized the cost of employee benefit from other long-term employee benefits as the following components:

A. Service costs;

B. Net interest cost for net liability or asset of other long-term employee benefits

C. Changes resulting from the remeasurements of the net liability or asset of other long-term employee benefits

In order to simplify the accounting treatment, the net amount of above items shall be recognized in profit or loss or relevant cost of assets.

25. Lease Liabilities

At the commencement date, the Group measures the lease liability at the present value of the lease payments that are not paid at that date. The lease payments comprise:

(1) Fixed payments, or in-substance fixed payments, less any lease incentives receivable;

(2) Variable lease payments that depend on an index or a rate;

(3) The exercise price of a purchase option if the Group is reasonably certain to exercise that option;

(4) Payments of penalties for terminating the lease, if the lease term reflects the Group exercising an

option to terminate the lease; and

(5) Amounts expected to be payable by the Group under residual value guarantees.

The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate. The excess of the lease payments over its present value is amortized over the lease term as interest expenses using the discount rate. A variable lease payment which is not included in the initial measurement of the lease liability is recognized in profit or loss when incurred.

26. Provisions

(1) Recognition

A provision is recognized for an obligation associated with a contingent event when the following conditions are satisfied:

(i) The obligation is a present obligation assumed by the entity;

(ii) It is probable that fulfillment of the obligation will result in outflows of economic benefits from the entity;

(iii) The amount of the obligation can be reliably measured.

(2) Measurement

A provision is initially measured at the best estimate of expenses required for the performance of relevant present obligations. The Company, when determining the best estimate, has had a comprehensive consideration of risks with respect to contingencies, uncertainties and the time value of money. The carrying amount of the provision shall be reviewed at the end of every reporting period. If conclusive evidences indicate that the carrying amount fails to be the best estimate of the provision, the carrying amount shall be adjusted based on the updated best estimate.

27. Revenue

(1) General principle

Revenue is defined as the gross inflow of economic benefits arising in the course of the ordinary activities of the Company when those inflows result in the increases in shareholders’ equity, other than increases relating to contributions from shareholders.

The Company shall recognize revenue when it satisfies a performance obligation in the contract as the customer obtains control of a good or service. Control of a good or service refers to the ability to direct the use of, and obtain substantially all of the remaining economic benefits from, the good or service.

When the contract has two or more obligation performances, the Company shall allocate the transaction price to each performance obligation in proportion to a relative stand-alone selling price at contract inception of the promised good or service underlying each performance obligation in the contract and recognize revenue based on the transaction price allocated to each performance obligation.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. When determining the transaction price of the contract, if the contract includes a variable consideration, the Company shall determine the best estimate of the variable consideration based on the expected value or the most likely amount and include in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If the contract contains a significant financing component, the Company shall determine the transaction price at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer. The difference between the transaction price and the promised consideration shall be amortized using the effective interest method within the contract period. The Company need not consider the effects of a significant financing component if the period between when the Company transfers control of a good or service to a customer and when the customer pays for that good or service will be one year or less.

The Company satisfies a performance obligation over time, if one of the following criteria is met; otherwise a performance obligation is satisfied at a point in time:

(i) The customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs;

(ii) The Company’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced;

(iii) The Company’s performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date.

For each performance obligation satisfied over time, the Company shall recognize revenue over time by measuring the progress towards complete satisfaction of that performance obligation, unless those progress cannot be reasonably measured. The Company measures the progress of a performance obligation for the service rendered using input methods (or output methods). In some circumstances, the Company cannot be able to reasonably measure the progress of a performance obligation, but the Company expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the Company shall recognize revenue only to the extent of the costs incurred until such time that it can reasonably measure the progress of the performance

obligation.

The Company shall recognize revenue at the point in which a customer obtains control of a promised good or service if a performance obligation is satisfied at a point in time. To determine the point in time at which a customer obtains control of a promised good or service, the Company shall consider indicators of the transfer of control, which include, but are not limited to, the followings:

(i) The Company has a present right to payment for the good or service – a customer is presently obliged to pay for the good or service;

(ii) The Company has transferred legal title of an asset to a customer - the customer has legal title to the asset;

(iii) The Company has transferred physical possession of an asset to a customer - the customer has physical possession of the asset;

(iv) The Company has transferred the significant risks and rewards of ownership of the asset to a customer - the customer has the significant risks and rewards of ownership of the asset;

(v) The customer has accepted the asset.

(vi) Other indication that the customer has obtained control over the asset.

(2) Specific method

Revenue recognition methods of the Company are as follows:

Revenue from sales of goods

According to the contract of sales of goods between the Company and the customer, the Company satisfies a performance obligation by transferring goods to the customer, which is a performance obligation satisfied at a point in time.

Revenue from domestic sales of goods can only be recognized when the following conditions are satisfied: the Company has transferred the promised goods to the customer according to the contract and the customer has accepted the goods; the payment has been received or the receipt voucher has been obtained and it is highly probable that the consideration will be received; the significant risks and rewards of ownership of the asset has been transferred; legal title of the asset has been transferred.

Revenue from rendering services

The customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs, Company satisfies a performance obligation by rendering of services to the customer, which is a performance obligation satisfied over time. For each performance obligation satisfied over time, the Company shall recognize revenue over time by measuring the progress towards complete satisfaction of that performance obligation.

The customer can’t simultaneously receive and consumes the benefits provided by the Company’s performance as the Company performs, the Company’s performance does not create an asset with an alternative use and the Company has no enforceable right to payment for performance completed to date at all times throughout the duration of the contract, Revenue from rendering of services is a performance obligation satisfied at a point in time. The company recognizes revenue when the company completes technical services in accordance with the contractual agreement

Revenue from usage of assets

Revenue from usage of the Group’s assets is recognized if the revenue can be reliably measured and it is probable that the associated economic benefits will flow to the Group. Revenue from usage of assets mainly includes the income from the leasing of premises and houses. Revenue measured in accordance with the method determined by the respective contracts.

28. Government Grants

(1) Recognition of government grants

A government grant shall not be recognized until there is reasonable assurance that:

(i) The Company will comply with the conditions attaching to them; and

(ii) The grants will be received.

(2) Measurement of government grants

Monetary grants from the government shall be measured at amount received or receivable, and non-monetary grants from the government shall be measured at their fair value or at a nominal value of RMB1.00 when reliable fair value is not available.

(3) Accounting for government grants

(i) Government grants related to assets

Government grants pertinent to assets mean the government grants that are obtained by the Company used for purchase or construction, or forming the long-term assets by other ways. Government grants pertinent to assets shall be recognized as deferred income, and should be recognized in profit or loss on a systematic basis over the useful lives of the relevant assets. Grants measured at their nominal value shall be directly recognized in profit or loss of the period when the grants are received. When the relevant assets are sold, transferred, written off or damaged before the assets are terminated, the remaining deferred income shall be transferred into profit or loss of the period of disposing relevant assets.

(ii) Government grants related to income

Government grants other than related to assets are classified as government grants related to income. Government grants related to income are accounted for in accordance with the following principles:

If the government grants related to income are used to compensate the enterprise’s relevant expenses or losses in future periods, such government grants shall be recognized as deferred income and included into profit or loss (or write down related expenses) in the same period as the relevant expenses or losses are recognized;

If the government grants related to income are used to compensate the enterprise’s relevant expenses or losses incurred, such government grants are directly recognized into current profit or loss (or write down related expenses).

For government grants comprised of part related to assets as well as part related to income, each part is accounted for separately; if it is difficult to identify different part, the government grants are accounted for as government grants related to income as a whole.

Government grants related to daily operation activities are recognized in other income (or write down related expenses) in accordance with the nature of the activities, and government grants irrelevant to daily operation activities are recognized in non-operating income.

(iii) Loan interest subsidy

When loan interest subsidy is allocated to the bank, and the bank provides a loan at lower-market rate of interest to the Company, the loan is recognized at the actual received amount, and the interest expense is calculated based on the principal of the loan and the lower-market rate of interest.

When loan interest subsidy is directly allocated to the Company, the subsidy shall be recognized as offsetting the relevant borrowing cost.

(iv) Repayment of the government grants

Repayment of the government grants shall be recorded by increasing the carrying amount of the asset if the book value of the asset has been written down, or reducing the balance of relevant deferred income if deferred income balance exists, any excess will be recognized into current profit or loss; or directly recognized into current profit or loss for other circumstances.

29. Deferred Tax Assets and Deferred Tax Liabilities

Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base at the balance sheet date. The Company recognize and measure the effect of taxable temporary differences and deductible temporary differences on income tax as deferred tax liabilities or deferred tax assets using liability method. Deferred tax assets and deferred tax liabilities shall not be discounted.

(1) Recognition of deferred tax assets

For deductible temporary differences, deductible losses and tax credits that can be carried forward to subsequent years, the related income tax effects are calculated at the income tax rate expected to apply during the reversal period and recognized as deferred income tax assets, but only to the extent that it is probable that the Company will obtain future taxable income against which the deductible temporary differences, deductible losses and tax credits can be utilized.

The income tax effects of deductible temporary differences arising from the initial recognition of assets or liabilities in transactions or events that have both of the following characteristics are not recognized as deferred tax assets:

A. Is not a business combination; and

B. At the time of the transaction, affects neither accounting profit nor taxable profit (tax loss)

However, the exemption from initial recognition of deferred tax liabilities and deferred tax assets does not apply to a single transaction that meets both of the above conditions and results in the initial recognition of assets and liabilities that give rise to deductible temporary differences and deductible temporary differences in equal amounts. The Company recognizes deferred tax liabilities and deferred tax assets for deductible temporary differences and deductible temporary differences arising from the initial recognition of assets and liabilities, respectively, at the time of the transaction.

The Company shall recognize a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, only to the extent that, it is probable that:

A. The temporary difference will reverse in the foreseeable future; and

B. Taxable profit will be available against which the deductible temporary difference can be utilized.

At the end of each reporting period, if there is sufficient evidence that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized, the Company recognizes a previously unrecognized deferred tax asset.

The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. The Company shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.

(2) Recognition of deferred tax liabilities

A deferred tax liability shall be recognized for all taxable temporary differences at the tax rate that are expected to apply to the period when the liability is settled.

(i) No deferred tax liability shall be recognized for taxable temporary differences arising from:

A. The initial recognition of goodwill; or

B. The initial recognition of an asset or liability in a transaction which: is not a business combination; and at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss)

(ii) An entity shall recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that both of the following conditions are satisfied:

A. The Company is able to control the timing of the reversal of the temporary difference; and B. It is probable that the temporary difference will not reverse in the foreseeable future.

(3) Recognition of deferred tax liabilities or assets involved in special transactions or events

(i) Deferred tax liabilities or assets related to business combination

For the taxable temporary difference or deductible temporary difference arising from a business combination not under common control, a deferred tax liability or a deferred tax asset shall be recognized, and simultaneously, goodwill recognized in the business combination shall be adjusted based on relevant deferred tax expense (income).

(ii) Items directly recognized in equity

Current tax and deferred tax related to items that are recognized directly in equity shall be recognized in equity. Such items include: other comprehensive income generated from fair value fluctuation of other debt investments; an adjustment to the opening balance of retained earnings resulting from either a change in accounting policy that is applied retrospectively or the correction of a prior period (significant) error; amounts arising on initial recognition of the equity component of a compound financial instrument that contains both liability and equity component.

(iii) Unused tax losses and unused tax credits

A. Unused tax losses and unused tax credits generated from daily operation of the Company itself Deductible loss refers to the loss calculated and permitted according to the requirement of tax law that can be offset against taxable income in future periods. The criteria for recognizing deferred tax assets arising from the carryforward of unused tax losses and tax credits are the same as the criteria for recognizing deferred tax assets arising from deductible temporary differences. The Company recognizes a deferred tax asset arising from unused tax losses or tax credits only to the extent that there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilized by the Company. Income taxes in current profit or loss shall be deducted as well.

B. Unused tax losses and unused tax credits arising from a business combination

Under a business combination, the acquiree’s deductible temporary differences which do not satisfy the criteria at the acquisition date for recognition of deferred tax asset shall not be recognized. Within 12 months after the acquisition date, if new information regarding the facts and circumstances exists at the acquisition date and the economic benefit of the acquiree’s deductible temporary differences at the acquisition is expected to be realized, the Company shall recognize acquired deferred tax benefits and reduce the carrying amount of any goodwill related to this acquisition. If goodwill is reduced to zero, any remaining deferred tax benefits shall be recognized in profit or loss. All other acquired deferred tax benefits realized shall be recognized in profit or loss.

(iv) Temporary difference generated in consolidation elimination

When preparing consolidated financial statements, if temporary difference between carrying value of the assets and liabilities in the consolidated financial statements and their taxable bases is generated from elimination of inter-company unrealized profit or loss, deferred tax assets or deferred tax liabilities shall be recognized in the consolidated financial statements, and income taxes expense in current profit or loss shall be adjusted as well except for deferred tax related to transactions or events recognized directly in equity and business combination.

(v) Share-based payment settled by equity

If tax authority permits tax deduction that relates to share-based payment, during the period in which the expenses are recognized according to the accounting standards, the Company estimates the tax base in accordance with available information at the end of the accounting period and the temporary difference arising from it. Deferred tax shall be recognized when criteria of recognition are satisfied. If the amount of estimated future tax deduction exceeds the amount of the cumulative expenses related to share-based payment recognized according to the accounting standards, the tax effect of the excess amount shall be recognized directly in equity.

(vi) Dividends related to financial instruments classified as equity instruments

For financial instruments classified as equity instruments in which the Company is the issuer and the related dividend expense is deductible for corporate income tax purposes in accordance with the relevant provisions of the tax policy, the Company recognizes the income tax effect related to the dividend at the time of dividend payable recognition. The income tax effect of the dividend is recognized in the current profit or loss in which the dividend arises from a transaction or event that previously resulted in profit or loss. The income tax effect of the dividend is recognized in owner’s equity in which the dividend arises from a transaction or event that previously resulted in profit or loss.

(4) Basis for deferred income tax assets and deferred income tax liabilities presented on a net basis

The Company presents deferred tax assets and deferred tax liabilities on a net basis when both of the following conditions are met:

The Company has a legally enforceable right to settle current income tax assets and current income tax liabilities on a net basis; and

The deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities that intend, in each future period in which significant amounts of deferred income tax assets and deferred income tax liabilities are expected to be reversed, to settle current income tax assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

30. Leases

(1) Identifying a lease

At inception of a contract, the Company shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of one or more identified assets for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Company shall assess whether, throughout the period of use, the customer has the right to obtain substantially all of the economic benefits from use of the identified asset and to direct the use of the identified asset.

(2) Identifying a separate lease component

When a contract includes more than one separate lease components, the Company shall separate components of the contract and account for each lease component separately. The right to use an underlying asset is a separate lease component if both conditions have been satisfied: (i) the lessee can benefit from use of the underlying asset either on its own or together with other resources that are readily available to the lessee; (ii) the underlying asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract.

(3) The Company as a lessee

At the commencement date, the Company identifies the lease that has a lease term of 12 months or less and does not contain a purchase option as a short-term lease. A lease qualifies as a lease of a low-value asset if the nature of the asset is such that, when new, the asset is typically of low value. If the Company subleases an asset, or expects to sublease an asset, the head lease does not qualify as a lease of a low-value asset.

For all the short-term leases or leases for which the underlying asset is of low value, the Company shall recognize the lease payments associated with those leases as cost of relevant asset or expenses in current profit or loss on a straight-line basis over the lease term.

Except for the election of simple treatment as short-term lease or lease of a low-value asset as mentioned above, at the commencement date, the Company shall recognize a right-of-use asset and a lease liability.

(i) Right-of-use asset

A right-of-use asset is an asset that represents a lessee’s right to use an underlying asset for the lease term.

At the commencement date, the Company shall initially measure the right-of-use asset at cost. The cost of the right-of-use asset shall comprise:

^⚫ the amount of the initial measurement of the lease liability;

^⚫ any lease payments made at or before the commencement date, less any lease incentives received;

^⚫ any initial direct costs incurred by the lessee; and

an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. The Company recognizes and measures the cost in accordance with the recognition criteria and measurement method for estimated liabilities, details please refer to Notes 3.26. Those costs incurred to produce inventories shall be included in the cost of inventories.

The right-of-use asset shall be depreciated according to the categories using straight‐line method. If it is reasonably certain that the ownership of the underlying asset shall be transferred to the lessee by the end of the lease term, the depreciation rate shall be determined based on the classification of the right-of- use asset and estimated residual value rate from the commencement date to the end of the useful life of the underlying asset. Otherwise, the depreciation rate shall be determined based on the classification of the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

The depreciation method, estimated useful life, residual rates and annual depreciation rates which

are determined according to the categories of right-of-use asset are listed as followings:

(ii) Lease liability

At the commencement date, the lease liability shall be measured at the present value of the lease payments that are not paid at that date. The lease payments included in the measurement of the lease liability comprise the following 5 items:

^⚫ fixed payments and in-substance fixed payments, less any lease incentives receivable;

^⚫ variable lease payments that depend on an index or a rate;

^⚫ the exercise price of a purchase option if the lessee is reasonably certain to exercise that option;

^⚫ payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease;

^⚫ amounts expected to be payable by the lessee under residual value guarantees.

In order to calculate the present value of the lease payments, interest rate implicit in the lease shall be used as the discount rate. If that rate cannot be readily determined, the Company shall use the incremental borrowing rate. The difference between the lease payments and its present value shall be recognized as unrecognized financing charges, calculated bases on the discount rate of the present value of the lease payments in each period within the lease term and recorded as interest expense in current profit or loss. Variable lease payments not included in the measurement of lease liabilities shall be recognized in current profit or loss when incurred.

After the commencement date, the Company shall remeasure the lease liability based on the revised present value of the lease payments and adjust the carrying amount of the right-of-use asset if there is a change in the in-substance fixed payments, or change in the amounts expected to be payable under a residual value guarantee, or change in an index or a rate used to determine lease payments, or change in the assessment or exercising of an option to purchase the underlying asset, or an option to extend or terminate the lease.

(4) The Company as a lessor

At the commencement date, the Company shall classify a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset, otherwise it shall be classified as an operating lease.

(i) Operating leases

The Company shall recognize lease payments from operating leases as income on a straight-line basis (or other systematic and reasonable approaches) over the term of the relevant lease and the initial direct costs incurred in obtaining an operating lease shall be capitalized and recognized as an expense over the lease term on the same basis as the lease income. The Company shall recognize the variable lease payments relating to the operating lease but not included in the measurement of the lease receivables into current profit or loss when incurred.

(ii) Finance leases

At the commencement date, the Company shall recognize the lease receivables at an account equal to the net investment in the lease (the sum of the present value of the unguaranteed residual values and the lease payment that are not received at the commencement date discounted at the interest rate implicit in the lease) and derecognize the asset relating to the finance lease. The Company shall recognize interest income using the interest rate implicit in the lease over the lease term.

The Company shall recognize the variable lease payments relating to the finance lease but not included in the measurement of the net investment in the lease into current profit or loss when incurred.

(5) Lease modifications

(i) A lease modification accounted for as a separate lease

The Company shall account for a modification to a lease as a separate lease, if both: A. The modification increases the scope of the lease by adding the right to use one or more underlying assets; B. The consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope.

(ii) A lease modification not accounted for as a separate lease

A. The Company as a lessee

At the effective date of the lease modification, the Company shall redetermine the lease term of the modified lease and remeasure the lease liability by discounting the revised lease payments using a revised discount rate. The revised discount rate is determined as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the incremental borrowing rate at the effective date of the modification, if the interest rate implicit in the lease cannot be readily determined.

The Company shall account for the remeasurement of the lease liability by:

^⚫ decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope of the lease or shorten the lease term.

The Company shall recognize in profit or loss any gain or loss relating to the partial or full termination of the lease.

^⚫ Making a corresponding adjustment to the carrying amount of the right-of-use asset for all other lease modifications.

B. The Company as a lessor

The Company shall account for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.

For a modification to a finance lease that is not accounted for as a separate lease, the Company shall account for the modification as follows:

if the lease would have been classified as an operating lease had the modification been in effect at the inception date, the Company shall account for the lease modification as a new lease from the effective date of the modification and measure the carrying amount of the underlying asset as the net investment in the lease immediately before the effective date of the lease modification;

^⚫ if the lease would have been classified as a finance lease had the modification been in effect at the inception date, the Company shall account for the lease modification according to the requirements in the modification or renegotiation of the contract.

(6) Sale and leaseback

The Company shall determine whether the transfer of an asset under the sale and leaseback transaction is a sale of that asset according to the policies in Note 3.27.

The Company as a seller (lessee)

If the transfer of the asset is not a sale, the Company shall continue to recognize the transferred asset and shall recognize a financial liability equal to the transfer proceeds. It shall account for the financial liability according to Note 3.10. If the transfer of the asset is a sale, the Company shall measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by the Company. Accordingly, the Company shall recognize only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.

The Company as a buyer (lessor)

If the transfer of the asset is not a sale, the Company shall not recognize the transferred asset and shall recognize a financial asset equal to the transfer proceeds. It shall account for the financial asset according to Note 3.10. If the transfer of the asset is a sale, the Company shall account for the purchase of the asset applying applicable Accounting Standards of Business Enterprises, and for the lease applying the lessor accounting requirements.

31. Changes in Significant Accounting Policies and Accounting Estimates

(1) Changes in accounting polices

□ Applicable ^ Not applicable

(2) Significant changes in accounting estimates

□ Applicable ^ Not applicable

(3) Adjustments to financial statement items at the beginning of the year of the first implementation of the new accounting standards implemented since 2026

□ Applicable ^ Not applicable

IV Taxation

1. Major Categories of Tax and Tax Rates Applicable to the Company

The basic income tax rate of the company is 25%, and the actual income tax rate of some subsidiaries is shown in the following table:

2. Tax Preference

(1) According to the relevant provisions of the Measures for the Administration of the Accreditation of High-tech Enterprises (GuoKeFaHuo [2016] No. 32) and the Guidelines for the Administration of the Certification of High-tech Enterprises (GuoKeFaHuo [2016] No. 195), the subsidiary Anhui Ruisiweier Technology Co., Ltd. was identified as one of the second batch of high-tech enterprises in Anhui Province in 2025, therefore was given High-tech Enterprise Certificate (Certificate Number: GR202534002124) which is valid for 3 years. According to Enterprise Income Tax Law and other relevant regulations, the company is subject to a national high-tech enterprise income tax rate at 15% for three years from January 1, 2025 to December 31, 2027.

(2) According to the relevant provisions of the Measures for the Administration of the Accreditation of High-tech Enterprises (GuoKeFaHuo [2016] No. 32) and the Guidelines for the Administration of the Certification of High-tech Enterprises (GuoKeFaHuo [2016] No. 195), the subsidiary Anhui Longrui Glass Co., Ltd. was identified as one of the first batch of high-tech enterprises in Anhui Province in 2025, therefore was given High-tech Enterprise Certificate (Certificate Number: GR202534000671) which is valid for 3 years. According to Enterprise Income Tax Law and other relevant regulations, the company is subject to a national high-tech enterprise income tax rate at 15% for three years from January 1, 2025 to December 31, 2027.

(3) According to the relevant provisions of the Measures for the Administration of the Accreditation of High-tech Enterprises (GuoKeFaHuo [2016] No. 32) and the Guidelines for the Administration of the Certification of High-tech Enterprises (GuoKeFaHuo [2016] No. 195), the subsidiary Anhui RunAnXinKe Testing Technology Co., Ltd. was identified as a high-tech enterprise in 2024, therefore was given High-tech Enterprise Certificate (Certificate Number: GR202434002657) which is valid for 3 years. According to Enterprise Income Tax Law and other relevant regulations, the company is subject to a national high-tech enterprise income tax rate at 15% for three years from January 1, 2024 to December 31, 2026. It is currently in the process of recertification, and until it passes the recertification, the corporate income tax is temporarily prepaid at a rate of 15%.

(4) According to the relevant provisions of the Measures for the Administration of the Accreditation of High-tech

Enterprises (GuoKeFaHuo [2016] No. 32) and the Guidelines for the Administration of the Certification of High-tech Enterprises (GuoKeFaHuo [2016] No. 195), the subsidiary Anhui Gujing Health Technology Co., Ltd. (“Health Technology”) has been recognized as a batch of high-tech enterprises in Anhui Province in 2024, and obtained the High-tech Enterprise Certificate (Certificate No.: GR202434002983) which is valid for 3 years. According to relevant regulations such as the Enterprise Income Tax Law, the Health Technology shall enjoy an income tax rate of 15% for national high-tech enterprises from January 1, 2024 to December 31, 2026.

(5) According to the relevant provisions of the document Announcement of the Ministry of Finance and the General Administration of Taxation No. 12 of 2023, from January 1, 2023 to December 31, 2027, the part of the annual taxable income of small and micro profit enterprises that does not exceed RMB3 million shall be included in the taxable income at a reduced rate of 25%. Pay corporate income tax at a rate of 20%. Huanggang Junya Trading Co., Ltd., Wuhan Gulou Juntai Trading Co., Ltd., Wuhan Juntai Trading Co., Ltd., Ezhou Junya Trading Co., Ltd., Bozhou Gujing Hotel Co., Ltd., Anhui Jiuan Mechanical Electrical Equipment Co., Ltd., Anhui Jiuhao Construction Engineering Co., Ltd., Anhui Gujing Light Wellness Club Supply Chain Management Co., Ltd., Anhui Gujinggong Liquor Original Vintage Theme Hotel Management Co., Ltd., and Anhui Guqi Distillery Sales Co., Ltd. comply with the relevant provisions of small low-profit enterprise income tax preferential policy.

V Notes to the Consolidated Financial Statements

1. Monetary Funds

At the end of June 2026, the bank deposits were used to pledge the bank acceptance bill of RMB1.24 billion, and the other restricted funds in the bank deposits were RMB9.7668 million. The other monetary funds as of the statement date included margin deposits not eligible for early redemption at RMB13.5178 million. Except for the pre-mentioned, monetary funds as of the end of June 2026 was not subject to limitation on usage such as pledging or freezing or risk on recovery.

Liquor manufacturing enterprises shall disclose whether there exists special interest arrangements such as establishing a joint fund account with related parties

□ Applicable ^ Not applicable

2. Financial Assets Held-for-trading

3. Accounts Receivable

(1) Disclosure by aging

(2) Disclosure by withdrawal method of bad debt provision

(i) Ending balance

(ii) Beginning balance

On June 30, 2026, accounts receivable with bad debt provision withdrawn by group 2

On January 1, 2026, accounts receivable with bad debt provision withdrawn by group 2

(3) Changes of bad debt provision during the Reporting Period

(4) Accounts receivable written off during the Reporting Period

Not applicable.

(5) Top five ending balances by entity

4. Accounts Receivable Financing

(1) Accounts receivable financing by category

(2) Pledged notes receivable at June 30, 2026

Not applicable.

(3) Notes receivable which were discounted or endorsed but not due at June 30, 2026

(4) Accounts receivable financing by loss allowance provision method

(Continued)

(5) Movement of impairment allowance

Not applicable.

(6) Notes receivable written off during the Reporting Period

Not applicable.

5. Prepayment

(1) Disclosure by aging

(2) Top five ending balances by entity

6. Other Receivables

(1) Listed by category

(2) Other receivables

(i) Disclosure by aging

(ii) Disclosure by nature

(iii) Disclosure by withdrawal method of bad debt provision

A. As of June 30, 2026, bad debt provision withdrawn based on three stages model:

A1. As of June 30, 2026, bad debt provision at stage 1:

On June 30, 2026, other receivables with bad debt provision withdrawn by group 2

B. As of January 1, 2026, bad debt provision withdrawn based on three stages model:

B1. On January 1, 2026, bad debt provision at stage 1:

On January 1, 2026, other receivables with bad debt provision withdrawn by group 2

(iv) Changes of bad debt provision during the Reporting Period

(v) Other receivables actually written off during the Reporting Period Not applicable.

(vi) Top five ending balances by entity

7. Inventories

(1) Category of inventories

(Continued)

(2) Falling price reserves of inventories

8. Other Current Assets

9. Long-term Equity Investments

(Continued)

10. Other Equity Instrument Investment

(Continued)

11. Investment Properties

(1) Investment property adopting cost measurement mode

12. Fixed Assets

(1) Listed by category

(2) Fixed assets

(i) General information of fixed assets